[Federal Register Volume 75, Number 72 (Thursday, April 15, 2010)]
[Rules and Regulations]
[Pages 19678-19826]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7966]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 417, 422, 423, and 480



Medicare Program; Policy and Technical Changes to the Medicare 
Advantage and the Medicare Prescription Drug Benefit Programs; Final 
Rule

  Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules 
and Regulations  

[[Page 19678]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, 423, and 480

[CMS-4085-F]
RIN 0938-AP77


Medicare Program; Policy and Technical Changes to the Medicare 
Advantage and the Medicare Prescription Drug Benefit Programs

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

ACTION: Final rule.

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SUMMARY: This final rule makes revisions to the regulations governing 
the Medicare Advantage (MA) program (Part C) and prescription drug 
benefit program (Part D) based on our continued experience in the 
administration of the Part C and D programs. The revisions strengthen 
various program participation and exit requirements; strengthen 
beneficiary protections; ensure that plan offerings to beneficiaries 
include meaningful differences; improve plan payment rules and 
processes; improve data collection for oversight and quality 
assessment, implement new policies and clarify existing program policy.

DATES: Effective Date: These regulations are effective on June 7, 2010. 
However, we note that because health and drug plans under the Part C 
and D programs operate under contracts with CMS that are applicable on 
a calendar year basis, the provisions will not be applicable prior to 
contract year January 1, 2011, except where otherwise noted.

FOR FURTHER INFORMATION CONTACT:
Alissa Deboy, (410) 786-6041, General information and Part D issues.
Sabrina Ahmed, (410) 786-7499, Part C issues.
Terry Lied, (410) 786-8973, Collection of information requirements and 
regulatory impact analysis issues.
Kristy Nishimoto, (410) 786-8517, Part C and D enrollment and appeals 
issues.
Jennifer Smith, (410) 786-2987, Part C and D compliance and sanction 
issues.
Frank Szeflinski, (303) 844-7119, Part C payment issues.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
    A. Overview of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003
    B. History and Overview
II. Provisions of the Proposed Rule and Analysis and Responses to 
Public Comments
    A. Changes to Strengthen Our Ability To Distinguish for Approval 
Stronger Applicants for Part C and D Program Participation and To 
Remove Consistently Poor Performers
    1. Require Notice of Intent to Apply Under Part C and D Within 
the Application Requirements (Sec.  422.501 and Sec.  423.502)
    2. Application Requirements (Sec.  422.501(c) and Sec.  
423.502(c)) and Evaluation and Determination Procedures for 
Determining Whether Applicants are Qualified for a Contract Under 
Parts C and D (Sec.  422.502 and Sec.  423.503)
    3. Deny Contract Qualification Applications Based on Past 
Contract Performance (Sec.  423.750 and Sec.  422.750)
    4. Use of Data to Evaluate Continued Ability to Act as a 
Qualified Sponsoring Organization Under Parts C and D (Sec.  
422.504, and Sec.  423.505)
    5. Compliance Programs Under Part C and D (Sec.  
422.503(b)(4)(vi) and Sec.  423.504(b)(4)(vi))
    6. Network Adequacy of Coordinated Care and Network-Based 
Private Fee-for-Service Plans Under Part C (Sec.  422.112)
    7. Deemable Program Requirements Under Parts C and D (Sec.  
422.156(b) (7), Sec.  422.156 (f), Sec.  423.165(b), and Sec.  
423.165(f))
    8. Modify the Corrective Action Plan (CAP) Process as it Relates 
to Procedures for Termination and Nonrenewal of a Part C or D 
Contract By CMS (Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  
423.507(b)(3), and Sec.  423.509(c)(1))
    9. Procedures for Imposing Intermediate Sanctions and Civil 
Money Penalties Under Part C and D (Sec.  422.756 and 423.756)
    10. Termination of Contracts Under Parts C and D (Sec.  
422.510(a) and Sec.  423.509(a))
    11. Request for Hearing Under Parts C and D (Sec.  422.662 and 
Sec.  423.651)
    12. Burden of Proof, Standard of Proof, Standard of Review and 
Conduct of Hearing (Sec.  422.660, Sec.  423.650, Sec.  422.676, and 
Sec.  423.658)
    13. Expedited Contract Terminations Procedures (Sec.  422.510, 
Sec.  423.509, Sec.  422.664, Sec.  423.652, Sec.  422.644, and 
Sec.  423.642) Under Parts C and D
    14. Time and Place of Hearing Under Parts C and D (Sec.  422.670 
and Sec.  423.655)
    15. Discovery Under Parts C and D (Sec.  422.682 and Sec.  
423.661)
    16. Review by the Administrator Under Parts C and D (Sec.  
422.692(a) and Sec.  423.666(a))
    17. Reopening of an Initial Contract Determination or Decision 
of a Hearing Officer or the Administrator Under Parts C and D (Sec.  
422.696 and Sec.  423.668)
    18. Prohibition of MA and Part D Applications for 2 Years after 
a Mutual Termination (Sec.  422.503(b)(6) and Sec.  423.504(b)(5))
    B. Changes to Strengthen Beneficiary Protections
    1. Broker and Agent Requirements Under Parts C and D
    2. Beneficiary Communications Materials Under Parts C and D 
(Sec.  422.2260, Sec.  423.2262, Sec.  423.2260, and Sec.  423.2262)
    3. Required Use of Standardized Model Materials Under Parts C 
and D (Sec.  422.2262 and Sec.  423.2262)
    4. Involuntary Disenrollment for Failure to Pay Plan Premiums 
Under Parts C and D (Sec.  422.74 and Sec.  423.44)
    5. Maximum Allowable Out-of-Pocket Cost Amount for Medicare 
Parts A and B Services (Sec.  422.100)
    6. Maximum Allowable Cost Sharing Amount for Medicare Parts A 
and B Services and Prescription Drugs (Sec.  422.100 and Sec.  
423.104)
    7. Prohibition on Prior Notification by PPO, PFFS, and MSA Plans 
Under Part C (Sec.  422.2, Sec.  422.4, and Sec.  422.105)
    8. Requirements for LIS Eligibility Under Part D (Sec.  423.773)
    9. Enrollment of Full Subsidy Eligible Individuals and Other 
Subsidy Eligible Individuals Under Part D (Sec.  423.34)
    10. Special Enrollment Periods Under Part D (Sec.  423.380)
    11. Transition Process Under Part D (Sec.  423.120(b)(3))
    12. Part D Sponsor Responsibility for Retroactive Claims 
Adjustment Reimbursements and Recoveries Under Part D (Sec.  
423.464)
    13. Time Limits for Coordination of Benefits (Sec.  423.466)
    14. Use of Standardized Technology Under Part D (Sec.  423.120)
    15. Absence from Service Area for More Than 12 Months Under Part 
D (Sec.  423.44)
    16. Prohibition of Mid Year Mass Enrollment Changes by SPAPS 
Under Part D (Sec.  423.464(e))
    17. Non-renewal Beneficiary Notification Requirement Under Parts 
C and D (Sec.  422.506 and Sec.  423.507)
    18. Notice of Alternative Medicare Plans Available to Replace 
Non-Renewing Plans Under Parts C and D (Sec.  422.506(a)(2)(ii) and 
Sec.  423.507(a)(2)(ii))
    19. Timeframes and Responsibilities for Making Redeterminations 
Under Part D (Sec.  423.590)
    20. Requirements for Requesting Organization Determinations 
Under Part C (Sec.  422.568)
    21. Organization Determinations Under Part C (Sec.  422.566 and 
Sec.  422.568)
    22. Representatives (Sec.  422.561, Sec.  422.574, and Sec.  
422.624)
    23. Disclosure Requirements Under Parts C and D (Sec.  
422.111(g) and Sec.  423.128(f))
    24. Definition of MA Plan Service Area (Sec.  422.2)
    C. Changes to Provide Plan Offerings With Meaningful Differences
    1. Meaningful Differences in Bid Submissions and Bid Review 
(Sec.  422.254, Sec.  423.265, Sec.  422.256, and 423.272)
    2. Transition Process in Cases of Acquisitions and Mergers 
(Sec.  422.256 and Sec.  423.272)
    3. Non-renewing Low-enrollment Plans (Sec.  422.506(b)(1)(iv) 
and Sec.  423.507(b)(1)(iii))
    4. Medicare Options Compare and Medicare Prescription Drug Plan 
Finder

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    D. Changes to Improve Payment Rules and Processes
    1. Definitions Related to Risk Adjustment Data Validation 
Appeals (Sec.  422.2) and Proposed Addition of Medicare Advantage 
Organization Risk Adjustment Data Validation--Dispute and Appeal 
Procedures (Sec.  422.311)
    2. Payments to Medicare Advantage Organizations--Certification 
of Actuarial Valuation (Sec.  422.254)
    3. Determination of Acceptable Administrative Cost by HMO/CMP 
Cost Contractors and Health Care Prepayment Plans (HCPPs) (Sec.  
417.564)
    4. Calculation of the Minimum Percentage Increase Under Part C 
(Sec.  422.306)
    E. Changes to Improve Data Collection for Oversight and Quality 
Assessment
    1. Requirements for Quality Improvement Programs Under Part C 
(Sec.  422.152, Sec.  422.153, and Sec.  480.140)
    a. Quality Improvement Programs
    b. New Quality Measures
    c. Use of Quality Improvement Organization Review Information
    2. CAHPS Survey Administration Under Parts C and D (Sec.  
417.472, Sec.  422.152, and Sec.  423.156)
    3. Validation of Part C and Part D Reporting Requirements (Sec.  
422.516 and Sec.  423.514)
    4. Collection of Additional Part D Claims' Elements for 
Nonpayment-Related Purposes (Sec.  423.505)
    F. Changes to Implement New Policy
    1. Protected Classes of Concern Under Part D (Sec.  
423.120(b)(2)(v))
    2. Pro-rating the Plan Deductible for Part C MSA Enrollments 
Occurring During an Initial Coverage Election Period (Sec.  422.103)
    G. Changes to Clarify Various Program Participation Requirements
    1. Uniform Benefits Under Parts C and D (Sec.  422.100(d) and 
Sec.  423.104))
    2. Ensuring the Security of Protected Health Information and 
Other Personally Identifiable Information (Sec.  422.504 and Sec.  
423.505)
    3. Requirement for Sponsoring Organizations Under Parts C and D 
to Report Other Payer Information to the Coordination of Benefits 
Contractor (Sec.  422.108 and Sec.  423.464)
    4. Visitor/Traveler Benefit Under Part C for the Purpose of 
Extending Enrollment Up to 12 Months (Sec.  422.74)
    5. Medication Therapy Management Programs Under Part D (Sec.  
423.153(d))
    6. Formulary Requirements--Development and Revision by a 
Pharmacy and Therapeutics Committee (Sec.  423.120)
    7. Generic Equivalent Disclosure Under Part D (Sec.  423.132)
    8. Access to Covered Part D drugs (Sec.  423.120)
    9. Standard Timeframe and Notice Requirements for Coverage 
Determinations Under Part D (Sec.  423.568)
    10. Expediting Certain Coverage Determinations (Sec.  423.570)
    11. Timeframes and Notice Requirements for Expedited Coverage 
Determinations (Sec.  423.572)
    12. Clarify Novation Agreements Under Part D (Sec.  423.551)
    13. Cost Contract Program Revisions: Appeals and Marketing 
Requirements (Sec.  417.428, Sec.  417.494, Sec.  417.500, and Sec.  
417.640)
    a. Cost Contract Determinations (Sec.  417.492 and 417.494), 
Civil Money Penalties (Sec.  417.500), and Intermediate Sanctions 
(Sec.  417.500)
    b. Extending MA Marketing Requirements to Cost Program Plans 
(Sec.  417.428)
    14. Out of Scope Comments
    H. Changes to Implement Corrections and Other Technical Changes
    1. Application of Subpart M to Health Care Prepayment Plans 
(Sec.  417.840)
    2. Generic Notice Delivery Requirements (Sec.  422.622 and 
422.626)
    3. Revision to Definition of Gross Covered Prescription Drug 
Costs (Sec.  423.308)
    4. Application Evaluation Procedures (Sec.  422.502(c and d) and 
Sec.  423.503(c and d))
    5. Intermediate Sanctions (Sec.  422.750(a) and Sec.  
423.750(a))
    6. Basis for Imposing Intermediate Sanctions and Civil Money 
Penalties (Sec.  422.752 and Sec.  423.752)
III. Provisions of the Final Rule
IV. Collection of Information Requirements
    A. ICRs Regarding Basic Contract Requirements (Sec.  417.472)
    B. ICRs Regarding Apportionment and Allocation of Administrative 
and General Costs (Sec.  417.564)
    C. ICRs Regarding Medicare Secondary Payer (MSP) Procedure 
(Sec.  422.108 and Sec.  423.462)
    D. ICRs Regarding Disclosure Requirements (Sec.  422.111)
    E. ICRs Regarding Quality Improvement Program (Sec.  422.152)
    F. ICRs Regarding Application Requirements (Sec.  422.501 and 
Sec.  423.502)
    G. ICRs Regarding General Provisions (Sec.  422.503 and Sec.  
423.504)
    H. ICRs Regarding Contract Provisions (Sec.  422.504 and 
423.505)
    I. ICRs Regarding Nonrenewal of Contract (Sec.  422.506 and 
Sec.  423.507)
    J. ICRs Regarding Request for Hearing (Sec.  422.662 and Sec.  
423.651)
    K. ICRs Regarding Time and Place of Hearing (Sec.  422.670 and 
Sec.  423.655)
    L. ICRs Regarding Review by the Administrator (Sec.  422.692 and 
Sec.  423.666)
    M. ICRs Regarding Procedures for Imposing Intermediate Sanctions 
and Civil Monetary Penalties (Sec.  422.756 and Sec.  423.756)
    N. ICRs Regarding Disclosure of Part D Plan Information (Sec.  
423.128)
    O. ICRs Regarding Consumer Satisfaction Surveys (Sec.  423.156)
    P. ICRs Regarding Validation of Part C and Part D Reporting 
Requirements (Sec.  422.516 and Sec.  423.514)
    Q. ICRs Regarding Drug Utilization Management, Quality 
Assurance, and Medication Therapy Management Programs (MTMPs) (Sec.  
423.153)
    R. ICRs Regarding Timeframes and Notice Requirements for 
Standard Coverage Determinations (Sec.  423.568)
    S. ICRs Regarding Timeframes and Notice Requirements for 
Expedited Coverage Determinations (Sec.  423.572)
    T. ICRs Regarding Access to Covered Part D Drugs (Sec.  423.120)
    U. ICRs Regarding Timeframes and Responsibility for Making 
Redeterminations (Sec.  423.590)
    V. Annual Information Collection Burden
V. Regulatory Impact Analysis
    A. Need for Regulatory Action
    B. Overall Impact
    C. Increase in Costs to MA Organizations and Part D Sponsors
    D. Expected Benefits
    E. Anticipated Effects--Effects of Cap on Out-of-Pocket Costs 
and Cost Sharing Amounts
    F. Alternatives Considered
    1. Strengthening CMS' Ability to Take Timely, Effective Contract 
Determinations or Intermediate Sanctions (Part C & D)
    2. Changing the Standards of Review, Clarifying the Standard of 
Proof and Burden of Proof for Appeals, and Modifying the Conduct of 
Hearing for Contract Decisions (Including Denials of Initial 
Applications to Contract, Service Area Expansions for Existing 
Contracts, Contract Non-Renewals and Terminations, and Intermediate 
Sanctions)
    3. Clarify That CMS May Require a ``Test Period'' During an 
Enrollment/Marketing Sanction
    4. Right for CMS to Require an Independent Audit of Sponsoring 
Organizations under Intermediate Sanction
    5. The Ability for CMS to Require Sponsors to Disclose To 
Current and Potential Enrollees Compliance and Performance 
Deficiencies
    6. Reducing Duplicative and Low Enrollment Plans (Parts C & D)
    7. Validation of Part C and Part D Reporting Requirements
    G. Accounting Statement
    H. Conclusion
    Regulations Text

Acronyms

AO Accrediting Organization
ADS Dispensing System
AEP Annual Enrollment Period
AHFS American Hospital Formulary Service
AHFS-DI American Hospital Formulary Service--Drug Information
AHRQ Agency for Health Care Research and Quality
ALJ Administrative Law Judge
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA [Medicare, Medicaid and State Child Health Insurance Program] 
Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection 
Act of 2000 (Pub. L. 106-554)
CAHPS Consumer Assessment Health Providers Survey
CAP Corrective Action Plan
CCIP Chronic Care Improvement Program
CCS Certified Coding Specialist
CMR Comprehensive Medical Review
CMP Civil Money Penalties

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CMR Comprehensive Medical Review
CMS Centers for Medicare & Medicaid Services
CMS-HCC CMS Hierarchal Condition Category
CTM Complaints Tracking Module
COB Coordination of Benefits
CORF Comprehensive Outpatient Rehabilitation Facility
CPC Certified Professional Coder
CY Calendar year
DOL U.S. Department of Labor
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)
EGWP Employer Group/Union-Sponsored Waiver Plan
EOB Explanation of Benefits
ESRD End-stage renal disease
FACA Federal Advisory Committee Act
FDA Food and Drug Administration (HHS)
FEHBP Federal Employees Health Benefits Plan
FFS Fee-For-Service
FY Fiscal year
GAO General Accounting Office
HCPP Health Care Prepayment Plans
HEDIS HealthCare Effectiveness Data and Information Set
HHS [U.S. Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HMO Health Maintenance Organization
HOS Health Outcome Survey
HPMS Health Plan Management System
ICD-9-CM Internal Classification of Disease, 9th, Clinical 
Modification Guidelines
ICEP Initial Coverage Enrollment Period
ICL Initial Coverage Limit
ICR Information Collection Requirement
IVC Initial Validation Contractor
LEP Late Enrollment Penalty
LIS Low Income Subsidy
LTC Long Term Care
LTCF Long Term Care Facility
MA Medicare Advantage
MAAA American Academy of Actuaries
MAO Medicare Advantage Operations
MA-PD Medicare Advantage-Prescription Drug Plans
M+C Medicare+Choice program
MPDPF Medicare Prescription Drug Plan Finder
MIPPA Medicare Improvements for Patients and Providers Act of 2008
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MSA Metropolitan statistical area
MSAs Medical Savings Accounts
MSP Medicare Secondary Payer
MTM Medication Therapy Management
MTMP Medication Therapy Management Programs
NAIC National Association Insurance Commissioners
NCPDP National Council for Prescription Drug Programs
NGC National Guideline Clearinghouse
NIH National Institutes of Health
NOMNC Notice of Medicare Non-coverage
OEP Open Enrollment Period
OIG Office of Inspector General
OMB Office of Management and Budget
OPM Office of Personnel Management
OTC Over the Counter
PART C Medicare Advantage
PART D Medicare Prescription Drug Benefit Programs
PPACA Patient Protection and Affordable Care Act (Pub. L. 111-148)
PBM Pharmacy Benefit Manager
PDE Prescription Drug Event
PDP Prescription drug plan
PFFS Private Fee For Service Plan
POS Point of service
PPO Preferred Provider Organization
PPS Prospective Payment System
P&T Pharmacy & Therapeutics
QIO Quality Improvement Organization
QRS Quality Review Study
PACE Programs of All Inclusive Care for the Elderly
RADV Risk Adjustment Data Validation
RAPS Risk Adjustment Payment System
RHIA Registered Health Information Administrator
RHIT Registered Health Information Technician
SCHIP State Children's Health Insurance Programs
SEP Special Enrollment Periods
SHIP State Health Insurance Assistance Programs
SNF Skilled Nursing Facility
SNP Special Needs Plan
SPAP State Pharmaceutical Assistance Programs
SSI Supplemental Security Income
TrOOP True Out Of Pocket
U&C Usual and Customary
USP U.S. Pharmacopoeia

SUPPLEMENTARY INFORMATION: 

I. Background

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

    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) (Pub. L. 108-173) was enacted on December 8, 2003. The 
MMA established the Part D program and made revisions to the provisions 
in Part C of the Medicare statute governing the Medicare Advantage (MA) 
program. The MMA directed that important aspects of the new Medicare 
prescription drug benefit program under Part D be similar to and 
coordinated with regulations for the MA program.
    Generally, the provisions enacted in the MMA took effect January 1, 
2006. The final rules for the MA and Part D prescription drug programs 
appeared in the Federal Register on January 28, 2005 (70 FR 4588-4741 
and 70 FR 4194-4585, respectively). While the provisions of the final 
rule did not govern plan payment or benefits until January 1, 2006, 
given the fact that provisions relating to applications, marketing, 
contracts, and the new bidding process for the MA and Part D programs, 
many provisions in these final rules became effective on March 22, 
2005, 60 days after publication of the rule.
    As we have gained experience with the MA program and the 
prescription drug benefit program, we periodically have revised the 
Part C and D regulations to continue to improve or clarify existing 
policies and/or codify current guidance for both programs. For example, 
in December 2007, we published a final rule with comment on contract 
determinations involving Medicare Advantage (MA) organizations and 
Medicare Part D prescription drug plan sponsors (72 FR 68700). In April 
2008, we published a final rule to address policy and technical changes 
to the Part D program (73 FR 20486). In September 2008 and January 
2009, we finalized revisions to both the Medicare Advantage and 
prescription drug benefit programs (73 FR 54226 and 74 FR 1494, 
respectively) to implement provisions in the Medicare Improvement for 
Patients and Providers Act (MIPPA) (Pub. L. 110-275), which contained 
provisions impacting both the Medicare Part C and D programs, and make 
other policy clarifications based on experience with both programs (73 
FR 54208, 73 FR 54226, and 74 FR 2881).

B. History and Overview

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established 
a new ``Part C'' in the Medicare statute (sections 1851 through 1859 of 
the Social Security Act (the Act) which provided for what was then 
called the Medicare+Choice (M+C) program. Under section 1851(a)(1) of 
the Act, every individual entitled to Medicare Part A and enrolled 
under Medicare Part B, except for most 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 he 
or she lived. The primary goal of the M+C program was to provide 
Medicare beneficiaries with a wider range of health plan choices. The 
M+C provisions in Part C were amended by the Medicare, Medicaid, and 
SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-111), 
and further amended by the Medicare, Medicaid, and State Children's 
Health Insurance Program SCHIP) Benefits Improvement Act of 2000 (BIPA) 
(Pub. L. 106-554).
    As discussed above, the MMA, enacted on December 8, 2003, added a 
new ``Part D'' to the Medicare statute (sections 1860D-1 through 42 of 
the Act) creating the Medicare Prescription Drug Benefit Program, and 
made significant changes to the M+C program.

[[Page 19681]]

    Also as noted above, MIPPA, enacted on July 15, 2008, addressed a 
number of provisions impacting the Part C and D programs, including 
provisions impacting marketing under both programs which were 
implemented in regulations published in the Federal Register on 
September 18, 2008 (73 FR 54208), a final rule effective October 1, 
2008, that paralleled provisions in MIPPA, and in the same issue of the 
Federal Register (73 FR 54226), a separate interim final rule that 
addressed the other provisions of MIPPA affecting the MA and Part D 
programs. We also clarified the MIPPA marketing provisions in a 
November 2008 interim final rule (73 FR 67407 and issued a separate 
interim final rule in January 2009 to address MIPPA provisions related 
to Part D plan formularies (74 FR 2881).
    In October 22, 2009 Federal Register (74 FR 54634), we published a 
proposed rule (file code CMS-4085-P), hereinafter referred to as the 
October 22, 2009 proposed rule) addressing additional policy 
clarifications under the Part C and D programs. As noted when issuing 
this proposed rule, we believe that additional programmatic and 
operational changes are needed in order to further improve our 
oversight and management of the Part C and D programs and to further 
improve beneficiary experience under MA or Part D plans.
    Indeed, one of the primary reasons set forth in the preamble for 
issuing the October 22, 2009 proposed rule was to address beneficiary 
concerns associated with the annual task of selecting one plan from so 
many options. We noted that while it is clear that the Medicare Part D 
program has improved access to drug coverage for elderly and offered 
beneficiaries a wide range of plans from which to choose, some have 
suggested that a significant numbers of beneficiaries are confused by 
the array of choices and find it difficult to make enrollment decisions 
that are best for them. Moreover, experience has shown that 
organizations submitting bids under Part C and D to offer multiple 
plans have not consistently submitted plan benefit designs that were 
significantly different from each other, which can add to beneficiary 
confusion. In this rule, we finalize a number of proposals to the way 
we administer the Part C and D programs to promote beneficiaries making 
the best plan choice that suits their needs. Although we believe these 
provisions will go a long way to further that goal, we are committed to 
additional explorations of ways to structure choices for seniors to aid 
them in making better plan choices, and will continue to evaluate 
program changes in this area.
    We also proposed additional provisions aimed at strengthening 
existing beneficiary protections, improving payment rules and 
processes, enhancing our ability to pursue data collection for 
oversight and quality assessment, strengthening formulary policy, and 
finalizing a number of clarifications and technical corrections to 
existing policy. Except as noted or otherwise modified, we finalize 
these requirements in this rule.
    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and 
requires the Secretary, in consultation with the Director of the Office 
of Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
902 of the MMA also states that the timelines for these regulations may 
vary but shall not exceed 3 years after publication of the preceding 
proposed or interim final regulation except under exceptional 
circumstances.
    This final rule has been published within the 3-year time limit 
imposed by section 902 of the MMA, and thus is in accordance with the 
Congress' intent to ensure timely publication of final regulations.
    On March 23, 2010, the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) was enacted. Several provisions of this public law 
affect the Part C and D programs. In sections II.B. and II.F. of this 
final rule, we provide a discussion of the effects of two of these 
provisions on our proposed policies regarding MA cost sharing and 
``protected classes'' of drugs under Part D, respectively.

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

    We received approximately 114 items of timely correspondence 
containing comments on the October 22, 2009 proposed rule. Commenters 
included health and drug plan organizations, insurance industry trade 
groups, pharmacy associations, pharmaceutical benefit manager (PBM) 
organizations, provider associations, representatives of hospital and 
long term care institutions, drug manufacturers, mental health and 
disease specific advocacy groups, beneficiary advocacy groups, 
researchers, and others.
    In this final rule, we address all timely comments and concerns on 
the policies included in the proposed rule. We note that there were 
several comments submitted that were outside the scope of the proposals 
set forth in the proposed rule and, as such, we do not address them 
within this final rule. Generally, the commenters supported our efforts 
to improve plan offerings by the same sponsor that are meaningfully 
different from each other in order to support improved beneficiary 
decision making and our efforts to clarify and codify existing policy 
through rulemaking.

A. Changes to Strengthen Our Ability To Distinguish for Approval Strong 
Applicants for Part C and D Program Participation and To Remove 
Consistently Poor Performers

    This section finalizes a number of proposed revisions designed to 
strengthen our ability to approve strong applicants and remove poor 
performers in the Part C and D programs. Since the implementation of 
revisions to the MA and initial implementation of the prescription drug 
programs in January 2006, we have steadily enhanced our ability to 
measure MAO and PDP sponsor performance through efforts such as the 
analysis of data provided routinely by sponsors and by our contractors, 
regular review of beneficiary complaints, marketing surveillance 
activities, and routine audits. This information, combined with 
feedback we have received from beneficiary satisfaction surveys, HEDIS 
data, and information from MAOs and PDP sponsors themselves, has 
enabled us to develop a clearer sense of what constitutes a successful 
Medicare organization capable of providing quality Part C and D 
services to beneficiaries. Additionally, this information has also 
allowed us to identify and take appropriate action against 
organizations that are not meeting program requirements and not meeting 
the needs of beneficiaries.
    As set forth below, we are finalizing changes and clarifications to 
our regulations to make certain that all current and potential MAOs and 
PDP sponsors clearly understand and can reasonably anticipate how we 
measure sponsor performance, determine when there is noncompliance, and 
when enforcement actions are warranted.
    These provisions are described in detail in Table 1.

[[Page 19682]]



         Table 1--Provisions Strengthening Our Ability To Distinguish for Approval Strong Applicants and To Remove Consistently Poor Performers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Part 422                                                  Part 423
             Provision              --------------------------------------------------------------------------------------------------------------------
                                             Subpart                      Section                       Subpart                      Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notice of Intent to Apply..........  Subpart K.............  Sec.   422.501...................  Subpart K.............  Sec.   423.502.
Application Standards..............  Subpart K.............  Sec.   422.502...................  Subpart K.............  Sec.   423.503.
Compliance Measures/Analysis.......  Subpart K.............  Sec.   422.502...................  Subpart K.............  Sec.   423.503.
Compliance Programs................  Subpart K.............  Sec.   422.503(b)(4)(vi).........  Subpart K.............  Sec.   423.504(b)(4)(vi).
Network Adequacy of Coordinated      Subpart C.............  Sec.   422.112...................  N/A...................  N/A.
 Care and Network-Based Private-Fee-
 For-Service plans under Part C.
Clarify programmatic elements that   Subpart D.............  Sec.   422.156(b)(7), Sec.         Subpart D.............  Sec.   423.165(b), Sec.
 are ``deemable''.                                            422.156(f).                                                423.165(f).
Procedures for termination and       Subpart K.............  Sec.   422.510(c)(1), Sec.         Subpart K.............  Sec.   423.509(c)(1), Sec.
 Nonrenewals: Part C and D.                                   422.506(b)(3).                                             423.507(b)(3).
Intermediate Sanctions: procedures   Subpart O.............  Sec.   422.756...................  Subpart O.............  Sec.   423.756.
 for imposing civil and money
 penalties.
Contract Termination...............  Subpart K.............  Sec.   422.510(a)................  Subpart K.............  Sec.   423.509(a).
Proper request for hearings........  Subpart N.............  Sec.   422.662...................  Subpart N.............  Sec.   423.651.
Burden of Proof, Standard of Proof,  Subpart N.............  Sec.   422.660, Sec.   422.676(d)  Subpart N.............  Sec.   423.650, Sec.
 Standard of Review and Conduct of                                                                                       423.658(d).
 Hearing.
Postponement of effective date of    Subpart N.............  Sec.   422.664...................  Subpart N.............  Sec.   423.652.
 determination when a request is
 being filed.
Extending timeframe for contract     Subpart N.............  Sec.   422.670...................  Subpart N.............  Sec.   423.655.
 determination hearings.
Appeal times: require each party     Subpart N.............  Sec.   422.682...................  Subpart N.............  Sec.   423.661.
 provide witness list and documents
 5 calendar days before hearing.
Appeal times: require request for a  Subpart N.............  Sec.   422.692(a)................  Subpart N.............  Sec.   423.666(a).
 review by the administrator must    Sec.   422.692(a).....
 be received with 15 days after
 receipt of hearing decision.
Contract redeterminations and        Subpart N.............  Sec.   422.696...................  Subpart N.............  Sec.   423.668.
 reopening.
Mutual termination of contract.....  Subpart K.............  Sec.   422.503(b)(6).............  Subpart K.............  Sec.   423.504(b)(6).
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Require Notice of Intent To Apply Under Part C and D Within the 
Application Requirements (Sec.  422.501 and Sec.  423.502)
    Under the authority of section 1871(a)(1) of the Act, which 
authorizes us to prescribe such regulations as may be necessary to 
carry out the administration of the Medicare program, we proposed an 
administrative requirement in the October 22, 2009 proposed rule for 
both the Part C and D programs related to the application submission to 
qualify as MA and PDP sponsor contractors. We specifically proposed in 
Sec.  422.501 and Sec.  423.502 to codify our existing guidance that 
initial applicants and existing contractors seeking to expand complete 
a nonbinding Notice of Intent to Apply.
    We noted that as a result of the fully electronic submission 
process and restrictions on access to the CMS Health Plan Management 
System (HPMS), every applicant must complete a Notice of Intent to 
Apply as described in the HPMS memo dated October 10, 2008. This 
includes both initial applicants and current contractors seeking to 
expand their organizations' service area and current contractors adding 
a Special Needs Plan (SNP) or an Employer Group/Union-Sponsored Waiver 
Plan (EGWP) to their existing contract.
    We also noted that submitting a Notice of Intent to Apply does not 
bind that organization to submit an application for the following year. 
However, without a pending contract number and completed CMS User ID 
connectivity, an organization will not be able to access the 
appropriate modules in HPMS to complete the application materials.
    In this final rule, we address comments received and finalize this 
provision with modification. As explained below, we modified Sec.  
422.503(b)(2) and Sec.  423.502 (b)(2) to clearly indicate that the 
decision not to submit an application after submission of a notice of 
intent will not result in any compliance consequences.
    Comment: Several commenters supported this provision.
    Response: We appreciate the commenters support of our proposal.
    Comment: Some commenters were concerned about the due date of the 
Notice of Intent to Apply and wanted exceptions to allow CMS the 
flexibility to accept notice of intent after the due date. Some 
commenters were particularly concerned about special need plans offered 
in conjunction with Medicaid. Commenters also urged CMS to provide 
organizations adequate time to make the decision whether to apply and 
stated that some organizations may not consider submitting an 
application at the time notices are due.
    Response: As stated in the proposed regulation at Sec.  
422.503(b)(2) and Sec.  423.503(b)(2), the Notice of Intent to Apply 
does not bind the organization to submit an application. For this 
reason, we do not believe it is necessary to be flexible with the due 
date of the notice of intent. Organizations are free to submit a Notice 
of Intent to Apply and then consider whether or not to submit an 
application without risking any negative consequences from CMS. We also 
believe that the notice of intent requirement will benefit applicants 
as it will serve as a 3-month advance reminder to begin preparation for 
their submission. We anticipate that the additional lead time will 
result in more successful applications.
    Comment: One commenter questioned whether the three month lead time 
is necessary, particularly for existing sponsors, to ensure timely 
connectivity to CMS systems.
    Response: Our preparation for the receipt of applications is a 
process that can take up to 3 months. We encourage interested parties 
to see the October 2, 2009 HPMS memo for an example of the timeline 
from submission of the Notice of Intent to Apply to the application 
submission.
    Comment: One commenter wanted CMS to add language indicating that 
for those notices of intent that do not result in the submission of an 
application, lack of submission would not be considered as part of any 
punitive evaluation.
    Response: As we stated in the October 2009 proposed rule, the 
Notice of Intent

[[Page 19683]]

to Apply does not bind the organization to submit an application. We 
want to make clear that the submission of a notice of intent without a 
subsequent application submission would present no risk of reprimand or 
sanction by us. For this reason, we are modifying Sec.  422.503(b) and 
Sec.  423.502 (b) to clearly indicate that the decision not to submit 
an application after submission of a notice of intent will not result 
in any compliance consequences.
2. Application Requirements (Sec.  422.501 (c) and Sec.  423.502 (c)) 
and Evaluation and Determination Procedures for Determining Whether 
Applicants Are Qualified for a Contract Under Parts C and D (Sec.  
422.502 and Sec.  423.503)
    In the October 2009 proposed rule, we proposed a single 
clarification that applies to both MA organizations and Part D sponsors 
related to our application evaluation procedures and appeals of our 
determinations regarding applications. At Sec.  422.502 and Sec.  
423.503, we specifically proposed to make explicit that we will approve 
only those applications that demonstrate that they meet all (not 
substantially all) Part C and D program requirements.
    We noted that the application process under Part C and D requires 
an applicant to submit for our review a combination of attestations 
that it will comply with stated program requirements, as well as submit 
contracts with organizations the applicant has contracted with to 
perform key Part C or D functions, evidence of the applicant's risk-
bearing licenses, and data documenting that the applicant can provide 
its members access to Part C and D services consistent with the 
programs' requirements. We proposed at Sec.  422.501(c)(1) and (2), 
Sec.  422.502(a)(2), Sec.  423.502(c)(1) and (2), and Sec.  
423.503(a)(2) to require that applicants demonstrate that they meet all 
requirements outlined in the MA organization and Part D sponsor 
applications.
    We simplified the application evaluation process under Sec.  
422.502(a)(1) and Sec.  423.503(a)(1) by limiting the evaluation of an 
entity's application to information contained in the application and 
any additional information that we obtain through onsite visits. As we 
noted in the proposed rule, limiting our review to this information 
ensures that we will afford all applicants (numbering in the hundreds 
each of the last 4 years) a fair and consistent review of their 
qualifications. Organizations can be assured that we will not consider 
additional sources of information regarding one applicant's 
qualifications that we do not consider for others.
    We also proposed to clarify our authority to decline to consider 
application materials submitted after the expiration of the 10-day 
period following our issuance of a notice of intent to deny an 
organization's contract qualification application. We clarified Sec.  
422.502(c)(2) and Sec.  423.503(c)(2) by proposing to add a new 
paragraph (iii) to establish that if we do not receive a revised 
application within 10 days from the date of the intent to deny notice, 
or if after timely submission of a revised application the applicant 
still appears unqualified to contract as an MA organization or Part D 
sponsor or has not provided enough information to allow us to evaluate 
the application, we will deny the application.
    Further, we noted that consistent with the revisions to Sec.  
422.650(b)(2) and Sec.  423.660(b)(2), which are discussed elsewhere in 
this final rule, the applicant would not be permitted to submit 
additional revised application material to the Hearing Officer for 
review should the applicant elect to appeal the denial of its 
application. Allowing for such a submission and review of such 
information as part of the hearing would, in effect, extend the 
deadline for submitting an approvable application. In this final rule, 
we adopt these provisions as proposed. Comment: A number of commenters 
expressed support for all areas of this provision.
    Response: We appreciate the commenters support of our proposal.
    Comment: Many commenters urged CMS to be flexible and allow for 
unique circumstances. Several commenters noted that SNPs have only 
limited ability to influence the terms and timelines that State 
Medicaid agencies follow in executing the SNP agreements.
    Response: We design our solicitations to ensure that all 
organizations have a fair opportunity to demonstrate their 
qualifications for an MA or PDP contract. As noted in the preamble to 
the October 2009 proposed rule, allowing exceptions to requirements to 
address unique circumstances would undermine the need for a uniform 
application process applied fairly to all applicants. With respect to 
Medicaid agency contracts, we may require that organizations submit 
those documents as part of an application to qualify to offer a SNP 
plan. When we include that requirement in a particular year's SNP 
application, we have determined that organizations can reasonably be 
expected to obtain the executed agreements in time for us to determine 
that it is qualified to operate a SNP during the coming contract year. 
We do not anticipate the need to provide any flexibility on this 
particular matter.
    Comment: One commenter stated that the ``all'' standard is not 
practical given that there is not a narrative of requirements in the 
applications, but a series of attestations and tables (with detailed 
requirements stated in regulations and CMS subregulatory guidance).
    Response: We believe the ``all'' standard is practical. Applicants 
receive enough information to successfully apply and are given two 
opportunities with instructions to cure deficiencies. While we advise 
that applicants should be familiar with Part C and D program 
regulations and guidance, in most instances they are not required to 
describe how their organization will meet a requirement; rather they 
simply attest that they will meet the requirement. Therefore, an 
explanation of all the program requirements in the application is not 
necessary for organizations to submit successful Part C or D 
applications to us.
    Comment: Several commenters stated that CMS has been unclear in its 
previous deficiency responses to applicants and that it has been 
difficult to obtain guidance from CMS. Commenters urged CMS to provide 
clear rules and be consistent. In light of the inconsistencies with 
which applications are reviewed, one commenter recommended using a 
standard that emphasizes the materiality of the requirements that 
sponsors must meet.
    Response: We agree that in order for applicants to have a 
consistent understanding of the expectations on which we base our 
contract approval and denials, we must ensure the clarity and 
transparency of the program requirements and review criteria. 
Applicants receive up to three communications which explain our 
application requirements and provide clear instructions on how to be a 
successful applicant. Organizations that fail to completely and 
accurately apply receive a courtesy e-mail explaining the deficiencies 
and are given an opportunity to cure. Organizations that are still 
deficient after the initial opportunity to cure receive a notice of 
intent to deny and are given another opportunity to cure. All 
application communications include contact information for CMS subject 
matter specialists. We are always willing to work with applicants to 
ensure a complete understanding of program and contracting 
requirements.
    Comment: One commenter stated that the applicants that have 
disagreed with CMS' network adequacy determinations have been reluctant 
to seek re-

[[Page 19684]]

evaluation of their network adequacy in specific counties because of 
the possibility that CMS will confirm its original finding and deny the 
entire application. A denial of one county in one state could result in 
the denial of an entire application. To address this problem, the 
commenter recommended that CMS revise its policy to provide that an 
applicant for a network-based plan or service area expansion (SAE) may 
drop a county or portion of its service area that has been identified 
in the intent to deny notice after receiving CMS' final decision based 
upon the additional information submitted by the organization.
    Response: We afford sponsors multiple opportunities during the 
application review process for applicants to modify their proposed 
service area. However, when we conduct our final review of an 
application prior to the issuance of a notice of intent to deny, we 
must make the reasonable assumption, for the sake of consistency, that 
the applicant seeks approval for its entire proposed service area, not 
some portion that the applicant will identify at a later date. 
Therefore, we will not allow applicants to modify their service areas 
after they have received a final notice of denial of their application 
from us.
    Comment: One commenter recommended that CMS explicitly provide in 
the regulation for a process to permit applicants to cure deficiencies 
identified by CMS subsequent to the issuance of the notice of intent to 
deny; and that if such an opportunity is not provided, CMS should base 
any denial notice only on issues raised in the notice of intent to deny 
and not on deficiencies that are identified later in the application 
review process.
    Response: When we have discovered a deficiency after we have issued 
a notice of intent to deny, we have not disapproved that application 
based on the failure to correct the new deficiency. Rather, we approve 
the application (assuming all corrections have been made based on 
deficiencies identified in the Notice of Intent to Deny), but 
communicate to the applicant that the newly identified deficiency must 
be corrected prior to executing a Medicare contract. If the issue is 
not so corrected, it immediately becomes the subject of a CMS contract 
compliance action.
    Comment: One commenter requested that we clarify the type of 
information gained via the onsite visits and how this information will 
be used in evaluation of applications.
    Response: We clarify, that we limit our application reviews (with 
the exception of the past performance analysis) to the materials 
organizations submit in response to the annual solicitations. We would 
also make clear that we retain our authority to conduct site visits to 
conduct compliance and monitoring activities.
    Comment: One commenter noted that it would be beneficial to 
sponsors if CMS provided a tool that allows sponsors to self-determine 
network adequacy. The commenter stated that the CMS network adequacy 
standards are subject to reviewer discretion and stated that this 
ambiguity is unfair when the sponsor must identify, negotiate, and 
complete contract terms, sometimes with multiple entities, within a 10-
day period.
    Response: We have developed standardized network criteria and an 
automated review process that we will use, starting with the contract 
year 2011 application cycle, to review network adequacy. Applicants may 
request exceptions where they do not meet the standardized criteria for 
individual provider types in individual counties under limited, defined 
circumstances. We believe these changes will increase the consistency 
and transparency of network reviews.
3. Deny Contract Qualification Applications Based on Past Contract 
Performance (Sec.  422.750 and Sec.  423.750)
    As described in the existing provisions at Sec.  422.502(b) and 
Sec.  423.503(b), we may deny an application based on the applicant's 
failure to comply with the terms of a prior contract with CMS even if 
the applicant currently meets all of the application requirements. In 
the October 22, 2009 proposed rule, we proposed to modify these 
provisions at Sec.  422.502(b) and Sec.  423.503(b) to clarify that we 
will review past performance across any and all of the contracts held 
by the applicant, by specifically revising the language to refer to 
``any current or prior contract'' held by the organization, instead of 
the current language referring to a ``previous year's contract.'' We 
also clarified that the period that will be examined for past 
performance problems will be limited to those identified by us during 
the 14 months prior to the date by which organizations must submit 
contract qualification applications to CMS. Fourteen months covers the 
time period from the start of the previous contract year through the 
time that applications are received for the next contract year.
    In making these proposed changes, we noted that indicia of 
performance deficiencies that might lead us to conclude that an 
organization has failed to comply with a current or prior contract 
include, but are not limited to, poor performance ratings as displayed 
on the Medicare Options Compare and MPDPF Web sites; receipt of 
requests for corrective action plans (CAPs) unrelated to an audit (as 
these types of CAPs generally involve direct beneficiary harm); and 
receipt of one or more other types of noncompliance notices from CMS 
(for example, notices of noncompliance or warning letters).
    Additionally, consistent with the proposed changes to Sec.  
422.503(b), Sec.  422.508(c), Sec.  423.504(b), and Sec.  423.508(e), 
we indicated that the withdrawal of Part C or D operations from some or 
all of an organization's newly contracted service area prior to the 
start of a benefit year (through mutual termination or otherwise) is an 
indication of poor performance. Such a situation can arise when, for 
example, an organization, after it has signed its Medicare contract for 
the upcoming program year, loses a contract with a significant number 
or type of providers, jeopardizing its ability to provide its members 
adequate access to services. Also, an organization may suddenly face 
financial difficulties that threaten its ability to offer the benefit 
packages approved by us throughout the upcoming contract year. In such 
instances, we noted that we could simply leave the contract in place 
and take enforcement actions against the organization. However, under 
such an approach, we would knowingly be permitting beneficiaries to 
remain enrolled with an organization that cannot effectively deliver 
the benefit. Instead, we indicated our preference to act in the best 
interests of the beneficiaries by agreeing with the organization to 
terminate its contract and work with the organization to make certain 
that beneficiaries receive uninterrupted access to Medicare services 
through another MA organization, PDP sponsor, or original Medicare. We 
are adopting these proposed changes without further modification in 
this final rule.
    Comment: Several commenters expressed their support for our use of 
the past performance review authority to ensure that underperforming 
sponsors are not permitted to expand their participation in the Part C 
and D programs.
    Response: We appreciate the commenters' support.
    Comment: Several commenters requested that CMS more clearly 
articulate the methodology it will apply to past performance reviews 
conducted under this regulatory provision. For example, commenters were 
interested in knowing the relative weights CMS will

[[Page 19685]]

be assigning to different types of compliance actions (such as, 
corrective action plan requests, warning letters) and whether we will 
afford organizations the opportunity to correct deficiencies before CMS 
makes past performance determinations.
    Response: We expect to make past performance methodology available 
through publication in our manuals. We believe that the manuals provide 
us and sponsors with the best available avenue for providing such 
detailed information and making updates to it as we continue to gain 
more experience with conducting past performance analysis. Given that, 
we note that the information on which we will base our past performance 
analysis has already been made available to organizations. For example, 
at any time an organization can review its own record of compliance 
correspondence received from us to get a sense of the degree to which 
the organization should be concerned about the likelihood that CMS 
would deny an application for a new contract.
    We believe that questions regarding corrective action opportunities 
are not relevant to our process for reviewing past performance in 
making application determinations. The purpose of the past performance 
review is to determine whether the sponsor has demonstrated, over a 14-
month period, whether it has operated its Part C or D contract in a 
manner that suggests that it is generally meeting and capable of 
meeting program requirements and that new Medicare business would not 
jeopardize that status. While some organizations take corrective action 
to address any and all compliance issues prior to the expiration of the 
14-month review period, such corrective action would not change the 
fact that during that period of time, the organization demonstrated a 
pattern of noncompliance that may raise questions about its ability to 
take on new Medicare business.
    Comment: Some commenters advised that the 14-month review period is 
too long, while others stated that a longer period (for example, 3 
years) would provide a more comprehensive view of a sponsor's contract 
performance.
    Response: We believe that the 14 month look-back provides an 
adequate amount of time for us to review an MA organization's or Part D 
sponsor's performance and the choice of 14 months as the look-back 
period was not arbitrary. As we noted previously, and in the proposed 
rule, 14 months covers the period spanning the start of the previous 
contract year to the time we receive applications for the following 
contract year. To shorten that time period to, say, 12 months would 
leave a gap in our past performance review. Similarly, limiting the 
period to the 14-month timeframe gives sponsors and organizations the 
opportunity and incentive to promptly establish a positive compliance 
track record so that the next CMS past performance review will find 
them eligible for additional Part C or Part D business.
    Comment: Several commenters asked that CMS indicate whether the 
withdrawal from all or part of a service area, non-renewal of one or 
more plans (on the Part C or Part D sponsor's initiative), withdrawal 
of an application or bid, or termination of a contract after it has 
been executed would be counted against an organization for purposes of 
past performance analysis.
    Response: We would not consider a sponsor-initiated non-renewal of 
all or a portion of an MA or PDP sponsor contract as an indication of 
poor contract performance. (However, under separate regulatory 
authority sponsors that non-renew their contracts may not be permitted 
to reenter the program for a period of 2 years.) We would treat non-
renewed plan benefit packages similarly, assuming the organization had 
met the Part C or D requirements for providing timely notice to us and 
our enrollees. We do not consider the withdrawal of an application for 
qualification as Medicare contractor or of a bid prior to the 
publication of the annual benchmark calculation as relevant to a 
performance evaluation.
    We do look unfavorably on organizations that withdraw bids after 
the benchmark has been announced. Also, we consider the termination of 
a contract for an upcoming benefit year after the organization has 
executed the contract as a failure to meet Part C and D program 
requirements. Accordingly, organizations should expect that these 
occurrences would be considered against them when we evaluate their 
past contract performance.
    Comment: Several commenters offered suggestions on factors CMS 
should take into consideration when developing and applying our past 
performance review methodology. These included accounting for 
distinctions between national and local organizations, beneficiary 
impact of noncompliance (or lack thereof), unique characteristics of 
SNP plans, and whether difficulties in an organization's operation of a 
contract can be attributed to an entire organization or are limited to 
operation of only one or more of its contracts.
    Response: As noted previously, we plan to address issues raised by 
some of the commenters more fully in guidance issued through our manual 
update process. At this time, we can provide a general discussion of 
some of the principles we intend to apply to the development of our 
past performance methodology. We are cognizant of the variety of 
products offered by Medicare contractors, and when an element of our 
past performance evaluation is affected by the unique feature of a 
particular plan type, we will adjust the application of our methodology 
as appropriate. We also want to emphasize that we intend to be 
conservative in our determinations. We expect to use our authority 
under this provision to exclude only those organizations demonstrating 
a pattern of poor performance. Finally, we acknowledge that not all 
types of noncompliance will be given equal weight, and our methodology 
will assign weights to different measures based on factors such as 
beneficiary impact or program stability.
    Comment: A number of commenters suggested that CMS provide the 
results of its past performance analysis prior to the due dates for the 
submission of notices of intent to apply or for the applications for 
contract qualification.
    Response: We will explore the feasibility of providing a 
preliminary analysis in response to sponsors' requests. However, we 
note that such a report would not be final, and in no case would even a 
preliminary report be available before December of each year.
    Comment: A number of commenters requested assurance that the past 
performance review described previously in this final rule and in the 
October 2009 proposed rule would not include information concerning a 
sponsor's performance under contracts other than those governing 
Medicare managed care and prescription drug plan operations (such as, 
Medicaid, QIC contracts).
    Response: Absent extraordinary circumstances, we plan to limit our 
past performance review to the operations of organizations in the 
performance of their Part C and D contracts only.
    Comment: One commenter objected to CMS' use of past performance 
analysis asserting that is equivalent to taking a second punitive 
action for a single instance of noncompliance.
    Response: In this final rule, we are clarifying the scope of our 
existing authority and we do not believe it is equivalent to an 
additional compliance or enforcement action taken against any of the 
organization's existing Medicare contracts. Our denial of an 
application based on an applicant's past contract performance is a 
reflection of our belief that an organization demonstrating significant 
operational difficulties

[[Page 19686]]

should focus on improving its existing operations before expanding into 
new types of plan offerings or additional service areas. Such a 
determination has no impact, punitive or otherwise, on a sponsor's 
current Medicare contract rights and obligations.
    Comment: One commenter requested that organizations be permitted to 
attest that they will meet all Part C or D program requirements as of 
no earlier than January 1 of the upcoming contract year, as 
organizations are focused on enrollment and readiness activities prior 
to that date.
    Response: This comment concerns an aspect of the Part C and D 
application and contracting processes unrelated to our exercise of the 
past performance review authority. Thus, it is outside the scope of our 
proposal, and we will not address it here.
4. Use of Data to Evaluate Continued Ability to Act as a Qualified 
Sponsoring Organization Under Parts C and D (Sec.  422.504, and Sec.  
423.505)
    In the October 22, 2009 proposed rule, we clarified our authority 
to find organizations or sponsors out of compliance with MA and Part D 
requirements. We noted that under the authority of Sections 1857(e)(1) 
and 1860D-12(b)(3)(D) of the Act, the Secretary may add terms to the 
contracts with MA and Part D sponsors including terms that require the 
sponsor to provide the Secretary ``with such information * * * as the 
Secretary may find necessary and appropriate.'' Additionally, under 
that authority, CMS established Sec.  422.516 and Sec.  423.514, which 
support the submission of Part C and D Reporting Requirements. We 
clarified that the data acquired through the reporting requirements are 
often used for the purpose of monitoring an organization's or sponsor's 
continued compliance with MA and Part D requirements. We also explained 
that in some instances, we may use an outlier analysis to determine a 
MA organization's or Part D sponsor's performance relative to industry 
standards established by the performance of all the other organizations 
and sponsors as described earlier in the preamble in our discussion of 
the development of our policies concerning the awarding, monitoring, 
and enforcement of Medicare contracts.
    As part of the proposed rule, we added paragraphs Sec.  
422.504(m)(1) and (2) and Sec.  423.505(n)(1) and (2) to make explicit 
our existing authority to find organizations or sponsors out of 
compliance with MA and Part D requirements when the organization's or 
sponsor's performance fails to meet performance standards articulated 
in statutes, regulations, and guidance or when an organization's or 
sponsor's performance represents an outlier relative to the performance 
of other organizations or sponsors. In this final rule, we adopt the 
provisions as proposed.
    Comment: Some commenters supported this provision, specifically the 
development of consistent performance data evaluation processes.
    Response: We appreciate the comments.
    Comment: Many commenters recommended that CMS not use outlier data 
to make compliance determinations for a variety of reasons. Some 
commenters believed that CMS should only use specific, previously 
articulated criteria to determine non-compliance. Other commenters 
stated that the outlier analysis is arbitrary, inconsistent, and 
capricious at least in part because it would result in CMS holding 
sponsors to standards that are developed simply by measuring sponsors' 
performance relative to each other, not what is actually required to 
comply with Part C and D program requirements. One commenter noted that 
such an approach is inconsistent with the operation of a program where 
Medicare sponsor contracts are not awarded on a competitive basis. 
Still other commenters recommended that if an outlier analysis is used, 
it should only be used as a means by which CMS identifies plans in need 
of improvement not as a determination of non-compliance.
    Response: We appreciate these comments, but we maintain our belief 
that outlier analysis remains a valid method for identifying non-
compliant plan sponsors and a valuable tool in our efforts to monitor 
hundreds of contracting organizations in a timely and effective manner. 
Technically, the Part C and D regulations require 100 percent 
compliance with all program requirements. We acknowledge that it can be 
impractical to hold sponsors to such an absolute standard. When 
attempting to establish an acceptable level of noncompliance, it makes 
sense for us to compare a sponsor's performance to that of its peers. 
Such outlier analysis gives us a sense of the general performance 
capabilities of a set of sponsors. From such an analysis it is 
reasonable, in most instances, for us to conclude that organizations 
whose performance trails that of other similarly situated sponsors are 
not making reasonable efforts to provide an acceptable level of service 
to their enrollees. As we noted in the discussion of our proposed rule, 
inherent in the use of outlier analyses to evaluate compliance is the 
application of the well-accepted principle that we should look to 
evolving industry standards to establish program requirements.
    We recognize our obligation, as both a business partner and a 
regulatory agency, to use the outlier analysis tool in a manner that is 
fair to sponsors and is legally supportable. For example, we want to 
reassure organizations that we understand that effective outlier 
analysis is concerned not just with which organizations' performance 
scores are lower than others, but also with the degree to which some 
sponsors may trail their peers. Therefore, an outlier analysis does not 
by definition and in every case result in a finding of non-compliance. 
Also, we remind organizations that we have adopted over the last 
several years, a graduated system of compliance notices, and we expect 
that in the large majority of instances, we will make organizations 
aware of their non-compliance with an outlier-based standard through 
the lower-level types of notice. These are the types of notices issued 
in the earlier stages of CMS' compliance efforts and would afford 
organizations reasonable opportunities to take corrective action. 
Finally, we are committed to publishing regularly outlier-based 
performance standards, as they are developed, in guidance materials, 
including our program manuals, HPMS memoranda, and our annual call 
letter, and to update these standards over time. Further, compliance 
communications to sponsors concerning an area of noncompliance where 
the basis for the finding relied on outlier analysis include an 
explicit description of the methodology employed to make such a 
determination.
    Comment: Many commenters requested that CMS compare like plans with 
respect to several identifiers, including: plan types (with particular 
consideration given to SNPs), size, market conditions, open vs. closed 
formularies, and age of enrollees. Some commenters noted that 
meaningful comparisons across sponsors might be difficult.
    Response: Where appropriate, we compare like sponsors and 
frequently take enrollment (both numbers and types of beneficiaries, 
such as, LIS-eligible) into consideration. Identifiers that the 
commenters mentioned are taken into consideration as part of our data 
analysis. Our goal is to do meaningful analysis that can aid us in 
identifying potential weaknesses.
    Comment: Several commenters were concerned with how CMS will 
conduct outlier analysis and requested that CMS

[[Page 19687]]

define and develop standardized methods for determining outliers. One 
commenter recommended that CMS work with the industry to establish 
methods for outlier analysis. Another commenter recommended that the 
methodology should include different weights assigned to measures based 
on the magnitude of beneficiary impact and program integrity. One 
commenter requested that the outlier analysis be done at the contract 
level as opposed to the plan benefit package (PBP) level. Another 
commenter recommended that CMS be specific about whether compliance 
action would be taken for first-time outliers or only for sponsors with 
a history of being an outlier.
    Response: We understand the importance of working with the industry 
to establish methodologies and do so where appropriate. For example, we 
have and will continue to share drafted or proposed plan rating (star 
ratings) measures and their analyses. Comments from sponsors are 
reviewed and considered as we finalize those measures. The Part C and D 
reporting requirements also undergo similar public comment periods.
    The issue of assigning different weights to measures is not 
relevant here as the proposed change concerns the use of outlier 
analysis for particular, not aggregated, operational requirements. We 
incorporate weighting into our analysis of sponsors' overall contract 
performance. This analysis is typically done at the contract level at 
least in part because we collect data at that level, not the PBP level.
    As discussed previously, we account for whether a sponsor is a 
first-time or repeat outlier when it determines the type of compliance 
notice to issue. Depending on the circumstances, organizations 
identified as first-time outliers may receive only a notice of 
noncompliance, while those that are repeat outliers may receive a CAP 
request or be subject to an enforcement action.
    Comment: Several commenters urged CMS to make the outlier 
methodology available to all sponsors through, for example, the Call 
Letter or Technical Specifications. Many of these commenters requested 
an opportunity to review and comment on the methodology. A couple of 
commenters were concerned about CMS' use of outlier analysis and being 
able to predict how other sponsors will perform to ensure that their 
own performance is aligned and compliant.
    Response: Where appropriate, we will make methodologies available 
to sponsors, as we discussed earlier in our response to comment on this 
proposal. An example of the importance we place on the need for clarity 
and transparency is the fact that we currently make available our 
methodologies in the technical specifications for the Reporting 
Requirements and the plan ratings (star ratings). In another example, 
we recently (January 2010) released an HPMS memo and incorporated into 
the Part D manual a comprehensive description of our outlier 
methodology for ensuring appropriate access to home infusion 
pharmacies. In an effort toward complete transparency, we also provided 
the underlying data and necessary information for Part D sponsors to 
conduct their own independent analyses on this topic.
    Comment: Many commenters noted that there are reasons other than 
non-compliance that may result in a sponsor being an outlier. Outlier, 
by definition, means that there will always be a sponsor 
underperforming.
    Response: We acknowledge that outlier status does not necessarily 
mean non-compliance. We review the list of statistical outliers and set 
thresholds on a number of factors for the purposes of identifying 
potential compliance problems. This is consistent with our goal to do 
meaningful analysis that can aid in identifying potential weaknesses. 
Most often, a sponsor will receive a request for information, as 
opposed to a compliance letter, to help us better understand why that 
particular sponsor was an outlier. These requests frequently result in 
the sponsor gaining a better understanding of our requirements and 
promote program improvement.
    Comment: There were a few comments on the validity of current 
analyses performed by CMS. Some commenters discussed their observation 
that the findings resulting from some of CMS' outlier analyses 
methodology may penalize some organizations unfairly because--(1) the 
underlying data on which the analysis was based was flawed; or (2) 
analyses based on self-reported data may indicate that one sponsor is 
reporting data more accurately data than its peers. A commenter noted 
that the compliance letters that result from outlier analysis come 
months after the data has been collected and that there is little 
opportunity for an organization to correct its performance. A few 
commenters requested that CMS give sponsors the opportunity to appeal 
or explain the outlier status to CMS.
    Response: We are always open to information and feedback from 
sponsors on our analyses and make corrections to our compliance 
determinations where the new information supports such a step. We also 
note that we are developing requirements concerning sponsors submitting 
audited data to address the concerns about data accuracy that the 
commenters raise.
    Comment: One commenter believed that the annual audits and the 
outlier analyses appear to be duplicative.
    Response: We use audits, outlier analysis, and other methods to 
ensure compliance with program requirements and to help identify 
potential compliance problems. Audits and outliers analyses are two 
distinct monitoring methods that utilize different sources of 
information and apply different types of analyses to evaluate sponsors' 
compliance with program requirements. Audits represent an in-depth 
review of selected sponsor's documentation related to the operation of 
their Medicare contracts. Outlier analysis, by contrast, consists of an 
agency review of performance data (generated by CMS or the sponsor) 
across all contracting organizations which results in the 
identification of potential noncompliance and the need for further 
investigation.
5. Compliance Programs Under Parts C and D (Sec.  422.503(b)(4)(vi) and 
Sec.  423.504(b)(4)(vi))
    In the October 2009 proposed rule, we proposed to modify the 
language at Sec.  422.503(b)(4)(vi) and Sec.  423.504(b)(4)(vi) to 
explicitly provide clarification as to what constitutes an 
``effective'' compliance program. We also proposed clarifying language 
for each of the required elements of an effective compliance program in 
order to assist sponsoring organizations with implementing more 
effective compliance programs and to more clearly articulate our 
expectations.
    We proposed to add language to the first element at Sec.  
422.503(b)(4)(vi)(A) and Sec.  423.504(b)(4)(vi)(A) to require that 
written policies and procedures must describe a commitment to comply 
with all Federal and State standards, compliance expectations as 
embodied in the standards of conduct, implement the operations of the 
compliance program, provide guidance to others, identify how to 
communicate compliance issues to compliance personnel, describe how 
compliance issues are investigated and resolved and include a policy of 
non-intimidation and non-retaliation.
    The second element requires a sponsoring organization to have a 
compliance officer and committee accountable to senior management. We 
proposed to add language at Sec.  422.503(b)(4)(vi)(B) and Sec.  
423.504(b)(4)(vi)(B) that the

[[Page 19688]]

compliance officer must be employed by the sponsoring organization, and 
the compliance officer and committee must periodically report directly 
to the governing body and that body must be knowledgeable about the 
compliance program and exercise reasonable oversight over the 
implementation and effectiveness of the program.
    The third element requires the sponsoring organization to have an 
effective training and education program. We proposed to add language 
at Sec.  422.503(b)(4)(vi)(C) and Sec.  423.504(b)(4)(vi)(C) to specify 
several key groups and individuals (the chief executive or other senior 
administrator, managers, and governing body members) among the 
sponsoring organization's employees who are required to have compliance 
training and education. We also proposed to add language that this 
training must occur at a minimum annually and must be made a part of 
the orientation for a new employee, new first tier, downstream and 
related entities, and new appointments of a chief executive, manager, 
or governing body member. The required compliance training must include 
training regarding the prevention and detection of fraud, waste and 
abuse. We proposed to add that providers who have met the requirement 
for fraud, waste and abuse training and education through enrollment 
into the Medicare program are deemed to have met that portion of the 
training and education requirement.
    We noted that, in some instances, a particular pharmacy or other 
provider may contract with dozens of MA or PDP plans, each of which is 
required by the existing language at Sec.  422.503(b)(4)(vi)(C) and 
Sec.  423.504(b)(4)(vi)(C), read literally, to provide the required 
fraud, waste and abuse prevention and detection training to the 
pharmacy, or other provider, and its staff. Since we did not intend to 
require duplicative training, we offered two options in our proposed 
rule. One option was that the sponsoring organization ``assures'' or 
``obtains an assurance'' that the first tier, downstream, and related 
entity has received such training. Another option was to leave existing 
language unchanged, but issue interpretive guidance on this point. We 
requested workable suggestions to assure that our objective is met, 
while eliminating unnecessary duplication.
    The fourth element requires a sponsoring organization to have 
effective lines of communication. We proposed to add language at Sec.  
422.503(b)(4)(vi)(D) and Sec.  423.504(b)(4)(vi)(D) that requires that 
these lines of communication be confidential and accessible to all 
employees and allow for compliance issues to be reported anonymously 
and in good faith as issues are identified.
    The fifth element requires a sponsoring organization to enforce 
standards through well-publicized disciplinary guidelines. We proposed 
to add language at Sec.  422.503(b)(4)(vi)(E) and Sec.  
423.504(b)(4)(vi)(E) that more specifically described that these 
guidelines must be implemented to include policies that articulate 
expectations for reporting issues and their resolution, identify 
noncompliance or unethical behavior, and provide for timely, consistent 
and effective enforcement of the standards when noncompliance or 
unethical behavior is detected.
    The sixth element requires a sponsoring organization to have 
procedures for internal monitoring and auditing. We proposed to add 
language at Sec.  422.503(b)(4)(vi)(F) and Sec.  423.504(b)(4)(vi)(F) 
to more specifically describe that an effective system for routine 
monitoring and identification of compliance risks includes internal 
monitoring and audits and, as appropriate, external audits, in order to 
evaluate the sponsoring organization's compliance with our requirements 
and overall effectiveness of the compliance program. We also proposed 
to add language that these audits should include the sponsoring 
organization's first tier entities.
    The seventh element requires a sponsoring organization to have 
procedures for ensuring prompt responses to detected offenses. We 
proposed to add language at Sec.  422.503(b)(4)(vi)(G) and Sec.  
423.504(b)(4)(vi)(G) to more specifically describe the implementation 
of a system for promptly responding to compliance issues as they are 
raised, investigating potential compliance problems identified in the 
course of self-evaluations and audits, correcting such problems 
promptly and thoroughly to reduce the potential for recurrence and 
ensuring ongoing compliance with our requirements.
    We are adopting all of these proposed changes into the final rule 
without further modification with the exception of changes made to 
Sec.  422.502(b)(4)(vi)(B), Sec.  423.504(b)(4)(vi)(B) and Sec.  
423.504(b)(4)(vi)(C), to provide that the compliance officer must be an 
employee of the sponsoring organization, parent organization or 
corporate affiliate and clarify that he or she may not be an employee 
of a first tier, downstream or related entity of the sponsoring 
organization and must be accountable to the governing board of the 
sponsoring organization. In addition, at Sec.  423.504(b)(4)(vi)(C)(3), 
we adopt a new regulation for the Part D program to specify that first 
tier, downstream, and related entities that have met the fraud, waste, 
and abuse certification requirements through enrollment into the fee-
for-service Medicare program and accreditation as a durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier are 
deemed to have met the fraud, waste and abuse training and educational 
requirements.
    We received the following comments on the first element, which 
requires written policies and procedures:
    Comment: Two commenters raised concerns about the resources 
necessary to satisfy our requirements related to written policies and 
procedures. One commenter stated that sponsoring organizations are 
currently spending significant time and resources drafting and 
redrafting policies and procedures and are still uncertain if these 
policies and procedures will cover the items we expect to be covered in 
requisite detail. Both commenters suggested that we release our audit 
worksheets which outline CMS's expectations for the contents of 
policies and procedures, which would allow sponsoring organizations to 
tailor their policies and procedures accordingly. Additionally, one 
commenter suggested that CMS should not be dictating the scope or 
components of such policies and disagreed with our inclusion of more 
``prescriptive standards'' into the regulatory text and alternatively 
suggested that certain requirements be issued through subregulatory 
guidance.
    Response: Our proposals are intended to significantly strengthen 
our oversight of compliance programs, and provide more specificity and 
clarity to sponsoring organizations with regard to what we expect to 
see when we review a compliance program. We believe the proposals we 
have made are important changes and are necessary to maintain 
consistency and promote appropriate focus on these requirements and 
that going through the rulemaking process is the best way to promote 
these goals. We also believe that the proposed changes to the first 
element provide important information as to what we consider a 
framework for an effective compliance program. We do not intend to be 
prescriptive as to the choice of particular processes or procedures, 
only to provide the minimum amount of information we would expect to 
see in a comprehensive set of written policies,

[[Page 19689]]

procedures and standards of conduct. With respect to the comment 
regarding releasing audit materials, we must balance the goals of 
transparency regarding our audit program with the goals of conducting 
an effective evaluation of whether organizations have in fact 
instituted effective compliance programs (and not just ``paper'' 
compliance programs). To the extent that sponsoring organizations are 
looking to tailor their policies and procedures for compliance programs 
to materials released by us, they should be looking to our regulations, 
including the changes made by this final rule, and any subregulatory 
guidance issued by CMS, and not documents related to our audit program, 
as these may only be a subset of CMS' larger set of requirements.
    We received the following comments regarding our proposed revisions 
to the second element, which addresses the designation of a compliance 
officer and a compliance committee who report directly to the 
organization's chief executive or other senior management:
    Comment: Commenters expressed concern with CMS' proposal to require 
that the compliance officer, vested with day to day operations of the 
compliance program, be an employee of the sponsoring organization. 
Commenters recommended that CMS broaden this portion of the provision 
to permit the compliance officer to be employed by the sponsoring 
organization or an affiliate in its corporate group. These commenters 
indicated that ``the entity who employs the compliance officer is a 
corporate structure issue that may have no effect or bearing on the 
issues of accountability and oversight.'' One commenter further 
insisted that in instances when related entities are MA organizations 
and PDP sponsors who hold separate contracts with CMS, having one 
centralized compliance officer is not only effective and efficient, but 
it also promotes consistency with respect to the implementation of the 
compliance program across the contracting entities. Several commenters 
also stated that having the compliance officer at a parent or 
affiliated group level would not lessen the accountability of the 
compliance officer with respect to each entity.
    Response: We agree that having a compliance officer being employed 
at a parent company or corporate affiliate may not necessarily lessen 
the accountability of the compliance officer to the governing body of 
the sponsoring organization. Our proposal was intended to provide 
further clarity on how sponsoring organizations can meet the key 
requirement of having a compliance officer and compliance committee 
that is accountable to the governing body of the sponsoring 
organization. We have issued extensive subregulatory guidance on this 
issue, both in the 2007 call letter and in Chapter 9 of the Medicare 
Prescription Drug Benefit Manual (``Chapter 9''). This guidance was 
issued in part in response to us learning that sponsoring organizations 
were subcontracting the compliance officer function to their first 
tier, downstream and related entities. We do not view subcontracting 
that function as an acceptable alternative for a number of reasons, 
including the potential for conflicts of interest that would exist by 
virtue of the compliance function residing in a subcontracted entity 
that is being paid by the entity whose compliance the subcontractor is 
charged with monitoring. As a result of the comments received, we are 
modifying the language in this final rule to provide that the 
compliance officer must be an employee of the sponsoring organization, 
parent organization or corporate affiliate and to provide that the 
compliance officer may not be an employee of a first tier, downstream 
or related entity of the sponsoring organization.
    Comment: Proposed sections Sec.  422.503(b)(4)(vi)(B)(2) and Sec.  
423.504(b)(4)(vi)(B)(2) specify that the compliance officer and 
committee must periodically report to the governing body of the 
sponsoring organization on the activities and status of the compliance 
program. One commenter emphatically supported CMS' proposal to 
strengthen the compliance program by increasing the requirements with 
respect to interaction with the executive leadership and board members. 
One commenter recommended that CMS revise the language of this 
provision to state that the compliance officer and committee, ``or 
their delegate'', report directly to the governing body. Lastly, one 
commenter stated that although they supported CMS' goal of ensuring 
sponsoring organizations' senior leadership and governing body are 
informed of key developments, the commenter opposed CMS dictating 
internal reporting obligations and reporting structures.
    Response: We disagree with the suggestion to add ``or their 
delegate'' to the language at Sec.  422.503 (b)(4)(vi)(B)(2) and Sec.  
423.504(b)(4)(vi)(B)(2), which would expand the scope of individuals 
who could provide periodic reports to the governing body of the 
sponsoring organization. The purpose of this provision is to ensure 
communication between the compliance officer, committee and the 
governing board. We do not intend that this reporting responsibility be 
delegated to someone other than the compliance officer as that would 
defeat the purpose of the proposed provision. Therefore, we will not be 
incorporating the commenter's suggested change into the final rule.
    We also do not believe that the proposed regulatory language in 
this section results in CMS dictating to MA organizations and Part D 
sponsors their internal reporting obligations and reporting structures. 
The proposed language does not specify the means or manner in which the 
report should be communicated to the governing body, nor does it 
provide specific requirements as to how often such reports are made.
    We received the following comments concerning our proposed changes 
to the third compliance program element, which--(1) states that 
sponsoring organizations must establish and implement effective 
training and education between the compliance officer and the 
sponsoring organization's employees, governing board, first tier, 
downstream and related entities; (2) specifies that this training and 
education must occur at a minimum annually and must be made a part of 
new employee orientation; and (3) provides deeming of fraud, waste and 
abuse educational requirements to first tier, downstream and related 
entities who have met the fraud, waste and abuse certification 
requirements though Medicare program enrollment:
    Comment: Some commenters stated that organizations should have the 
flexibility to modify and tailor the training for the governing body so 
that it is not a replication of the training needed for front line 
staff, and expressed specific concern with CMS requiring training of 
the governing body annually. Additionally, several commenters stated 
that requiring sponsoring organizations to conduct compliance training 
at new employee orientations and annually thereafter is 
administratively and financially burdensome, and may even result in 
organizations having to conduct such training on a weekly basis. 
Commenters made numerous recommendations, including providing 
sponsoring organizations with flexibility in determining the 
appropriate level and timing of training depending on the audience; 
modifying the education and training requirements to apply to only 
those involved in the administration of the Medicare Advantage and Part 
D lines of business within the organization; clarifying that the annual 
education and training requirement is limited to general compliance 
training, and does not include the specialized

[[Page 19690]]

training that sponsoring organizations have to implement in accordance 
with Chapter 9; and the suggestion that CMS develop a Web-based 
compliance training tool or certify an independent industry entity to 
provide consistent and efficient compliance training; and finally, 
providing additional clarification on the required training for 
downstream entities.
    Response: We believe that the proposed regulatory language allows 
organizations the flexibility to tailor the content of the training and 
many aspects of how the training is provided. We have not specified the 
manner in which the training would be provided at new employee 
orientations, or to senior leadership or members of the governing body 
upon their appointment to these positions. Organizations can decide to 
provide new employees with a copy of the organization's compliance 
policies and procedures and ask new employees to attest that they have 
been provided with a copy and have read the material. We do not believe 
that such a requirement is overly burdensome or difficult for 
sponsoring organizations to implement.
    We also do not believe that it is appropriate to clarify in 
regulation text that we are referring to general versus specific 
compliance training, as discussed in Chapter 9. The proposed language 
makes no reference to the training being specialized and we believe 
that the regulatory language should be left general as the level of 
training and education will vary depending on the level and 
responsibilities of the person receiving the training. We believe that 
the proposal is sufficiently clear in its description of what is 
expected of the sponsoring organization in the implementation of its 
compliance training and education program and the requirements are 
reasonable. If we determine in the future that further guidance is 
necessary, we will issue subregulatory guidance.
    Lastly, in response to those commenters who suggested that CMS 
develop a Web-based compliance training tool, we have determined that 
additional analysis needs to be undertaken and additional information 
sought before providing guidance on how training of first tier, 
downstream, and related entities is to be provided and the content 
managed. Additional clarification will be issued in subregulatory 
guidance.
    Comment: Some commenters stated that requiring sponsoring 
organizations to conduct compliance training for all delegated entities 
(first tier, downstream and/or related) or insuring that all delegated 
entities conduct such training on their own imposes a significant 
burden on sponsoring organizations.
    Response: In response to those commenters who stated that requiring 
that first tier, downstream and related entities to receive compliance 
training is overly burdensome, we would like to reiterate that this is 
an existing requirement, not a proposed new requirement. We agree that 
duplicative training is inefficient and we believe that commenters have 
offered valuable suggestions. After reviewing these comments and 
recommendations, we have determined that additional analysis needs to 
be undertaken and additional information sought before providing 
guidance on how training of first tier, downstream, and related 
entities is to be provided and the content managed. Additional 
clarification will be issued in subregulatory guidance.
    Comment: Commenters also suggested striking the word ``effective'' 
from the language of this section which specifies that the sponsoring 
organization must establish, implement and provide ``effective'' 
training and education. Alternatively the commenter requested that CMS 
at least clarify how we would determine if training were ``effective'' 
and clarify CMS' definition of sufficient oversight.
    Response: The use of the term ``effective'' is existing regulatory 
language and has already gone through notice and comment rulemaking. 
``Effective'' is not a new requirement, therefore, we do not believe it 
is necessary to remove the word ``effective'' from this regulatory 
provision.
    Comment: Commenters suggested that CMS consider revising the 
requirement that fraud, waste, and abuse training and education occur 
at least annually and be a part of the orientation for a new employee, 
new first tier, downstream and related entities, and new appointments 
to chief executive, manager or governing body member. Commenters 
believe that CMS should require that training only at the time of 
initial hire or when there are significant changes in the laws and 
regulations related to fraud, waste, and abuse.
    Response: We disagree and believe that annual training is a 
necessary component of an effective compliance program that addresses 
the detection, correction, and prevention of fraud, waste, and abuse in 
the MA and Part D programs. The intent of this regulation is to codify 
the existing CMS expectation that fraud, waste and abuse training be 
provided at a minimum on an annual basis, which is contained in Chapter 
9 of the Prescription Drug Benefit Manual (Part D Program to Control 
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 (prescription drug plan) sponsors. In previous guidance, we have 
directed MA organizations to apply the provisions of Chapter 9 to Part 
C (Medicare Advantage) programs as well. We are in the process of 
updating this document to specifically address any particular Part C 
measures for detecting and preventing fraud, waste, and abuse.
    Comment: Several commenters expressed support for our proposed 
revisions to Sec.  422.503 (b)(4)(vi)(C)(2), which clarify that first 
tier, downstream, and related entities who have met the fraud, waste, 
and abuse certification requirements through enrollment into the fee-
for-service Medicare program are deemed to have met the training and 
educational requirements for fraud, waste, and abuse under this rule. 
One commenter disagreed with the proposed revision.
    Response: We believe that the proposed regulatory language 
eliminates redundant certification made when these entities enroll in 
the Medicare program. We also wish to clarify that the reference to 
deeming in this regulation is distinct from the MA deeming and 
accreditation program described at Sec.  422.156, Sec.  422.157, and 
Sec.  422.158.
    Comment: A number of commenters recommended that CMS extend the 
regulatory change proposed for the Part C program at Sec.  
422.503(b)(4)(vi)(C) to the Part D program at Sec.  
423.504(b)(4)(vi)(C). The commenters noted that Part D first tier, 
downstream, and related entities that have enrolled in the Medicare 
program as a supplier of Part B covered medications or as a supplier of 
durable medical equipment, prosthetics, orthotics, and supplies 
(DMEPOS) go through the same application and certification process as 
MA providers. They contend that including Part D providers in this 
deeming would ensure the requirements for Part D sponsors will be 
identical to those for MA organizations and would reduce unnecessary 
additional burden.
    Response: We agree with the commenters and have adopted a new 
regulation for the Part D program at Sec.  423.504(b)(4)(vi)(C)(3) to 
specify that first tier, downstream, and related entities who have met 
the fraud, waste, and abuse certification requirements through 
enrollment into the Medicare program accreditation as a DMEPOS supplier 
are deemed to have met the

[[Page 19691]]

training and educational requirements for fraud, waste, and abuse 
training. We wish to clarify that the reference to deeming in this 
regulation is distinct from the Part D deeming and accreditation 
program described at Sec.  423.165, Sec.  423.168, and Sec.  423.171.
    We received the following responses to our request for comments on 
whether or how to best revise the requirement that first tier, 
downstream, and related entities receive training in how to prevent and 
identify fraud, waste, and abuse to address the issue of duplication of 
training for providers or entities that contract with multiple MA 
organizations or Part D sponsors:
    Comment: Several commenters recommended requiring MA organizations 
and Part D sponsors to create training materials or approve first tier, 
downstream, and related entity-created materials and require 
attestations that the training was provided to all appropriate parties. 
These commenters noted that in order to avoid duplicative training, all 
sponsoring organizations would be required to accept attestations from 
their first tier, downstream, and related entities that they completed 
training provided by any other sponsoring organization in order to 
fulfill this requirement. Commenters also suggested that another option 
to ensure consistent training content and minimize duplication is for 
CMS to create a standardized training and require all sponsoring 
organizations to use it for training their first tier, downstream, and 
related entities. Commenters also recommended that CMS permit first 
tier, downstream, and related entities to create and implement their 
own training programs and attest to their contracting MA organizations 
and/or Part D sponsors that they have fulfilled the training 
requirement.
    Response: We believe the commenters have offered valuable 
suggestions. After reviewing these comments and recommendations, we 
have determined that additional analysis needs to be undertaken and 
additional information sought before providing guidance on how training 
of first tier, downstream, and related entities is to be provided and 
the content managed. Additional clarification will be issued in 
subregulatory guidance.
    Comment: A few commenters requested that CMS provide more 
specificity regarding which entities must complete fraud, waste, and 
abuse training. These commenters believe that CMS should limit the 
training requirement for first tier, downstream and related entities to 
only staff of those entities that are involved in patient care and/or 
claims submission, and should not require administrative or retail 
clerk/cashier staff to complete the training.
    Response: The requirement for fraud, waste, and abuse training 
applies to all MA organization and Part D sponsor employees (including 
chief executive or other senior administrator, managers and governing 
body members) and first tier, downstream and related entities. We will 
issue additional clarification in subregulatory guidance.
    The fourth element requires a sponsoring organization to have 
effective lines of communication. We did not receive comments regarding 
this element.
    We received the following comment concerning the proposed revisions 
to the fifth compliance program element which details a sponsoring 
organization's obligation to ensure its compliance program has well 
publicized disciplinary standards.
    Comment: The commenter requested that CMS provide guidance 
regarding its expectations as to sponsoring organization's enforcement 
of disciplinary standards, and asked for clarification as to whether a 
policy identifying the different types of disciplinary actions a 
sponsoring organization may impose would be sufficient to meet the 
requirement.
    Response: We believe that our proposal is sufficiently detailed to 
provide sponsoring organizations with necessary guidance on how to 
implement an effective compliance program.
    We received the following comment regarding the proposed revisions 
to the sixth compliance program element concerning requirements for 
sponsoring organizations monitoring and identification of compliance 
risks.
    Comment A commenter requested that CMS specify that its reference 
to external audits, especially of first tier entities, does not require 
sponsoring organizations to hire an independent, external auditor to 
perform this function but rather that sponsoring organizations may 
undertake the auditing of these contractors through their internal 
audit units.
    Response: Our expectation, when referring to a sponsoring 
organization conducting an external audit of itself or a first tier 
entity, was that that sponsoring organization would utilize an auditor 
who is external of both the sponsoring organization and the first tier 
entity being audited.
    Comment: A commenter recommended that CMS share its preamble 
language that further defines the expectations for an effective 
compliance program with other areas of the Federal government, such as 
the Department of Defense, so that all government contractors will have 
the same compliance program expectations.
    Response: We believe that this comment is outside the scope of this 
regulation.
    The seventh element requires a sponsoring organization to have 
procedures for ensuring prompt responses to detected offenses. We did 
not receive comments regarding this element.
6. Network Adequacy of Coordinated Care and Network-Based Private Fee-
for-Service Plans Under Part C (Sec.  422.112)
    In the October 22, 2009 proposed rule (74 FR 54644), we requested 
comments on proposed criteria for determining whether an MA plan 
network meets the network availability and accessibility requirement in 
section 1852(d)(1) of the Act. As we discussed in the proposed rule, we 
have developed an automated system for reviewing network adequacy on a 
continuing basis based on the elements that we have determined 
reasonably reflect community patterns of health care delivery. As we 
noted in the proposed rule, our operational experience has demonstrated 
that the concept of community patterns of health care delivery provides 
a useful benchmark for measuring a proposed provider network, because 
it allows for varying geographical and regional conditions to be taken 
into consideration in determining what constitutes ``reasonable'' 
access in a given area.
    In the proposed rule, we described the elements of community 
patterns of health care delivery that we proposed to include in our 
evaluations of provider networks, and stated that our goal was to make 
the standard of community patterns of care more transparent and 
consistent across the country. Specifically, we proposed adding a new 
paragraph (a)(10) to Sec.  422.112 to specify the factors comprising 
community patterns of health care delivery that we would use as a 
benchmark in evaluating a proposed MA plan health care delivery 
network. Under proposed Sec.  422.112(a)(10), these factors would 
include, but not be limited to--
     The number and geographical distribution of eligible 
health care providers available to potentially contract with an MAO to 
furnish plan covered services within the proposed service area of the 
MA plans;
     The prevailing market conditions in the service area of 
the MA plan--specifically, the number and distribution of health care 
providers

[[Page 19692]]

contracting with other health care plans (both commercial and Medicare) 
operating in the service area of the plan;
     Whether the service area is comprised of rural or urban 
areas or some combination of the two;
     Whether the MA plan's proposed provider network meets 
Medicare time and distance standards for member access to health care 
providers including specialties; and
     Other factors that we determine to be relevant in setting 
a standard for an acceptable health care delivery network in a 
particular service area.
    We proposed providing more detail about how we would operationalize 
these requirements through subregulatory guidance (for example, the 
annual Call Letter). We solicited comment on whether our proposed 
regulatory provisions are sufficiently clear and whether clarification 
should be provided through regulation or subregulatory guidance, such 
as the annual Call Letter.
    After considering all the timely comments we received on our 
proposal, we are adopting Sec.  422.112(a)(10) without modification in 
this final rule.
    Comment: Many commenters expressed concern that the proposed CMS 
approach to evaluating network adequacy based on community patterns of 
care would be too limiting, and would not allow organizations 
sufficient flexibility to develop networks in rural areas or areas with 
unique conditions. Several commenters were concerned that CMS' 
interpretation of what constitutes community patterns of care would 
result in an approach that would not adequately take into account 
special plan-specific factors, such as the size of a plan or the 
quality of its providers. Also, a number of commenters were concerned 
that unique characteristics of a particular community, such as provider 
willingness to contract, would not be captured in the CMS network 
adequacy standards. One commenter expressed concern that the proposed 
requirements for network adequacy appear to encourage a fee-for-service 
and fragmented care model based on geographic access rather than a 
defined network of high quality primary care practices, supported by a 
limited network of sub-specialists. One commenter was concerned that 
CMS would only use the prevailing community standard of care to 
evaluate network adequacy, citing as an example a plan with a network 
that did not meet the prevailing community standard of care but was 
nevertheless adequate or even better in terms of the access it actually 
provides health care services to enrollees.
    Response: In developing standards for network adequacy we chose the 
overarching principle of community patterns of care because it is a 
robust model that allows CMS the necessary flexibility to develop 
standards that can be adapted to the significant variations that exist 
in health care delivery in the United States. Our proposed regulation 
outlined the broad elements that we have found from years of experience 
to be relevant in evaluating a particular community pattern of care. 
However, we are cognizant of the fact that there exist a number of 
unique local circumstances related to such factors as geography, market 
conditions, and provider availability. Accordingly, this final rule 
codifies an approach to determining network adequacy that builds on our 
experience with evaluating health plan provider networks but is also 
flexible enough to adapt to evolving and unique local market 
conditions. The automated process we have established to assess network 
adequacy is likely to be refined as we gain more experience, and 
maintaining flexibility in our regulatory requirements for network 
adequacy supports this goal. We also note that the automated system we 
are using does not specify the providers with which a plan contracts. 
Rather, it furnishes a benchmark so we can determine if a plan's 
provider network is adequate given the availability of providers in the 
area where the plan is being offered and the expected enrollment in the 
plan. In other words, our standards address the relative size and scope 
of an acceptable MA provider network given the community patterns of 
care. However, MA plans still have discretion to select the providers 
they contract with as long as that network is adequate to meet the 
health care needs of its enrollees. In addition, we will have an 
exceptions process by which plans can highlight special circumstances 
that affect their ability to meet our access standards.
    Comment: Many commenters had very detailed, specific questions 
about our automated system for assessing network adequacy, and much of 
this feedback has already been provided to CMS through other 
mechanisms. For example, one commenter asked for certain adjustments to 
the ratio of providers to beneficiaries. Other comments questioned how 
CMS would implement various features of network adequacy and whether 
they would be codified in regulations text.
    Response: As noted previously, we have developed and implemented 
automated systems to evaluate the network adequacy of MA plans. As part 
of that implementation, we have provided considerable subregulatory 
guidance regarding implementation of community patterns of care through 
this automated process. An example of this subregulatory guidance is 
the provision of time and distance standards (available on the CMS Web 
site) by category of health care provider for a number of rural and 
metropolitan counties throughout the United States. Because we did not 
propose to incorporate the technical specifics of our automated system 
into regulation text, we believe it is most appropriate to address 
specific technical suggestions in the context of implementing and fine-
tuning the automated network adequacy system.
    Comment: Several commenters expressed concern about how CMS would 
implement time and distance standards for determining network access. 
One commenter asked that CMS be mindful of the impact of imposing time 
and distance standards equally among different types of providers. One 
commenter stated that the prevailing 30 minute/30 mile access to 
services standards need to be fine-tuned specifically for urban, rural, 
and other medically underserved areas. Other comments included 
recommendations to establish separate and distinct network adequacy 
standards for Parts A and Part B services, as well as standard for 
measuring network adequacy in rural areas for services that are only in 
hospitals.
    Response: As noted in the October 22, 2009 proposed rule, we have 
historically used the 30 minute/30 mile access to services as a rough 
standard for evaluating provider networks. However, we agree that this 
standard is not sufficiently nuanced to stand on its own, and does not 
fully address our needs. Our operational experience has demonstrated 
that the concept of community patterns of health care delivery 
furnishes a more useful benchmark for measuring a proposed provider 
network because it allows for varying geographical and regional 
conditions to be taken into consideration.
    Comment: One commenter asked CMS to consider Medicaid provider 
networks as part of the assessment of network adequacy for dual 
eligible integrated products. This commenter also suggested comparing 
contracting rates across plans serving duals as an additional measure 
of network adequacy. In addition, the commenter suggested that a 
comparison of the plan's provider availability to those actually open 
to new Original Medicare enrollees might indicate the value of the plan 
to potential enrollees. Another

[[Page 19693]]

commenter asked that CMS include in its regulation defining network 
adequacy the following factors derived from the Medicaid access 
standards under Sec.  438.206: (1) The mode of transportation used by 
Medicare beneficiaries, particularly those who are dually eligible and 
those who rely on transportation for the disabled; (2) whether the 
location furnishes physical access for enrollees with disabilities; and 
(3) delivery of services in a culturally competent manner.
    Response: We recognize that special needs plans (SNPs) that 
specifically serve the dual eligible population have unique 
requirements. It is for that reason that in 2011, SNPs that exclusively 
serve the dual eligible population will be required to have contracts 
with State Medicaid agencies where they operate. While transportation 
is not a Medicare covered benefit, it is our expectation that MA plans' 
facilities are available and accessible to plan enrollees.
7. Deemable Program Requirements Under Parts C and D (Sec.  
422.156(b)(7), Sec.  422.156(f), Sec.  423.165(b), and Sec.  
423.165(f))
    In the October 2009 proposed rule, we proposed to clarify what 
regulatory requirements are ``deemable'' for MA organizations that 
offer prescription drug benefit programs by modifying the language at 
Sec.  422.156(b)(7) to refer to the list of deemable requirements for 
Part D sponsors set out at Sec.  423.165(b)(1) through (b)(3). In 
addition, we proposed modification to Sec.  422.156(f) and Sec.  
423.165(f) to add language clarifying that CMS may use its statutory 
authority to impose intermediate sanctions and civil money penalties 
(CMPs), initiate contract terminations, and perform evaluations and 
audits of a sponsoring organization's records, facilities and 
operations, notwithstanding our deeming provisions. We also proposed to 
remove language at Sec.  423.165(b)(4) regarding programs to protect 
against fraud, waste and abuse from the items listed as deemable 
program requirements. After considering the comments we received in 
response to these proposals, we are adopting all of these proposals 
without further modification into this final rule.
    Comment: One commenter asked if CMS will create an avenue for 
accrediting organizations who are currently approved under the Medicare 
Advantage program to apply for deeming under the Prescription Drug 
program.
    Response: Our proposal did not address the process for becoming an 
accrediting organization. Any organization that wishes to be an 
accrediting organization for the Medicare Prescription Drug program 
must first apply and be approved by CMS in accordance with existing 
requirements.
    Comment: One commenter asked if we will define possible roles and 
responsibilities for accrediting organizations under the revised Part D 
monitoring and oversight audit program.
    Response: Our proposal did not address the Part D accrediting 
process and we do not intend to address this process in this final 
rule. We will evaluate whether or not there is a need to release more 
detailed information in the future through subregulatory guidance or 
other appropriate means.
    Comment: One commenter indicated that Part D plan sponsors have not 
been given information on accrediting organizations that could grant 
plans deemed status for Part D. The commenter further recommended that 
there be an opportunity to work with us to identify accredited 
organizations for pharmacy benefit manager operations in order to 
simplify the audit process.
    Response: Our proposal did not address the Part D accrediting 
process and we do not intend to address this process in this final 
rule. However, as of the date of the publication of this regulation, 
CMS has not approved any accrediting organizations to grant deemed 
status for Part D sponsors. We will evaluate whether or not there is a 
need to release more detailed information in the future through 
subregulatory guidance or other appropriate means.
    Comment: We received a few comments indicating that the regulatory 
provisions provided in this section should be further clarified either 
through rulemaking or subregulatory guidance.
    Response: We will evaluate whether or not there is a need to 
release more detailed information in the future through subregulatory 
guidance or other appropriate means.
    Comment: One commenter suggested that we provide clarification on 
the criteria we would use to determine whether to perform evaluations, 
conduct audits, or impose sanctions or civil money penalties relative 
to a sponsoring organization's compliance with deemable requirements.
    Response: Our proposal did not intend to modify or affect the 
manner in which CMS conducts compliance evaluations, audits or the 
process for imposing intermediate sanctions. These processes are not 
directly affected by whether the underlying subject of the deficiency 
is a deemable requirement.
    Comment: One commenter encouraged us to consider adding additional 
deemable requirements based on differences between the Part D program 
and the Part C program.
    Response: We have been granted limited statutory authority 
regarding what specific requirements are deemable. Our proposals 
reflect our current statutory authority.
    Comment: One commenter requested that since the fraud, waste and 
abuse program was being removed as a deemable requirement we consider 
allowing ``certification'' from an external qualified source to serve 
in the deeming capacity.
    Response: We have been granted limited statutory authority 
regarding what specific requirements are deemable. We proposed 
modifications to our regulations to mirror our current statutory 
authority. To the extent the commenter is proposing that CMS consider 
ways of assessing an organization's compliance with fraud, waste, and 
abuse requirements that suggestion would be outside the scope of this 
proposal.
8. Modify the Corrective Action Plan (CAP) Process as It Relates to 
Procedures for Termination and Nonrenewal of a Part C or D Contract by 
CMS (Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  423.507(b)(3), and 
Sec.  423.509(c)(1))
    In the October 2009 proposed rule, we proposed eliminating the 
existing language contained in regulations at Sec.  422.506(b)(3), 
Sec.  422.510(c)(1), Sec.  423.507(b)(3), and Sec.  423.509(c)(1) that 
require corrective action plans (CAPs) to be submitted for our approval 
prior to us issuing a notice of intent to terminate or nonrenew a 
contract. Instead, we proposed that the sponsoring organization be 
solely responsible for the identification, development, and 
implementation of its CAP and for demonstrating to us that the 
underlying deficiencies have been corrected within the time period 
afforded under the notice and opportunity for corrective action.
    We also proposed amending the existing language at Sec.  
422.506(b)(3), Sec.  422.510(c)(1), Sec.  423.507(b)(3), and Sec.  
423.509(c)(1) which sets forth the specific timeframes afforded 
sponsoring organizations for the development and implementation of a 
CAP prior to CMS issuing a notice of intent to terminate or nonrenew. 
Specifically, we proposed to afford sponsoring organizations with at 
least 30 calendar days to develop and implement a CAP, prior to issuing 
the notice of intent to terminate or nonrenew. CMS is adopting the 
proposed language into the final rule

[[Page 19694]]

with a few technical changes to Sec.  422.506(b)(3)(i) and (ii), Sec.  
422.510(c)(1)(i) and (ii), Sec.  423.507(b)(3)(i) and (ii), and Sec.  
423.509(c)(1)(i) & (ii). First, we are deleting the phrase ``that 
formed the basis for the determination to non-renew the contract'' from 
the proposed revised regulations governing non-renewals at Sec.  
422.506(b)(3)(i) and Sec.  423.507(b)(3)(i) and deleting the phrase 
``that formed the basis for the determination to terminate the 
contract'' from the proposed revised regulations governing terminations 
at Sec.  422.510(c)(1)(i) and Sec.  422.509(c)(1)(i). The reason for 
this revision is that, upon further consideration, we have concluded 
that this language is superfluous and has the potential to cause 
confusion concerning when CMS must provide notice and reasonable 
opportunity to correct deficiencies.
    Next, we are modifying Sec.  422.506(b)(3)(i), Sec.  
423.507(b)(3)(i), Sec.  422.510(c)(1)(i), Sec.  423.509(c)(1)(i) to 
state that CMS will provide the sponsoring organization a ``reasonable 
opportunity'' of ``at least 30 calendar days'' to develop and implement 
a corrective action plan. This modification made the propose provision 
at Sec.  422.506(b)(3)(ii), Sec.  423.507(b)(3)(ii), Sec.  
422.510(c)(1)(ii), and Sec.  423.509(c)(1)(i) duplicative and 
unnecessary, therefore we are deleting that provision.
    These revisions do not alter the meaning and purpose of the 
proposed revised regulations and are strictly editorial changes.
    Comment: We received numerous comments regarding our proposal to 
modify the overall approach and timeframe sponsoring organizations are 
afforded for developing and implementing a CAP prior to CMS issuing a 
notice of intent to terminate or nonrenew. Although almost all 
commenters were supportive of CMS' proposal to move to an outcome 
oriented approach for reviewing CAPs, some commenters believe that 30 
days is not enough time for sponsoring organizations to develop and 
implement a CAP. Commenters provided several reasons to support this 
concern, including the fact that CAPs may involve complex and time 
consuming programming or modification of systems and that the proposed 
change could result in sponsoring organizations pursuing a more cursory 
or manual remediation rather than a fuller remediation. Other 
commenters recommended that rather than specifying a time period, CMS 
and sponsoring organizations should mutually agree on a time period 
that is best for completing a CAP. A few commenters expressed that 30 
days was more than enough time to correct deficiencies and that the 
regulations need to state more clearly that the corrective action 
should be completed within the same 30-day period.
    Response: Our proposal specifically stated that the time period 
afforded sponsoring organizations would be ``at least'' 30 days, 
thereby proposing the minimum amount of time that CMS would afford a 
sponsoring organization to develop and implement a CAP. We believe our 
proposal is reasonable and accounts for those situations where we 
determine that longer periods of time are warranted to demonstrate 
correction (for example, when corrections must be made to electronic 
information systems). Our proposal does not intend to limit the 
development and implementation of a CAP to 30 days in all cases because 
we agree that there are some deficiencies of a complex or technical 
nature that may require additional time to rectify.
    Comment: A few commenters requested that CMS clarify how it will 
determine if a sponsoring organization has attained compliance (for 
example, what are CMS' expectations and what supporting documents would 
we require in such situations to demonstrate compliance).
    Response: Our proposal to change to an outcome based approach is 
not making modifications in the current methodologies for assessing 
whether an entity is in (or out of) compliance with our requirements. 
For example, CMS currently conducts validation activities based on 
account management data and information, audit results, beneficiary 
complaints, sponsoring organization reporting requirements and 
performance data indicators to determine whether a sponsoring 
organization is in compliance with our requirements. We will continue 
to determine if the sponsoring organization in is in compliance with 
our statutory, regulatory and program requirements by utilizing these 
kinds of monitoring and oversight measures. The proposed language is 
only clarifying that for non-renewal and termination actions, we will 
not be requiring the sponsoring organization to submit its corrective 
action plans for approval by us, but instead the sponsoring 
organization must submit proof that identified deficiencies have been 
corrected.
    Comment: One commenter suggested that if CMS retains the authority 
to reject a CAP based on the process used to fix the deficiency, the 
sponsoring organization should be allowed to submit its CAP to CMS for 
approval, and if not disapproved by CMS within a specified period, 
assume that the CAP is approved from a process perspective.
    Response: The commenter has misunderstood our proposal. We are 
proposing to modify the current CAP process to be entirely outcome 
oriented and we will no longer be requiring sponsoring organizations to 
submit corrective action plans for approval (that is, the process for 
how the plan goes about correcting its deficiencies will not be 
approved or disapproved by CMS). Rather, the process will be 
independently developed and implemented by the sponsoring organization 
and our focus will be on determining whether the deficiencies/problems 
that created the need for the CAP have been corrected.
    Comment: A commenter requested that CMS not apply the 30-day CAP 
timeframe to ``routine or ad-hoc audits.''
    Response: The procedures governing the corrective action plan 
process associated with routine or ad-hoc audits are not specified in 
regulation. To the extent, however, that we would initiate a 
termination or nonrenewal action against a sponsoring organization 
based on a routine or ad-hoc audit CAP, we would follow the procedures 
outlined in this regulation.
    Comment: A commenter recommended that sponsoring organizations, 
which are currently under a CAP, be allowed to engage the services of 
an independent auditor to evaluate whether the sponsoring organization 
is in compliance with CMS' requirements.
    Response: Our proposed language was not intended to prevent a 
sponsoring organization from taking the initiative to use an 
independent auditor to help identify and correct underlying compliance 
deficiencies.
9. Procedures for Imposing Intermediate Sanctions and Civil Money 
Penalties Under Parts C and D (Sec.  422.756 and Sec.  423.756)
    In the October 2009 proposed rule, we proposed two changes to the 
regulations to provide additional tools to assist us in making the 
determination to lift an intermediate sanction as stated in Sec.  
422.756(d)(3) and Sec.  423.756(d)(3). First, we proposed providing CMS 
with the discretion to require a sponsoring organization, under an 
intermediate sanction, to hire an independent auditor to provide us 
with additional information that we will use to determine if the 
deficiencies upon which the sanction is based have actually been 
corrected and are not likely to recur. We also proposed an alternative 
proposal in which we would

[[Page 19695]]

grant sponsoring organizations the discretion to hire an independent 
auditor to evaluate the sponsoring organization's compliance with our 
requirements and would afford the results of the independent auditor's 
review some weight in our determination of whether the bases for the 
sanction have been corrected and are not likely to recur. After 
considering the comments we received in response to this proposal, we 
are adopting the proposal without modification, which provides CMS with 
the discretion to require a sponsoring organization, under an 
intermediate sanction, to hire an independent auditor.
    Second, we proposed changes to Sec.  422.756(d)(3) and Sec.  
423.756(d)(3) to provide CMS with the discretion to require a 
sponsoring organization, subject to a marketing and enrollment 
sanction, to go through a test period during which the organization 
could market and accept enrollments for a limited time in order for us 
to determine if the sponsoring organization's deficiencies have been 
corrected and are not likely to recur. Additionally, we proposed to 
revise these provisions to provide that following the test period, if 
we determine the deficiencies that formed the basis for the sanction 
have not been corrected and are likely to recur, the intermediate 
sanction will remain in effect until such time that we are assured the 
deficiencies have been corrected and are not likely to recur. The 
sponsoring organization, in these instances, would not have a right to 
a hearing to challenge our determination to keep the sanction in 
effect. We are finalizing this proposal without modification.
    We also proposed deleting existing provisions at Sec.  422.756(c) 
and Sec.  423.756(c) because these provisions are duplicative of the 
list of sanctions at Sec.  422.750(a) and Sec.  423.750(a) and are 
unnecessary. In this final rule, we are adopting all of these proposals 
without further modification.
    Comment: CMS received numerous comments regarding the engagement of 
an independent auditor by a sponsoring organization under sanction by 
CMS, with most commenters supporting the alternative proposal in which 
CMS may allow the sponsoring organization the discretion to hire an 
independent auditor. Commenters provided various rationales for their 
support of the alternative proposal, including the potential financial 
and operational burden to sponsoring organizations when required to 
engage an outside auditor; that sponsoring organizations may already 
have the internal resources available to provide the information to 
CMS; and that absent standards, CMS could impose this requirement in an 
arbitrary and capricious manner. A commenter opposing both proposals 
because the commenter did not believe it was necessary for CMS to grant 
the sponsor the discretion to hire independent auditors, and that by 
allowing discretion to hire an independent auditor, a sponsoring 
organization that did not hire the auditor would then be viewed in a 
negative light. Finally, one commenter expressed concern with our 
alternative proposal that when an independent auditor was not required 
by CMS, but was retained by the sponsoring organization at their 
discretion, CMS would merit only ``some weight'' in the decisionmaking 
process to lift the sanction. Specially, the commenter recommended that 
the independent auditor's evaluation should have the same standard of 
weight regardless of whether the independent auditor was required or 
was discretionary.
    Response: When a sponsoring organization has been sanctioned, the 
organization's deficiencies have risen to a serious and significant 
level. We believe that we should have the flexibility to require the 
sponsoring organization to hire an independent auditor for the benefit 
of both us and the sponsoring organization. To ensure that the use of 
the independent auditor will be beneficial for the sponsoring 
organization and to us, we intend to consider the sponsoring 
organization's ability to afford an independent auditor as well as the 
sponsoring organization's ability to demonstrate through its own 
resources that it has corrected its deficiencies and they are not 
likely to recur. To determine whether or not we would require an 
independent auditor, we would check to see if the sponsoring 
organization was on our financial watch list as well as on the 
financial watch list of any of the States or commonwealths in which the 
sponsoring organization was licensed. Also, whenever a sponsoring 
organization is under sanction, we engage in ongoing discussions with 
its senior leaders and management. If we were considering the use of an 
independent auditor, we would discuss this with the sponsoring 
organization and solicit their feedback in order to fully comprehend 
the financial makeup and stability of the organization.
    As the proposed regulatory language reflected, this authority will 
not be exercised in all circumstances because we recognize that an 
independent auditor may not be needed or beneficial in all 
circumstances. For these reasons, we are maintaining the requirement in 
the final rule that when a sponsoring organization has been sanctioned 
CMS may require that the sponsoring organization hire an independent 
auditor.
    Comment: CMS received a number of comments requesting that CMS 
provide more clarification related to our use of the term independent 
auditor in our proposal, including providing a definition, minimum 
qualifications, and whether conflict of interest rules would apply. One 
commenter suggested that CMS provide a list of auditors for sponsoring 
organizations to choose from. Another commenter seemed to be concerned 
that an independent auditor is generally used in the context of a 
financial audit and referred to ``Sarbanes Oxley'' stating that it has 
fairly clear rules with regard to conflicts of interest. In that 
respect, commenters requested that CMS clarify what context it used the 
phrase ``independent auditor.''
    Response: We intend that sponsoring organizations will choose the 
independent auditor. We will work with sanctioned organizations to 
determine if the independent auditor they are proposing is appropriate. 
Some basic examples, however, of standards that we will require for 
independent auditors are knowledge of the Part C and Part D 
programmatic requirements and experience evaluating an organization's 
performance in the areas specific to the deficiencies. To the extent 
that one commenter was referencing financial audits under the Sarbanes 
Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745, enacted July 30, 
2002), this proposal is not governed by the standards in Sarbanes 
Oxley. The type of audit contemplated by Sarbanes Oxley is a financial 
audit and not a program compliance audit. The audits proposed here 
would involve an independent evaluation of whether the sponsoring 
organization is in compliance with CMS requirements. We will evaluate 
whether or not there is a need to release more detailed information in 
the future through subregulatory guidance or other appropriate means.
    Comment: Several commenters requested that CMS provide standards 
for when an independent auditor would be needed. Commenters wanted 
clarity on when an independent auditor would be required, what types of 
issues the auditor would be called to review, and the parameters under 
which an auditor would perform its work. One commenter requested that 
we limit the focus of the audit to the bases for the sanction.
    Response: During the period of the sanction, we communicate 
regularly with the sponsoring organization and,

[[Page 19696]]

therefore, we intend to fully discuss with the sanctioned organization 
the basis for concluding an independent auditor is necessary prior to 
requiring the organization to retain the independent auditor. We intend 
to utilize the requirement in our proposal when we determine that an 
independent auditor would be beneficial, such as in situations where 
the deficiencies are highly technical in nature. Also, if the 
sanctioned organization is having difficulty demonstrating to us that 
its deficiencies have been corrected, an independent auditor can 
provide us with assurances that the deficiencies have in fact been 
corrected through a neutral third party evaluation. We intend to 
determine what areas the independent auditor should assess depending on 
the nature and extent of the deficiencies. We do not believe it is 
possible or appropriate to provide this information in regulation since 
each sanctioned organization may require a different assessment based 
on its particular deficiencies. With respect to the comment that the 
focus of the audit should be limited to the bases for the sanction, 
based on our experience, we believe the independent auditor would need 
the flexibility to broaden the assessment because new or related issues 
may arise in the period after the sanction is imposed that need to be 
evaluated in order to ensure that the deficiencies have been corrected 
and are not likely to recur.
    Comment: Several commenters were concerned with our comparison of 
the independent auditor in this requirement to the Corporate Integrity 
Agreements (CIA) used by the HHS Office of Inspector General (OIG) 
because information found under the CIA is not publicly disclosed, and 
the commenters believe that the results should be publicly disclosed. 
Commenters also stated that in the case of nursing homes, experience 
has shown that CIAs have not been effective and that nursing homes have 
not improved as a result of CIAs.
    Response: When a sponsoring organization is subjected to an 
intermediate sanction, this information, along with the bases for the 
sanction, is publicly disclosed through the CMS Web site. Additionally, 
the public subsequently is notified as to whether we have determined 
that these deficiencies have been corrected and are not likely to 
recur. We do not believe that there is any significant value in making 
the public aware of audit results related to an internal technical 
assessment of the correction of these deficiencies that may be relied 
on to make our ultimate determination. However, to the extent these 
documents would be required under existing law to be disclosed we fully 
intend to comply with those requirements.
    With regard to the commenters who were concerned about the overall 
effectiveness of using independent auditors to assist us in evaluating 
compliance, correcting the deficiencies is ultimately the 
responsibility of the sanctioned organization. Although, the 
independent auditor may consult with the sanctioned organization on the 
best way to fix its deficiencies, the main purpose of the independent 
auditor is to provide evidence and additional assurances which would 
assist us in making the determination that those deficiencies have been 
corrected. We intend that independent auditor results will be weighed 
with a host of other validation activities conducted by us and will not 
be the sole source of information concerning whether deficiencies have 
been corrected and are not likely to recur.
    Comment: One commenter stated that the audit findings of an 
independent auditor should be subject to attorney-client privilege and 
that they would only be subject to release to CMS if the sponsoring 
organization waived the privilege.
    Response: We disagree with the commenter that results of the 
independent auditor are protected by attorney client privilege. The 
purpose of the independent auditor is to provide a neutral third party 
evidenced-based evaluation of whether a sanctioned organization is in 
compliance with CMS requirements. Attorney-client privilege is a legal 
concept which protects communications between an attorney and his or 
her client and keeps certain communications between the parties 
confidential. Independent audit findings are by no means necessarily 
subject to the attorney-client privilege and, in this case, the sole 
purpose of the audit being performed is to provide information to CMS.
    Comment: One commenter stated that CMS' determination not to lift 
the sanction after the results of the independent audit should be 
appealable and such appeal is required by law.
    Response: There is no statutory right to appeal a decision by CMS 
to keep a sanction in effect. Appeal rights are afforded at the time 
the sanction is imposed.
    Comment: One commenter requested that we remove the language ``not 
likely to recur'' from the independent auditor requirement. The 
commenter stated that it was not general practice for an auditor to 
opine as to whether the deficiencies were not likely to recur.
    Response: We did not propose and do not intend to require the 
independent auditor to opine as to whether the deficiencies are not 
likely to recur. The independent auditor will perform an assessment to 
determine if the sponsoring organization is in compliance with our 
requirements and we would use that evaluation, along with other 
information provided by the sponsoring organization, to make our 
determination as to whether the deficiencies that formed the basis for 
the sanction have been corrected and are not likely to recur. The 
independent auditors report is evidentiary and not dispositive as to 
whether the deficiencies have been corrected and are not likely to 
recur. We make that determination.
    Comment: We also received a number of comments on the proposal that 
in instances where marketing or enrollment sanctions have been imposed, 
CMS may require a sponsoring organization to engage in a marketing or 
enrollment ``test period'' in order to assist CMS in making a 
determination as to whether the deficiencies have been corrected and 
are not likely to recur. Most commenters wanted more clarity regarding 
the parameters of the ``test period,'' including any limitation on 
enrollment during the test period, the duration, when it would be 
required and the level of performance required during the test period.
    Response: The details concerning implementing a test period will 
vary from organization to organization depending on the nature and 
extent of the deficiencies that formed the basis for the sanction and 
other factors such as the organization's size, complexity of 
operations, etc. We intend to work closely with any sanctioned 
organization prior to establishing a ``test period'' and the 
organization will receive specific notice of the standards the 
organization must meet to demonstrate that its deficiencies have been 
corrected during the test period.
    Comment: Several commenters asserted that sanctioned organizations 
should be afforded appeal rights if, after the marketing and enrollment 
``test period,'' CMS determines to keep the sanction in effect.
    Response: Under our proposed provision, the ``test period'' is a 
validation activity that will help us to determine that the 
deficiencies that formed the basis for the sanction have been corrected 
and are not likely to recur. For example, when we validate a sponsoring 
organization's compliance with appeals and grievances requirements, we 
may perform an audit to test those areas. If the audit

[[Page 19697]]

demonstrates that the sponsoring organization has not corrected its 
deficiencies or that they are likely to recur, the sanction will remain 
in effect and the sponsoring organization cannot appeal that 
determination. Appeal rights are afforded at the time the sanction is 
imposed.
    Comment: Several commenters expressed concern that sponsoring 
organizations subject to a ``test period'' would be under heightened 
scrutiny and that CMS would have sole discretion to determine the point 
at which the sponsoring organization has corrected the basis for the 
sanction. One other commenter questioned the value of a ``test period'' 
as well as the independent auditor and seemed to equate these 
validation activities to a situation where the sponsoring organization 
has been issued a corrective action plan (CAP).
    Response: We intend to use a ``test period'' as one of a host of 
validation activities and we intend to work closely with any sanctioned 
organization prior to imposing a ``test period'' to ensure the 
sponsoring organization receives specific notice of the standards it 
must meet to demonstrate that its deficiencies have been corrected and 
are not likely to recur. We fully intend to subject all sponsoring 
organizations placed under a sanction to heightened scrutiny both 
during the sanction period and for some period afterwards to ensure 
that the deficiencies that formed the basis for the sanction are 
corrected and are not likely to recur. The ``test period'' requirement 
simply provides organizations under marketing/enrollment sanctions the 
same opportunity other organizations would have to demonstrate 
compliance with our standards for releasing the organization from the 
sanction during an established enrollment test period. The provision is 
not applicable to an organization that has been asked to implement a 
CAP and has not had a marketing and enrollment sanction imposed. This 
provision is limited to sponsoring organizations subject to 
intermediate sanctions.
    Comment: One commenter requested that CMS adopt alternative 
approaches for evaluating whether it is appropriate to lift a marketing 
and enrollment sanction imposed on a sponsoring organization when the 
deficiencies that led to the sanction are ones where CMS cannot 
appropriately evaluate the extent of remediation through a trial 
enrollment and marketing period.
    Response: We fully intend to continue to explore other ways to 
effectively validate whether deficiencies have been corrected while a 
sponsoring organization is under sanction. The test period proposal was 
intended to address the specific dilemma faced by CMS and the 
sponsoring organization when a sanctioned organization cannot market 
and enroll during the sanction period so as to demonstrate that the 
deficiencies have been addressed.
    Comment: One commenter suggested that CMS specify that any decision 
not to lift an intermediate sanction at the end of such ``test period'' 
is a separate decision from, and shall not automatically result in, an 
action to terminate a contract.
    Response: We do not intend to use the decision not to approve a 
sponsoring organization's request to release the sanction, in and of 
itself, as a basis for reaching a determination to terminate a 
contract. Termination determinations must always meet our specific 
statutory and regulatory requirements.
10. Termination of Contracts Under Parts C and D (Sec.  422.510(a) and 
Sec.  423.509(a))
    In the October 2009 proposed rule, we proposed to delete the 
enumerated bases for termination contained at Sec.  422.510(a)(5) 
through (12) and Sec.  423.509(a)(5) through (11). We proposed to 
modify language at Sec.  422.510(a) and Sec.  423.509(a) to separate 
the language into two paragraphs with the first paragraph, (a)(1), 
listing the statutory bases for termination and the second paragraph, 
(a)(2), clarifying that a sponsoring organizations (i) failure to 
comply with our regulations, (ii) failure to meet performance 
standards; and/or (iii) participation in false, fraudulent, or abusive 
activities, may constitute a basis for CMS to determine that the 
sponsoring organization meets the requirements for contract termination 
in accordance with paragraph (a)(1).
    Based on the comments we received on the proposed rule, we have 
decided not to finalize our proposal and as an alternative to slightly 
modify existing regulations. First, we are finalizing the proposed 
modified language in provisions Sec.  422.510(a)(1)-(3) and Sec.  
422.509(a)(1)-(3) so that the regulatory text mirrors the statutory 
language. Second, we are finalizing proposed modified language for 
Sec.  422.510(a)(4) and Sec.  423.509(a)(4), which states that CMS may 
now terminate under this provision when Medicare, Medicaid, or other 
State or Federal health care programs are affected. Next we are 
finalizing our proposed deletion of existing Sec.  422.510(a)(5) and 
Sec.  423.509(a)(5) because we believe that the provision is a basis 
for expedited termination and therefore inappropriately located in this 
part. We have decided to retain the remaining enumerated bases for 
termination that we previously proposed to delete at Sec.  
422.510(a)(6) through (12) and Sec.  423.509(a)(6) through (11). We 
are, therefore, redesignating Sec.  422.510(a)(6)-(12) and Sec.  
423.509(a)(6)-(11) as Sec.  422.510(a)(5)-(11) and Sec.  423.509(a)(5)-
(10) respectively. Finally, we are adding the two new proposed bases, 
with modified language, to the existing enumerated list at Sec.  
422.510(a)(12) and Sec.  423.509(a)(11) (failure to comply with 
regulatory requirements) and Sec.  422.510(a)(13) and Sec.  
423.509(a)(12) (failure to comply with performance standards). The 
discussion of these revisions is set forth in more detail below.
    Comment: A number of commenters expressed specific concerns about 
our proposed changes to Sec.  422.510(a) and Sec.  423.509(a), namely 
our proposal to remove the enumerated standards for termination and 
proposal to mirror the statutory language. Commenters stated that the 
proposed language is too broad and vague, gives CMS unprecedented 
discretion and authority and invites arbitrary or inconsistently 
applied determinations by CMS. One commenter suggested that CMS 
maintain the existing language.
    Response: We disagree that the proposed changes to Sec.  
422.510(a)(1) through (3) and Sec.  423.509(a)(1) through (3) provide 
CMS with unprecedented authority and discretion. The proposed language 
merely mirrors the authority provided to CMS through statute. We have, 
however, after considering all of the comments, decided to retain the 
existing provisions from Sec.  422.510(a)(6) through (12) and Sec.  
423.509(a)(6) through (11) into the final rule. These examples of 
substantive bases are now redesignated as Sec.  422.510(a)(5) through 
(11) and Sec.  423.509(a)(5) through (10) respectively.
    Comment: A number of commenters expressed concern with the proposed 
language at Sec.  422.510(a)(12) and Sec.  423.509(a)(11) (formerly 
Sec.  422.510(a)(2)(i) and Sec.  423.509(a)(2)(i)) which provided that 
CMS may determine that a basis exists to terminate a sponsoring 
organization's contract if the sponsoring organization fails to comply 
with any regulatory requirement contained in parts 422 or 423. While 
one commenter strongly supported the proposed change, many commenters 
believed that the revision removed the ``substantiality'' or 
``materiality'' tests explicit or inherent in each of the existing 
requirements, and in effect it would allow CMS to terminate on the 
basis of a single instance in which a particular requirement is not 
met.

[[Page 19698]]

    Response: We have considered the comments and have decided to 
remove the word ``any'' from the proposal to avoid confusion and have 
modified the regulatory text in the final version of the regulation to 
reflect this change. Adherence to all our regulatory requirements is 
important and necessary, but we acknowledge that in making a decision 
to terminate a contract, we would take into account the nature and 
extent of the failure to meet our regulatory requirements and the 
materiality of the requirement as compared to other requirements.
    Comment: A number of commenters also expressed concern about the 
proposed language at Sec.  422.510(a)(13) and Sec.  423.509(a)(12) 
(formerly Sec.  422.510(a)(2)(ii) and Sec.  423.509(a)(2)(ii)) 
supporting the use of outlier analysis to reach a termination decision. 
These commenters opposed this proposal and argued that it is 
inconsistent with law and unfair to equate outlier status to 
noncompliance. Another commenter stated that it was improper to make 
contract termination decisions based on a determination that a 
sponsoring organization is the lowest performer among a cohort when the 
organization may still be performing adequately. Some commenters stated 
that they needed more clarity on the specifics associated with the 
outlier standards and access to the data underlying these standards. 
Additionally, commenters asserted that the outlier standards are too 
vague of a standard to serve as a basis for contract terminations, 
particularly when CMS has not disclosed the relevant standards or 
methodology and organizations have not be notified in advance of these 
standards in order to be afforded an opportunity to improve. Two 
commenters recommended that CMS allow sponsoring organizations to 
appeal CMS findings as a result of outlier analysis.
    Response: Outlier analysis is an oversight mechanism by which we 
can more effectively focus our limited resources in determining which 
sponsoring organizations to target for further compliance analysis and 
assessment. We do not intend to use this analysis in and of itself as a 
basis to terminate a contract. Therefore, we have decided to remove 
this outlier language from the final rule, to avoid misunderstandings 
and confusion among sponsoring organizations concerning the use of this 
data to take termination actions.
    Comment: CMS proposed to modify language at Sec.  422.510(a)(4) and 
Sec.  423.509(a)(4) (formerly Sec.  422.510(a)(2)(iii) and Sec.  
423.509(a)(2)(iii)) to revise the agency's existing regulatory 
authority to allow CMS to terminate a sponsoring organization when 
there is credible evidence that shows that the sponsoring organization 
has committed or participated in false, fraudulent or abusive 
activities affecting the Medicare, Medicaid, or other State or Federal 
health care programs. Two commenters on this proposed provision, one in 
support and the other opposing the provision, stated that CMS should 
not terminate contracts in cases where the employees committing the 
fraudulent acts have no involvement with the administration of the 
Medicare lines of business offered by the sponsoring organization.
    Response: Our proposal was not intended to indicate that we will 
terminate a contract in the case of employee fraudulent acts unrelated 
to Medicare, Medicaid, or other State or Federal health care programs.
11. Request for Hearing Under Parts C and D (Sec.  422.662 and Sec.  
423.651)
    In the October 2009 proposed rule, we proposed to modify the 
language at Sec.  422.662(a) and Sec.  423.651(a) stating that the 
sponsoring organization must file a request for a hearing in accordance 
with the requirements specified in the notice of the contract 
determination or intermediate sanction. This proposed change would 
ensure that the proper officials within CMS receive the request and are 
able act upon it in a timely manner. Current regulations at Sec.  
422.662(a) and Sec.  423.651(a) governing the hearing procedures 
require sponsoring organizations to file a request for a hearing on 
contract determinations with the Hearing Officer and to also file it 
with ``any CMS office.'' As we stated in the preamble to the proposed 
rule, we believe this procedure is ineffective and inefficient because 
it is likely to result in a request for hearing not being received by 
the appropriate officials within CMS.
    We also proposed a conforming change at Sec.  422.662(b) and Sec.  
423.651(b) which governs the timeframes for filing the request for 
hearing to provide that the request must be filed within 15 calendar 
days after receipt of the notice (versus the existing language which 
states 15 calendar days from the ``date CMS notifies'' the sponsoring 
organization of its determination). This proposed change was made to 
ensure consistency with the way deadlines are described in other 
regulatory provisions of parts 422 and 423 governing contract 
determinations or the imposition of intermediate sanctions (including 
related appeals processes).
    Since we received no comment on these sections, these changes are 
adopted without modification in this final rule.
12. Burden of Proof, Standard of Proof, Standards of Review, and 
Conduct of Hearing (Sec.  422.660, Sec.  423.650, Sec.  422.676, and 
Sec.  423.658)
    In the October 2009 proposed rule, we proposed to delete the 
references to ``substantial compliance'' as a standard of review at 
hearing and delete the existing regulations which provide for an 
``earliest of'' test from Sec.  422.660 and Sec.  423.650. We also 
proposed to explicitly state that the preponderance of the evidence is 
the standard of proof that we believe applies during the appeal of a 
contract determination or intermediate sanction. We also proposed to 
delete the existing language contained at Sec.  422.660(b) and Sec.  
423.650(b) and replace it with language that provides that the 
sponsoring organization has the burden of proving by a preponderance of 
the evidence that our determination was inconsistent with the 
requirements of the applicable part. Additionally, we specified in our 
proposal that the applicable requirements are Sec.  422.501 and Sec.  
422.502 for the processes and standards for applicants for the MA 
program, Sec.  423.502 and Sec.  423.503 for applicants for the Part D 
program, Sec.  422.506 or Sec.  422.510 for MA contract determinations, 
Sec.  423.507 or Sec.  423.509 for Part D contract determinations, and 
Sec.  422.752 or Sec.  423.752 for intermediate sanctions.
    We proposed to modify Sec.  422.660(c) and Sec.  423.650(c), which 
specified that the notice of any decision favorable to a Part C or D 
applicants appealing a determination that it is not qualified to enter 
into a contract with us must be issued by July 15th for the contract in 
question to be effective on January 1st of the following year. We 
proposed a change from the July 15th deadline to September 1st.
    Finally, we proposed to modify existing regulations at Sec.  
422.676(d) and Sec.  423.658(d) governing the conduct of the hearing to 
provide that, consistent with the burden of proof, during the hearing 
the sponsoring organization bears the burden of being the first to 
present its argument to the Hearing Officer according to any briefing 
schedule determined by the Hearing Officer.
    We are adopting all of the proposed changes as the final rule 
without further modification.
    Comment: Several commenters opposed CMS' removal of the 
``substantial compliance'' standard

[[Page 19699]]

asserting that this standard was well established and well understood 
as opposed to the new language that CMS proposed, which these 
commenters stated was vague and unclear.
    Response: We disagree that the ``substantial compliance'' standard 
is clear and easy to apply in making a determination. As explained in 
the preamble to the October 2009 proposed rule, the ``substantial 
compliance'' language has led to confusion among parties to the 
hearing, has been difficult for the Hearing Officer to apply, and does 
not reflect the nuances of the different legal standards provided in 
the Act for making contract determinations and imposing intermediate 
sanctions. Our proposal, which provided that the standard of review is 
whether CMS' determination is inconsistent with the regulatory 
requirements for taking the underlying action (for example, application 
denial, non-renewal, termination or intermediation sanction) provides 
the requisite specificity to be applied by the hearing officer and the 
parties to these actions. We also believe the proposal properly focuses 
the hearing officer and all parties to the hearing on the correct 
standard, and the pertinent issue under review at the hearing.
    Comment: Several commenters expressed concern that the proposed 
changes result in the sponsoring organizations bearing the burden of 
proof in appeal proceedings and one commenter added that CMS' proposal 
is inconsistent with the general rule articulated by the Supreme Court 
that the party seeking to take action ordinarily bears the burden of 
persuasion and cited to Schaffer v. Weast, 546 U.S. 49 (2005).
    Response: The commenters have misunderstood the scope of our 
proposals because we did not propose a change as to which party bears 
the burden of proof. Existing regulations explicitly state that the 
sponsoring organization bears the burden of proof. Also, we believe 
that the commenter is mistaken in its reading and interpretation of the 
ruling in Shaffer v. Weast. In that case, the Supreme Court held that 
the burden of proof in an administrative hearing is properly placed 
upon the party seeking relief (``[T]he burdens of pleading and proof 
with regard to most facts have been and should be assigned to the 
plaintiff who generally seeks to change the present state of affairs 
and who therefore naturally should be expected to bear the risk of 
failure of proof or persuasion.'') In our appeal proceedings, the party 
seeking relief is the sponsoring organization, thereby making it 
appropriate for that party to bear the burden of proof. Thus, existing 
regulations which require that the sponsoring organization bear the 
burden of proof are consistent with the legal precedent cited by the 
commenter.
    Comment: One commenter requested that CMS provide a definition for 
the ``preponderance of the evidence standard.''
    Response: The preponderance of the evidence standard is a well 
established and defined legal standard. To make a showing by the 
preponderance of the evidence, one must show that it is more likely 
than not that the fact that the claimant seeks to prove is true.
    Comment: Some commenters opposed changing the notification date 
from July 15th to September 1st. Some commenters noted that 
notification by September 1 of a favorable determination would not 
leave a sponsor with sufficient time to prepare for the upcoming year 
given that sponsors are permitted to start marketing for the upcoming 
year on October 1. One commenter recommended moving the application 
deadline to March to allow for adequate preparation of the application 
and suggested that adequate preparation may reduce the number of 
appeals.
    Response: In most cases, we do not believe a favorable 
determination issued by the CMS hearing officer will be rendered as 
late as September 1st. However, moving the notification date of the 
favorable determination from July 15th to September 1st affords 
applicants that receive a favorable decision the opportunity to be 
sponsors in the contract year for which they applied. In all instances, 
this regulatory change works to the benefit of sponsors.
    We believe that sponsors are given adequate time and instruction to 
complete the application. We believe changing the application due date 
would not significantly impact the number of appeals.
13. Expedited Contract Terminations Procedures (Sec.  422.510, Sec.  
423.509, Sec.  422.644, Sec.  423.642, Sec.  422.664, and Sec.  
423.652) Under Parts C and D
    In the October 2009 proposed rule, we proposed to delete the 
references to expedited terminations based on false, fraudulent or 
abusive activities and severe financial difficulties contained in the 
termination procedures at Sec.  422.510(b)(2)(i), Sec.  
423.509(b)(2)(i), Sec.  422.510(c)(2) and Sec.  423.509(c)(2) and in 
the appeal procedures at Sec.  422.644(c)(2), Sec.  423.642(c)(2), 
Sec.  422.664(b)(2) and Sec.  423.652(b)(2). We proposed to modify 
these provisions instead to reflect the more general statutory language 
concerning our ability to take an expedited termination when we 
determine that a delay in termination caused by adherence to the 
required procedures would pose an imminent and serious risk to the 
health of the individuals enrolled with the sponsoring organization. We 
are adopting our proposal to include this statutory language, and based 
on the comments we have decided to retain and amend the two existing 
bases for expedited termination currently located at Sec.  
422.510(a)(4) & (a)(5) and Sec.  423.509(a)(4) &(a)(5).
    Comment: We received several comments on our proposals. Commenters 
were concerned that our proposal was overly broad, lacked specificity 
and that there were no examples of situations where we would pursue an 
expedited termination. Additionally, a few commenters were concerned 
that a sponsoring organization might be subjected to an expedited 
termination for a single, isolated incidence of non-compliance and that 
sponsoring organizations would not be afforded the opportunity for a 
hearing before the termination took effect.
    Response: After considering all of the comments we received, we 
have decided to retain the two existing examples for when CMS may 
pursue an expedited termination as well as incorporate the statutory 
language into the final rule.
    The existing regulation references Sec.  422.510(a)(5) and Sec.  
423.509(a)(5) as one example of a situation where CMS would pursue and 
expedited termination, but it is also listed as a basis for 
termination. In the proposed regulation, we proposed removing this 
instance as a basis for termination, thereby removing its associated 
reference in expedited termination. We believed that this language 
created some confusion because it intertwines a basis for termination 
(that is, failure to make services available) with the statutory 
standard for making an expedited termination. Based on the comments we 
received, however, we see that the reference to this basis provided 
sponsoring organizations with a clear example of the instances under 
which CMS may decide to take an expedited termination. In order to 
resolve this issue, we have decided to add the language from Sec.  
422.510(a)(5) and Sec.  423.509(a)(5) to the regulatory provisions on 
expedited terminations in the final rule. We have decided to finalize 
our proposal to delete this language as a basis for termination because 
we maintain that the circumstances in this provision would

[[Page 19700]]

lead CMS to pursue an expedited termination.
    The second example in the existing regulation references Sec.  
422.510(a)(4) and Sec.  423.509(a)(4) which concerns situations where 
there is credible evidence that a sponsoring organization committed or 
participated in false, fraudulent or abusive activities affecting the 
Medicare, Medicaid, or other State or Federal health care programs, 
including the submission of false or fraudulent data. Based on the 
comments we received, this reference also provided sponsoring 
organizations with a clear example of the circumstances under which CMS 
may decide to take an expedited termination. Therefore, we have decided 
to retain the reference to Sec.  422.510(a)(4) and Sec.  423.509(a)(4) 
as a basis for expedited termination.
    Finally, we are moving forward with our proposal to incorporate the 
statutory language in the revised regulations governing expedited 
termination, thereby permitting CMS to expedite a termination if we 
determine that a delay in termination caused by adherence to the 
required procedures would pose an imminent and serious risk to the 
health of the individuals enrolled with the sponsoring organization. We 
do not agree that our proposal to include the statutory language is 
overly broad or vague, and believe that by retaining the two existing 
examples, it provides sponsoring organizations with some guidance on 
the types of issues that might lead CMS to pursue an expedited 
termination while still allowing us the flexibility we need to ensure 
we can act quickly in situations where adherence with the standard 
termination procedures would pose an imminent and serious risk to the 
health of Medicare beneficiaries.
14. Time and Place of Hearing Under Parts C and D (Sec.  422.670 and 
Sec.  423.655)
    In the October 2009 proposed rule, we proposed adding new language 
to Sec.  422.670(b) and Sec.  423.655(b) to state that either the 
sponsoring organization or CMS may request that a hearing date be 
postponed by filing a written request no later than 5 calendar days 
prior to the scheduled hearing, and that when either the sponsoring 
organization or CMS requests an extension, the Hearing Officer must 
provide a one-time 15-calendar day postponement, and additional 
postponements may be granted at the discretion of the Hearing Officer. 
We also proposed revising the language in Sec.  422.670(a) and Sec.  
423.655(a) to provide that the CMS Hearing Officer schedule a hearing 
to review a contract determination or the imposition of an intermediate 
sanction within 30 calendar days after the ``receipt of the request for 
the hearing.'' This change was made to ensure consistency with the way 
deadlines are described in other regulatory provisions of parts 422 and 
423 governing contract determinations or the imposition of intermediate 
sanctions (including related appeals processes). We are adopting all 
the proposed changes into the final rule without further modification 
with the exception of the timeframes outlined in Sec.  422.670(b) and 
Sec.  423.655(b) as set forth below.
    Comment: Several commenters questioned CMS' proposal to allow 
sponsoring organizations or CMS to request an extension for the hearing 
by filing a written request no later than 5 calendar days prior to the 
scheduled hearing. Most commenters believed that allowing requests for 
extensions until 5 days prior to the scheduled hearing would not allow 
enough time for sponsoring organizations to change travel arrangements 
and commenters proposed different timeframes they thought would be more 
suitable.
    Response: We agree with the commenters concerns and have decided to 
extend the timeframe for requesting an extension to the hearing date 
from 5 calendar days to 10 calendar days prior to the scheduled hearing 
in our final rule.
    Comment: One commenter raised concerns that there may be times when 
an automatic, 15-day extension may not be workable due to previous 
commitments on the part of the Hearing Officer or non-requesting party 
and suggested CMS add language to the requirement to allow for an 
alternate, mutually agreed upon hearing date if the Hearing Officer or 
the non-requesting party is not available on the hearing date that 
would otherwise result from postponement.
    Response: We believe that the addition of such language is not 
necessary because current regulations at Sec.  422.670(b)(1) and (2) 
and Sec.  423.670(b)(1) and (2) already provide that the Hearing 
Officer has the authority on his or her own motion, to change the time 
and place for the hearing.
15. Discovery Under Parts C and D (Sec.  422.682 and Sec.  423.661)
    In the October 2009 proposed rule, we proposed to delete the formal 
discovery process contained in Sec.  422.682 and Sec.  423.661. In the 
December 5, 2007 Federal Register (72 FR 68700), we published a final 
rule with comment period that finalized our revisions to Sec.  422.682 
and Sec.  423.661 to provide for a formal discovery process prior to 
hearing. However, based on our experience since the promulgation of 
this rule, we do not now believe a formal discovery process is 
necessary or appropriate for these kinds of proceedings. In addition, 
the existing timeframe in which the hearing normally must take place, 
30 calendar days after request for a hearing, does not easily 
accommodate a formal discovery process. We also proposed to amend Sec.  
422.682 and Sec.  423.661 to require that witness lists and documents 
be identified and exchanged at least 5 calendar days prior to the 
scheduled hearing. We are adopting Sec.  422.682 and Sec.  423.661 
without further modification into this final rule.
    Comment: Several commenters opposed CMS' removal of the formal 
discovery process from regulations. Commenters specifically stated that 
deleting discovery is a violation of their due process rights, and 
would deny sponsors the only opportunity they have to obtain the full 
breadth of information they are entitled to for a fair hearing. One 
commenter stated that the discovery process is the appropriate forum 
for the sponsoring organization to learn of the criteria CMS used in 
reaching its decision and that sponsoring organizations have a 
statutory right under 5 U.S.C. 552 to this information.
    Response: We disagree with the commenters who stated that the 
removal of discovery from regulations is a violation of their due 
process rights and a violation of their statutory right to obtain 
information in this manner. Our hearings are informal administrative 
proceedings and as the court held in Lopez v. U.S., ``[t]here is no 
general constitutional right to discovery in administrative 
proceedings'' Lopez v. U.S., 129 F.Supp.2d 1284 (2000). Also, we do not 
believe that finalizing our proposal to remove discovery will create 
unequal or prejudicial treatment that will lead to a violation of due 
process. Both CMS and sponsoring organizations will be equally limited 
to producing and receiving witness lists and documents that must be 
exchanged at least 5 calendar days before the hearing. Also, we do not 
believe that full discovery for sponsoring plans is required to receive 
the necessary information from us for adequate and proper preparation 
for the hearing. Prior to the hearing, we will have already provided 
sponsoring organizations the specific information relied upon by CMS in 
reaching the determination which they are appealing. In cases of 
contract terminations or intermediate sanctions, we will have 
previously provided the specific basis for the determination within the 
notice

[[Page 19701]]

of intent to terminate or impose intermediate sanctions. Therefore, we 
believe that a witness list and documents are sufficient to meet the 
evidentiary needs of the parties. Additionally, any prior decisions of 
hearing officers are public record, and therefore, obtainable by 
sponsoring organizations. Sponsors have numerous statutory rights under 
5 U.S.C. 552 which govern the agency's disclosure of public 
information; agency rules, opinions, orders, records, and proceedings. 
The removal of the discovery process does not circumvent the rights 
provided to the public under 5 U.S.C. 552.
    Comment: One commenter also requested that if CMS moves forward 
with the proposal to eliminate the formal discovery process that we 
revise our proposal to include a list of the specific documents to be 
shared and to indicate the action that will result when the required 
documents are not shared prior to the hearing.
    Response: Appeal proceedings will vary dependent on what type of 
determination is being appealed and we cannot possibly specify which 
documents would be necessary in each and every type of case. Also, if 
documents are not shared prior to the hearing, it is within the 
discretion of the hearing officer to determine what the consequences of 
that action or inaction for the parties to the hearing.
16. Review by the Administrator Under Parts C and D (Sec.  422.692(a) 
and Sec.  423.666(a))
    In the October 2009 proposed rule, we proposed revisions to the 
language at Sec.  422.692(a) and Sec.  423.666(a) to provide that the 
sponsoring organization may request review by the Administrator within 
15 calendar days after ``receipt of the hearing decision.'' In 
addition, we revised the language at Sec.  422.692(c) and Sec.  
423.666(c) governing the notification of Administrator determination to 
state that the Administrator must notify both parties of his or her 
determination regarding review of the hearing decision within 30 
calendar days after ``receipt of the request for review'' (versus the 
existing language which provides within 30 calendar days of ``receiving 
the request for review''). These changes were made to ensure 
consistency with the way deadlines are described in other regulatory 
provisions of parts 422 and 423 governing contract determinations or 
the imposition of intermediate sanctions (including related appeals 
processes). We received no comment on this section, and are adopting 
these changes without modification.
17. Reopening of an Initial Contract Determination or Decision of a 
Hearing Officer or the Administrator Under Parts C and D (Sec.  422.696 
and Sec.  423.668)
    In the October 22, 2009 proposed rule, we proposed revising the 
regulations governing the reopening of an initial contract 
determination or decision of a Hearing Officer or the Administrator 
under Parts C and D by replacing the language ``initial determination'' 
with ``contract determination'' in the section headings of Sec.  
422.696 and Sec.  423.668 and in the text of Sec.  422.696(a) and Sec.  
423.668(a). We noted that the term ``initial determination'' is not 
used elsewhere in Subpart N (Contract determinations and appeals). We 
received no comment on our proposals and are adopting these changes 
without modification.
18. Prohibition of MA and Part D Applications for 2 Years After a 
Mutual Termination (Sec.  422.503(b)(6) and Sec.  423.504(b)(6))
    In the October 22, 2009 proposed rule, we proposed prohibiting an 
MA organization or Part D sponsor, as a condition of the consent to a 
mutual termination, from applying for new contracts or service area 
expansions for a period of 2 years, absent circumstances that warrant 
special consideration as provided under section 1857(c)(4)(A) of the 
Act. Specifically, under Part D, we proposed modifying Sec.  423.508 by 
adding paragraph (e), which states that as a condition of the consent 
to a mutual termination, CMS requires as a provision of the termination 
agreement language prohibiting the Part D sponsor from applying for new 
contracts or service area expansions for a period of 2 years, absent 
circumstances warranting special consideration. Similarly, in Sec.  
423.504(b), we proposed adding a new paragraph (b)(6) stating that 
organizations may be qualified to apply for new contracts to the extent 
that they have not terminated a contract by mutual consent under which, 
as a condition of the consent, the Part D sponsor agreed that it was 
not eligible to apply for new contracts or service area expansions for 
a period of 2 years per Sec.  423.508(e). We also proposed 
redesignating the current Sec.  423.504(b)(6) to Sec.  423.504(b)(7).
    Similar modifications were proposed for the MA regulations. 
Specifically, we proposed modifications to Sec.  422.508 by adding 
paragraph (c), which states that as a condition of the consent to a 
mutual termination, we require as a provision of the termination 
agreement language prohibiting the MA organization from applying for 
new contracts or service area expansions for a period of 2 years, 
absent circumstances warranting special consideration. Similarly, in 
section Sec.  422.503(b), we added a new paragraph (b)(7), stating that 
organizations may be qualified to apply for new contracts to the extent 
that they have not terminated a contract by mutual consent under which, 
as a condition of the consent, the MA organization agreed that it was 
not eligible to apply for new contracts or service area expansions for 
a period of 2 years per Sec.  422.508(c).
    In proposing these changes, we noted that in practice, a voluntary 
nonrenewal of a contract by a Part D sponsor or MA organization is not 
dissimilar from an organization requesting and being granted a mutual 
termination of their contract under Sec.  422.503 and Sec.  423.508. 
Under Sec.  422.506(a)(4) and Sec.  423.507(a)(3), if a sponsor 
voluntarily nonrenews a contract, we cannot enter into a contract with 
the organization for 2 years unless there are special circumstances 
that warrant special consideration, as determined by CMS. The primary 
difference between a nonrenewal and a mutual termination is often 
timing. For a nonrenewal request to take effect at the end of the 
current contract year, it must be received by us on or before the first 
Monday in June (the bid deadline), as specified in Sec.  
423.507(a)(2)(i) and Sec.  422.506(a)(2)(i). However, once an 
organization submits a bid, it can no longer voluntarily nonrenew its 
contract for the following year. Rather, the Part D sponsor or MA 
organization must request a mutual contract termination. The later in 
the year the organization requests such a mutual termination for the 
following contract year, the more disruptive and difficult the process 
becomes. In the October 2009 proposed rule, we noted that this is 
particularly true if a request for a mutual contract termination occurs 
once plan information has become publicly available, marketed to 
beneficiaries, and beneficiaries have been given the opportunity to 
enroll. These late terminations create significant disruption for 
beneficiaries and for us. Similarly, even greater disruption results 
from mutual terminations requested to take effect during the course of 
a contract year.
    In light of the disruptions that may occur, we proposed that a 
termination by mutual consent, which involves a termination by an MA 
organization or a Part D sponsor as well as by us, be considered a 
termination of a contract for purposes of the 2-year ban on entering 
into new contracts under section 1857(c)(4)(A) of the Act, which

[[Page 19702]]

is incorporated for Part D under section 1860D-12(b)(3)(B) of the Act.
    After considering the comments we received in response to these 
proposals, in this final rule, we are adopting our proposals without 
modification.
    Comment: One commenter stated that it is important to inform 
beneficiaries immediately when--(1) their plan is not in compliance 
with CMS requirements; (2) sanctions have been implemented; or (3) a 
plan is prohibited from applying for new contracts or service area 
expansions for a 2-year period. By notifying beneficiaries immediately 
of these situations, they will be afforded more time to plan. Immediate 
notification will increase the likelihood that the information will not 
be lost in the extraordinary amount of information given during the 
open enrollment period. The commenter recommended that CMS strengthen 
compliance in general in order to hold plans accountable through CMS 
monitoring and oversight.
    Response: Although mutual terminations are often requested when a 
contract is, or will soon be, out of compliance with CMS requirements, 
a mutual termination can occur even when there is no current or 
expected compliance violation. Our proposed revision to this portion of 
the regulation only addresses the period of time during which a 
mutually terminated sponsor would be precluded from applying for a new 
or expanded contracts. As a result, this comment addressing the issue 
of beneficiary notice concerning Part C and D plan performance is 
outside the scope of the proposed regulatory change.
    Comment: One commenter stated that it did not support the proposal 
for a 2-year ban because market conditions can create the need for 
contract terminations and service area reductions. The commenter 
requested that CMS allow flexibility on market re-entry based on 
environmental conditions and appropriate negotiations with and approval 
by the agency.
    Response: Terminations can cause beneficiary confusion and 
disruption. Additionally, if a sponsor responds to market conditions 
through the nonrenewal process, a 2-year application ban would apply. 
Accordingly, we believe it is reasonable and appropriate to apply the 
same 2-year application ban in situations when a sponsor terminates a 
plan after the nonrenewal deadline. We also note that, the proposed 
regulation changes preserve our authority to permit affected 
organizations to submit applications in less than 2 years when special 
consideration is warranted.
    Comment: One commenter stated that it did not oppose the proposed 
changes, but requested that CMS clarify that the 2-year moratorium is 
based on a sponsoring organization terminating all of its MA or Part D 
contracts, not a subset of each line.
    Response: The regulation as proposed would apply to a licensed 
legal entity that mutually terminated any of its MA or PDP contracts. A 
complete exit from either program by an organization is not required 
for CMS to invoke the 2-year application prohibition.
    Comment: One commenter requested additional clarity regarding 
``nonrenewal'' and ``mutual termination.'' The commenter urged CMS to 
be especially cautious about any presumption by CMS that termination 
may be due to some type of poor performance. The commenter stated that 
it is possible that after the first week in June a plan will determine 
that it is not feasible to continue with the contract. The commenter 
included the example of a State-initiated dramatic midyear reduction in 
payment for Medicaid services in a dually integrated product. The 
commenter also stated that the references in Sec.  422.508 to Sec.  
422.510 seem to imply some type of failure to perform. The commenter 
supported providing adequate notice of terminations to beneficiaries, 
but suggested that a 60-day timeframe may be adequate for end-of-year 
terminations. The commenter indicated that the 2-year prohibition 
against applying for new contracts or services areas is reasonable 
given the language ``absent circumstances warranting special 
consideration.'' The commenter stated that an example of such a 
circumstance should include the situation of when a plan is trying to 
be responsive to state purchasing initiatives on behalf of dual 
eligibles.
    Response: With this proposal, we were not addressing whether a 
sponsor is a poor performer. Rather, the proposal was intended to make 
the consequences to a sponsor of a mutual contract termination the same 
as that for a non-renewal. Without this change, a plan might opt for a 
mutual termination rather than the less disruptive non-renewal in order 
to avoid the 2-year ban. Additionally, the existing 2-year ban on non-
renewing sponsors is not meant to address those sponsors' performance, 
although it may help us to identify good business partners. The 2-year 
application ban, as it has been applied to non-renewing organizations 
and, once this proposed change is adopted by CMS, to mutually 
terminating organizations, is intended to ensure continuity in the Part 
C and D programs by imposing longer-term consequences on sponsors that 
might otherwise make annual decisions to exit and re-enter the 
programs.
    Comment: A commenter asked CMS to clarify that this change applies 
only to mid-year mutual terminations and not to a plan electing to non-
renew with ample notice to CMS (such as at the time of bid submission 
or per non-renewal guidance).
    Response: Consistent with Sec.  422.506(a)(4) and Sec.  
423.507(a)(3), the 2-year ban already applies to sponsors electing to 
nonrenew. The proposed regulatory change is an effort to extend the 
application of that rule to the analogous situation of a mutual 
contract termination, regardless of the effective date of that 
termination.
    Comment: Commenters stated that while they understood the 
importance of the change, they would encourage CMS to be flexible as 
there may be instances where an MAO will conduct the right level of due 
diligence on its providers, yet a provider may experience a disruption 
that causes the organization to withdraw. The commenters stated that 
there is significant merit in those instances of an MAO acting in the 
best interest of Medicare beneficiaries and not effectuating the new 
plan or contract.
    Response: Regardless of the degree of due diligence performed prior 
to contracting, the sponsor assumes all risks associated with complying 
with an MA or PDP contract, including a 2-year ban on new contracting 
resulting from a mutual termination. Also, as indicated in the proposed 
rule, CMS will retain the authority to accept applications where 
special consideration is warranted.
    Comment: A commenter asked how this provision would be applied if 
an acquisition or merger is pending.
    Response: The acquiring sponsor should assume that it is acquiring 
all the Medicare contract assets and liabilities of the selling 
organization, including a 2-year ban on new applications.
    Comment: A commenter stated that plans should be allowed to 
terminate prior to the start of the benefit year if an adequate network 
cannot be obtained. The commenter also stated that if the termination 
occurs after the start of open enrollment, CMS should wait 30 days and 
allow beneficiaries to make their own elections before assigning them 
to an alternate plan. Additionally, it was suggested that there should 
be a mechanism in place to make sure that a plan cannot use termination 
as a tool to shift beneficiaries into a higher cost plan offered by the 
terminating sponsor.

[[Page 19703]]

    Response: This comment does not concern the proposed application of 
the 2-year ban on mutually terminated sponsors. We will not address the 
comment as it is outside the scope of the proposed change.
    Comment: A commenter stated that there are a variety of 
circumstances, including but not limited to the loss of an adequate 
network that may be beyond the control of the plan but force it to 
withdraw a contract. Such withdrawal may be in the best interest of the 
beneficiaries. Therefore, overall plan performance should not be judged 
on this one factor. If a plan can remedy the issue for the following 
contract year it should be allowed to re-contract. The commenter 
suggests that this issue be looked at on a case-by-case basis.
    Response: This provision does not address whether a sponsor is a 
poor performer. Rather, the provision is intended to make the 
consequences of a mutual contract termination the same as those for a 
nonrenewal. The 2-year ban on nonrenewing sponsors is not meant to 
address those sponsors' performance; rather, it is intended to ensure 
continuity in the Part C and D programs by imposing longer-term 
consequences on sponsors that might otherwise make annual decisions to 
exit and re-enter the programs.
    Comment: One commenter asked if CMS intends to apply this provision 
to all types of applications regardless of plan type or geographic 
location.
    Response: In the context of voluntary nonrenewals, our policy has 
been to apply this prohibition based on plan type and service area (for 
example, non-renewal of a PFFS contract does not prohibit the same 
organization from applying immediately for an MA-HMO contract for the 
same service area). We anticipate applying the same policy to mutual 
terminations.

B. Changes To Strengthen Beneficiary Protections

    This section includes provisions aimed at strengthening beneficiary 
protections under Parts C and D. Under Part D, we address proposals in 
the area of eligibility and enrollment policy, transition period 
requirements, coordination of benefits policy, retroactive claims 
adjustment reimbursements and recoveries, and use of standardized 
technology. We also finalize Part D rules regarding timeframes and 
responsibility for making redeterminations. Under Part C, we finalize 
rules to--
     Authorize us to annually establish limits on member cost 
sharing;
     Prohibit PPO, PFFS, and MSA plans from using compliance 
with voluntary prior notification procedures in determining cost-
sharing amounts;
     Establish new requirements for organization 
determinations; and
     Offer two definitional revisions.
    We also finalize Part C and D marketing requirements by 
distinguishing marketing materials from enrollee communications 
materials and mandating the use of standardized marketing material 
language and format to ensure clarity and accuracy among plan 
documents. We also clarify notice requirements, and require that 
sponsoring organizations disclose information concerning the 
organization's performance and compliance deficiencies to enable 
beneficiaries to make informed choices. This information is detailed in 
Table 2.

                            Table 2--Provisions To Strengthen Beneficiary Protections
----------------------------------------------------------------------------------------------------------------
                                                 Part 422                                Part 423
            Provision            -------------------------------------------------------------------------------
                                        Subpart             Section             Subpart             Section
----------------------------------------------------------------------------------------------------------------
Broker & Agent Requirements       N/A...............  N/A...............  N/A...............  N/A.
 under Parts C and D.
Beneficiary Communications        Subpart V.........  Sec.   422.2260,    Subpart V.........  Sec.   423.2260
 Materials under Parts C and D.                        Sec.   422.2262.                        Sec.   423.2262.
Required Use of Standardized      Subpart V.........  Sec.   422.2262...  Subpart V.........  Sec.   423.2262.
 Model Materials under Parts C
 and D.
Extend the mandatory minimum      Subpart B.........  Sec.   422.74.....  Subpart B.........  Sec.   423.44.
 grace-period for failure to pay
 premiums.
Maximum allowable out-of-pocket   Subpart C.........  Sec.   422.100....  N/A...............  N/A.
 cost amount for Medicare Parts
 A and B services.
Maximum allowable cost sharing    Subpart C.........  Sec.   422.100....  Subpart C.........  Sec.   423.104.
 amount for Medicare Parts A and
 B services and prescription
 drugs.
Prohibition on prior              Subpart A.........  Sec.   422.2 Sec.   N/A...............  N/A.
 notification by PPO, PFFS, and                         422.4, Sec.
 MSA plans.                                            422.105.
Requirements for LIS              N/A...............  N/A...............  Subpart P.........  Sec.
 eligibility: expand the deeming                                                               422.773(c)(2).
 period for LIS-eligible
 beneficiaries to cover at least
 13 months.
Expand auto-enrollment rules to   N/A...............  N/A...............  Subpart B.........  Sec.   423.34.
 entire LIS-eligible population.
Special Enrollment Period (SEP)   N/A...............  N/A...............  Subpart B.........  Sec.   423.38.
 Policies.
Transition Process..............  N/A...............  N/A...............  Subpart C.........  Sec.
                                                                                               423.120(b)(3).
Sponsor responsibility for        N/A...............  N/A...............  Subpart J.........  Sec.   423.464.
 retroactive claims adjustment                                                                Sec.   423.466.
 reimbursements and recoveries.                                                               Sec.   423.800.
Time Limits for Coordination of   N/A...............  N/A...............  Subpart J.........  Sec.   423.466.
 Benefits.
Pharmacy use of Standard          N/A...............  N/A...............  Subpart C.........  Sec.   423.120.
 Technology (ID cards) under
 Part D.
Allow members in stand-alone      N/A...............  N/A...............  Subpart B.........  Sec.   423.44.
 Part D plans to be temporarily
 out of area for up to 12 months.
Prohibit mass SPAP reenrollments  N/A...............  N/A...............  Subpart J.........  Sec.   423.464(e).
 during plan year.
Non-Renewal Public Notice 60-day  Subpart K.........  Sec.   422.506....  Subpart K.........  Sec.   423.507.
 non-renewal beneficiary
 notification requirement.

[[Page 19704]]

 
Notice of Alternative Medicare    Subpart K.........  Sec.                Subpart K.........  Sec.
 Plans.                                                422.5(a)(2)(ii).                        423.507(2)(ii).
Timeframes and Responsibility     N/A...............  N/A...............  Subpart M.........  Sec.   423.590.
 for making Redeterminations
 under Part D.
Requirements for Requesting       Subpart M.........  Sec.   422.568....  N/A...............  N/A.
 Organization Determinations.
Organization Determinations       Subpart M.........  Sec.   422.566 &    N/A...............  N/A.
 under Parts C.                                        Sec.   422.568.
Refine/clarify definitions        Subpart M.........  Sec.   422.561,     N/A...............  N/A.
 related to authorized                                 Sec.   422.574 &
 representatives.                                      Sec.   422.624.
Sponsors may be required to       Subpart C.........  Sec.   422.111(g).  Subpart C.........  Sec.   423.128(f).
 disclose to enrollees
 compliance and performance
 deficiencies.
Revise definition of ``service    Subpart A.........  Sec.   422.2......  N/A...............  N/A.
 area'' to exclude facilities in
 which individuals are
 incarcerated.
----------------------------------------------------------------------------------------------------------------

1. Broker and Agent Requirements Under Parts C and D
    In the preamble to our October 22, 2009 proposed rule, we 
recognized the important role that agents and brokers play in assisting 
beneficiaries with accessing and understanding plan information, making 
informed choices, and enrolling them in Medicare health plans. However, 
we also stated our continuing concern about the inherent financial 
incentives independent agents and brokers have when selling Medicare 
products. For this reason, while not proposing any specific changes in 
the October 2009 proposed rule, we solicited comments suggesting ideas 
for effectively providing Medicare health plan and drug plan 
information and enrollment assistance that ensures beneficiaries select 
the plan that best meets their needs, including whether additional 
changes are needed in recently established requirements relating to 
plan sponsors' use of agents and brokers. We specifically requested 
comments regarding the tools we currently use (for example, our print 
publications and our online resources) to assist beneficiaries with 
their health care decisions; whether State Health Insurance Assistance 
Programs (SHIPs) have the capacity to serve significantly more Medicare 
beneficiaries; and the effectiveness of limiting the use of independent 
agents and brokers by MA organizations and PDP sponsors to certain 
times of the year, specifically, the open enrollment period (OEP) and 
annual enrollment period (AEP), or to selected groups of beneficiaries.
    Comment: Several commenters provided very specific suggestions for 
an enrollment broker demonstration. Comments we received on an 
enrollment broker demonstration included suggestions for guiding 
principles that should govern such a demonstration as well as 
recommendations on specific features that should be included. Some 
commenters expressed the concern the proposed enrollment broker 
demonstration would prevent plans from continuing to use plan-employed 
agents. Other commenters recommended that independent agents and 
brokers be permitted to make referrals and receive a referral fee, with 
the enrollment broker merely assisting with actual enrollment. One 
commenter suggested that the demonstration initially focus on one State 
that already uses a third party enrollment assistance approach for 
Medicaid managed care plan enrollment as a pilot. The same commenter 
provided a very detailed plan for how the commenter believed an 
enrollment broker demonstration should work. Under this suggested plan, 
the enrollment broker would receive applications, record oral scope of 
appointment confirmations, conduct third-party enrollment verification 
calls, and conduct general marketing activities providing high-level, 
standardized general information on plan options. The enrollment 
brokers would refer beneficiaries with detailed questions or needing 
more tailored plan presentations to plan-employed agents. The commenter 
also expressed concerns about the enrollment broker demonstration, 
suggesting that coordination and communication between the enrollment 
broker, plans, and beneficiaries would be crucial to the success of the 
demonstration; the ability to assure the quality of information 
provided to beneficiaries would be important; and enrollment broker 
training would also be a critical component of the program. This 
commenter suggested that CMS solicit additional input from MA plans on 
operational and information issues involved with effective 
communication, coordination, and training. The commenter also had 
concerns about the role an enrollment broker would play in the 
disenrollment process.
    Response: We thank the commenters for this feedback and will 
consider it as we continue to improve our tools for assisting 
beneficiaries with their health care decisions and as we continue to 
assess the impact of our current rules regarding independent agents/
brokers.
    Comment: A number of commenters provided us with responses to our 
request for comments on the idea of limiting the use of agents and 
brokers to the AEP and OEP, or to selected groups of beneficiaries. The 
majority of these commenters expressed concerns that limiting the use 
of agents and brokers in this way could disadvantage age-ins, dual-
eligibles, and those eligible for the low-income subsidy. They believe 
strongly that these limits would decrease the service and support that 
beneficiaries depend on to understand plan benefits and make enrollment 
decisions. They also indicated that CMS' current support tools are not 
sufficient to replace the function that agents and brokers serve.
    Commenters also indicated that limiting the use of agents and 
brokers to certain times of the year is not feasible given that plans 
use agents and brokers throughout the year and that current CMS 
oversight of agents and brokers is sufficient. Along these same lines, 
one commenter supported the view set forth in the proposed rule 
preamble that sufficient time has yet not passed to fully evaluate the 
impact of the new marketing requirements codified by CMS following 
enactment of the Medicare Improvements for Patients and Providers Act 
of 2008 (MIPPA). Several commenters suggested that limiting the use of 
agents and brokers to the AEP

[[Page 19705]]

and OEP or to select beneficiary groups would, in fact, result in 
increases of the marketing abuses we are trying to eliminate and would 
force good agents out of business, leaving behind agents only 
interested in short-term gains.
    Several commenters provided alternatives to limiting the use of 
agents and brokers to the OEP and AEP or with selected groups. The 
suggested alternatives can be grouped into three categories--(1) 
Recommendations to strengthen current rules, processes, and oversight 
of agents and brokers; (2) Recommendations to require better 
collaboration among stakeholders; and (3) Recommendations that may 
require regulatory changes.
    Recommendations for strengthening current rules, processes, and 
oversight of agents and brokers included--
     Strengthening agent and broker education/training;
     Creating a Medicare license and industry designation that 
all agents must have in order to sell Medicare products; standardizing 
agent compensation by geographic area;
     Creating and requiring the use of a ``replacement/
suitability'' form that agents would use when moving a beneficiary to a 
new plan;
     Strengthening CMS surveillance efforts;
     Stabilizing CMS' guidance in this area by limiting the 
frequency of future policy changes; and
     Tightening our current rules regarding the use of 
independent agents and brokers.
    Commenters' recommendations for requiring better collaboration with 
stakeholders included--
     Working with plans, advocates, and associations to develop 
alternatives;
     Creating a list of agents/brokers prohibited from selling 
Medicare plans that would be shared with all stakeholders;
     Providing more support to and coordination with the 
States; and
     Periodically publishing best practices.
    Additional recommendations that may require regulatory or statutory 
changes included--
     Requiring plans to share information on agent misconduct 
and terminations;
     Creating uniform compensation rates for MA plans and PDPs;
     Requiring agents and brokers to register with the National 
Insurance Producer Registry (NIPR);
     Precluding agents from selling MA plans or PDPs or selling 
to LIS beneficiaries;
     Allowing a one-time ``new enrollment payment''; and
     Renewal compensation for all subsequent moves (regardless 
of plan type change).
    Commenters also recommended--
     Rescinding ``lock-in'';
     Limiting agent/broker involvement in marketing, but not 
limiting their involvement to certain periods during the year;
     Shortening the AEP; and
     Eliminating the additional three month OEP for MA plans at 
the beginning of the year and applying the enrollment period uniformly 
to MA plans and PDPs.
    A number of commenters also provided recommendations with respect 
to our question about whether and how to expand the role of SHIPs. 
Almost all of these commenters expressed concerns about SHIP funding, 
capacity, and capability. They expressed concern about--
     Inadequate funding;
     The fact that SHIPs' reliance on volunteers limits their 
ability to fully replace the role of independent agents and brokers;
     The lack of capacity of existing SHIP networks to service 
entire States; and
     The lack of knowledge by SHIP volunteers about plans in 
every local market within a State.
    Several commenters suggested that by limiting plan options and 
standardizing benefits, SHIP counselors would be better able to handle 
questions from beneficiaries about plan differences. Other commenters 
suggested that by strengthening SHIP networks, their capacity could 
also be expanded.
    Response: While we did not propose any changes to our regulations 
governing plans' use of independent agents and brokers to sell Medicare 
plans in our October 22, 2009 proposed rule, we appreciate the 
thoughtful ideas and recommendations commenters offered. We recognize 
the important role agents and brokers play in assisting beneficiaries 
with accessing and understanding plan information, making informed 
choices, and enrolling them in Medicare health plans. However, we still 
have concerns about the inherent financial incentives independent 
agents and broker have when selling Medicare products. We recently 
implemented regulations (Sec.  422.2274 and Sec.  423.2274) intended to 
reduce agent and broker incentives to enroll beneficiaries in plans 
inappropriately. We continue to agree with the commenter that suggested 
it is still too soon at this time to fully evaluate whether these new 
rules have achieved MIPPA's goal of creating incentives for agents and 
brokers to assist beneficiaries with selecting plans based on their 
health care needs. As we continue to monitor and evaluate our marketing 
rules and oversight activities, we will evaluate the need for any 
future notice and comment rule making.
2. Beneficiary Communications Materials Under Parts C and D (Sec.  
422.2260, Sec.  422.2262, Sec.  423.2260, and Sec.  423.2262)
    In the October 22, 2009 proposed rule, in implementing sections 
1851(h) and 1860D-1(b)(1)(vi) of the Act, we proposed narrowing the 
definition of the term ``marketing materials'' at Sec.  422.2260 and 
Sec.  423.2260 to exclude a new proposed category of ``current enrollee 
communications materials,'' which we proposed defining to include 
either situational materials or beneficiary specific customized 
communications. We proposed this change in order to streamline the 
review and approval of beneficiary communication notices to current 
members.
    Specifically, we proposed revising Sec.  422.2260 and Sec.  
423.2260 to exclude from the definition of marketing materials 
communications targeted to current enrollees that are customized or 
limited to a subset of enrollees or a specific situation, or that 
involve claims processing or other operational issues. In the preamble 
to the proposed rule, we cited the following examples of the types of 
materials that would be excluded from our proposed revised definition 
of ``marketing materials'': Part D explanations of benefits (EOBs); 
notifications about claims processing changes or errors; and other one-
time or situational, beneficiary specific letters to current enrollees.
    In addition, we proposed to revise Sec.  422.2262 and Sec.  
423.2262 to specify that, while the current enrollee communications 
excepted from the definition of marketing materials would not be 
subject to the statutory requirement that they be submitted to CMS for 
review and approval prior to use, we retained the right to review such 
materials, and their use could be disapproved (or disapproved subject 
to modification) by CMS.
    In this final rule, we adopt these provisions with some 
modification. For reasons discussed below, we have in this final rule 
revised paragraph Sec.  422.2260(5) (vii) to retain materials about 
membership rules and procedures, which we are calling ``membership 
activities'' (for example, materials on rules involving nonpayment of 
premiums, confirmation of enrollment or disenrollment, or non-claim 
specific notification materials) in

[[Page 19706]]

the definition of marketing materials subject to CMS prior approval. In 
addition, we have added a new paragraph Sec.  422.2260(6) to expressly 
exclude from the definition of marketing materials ad hoc customized or 
situational enrollee communications.
    Comment: A number of commenters supported our proposal to modify 
the definition of the term ``marketing materials'' to distinguish 
materials used to market to new potential enrollees from current 
enrollee communication materials. However, these commenters raised an 
ambiguity in our proposed revision to the definition of marketing 
materials at Sec.  422.2260(5)(vii) and Sec.  423.2260(5)(vii). These 
commenters noted that, as written, the revised paragraph (5)(vii) 
merely defines ``current enrollee communications materials'' without 
making it clear that such materials are excluded from the revised 
definition of marketing materials.
    Response: We agree that, as written, the proposed revisions to the 
definition of marketing materials did not make it sufficiently clear 
that we were excluding customized or situational current enrollee 
communications from the definition of marketing materials, and that 
certain materials directed at current members should still be included 
in the definition. Accordingly, as noted above, in response to these 
comments, we have revised paragraph Sec.  422.2260(5) (vii) to retain 
materials about ``membership activities'' (such as, materials on rules 
involving non-payment of premiums, confirmation of enrollment or 
disenrollment, or non-claim specific notification materials) in the 
definition of marketing materials. In addition, we have added a new 
paragraph Sec.  422.2260(6) to specifically exclude from the definition 
of marketing ad hoc customized or situational enrollee communications 
from the definition of marketing materials.
    Comment: Several commenters suggested that, in the absence of a 
clear definition of claims processing or operational issues, we should 
define the terms ``situational'' and ``beneficiary specific'' narrowly. 
Several commenters requested that we specify those situations where 
beneficiary communications would be considered current enrollee 
communications materials and be excluded from the proposed revision to 
the definition of marketing materials. These commenters also suggested 
that we allow operational letters that pertain to enrollment, 
disenrollment and appeals issues to be excluded from the definition of 
marketing materials. Some commenters suggested that we specify that any 
materials excluded from the definition of marketing materials are not 
subject to the Medicare Marketing Guidelines' requirements that plans 
include certain plan mailing statements on envelopes regarding the 
contents of the materials enclosed within. In addition, these 
commenters requested additional guidance regarding how we intend to 
operationalize the process for review and approval of situational 
enrollee communications that would, if the proposed provisions were 
finalized as proposed, be outside CMS's current marketing review and 
approval processes.
    Response: We disagree that it is necessary, and do not believe it 
would be appropriate, to attempt to specify in the regulations text an 
exhaustive listing of enrollee communications that are not considered 
marketing materials per our revised definition of the term 
``marketing.'' Our intent is to define these exclusions from the 
definition of marketing materials narrowly to include communications 
that are either customized or intended for a subset of current 
enrollees and which deal with specific situations or cover member-
specific claims processing or other operational issues. Our intent was 
not to exclude from the definition of marketing materials 
communications that are used more broadly or that convey information 
about plan benefit structures. As noted previously, in response to 
earlier comments and this comment, we have revised our proposed 
definition of current enrollee communications materials in the final 
rule to add a new Sec.  422.2260(6) to better describe our intent in 
the proposed rule, and now refer to these materials as ``ad hoc 
enrollee communications materials.'' The final definition encompasses 
materials that are targeted to current enrollees; are customized or 
limited to a subset of enrollees; do not include information about the 
plan's benefit structure; and apply to a specific situation or cover 
member-specific claims processing or other operational issues. We 
envision that ad hoc enrollee communications materials could include 
the following types of materials;
     Communications about a shortage of formulary drugs due to 
a manufacturer recall letter.
     Letters to communicate that a beneficiary is receiving a 
refund or is being billed for underpayments.
     Letters describing member-specific claims processing 
issues.
    Although we mentioned the Part D EOB in the preamble to the October 
2009 proposed rule as an example of a customized current enrollee 
communications material in the preamble to our proposed rule, in light 
of the comments we received on the scope of the exemption from the 
marketing definition, we no longer believe that example was 
appropriate, particularly given the importance of our review of EOB 
templates. Thus, under this final rule, we will continue to require 
submission and approval of EOB templates through the CMS marketing 
review and approval process as part of the new definition of marketing 
materials, and distinguish this general, regularly issued notice from 
documents pertaining to the processing of an individual claim. We 
intend to provide further guidance on the types of marketing materials 
that would be considered ad hoc enrollee communications materials, as 
well as any alternate processes for their review and approval, in the 
Medicare Marketing Guidelines.
    Comment: One commenter suggested that all prospective and current 
member materials be submitted to CMS as file and use materials so that 
there is a centralized and consistent place for beneficiary 
communication to be housed within CMS. This commenter suggested, as an 
alternative, that the plan develop internal processes to monitor 
materials for consistency with CMS requirements rather than filing 
those materials with CMS. We note that MA organizations and PDP 
sponsors already have the responsibility to ensure, from a monitoring 
and compliance perspective, that their marketing materials are 
complete, accurate, and consistent with marketing rules. A few 
commenters suggested that we require plans to submit a report on 
beneficiary communications and audit these communications periodically 
to ensure that plans are not engaging in inappropriate beneficiary 
marketing practices, and that we retain oversight responsibilities for 
these materials.
    Response: As stated previously, we have revised the definition of 
``customized current enrollee communications materials'' in this final 
rule such that it covers a narrow class of ad hoc, customized 
beneficiary communications materials. We will provide more information 
about alternative review and approval processes for customized current 
enrollee communications materials in the Medicare Marketing Guidelines. 
We note that we periodically audit marketing materials. We will also 
ensure that ad hoc enrollee communications materials meet all relevant 
requirements and are reviewed, approved, and used appropriately.
    Comment: One commenter recommended that we extend our

[[Page 19707]]

current waivers of marketing review and approval requirements for 
employer group waiver plan marketing materials to employer group waiver 
plan enrollment materials. Some other commenters requested that our 
current regulations concerning review and approval of marketing 
materials be expanded to apply to third party entities, as these 
commenters believe third party entities tend to send inaccurate or 
incorrect information to beneficiaries.
    Response: These comments address our exercise of employer group 
waiver authority, and accordingly are outside the scope of this 
rulemaking, and not addressed in this final rule.
3. Required Use of Standardized Model Materials Under Parts C and D 
(Sec.  422.2262 and Sec.  423.2262)
    In order to reduce variability of marketing materials and to ensure 
documents are more accurate and understandable to beneficiaries, we 
proposed, under the authority of sections 1851(h) and 1860D-1(b)(1)(vi) 
of the Act, to move toward greater standardization of the information 
provided in plan marketing materials. Specifically, we proposed 
revising Sec.  422.2262 and Sec.  423.2262 to require that MAOs and PDP 
sponsors use standardized marketing material language and format, 
without modification, in every instance in which we provide 
standardized language and formatting. We noted that we will provide 
MAOs and PDP sponsors with standardized marketing materials through the 
annual Call Letter, Health Plan Management System (HPMS) memoranda, or 
other guidance documents. We believe this change will ensure 
beneficiaries receive more accurate and comparable information to make 
informed decisions about their health care options, as well as lead to 
increased efficiencies and greater consistency in our marketing 
material review protocols and processes. In this final rule, we adopt 
these provisions as proposed. For the upcoming 2011 plan year, we plan 
to update some of our current standardized documents later this spring 
through guidance, but we are unlikely to standardize new types of 
documents. For 2012 and future years, we will consider and explore 
standardizing additional forms and materials.
    Comment: Several commenters strongly supported our proposed rule to 
require MAOs and PDP sponsors to use standardized language and formats 
in marketing materials in instances where we provide them. Other 
commenters supported this proposal but urged CMS to use consumer 
research and testing to determine the terms and features consumers want 
and the best ways to disclose that information to assist beneficiaries 
with making informed decisions about their health care options.
    Several commenters suggested we collaborate with the industry, 
advocates, and State agencies to develop standardized models, or 
convene a workgroup to explore ways of improving the wording of model 
materials. In addition, some of these commenters suggested, as an 
alternative, that we solicit document examples and suggestions from 
plans regarding the creation of standardized materials and establish 
from these examples best practices for model language, content, and 
format.
    Response: Given the support for our proposed requirement, we are 
adopting it as set forth in the proposed rule. We agree with the 
commenters' recommendations that CMS should research and consumer test 
standardized model marketing materials, when practical, as well as 
engage in dialogue with the industry, advocates and State agencies as 
part of our efforts to standardize more marketing model materials. As 
we did when we reissued the standardized annual notice of change/
evidence of coverage (ANOC/EOC) models for contract year 2010, we 
intend to continue to consumer test our marketing materials, as 
practical, to ensure that they accurately describe plan benefits and 
assist beneficiaries with making the best health care decisions for 
their particular needs. As part of the process of revising the 
standardizing ANOC/EOC models, we also conducted listening sessions 
with the industry to solicit input on improving standardized documents. 
We received a great deal of useful information as a result of those 
sessions, which we believe was critical to improving the consumer 
friendliness of those models. In addition, we will continue to provide 
opportunities for external stakeholders to comment on draft versions of 
model documents prior to finalizing them.
    Comment: Many commenters requested clarification on whether, in 
developing standardized model marketing materials, we will continue to 
allow plans the flexibility to modify model documents to accurately 
convey specific or unique plan information. Many commenters argued that 
our existing models do not adequately capture the range of variation in 
plan types and benefits and that standardizing additional models could 
impede effective communications with members and potentially lead to 
beneficiary confusion.
    These commenters also expressed concern that without such 
flexibility and space for free form text, plans will be unable to 
adequately capture the nuances and unique features of the various plan 
types. Commenters specifically indicated that it was imperative for us 
to allow flexibility within standardized models for special needs plans 
(SNPs), cost plans, point-of-service (POS) plans and employer group 
plans. A few commenters requested the option to waive standardized 
language for SNPs, or to develop separate standardized documents for 
these plans if we do not provide sufficient flexibility within 
standardized models. A commenter suggested that CMS develop documents 
specifically for low-income subsidy (LIS) eligible beneficiaries and 
that we provide documents translated into non-English languages, as 
well as documents in Braille.
    Response: We agree that standardized materials should be 
sufficiently tailored to the intended recipients to relay plan 
information as clearly as possible. Accordingly, we intend to continue 
to allow plans flexibility to accurately convey specific plan 
information. As with the current ANOC/EOC standardized models, we will 
permit plans to capture the unique features and nuances of their 
various plan types and plan benefits through variable text, as 
appropriate. Our requirement to use standardized models when we make 
them available does not change this practice; we are simply moving 
toward standardizing more marketing documents.
    We will consider how best to provide information to LIS-eligible 
individuals as we standardize models. With regard to providing 
translated materials, our Medicare Marketing Guidelines currently 
require plans to provide translated and alternative format documents to 
beneficiaries. Specifically, plans are required to translate materials 
in service areas where at least ten percent of the population speaks a 
non-English language as its primary language. In addition, plans must 
make basic enrollee information available to individuals with 
disabilities (for example, visually impaired beneficiaries) and must 
ensure that information about their benefits is accessible and 
appropriate for Medicare beneficiaries who have disabilities.
    To ensure that beneficiaries understand materials translated into a 
non-English language, we require that plans translating their marketing 
materials into other languages use

[[Page 19708]]

standardized language. For example, plans translating materials into 
Spanish or Cantonese should use a standard Spanish or Cantonese 
language resource (such as, ``Real Academia Espa[ntilde]ola'' [Royal 
Spanish Academy], the most widely-recognized institution responsible 
for regulating the Spanish language).
    Comment: Several commenters suggested we clearly identify the 
documents we intend to standardize, while two commenters suggested we 
limit the documents we intend to standardize. One commenter wanted 
clarification on what ``when specified by CMS'' means. In addition, 
many commenters urged us to release standardized documents to plans 
early in the year to allow plans sufficient time to disseminate plan 
information to beneficiaries.
    Response: In addition to the ANOC/EOC, we indicated in the 2009 
Call Letter that we intended to standardize the Part D explanation of 
benefits (EOB), pharmacy directory, provider directory, plan formulary, 
and transition notice. We are currently in the process of consumer 
testing and revising some of these models to include plain language.
    With regard to the comment about what ``when specified by CMS'' 
means, as with the ANOC/EOC, CMS will specify which documents must be 
used without modification through guidance documents such as the annual 
Call Letter or HPMS memoranda. Finally, we are committed to releasing 
final standardized models as early as possible in the year in order to 
permit plans sufficient time to prepare and disseminate those documents 
to beneficiaries for the following contract year.
    Comment: A commenter suggested that, as an alternative to our 
proposed requirement that plans use standardized documents as specified 
by CMS, we should allow for review of requested changes to standardized 
language similar to our review of hard copy change requests for the 
Summary of Benefits.
    Response: We disagree with the commenter's suggestion. As stated 
elsewhere in this preamble, we believe standardization leads to 
improvements in accuracy, comparability, and understandability, as well 
as increased efficiencies and greater consistency in our marketing 
material review protocols and processes. Permitting hard copy changes 
would undermine our efforts to reduce variability in marketing 
materials. In addition, we believe that we can address the commenter's 
concerns by permitting plans to use variable text fields throughout 
standardized documents so that they accurately reflect unique plan 
information.
    Comment: One commenter understood and appreciated the need to 
standardize models but was concerned that requiring a standardized 
format limits options, may expand the length of current model 
documents, and could potentially drive up costs of printed materials.
    Response: We believe the benefits of increased standardization 
outweigh the commenter's concerns. The move toward standardizing more 
documents will reduce the variability and errors in marketing 
materials, and will ensure that standardized documents provide more 
accurate, understandable, and comparable information across plans, 
thereby helping beneficiaries to make the best possible health care 
decisions for their particular needs.
4. Involuntary Disenrollment for Failure To Pay Plan Premiums Under 
Parts C and D (Sec.  422.74 and Sec.  423.44)
    We proposed to amend the regulations at Sec.  422.74(d)(1) and 
Sec.  423.44(d)(1) regarding disenrollment for nonpayment of premiums 
to require a minimum grace period of 2 months before any involuntary 
disenrollment occurs, in order to provide adequate time for 
organizations to respond to instances in which individuals fail to pay 
their premiums, and for affected enrollees to take steps to remedy the 
situation and avoid disenrollment. Furthermore, we proposed to codify 
existing subregulatory guidance regarding the beginning of the grace 
period for Part D. In this final rule, we adopt these provisions as 
proposed.
    Comment: Several commenters supported our proposed regulatory 
revision to increase the length of the minimum grace period and further 
requested that CMS exempt beneficiaries from having to pay plan 
premiums if the organization fails to request payment of the premiums 
in a timely manner. Another commenter supported this change and further 
recommended that CMS also require plans to provide for exceptions in 
cases of financial hardship or other special circumstances.
    Response: We appreciate the support for this proposal and are 
adopting it as proposed. Although we do not believe that it is 
appropriate to exempt beneficiaries from paying premiums for periods of 
coverage based on late notification, we strongly encourage plans to 
work with such individuals to implement payment plans where financial 
hardship could be involved. Also, we note that a change in policy with 
respect to an individual's eventual obligation to pay his or her 
premiums is not within the scope of this rulemaking.
    Comment: Another commenter who supported the proposed regulatory 
revision further requested that CMS develop a method for beneficiaries 
to engage CMS in resolving premium payment disputes, such as whether 
individuals who qualify for the Part D low income subsidy or are 
enrolled in a state pharmaceutical assistance program (SPAP) owe plan 
premiums, in addition to disputes regarding individuals who experience 
problems with premium withhold from their Social Security benefits.
    Response: Although there is no formal CMS administrative process 
for dealing with these issues, we do play an important role in 
resolving premium payment disputes through our existing casework 
procedures. CMS caseworkers often deal directly with individuals who 
have their premiums withheld from their SSA benefit payment, and we 
also work with plans to resolve both premium issues involving 
individuals or groups of enrollees, such as the LIS population in a 
plan. We also facilitate discussions between plans and SPAPs about such 
payment issues. We will continue to look at ways to better address 
these issues.
    Comment: One commenter supported the change and recommended that 
the 2-month grace period begin the first of the month for which the 
enrollee is delinquent and not from the point of notification.
    Response: Current regulations state that the grace period begins 
the first day of the month for which the premium is unpaid. 
Subregulatory guidance (Sec.  50.3.1 of Chapter 2 of the Medicare 
Managed Care Manual and Sec.  40.3.1 of Chapter 3 of the Medicare 
Prescription Drug Benefit Manual) further clarifies that the premium is 
``unpaid'' only after the member is notified of, or billed for, the 
actual premium amount due. We clarified that the grace period not begin 
prior to the member being notified of the delinquency was established 
to ensure that members have the full grace period in which to resolve 
the premium payment issue. We agree with the commenter that the grace 
period should begin the first day of the month for which the enrollee 
is delinquent, but only if the organization has previously requested 
payment of the premium and has provided the member an opportunity to 
pay. Accordingly, in this final rule, we are revising Sec.  
422.74(d)(1) and Sec.  423.33(d)(1) to include the requirement that the 
grace period begin on the first day of the month for which the premium 
is unpaid or the first day

[[Page 19709]]

of the month following the date on which premium payment is requested, 
whichever is later.
    Comment: Several commenters representing plans opposed the proposed 
change. One commenter contended that the change would not result in a 
reduction in disenrollments and requested that CMS instead maintain the 
minimum 1-month grace period and allow organizations to offer a longer 
grace period at their discretion. Another commenter cited the potential 
costs that may be incurred by organizations to make systems 
enhancements and to modify current administrative processes, policies, 
and procedures. Another commenter feared lengthening the minimum grace 
period from 1 month to 2 months would potentially expose the 
organization to increased financial liability.
    Response: We believe that providing additional time for individuals 
to pay their premiums will assist a great number of individuals in 
meeting their financial obligations and avoid disenrollment. As 
discussed in the preamble to the October 22, 2009 proposed rule (74 FR 
54657), under current rules, individuals may have less than a month a 
resolve payment delinquencies. Thus, we believe this proposal will 
provide a valuable beneficiary protection, particularly in view of the 
significant potential gap in coverage that could result from such a 
disenrollment, given that in many cases an individual may not be able 
to re-enroll until the following annual election period. It will also 
help to reduce the number of situations where individuals pay their 
premiums shortly after their disenrollments take effect but the plan 
has already submitted a disenrollment transaction.
    Many organizations currently offer a grace period in excess of the 
one month minimum that is currently required. As such, the impact of 
the proposed change is limited to those organizations that have chosen 
to implement the minimum requirement. For these organizations, we 
believe any administrative costs that may result from changing from a 
one month to a two month grace period are fully justified by the 
benefits to be gained by both the organization and its members by 
providing a more reasonable time frame for all parties to resolve 
premium payment issues and avoid disenrollment. With respect to the 
financial liability issue, we also note that the proposed change would 
not affect an organization's ability to pursue collection of past due 
premium payments from current and former members.
    Comment: One commenter requests that CMS change the requirement for 
issuing disenrollment notices, stating that a timeliness standard of 5 
or 7 days would be more manageable than the current three business day 
requirement.
    Response: The 3-day requirement referred to by the commenter is not 
for provision of the disenrollment notice; rather, it is the deadline 
for organizations to submit the ensuing disenrollment transaction to 
CMS. This timeframe was established to provide adequate time for data 
to be transmitted to CMS to ensure the timely processing of any 
necessary auto-enrollments for those individuals who receive the Part D 
low income subsidy. Therefore, we are not adopting this suggestion.
    Comment: One commenter requested that CMS clarify that the grace 
period applies only to members for whom CMS makes payment to the 
organization.
    Response: Our interpretation of this comment was that it was 
intended to address situations where a plan's enrollment records may 
not immediately match CMS records, and thus there is some question as 
to whether an individual is enrolled in the plan. Given that the plan 
has determined the beneficiary eligible for the plan, has notified the 
beneficiary of the enrollment, has submitted the enrollment to CMS and 
the discrepancy in the enrollment record is not caused by any action of 
the beneficiary but instead is an issue to be resolved between CMS and 
the plan, we believe it would be appropriate for the same grace period 
policies to apply to such a beneficiary as to a confirmed plan 
enrollee.
5. Maximum Allowable Out-of-Pocket Cost Amount for Medicare Parts A and 
B Services (Sec.  422.100)
    In our October 22, 2009 proposed rule, under the authority of 
sections 1852(b)(1)(A), 1856(b)(1), and 1857(e)(1) of the Act, we 
proposed to amend Sec.  422.100(f)(3) by adding a new paragraph (f)(4) 
to specify that all local MA plans must establish a maximum out-of-
pocket (MOOP) liability amount inclusive of all Medicare Parts A and B 
services, the amount of which would be set annually by CMS. We also 
noted that, under our proposal to require that a MOOP amount be 
established for local MA plans, the MOOP limit for local preferred 
provider organization (PPO) plans would be inclusive of all in-network 
and out-of-network beneficiary cost sharing. As discussed in the 
proposed rule, we believe that requiring the inclusion of such a limit 
in plan design is necessary in order not to discourage enrollment by 
individuals who utilize higher than average levels of health care 
services (that is, in order for a plan not to be discriminatory in 
violation of section 1852(b)(1) of the Act).
    In the preamble to our October 22, 2009 proposed rule, we generally 
described the process we have established to comprehensively review the 
proposed cost sharing of each plan benefit package and determine if MA 
plans' cost sharing designs--both in terms of aggregate expected out-
of-pocket cost-sharing and particular cost-sharing amounts for certain 
health care services--discriminate against those beneficiaries with 
higher than average health care needs. We noted in the preamble to the 
proposed rule that we have annually established, through subregulatory 
guidance, a voluntary maximum out-of-pocket limit on Parts A and B 
services that, if adopted by an MA plan, would allow the plan greater 
cost sharing flexibility than it would otherwise receive absent the 
voluntary MOOP. We also noted that we have identified certain health 
care services that beneficiaries with higher than average health care 
needs are likely to need (for example, in-patient hospital, dialysis, 
skilled nursing facility (SNF), mental health services, Part B drugs 
and home health care) and described our process for conducting outlier 
analyses by which we consider the distribution of cost sharing levels 
submitted by MA organizations to identify levels in the upper end of 
the range for the purpose of reviewing whether cost sharing levels for 
submitted benefit designs are discriminatory. We believe these efforts 
have resulted in reduced discriminatory cost sharing and improved the 
transparency of plan design. For example, in contract year 2010, about 
39.2 percent of all non-employer MA plans representing about 3 million 
MA enrollees adopted the voluntary MOOP limit on beneficiary cost 
sharing.
    In the preamble to the proposed rule, we stated our intent to use a 
similar method for establishing a mandatory MOOP amount for Parts A and 
Part B services for all local MA plans as we used to establish the 
voluntary MOOP limit for contract year 2010. Therefore, the MOOP would 
be set by CMS at a certain percentile of fee-for-service (FFS) 
beneficiary out-of-pocket spending. We also noted that we set the 
voluntary MOOP limit at the 85th percentile of FFS spending for 
contract year 2010 but could set the limit at a different percentile or 
through a modified approach as determined by us in future years. We 
also proposed to continue to furnish information to MA organizations on 
our methodology and

[[Page 19710]]

the amounts for acceptable MOOP amounts on a timely basis through the 
annual Call Letter or Health Plan Management System (HPMS) memoranda. 
We solicited comments on this approach.
    After considering the comments we received on this issue, we are 
finalizing Sec.  422.100(f)(4) largely as proposed but, as discussed in 
greater detail below, are adding a new paragraph (f)(5) to address 
concerns raised by commenters about applying our proposed MOOP amount 
to PPO out-of-network services. Specifically, we are specifying in 
paragraph (f)(5) that the mandatory MOOP amount under paragraph (f)(4) 
would only apply to PPO network services, while a higher catastrophic 
maximum would apply to both in- and out-of-network liability. In 
setting a higher catastrophic maximum, we will take into consideration 
standard practices in commercial benefit design as well as protecting 
beneficiaries who use out-of-network providers.
    Comment: Several commenters noted that a MOOP amount protects 
beneficiaries from catastrophic medical costs and supported our 
proposal. Another commenter noted that it was important that all Parts 
A and B services be included in the MOOP amount. Another commenter 
supported our proposal on the grounds that it will bring an element of 
standardization to the MA program.
    A number of Medicare Advantage organizations (MAOs) expressed 
concern that Original Medicare does not have a MOOP and argued that it 
would therefore not be equitable to require one for MA plans. These 
commenters were also concerned that a mandatory MOOP would increase 
plans' costs and result in increased premiums for beneficiaries, 
particularly if the dollar limit is too low. Some commenters were also 
concerned that a mandatory MOOP amount would result in adverse 
selection, with ``sicker'' Medicare beneficiaries dropping out of 
Original Medicare and selecting MA plans. One commenter advocated that 
we continue our current process of allowing voluntary MOOP limits with 
a more stringent review for plans that do not adopt the voluntary MOOP 
limit.
    Response: As discussed in the proposed rule, we believe that 
requiring the inclusion of a MOOP limit is an important step to ensure 
that individuals who utilize higher than average levels of health care 
services are not discouraged from enrolling in MA plans that do not 
have such a limit in place. Given that regional PPO plans are required 
by statute to have such a liability limit in place, and a substantial 
number of local plans have adopted one voluntarily, we were concerned 
that high cost enrollees would be discouraged from enrolling in MA 
plans that did not include a MOOP limit. We believe that requiring a 
mandatory MOOP limit does not unduly disadvantage MA plans relative to 
original Medicare. We note that beneficiaries in original Medicare have 
the option of selecting between two Medigap policies, K and L, that 
afford them an annual cap on out-of-pocket expenses (currently at 
$4,600). In addition, enrollees in the original Medicare program can 
select among other Medigap polices that limit their cost-sharing 
liability for Parts A and B services. As noted previously, a 
significant number of MA plans have already successfully designed 
benefit packages that include MOOP limits and have continued to 
effectively compete in the marketplace.
    We agree, however, that retaining a voluntary MOOP amount that is 
lower than the mandatory maximum we have proposed would preserve 
current incentives for further reducing enrollee out-of pocket 
liability. Therefore, in addition to establishing a mandatory MOOP 
amount, we also plan to continue our current policy of offering MA 
plans the option of establishing a lower voluntary MOOP amount in 
exchange for more flexibility in cost-sharing thresholds than available 
for plans that adopt the higher mandatory MOOP for contract year 2011. 
Under this approach, the voluntary MOOP amount would be set at an 
amount lower than the mandatory MOOP, and would therefore not 
disadvantage those MA plans that have adopted the voluntary MOOP in 
previous contract years. We would in effect establish two sets of Parts 
A and B service cost-sharing thresholds under this approach, one 
applicable to plans selecting the higher, mandatory MOOP amount, and 
the other applicable to those choosing the lower, voluntary MOOP. To 
incent plans to adopt the lower MOOP amount, we would allow plans 
greater cost sharing flexibility for Parts A and B services if they 
adopt the lower, voluntary MOOP. We plan to articulate this voluntary 
MOOP policy through subregulatory guidance such as the annual Call 
Letter or a similar document.
    Comment: Several commenters were concerned that a mandatory MOOP 
amount should not be set so high as to discourage low income 
individuals from joining MA plans. Other commenters recommended that we 
ensure that the MOOP amount is low enough to benefit low income 
individuals. One commenter also expressed concern that a MOOP limit may 
disadvantage smaller local plans compared to larger plans, potentially 
resulting in those smaller plans being priced out of the MA market. One 
commenter recommended that we use a fixed benchmark for the MOOP 
amount, rather than the 85th percentile of expected FFS spending cited 
in the preamble to our proposed rule, as the cut-off established for 
contract year 2010, which they believe would still be too high an 
amount for low income enrollees. Another commenter supported a cut-off 
at a higher percentile of FFS to ensure that plans do not have to 
increase their premiums or, alternatively, that the MOOP amount be set 
no lower than $7,500 in order not to affect the sustainability of the 
MA program. Another commenter supported a mandatory MOOP amount, but 
argued that plans should be allowed to establish their own MOOP 
amounts.
    Response: In establishing the mandatory MOOP amount, we will be 
cognizant of the balance we must strike between affording beneficiaries 
reasonable protection from high out-of-pocket expenses and our desire 
that the MA program remain viable for health plans and beneficiaries. 
We will carefully assess the impacts of the MOOPs we establish, 
annually adjusting the limit as necessary based on the previous year's 
experience, as well as other factors as appropriate, to ensure that 
this balance is maintained. As noted previously, we believe the 
approach of establishing a higher, mandatory MOOP amount and a lower, 
voluntary MOOP amount will allow us to better strike this balance.
    Comment: A couple of commenters did not believe their systems would 
support tracking of out-of-pocket expenses relative to a mandatory MOOP 
limit, and that the imposition of one would therefore introduce a 
significant new administrative burden. One commenter argued that we 
should furnish additional funding to MA plans due to the costs of 
implementing a mandatory MOOP amount.
    Response: We recognize that those plans that have not already 
voluntarily introduced a MOOP may need to invest resources in ensuring 
their systems are designed to implement this requirement. We believe, 
however, these costs need to be weighed against the benefits of 
ensuring that MA plan designs without a MOOP limit do not discourage 
enrollment by high cost individuals.
    Comment: Several commenters requested clarification regarding the 
applicability of our proposed

[[Page 19711]]

requirement to establish a mandatory MOOP amount to MA plans.
    Response: Because a statutory MOOP requirement is already in place 
with respect to regional PPO plans, we proposed applying the new 
mandatory MOOP requirement only to local MA plans in our proposed rule. 
While we now believe regional PPOs should be subject to the same 
requirements with respect to a MOOP as local MA plans, since our 
proposed rule did not give MA organizations offering regional PPOs an 
opportunity to comment on such a proposal, we will need to address this 
discrepancy in future notice-and-comment rulemaking. However, we note 
that regional PPOs will have the option of implementing any mandatory 
or voluntary MOOP amounts we establish for local MA plans.
    Comment: A number of commenters recommended that we announce the 
mandatory MOOP amount, and the methodology we use to set it, as early 
as possible in the year preceding the contract year in which we will 
apply that amount (for example, in the Advance Notice of Methodological 
Changes). Another commenter recommended that this information be 
provided in our annual Call Letter.
    Response: As specified in the preamble to the proposed rule, we 
intend to continue to furnish information to MA organizations on our 
methodology and the amounts for acceptable out-of-pocket caps on a 
timely basis through the annual Call Letter or a similar guidance 
docunent.
    Comment: Two commenters were concerned that the mandatory MOOP 
would apply to all in- and out-of-network PPO services, and contended 
that such an arrangement could lead to a reduction in the number of 
PPOs offered given the potential increase in plan costs that would 
result. One of these commenters believed including cost-sharing 
applicable to out-of-network plan covered services will undermine 
incentives to use preferred providers that are central to the design of 
a PPO.
    Response: As stated in the proposed rule, we believe that some 
protection against out-of-pocket liability should apply to enrollee 
cost-sharing for both in- and out-of-network services covered by PPOs. 
However, we agree with the concerns of the commenter highlighting the 
effect a single MOOP applying to all services would have on incentives 
to use preferred providers. In addition, for reasons of beneficiary 
transparency and consistency, we believe that local PPOs should be 
subject to the same type of MOOP requirements as regional PPOs, which 
have a different MOOP for out-of-network cost-sharing than that which 
applies to use of PPO in-network services. Therefore, we are revising 
Sec.  422.100 by adding a new paragraph (5) that specifies that, in 
addition to the MOOP for Medicare Parts A and B services that all local 
MA plans will be subject to--which would apply only to the use of 
network providers--all local PPO plans must also establish a total 
catastrophic limit on beneficiary out-of-pocket expenditures for both 
in-network and out-of-network Parts A and B services consistent with 
the requirements applicable to regional PPOs at Sec.  422.101(d)(3). 
This total catastrophic limit will be no greater than an annual limit 
set by CMS. In addition, we will also offer local PPO plans the option 
of implementing any voluntary MOOP amount CMS establishes for local MA 
plans.
    Comment: One commenter requested clarification regarding whether 
all Medicare Parts A and B services would be included in the MOOP 
amount.
    Response: As noted in the preamble to our proposed rule, cost-
sharing for all Parts A and B services would be included in the MOOP 
amount. Such cost-sharing includes any plan deductibles applicable to 
Parts A and B services, but excludes monthly plan premiums.
    Comment: A commenter argued that since States pay cost sharing for 
members of dual-eligible special needs plans (SNPs), there is no need 
to apply a MOOP to these plans. Another commenter contended that dual-
eligible SNPs cannot charge their enrollees a premium as a practical 
matter, which would further disadvantage this plan type if they were 
required to implement our MOOP limit. Another commenter recommended 
that we provide guidance on how the MOOP will apply to SNP enrollees, 
particularly those in dual-eligible SNPs. This commenter was 
specifically interested in guidance regarding what States' obligation 
would be with respect to premiums and cost sharing, as well as the 
actual out-of-pocket liability for a dual-eligible SNP enrollee. 
Additionally, this commenter was concerned that dual-eligibles may 
experience an unnecessary reduction in supplemental benefits if our 
final requirement does not clearly distinguish what these individuals 
actually pay as out-of-pocket costs versus what Medicaid should pay.
    Response: We disagree with comments recommending that SNPs be 
exempted from MOOP requirements. Dual-eligible individuals entitled to 
have their cost sharing paid by the State and enrolled in a SNP may 
experience midyear changes in their Medicaid eligibility. In those 
cases, these individuals may be required to directly pay the plan cost 
sharing that otherwise would be the obligation of the State. 
Accordingly, we will not exempt SNPs from the requirement that they 
implement a MOOP amount as established annually by CMS.
    Comment: Another commenter recommended exempting employer plans 
from our MOOP requirements because such a benefit design would be 
inconsistent with the benefits employer plans currently offer.
    Response: We disagree with this commenter that such a regulatory 
exception is warranted. The same considerations involving 
discrimination against high cost enrollees could also apply in the 
employer plan context, particularly if the employer allows more than 
one plan option. In exceptional cases in which CMS agrees that a waiver 
of this rule would be in the interest of Medicare beneficiaries served 
by an employer group, CMS could consider waiving the regulations 
through the employer group waiver authority under section 1857(i) of 
the Act. Employer plans will therefore be subject to the regulatory 
MOOP requirement finalized in Sec.  422.100(f)(4) that applies to all 
MA plans.
6. Maximum Allowable Cost Sharing Amount for Medicare Parts A and B 
Services and Prescription Drugs (Sec.  422.100, and Sec.  423.104)
    In our October 22, 2009 proposed rule, we proposed to amend our 
regulations on the general requirements related to Medicare Advantage 
(MA) benefits and qualified prescription drug coverage to expressly 
authorize us to establish cost sharing thresholds for individual 
services below which cost sharing will be considered non-
discriminatory.
    For Part C plans, we proposed to annually review bid data to 
determine specific cost sharing levels for Medicare A and B services 
below which we would not consider there to be a discriminatory effect, 
and therefore may be approved in an MA benefit package. Specifically, 
we proposed amending Sec.  422.100 by adding a new paragraph (f)(5) to 
specify that cost sharing for Medicare A and B services may not exceed 
levels annually determined by us to be discriminatory.
    Similarly, for Part D plans, we proposed to annually review bid 
data to determine acceptable cost sharing tiers for benefit packages 
offering non-defined standard prescription drug coverage. To this end, 
we proposed revising Sec.  423.104(d)(2) by adding a new paragraph 
(iii) to specify that tiered cost

[[Page 19712]]

sharing for non-defined standard benefit designs may not exceed levels 
annually determined by us to be discriminatory.
    We also explained in the preamble to the proposed rule that we 
would furnish information to MA organizations and Part D sponsors on 
our methodology and the cost sharing thresholds for the following 
contract year based on the prior year's bids, and on a timely basis 
either through the annual Call Letter or Health Plan Management System 
(HPMS) memoranda. We solicited comments on this approach, including the 
extent to which we provided sufficient clarity on how we would 
determine whether cost-sharing levels are discriminatory.
    After considering comments we received on this issue, we are 
adopting proposed Sec.  422.100(f)(5) (which, in light of the new 
subparagraph (f)(5) discussed above, is recodified as subparagraph 
(f)(6)) and Sec.  423.104(d)(2) with minor revisions made in response 
to comments discussed below that are intended to clarify that limits 
will only be established for those Parts A and B services specified by 
CMS. We note that section 3202 of the Patient Protection and Affordable 
Care Act (PPACA) (Pub. L. 111-148) ``Benefit Protection and 
Simplification'' will apply to MA plans offered in 2011. Section 3202 
of PPACA specifies that, unless a specified exception applies, the cost 
sharing charged by MA plans for chemotherapy administration services, 
renal dialysis services, and skilled nursing care may not exceed the 
cost sharing for those services under Parts A and B. Where these new 
limits apply, they will constitute an absolute limit on cost-sharing 
for the service in question by operation of statute, and we will not 
set limits under this final rule. After the publication of this rule, 
we will issue clarifying guidance concerning section 3202 and other 
provisions of PPACA that impact this regulation.
    Comment: A number of commenters supported our proposed requirement 
to specify that cost sharing for Medicare A and B services may not 
exceed levels annually determined by us to be discriminatory. One of 
these commenters supported us in continuing our current approach to 
applying a discrimination test.
    A number of commenters opposed our proposed requirement to 
establish individual Parts A and B service category cost-sharing 
thresholds, suggesting that individual service category thresholds 
would result in higher premiums. Other commenters believed that cost-
sharing limits would present significant additional administrative 
costs for plans. A number of commenters contended that individual 
service category thresholds would limit the availability of unique 
benefit designs and, consequently, limit beneficiary choice. One 
commenter argued that we should not limit plans' ability to use cost 
sharing as a tool to encourage beneficiary choice of cost effective and 
clinically appropriate services. Another commenter recommended that, 
rather than adopting cost-sharing thresholds, we should evaluate other 
options for identifying and preventing discriminatory benefit designs, 
such as evaluating the prevalence of utilization control mechanisms 
(for example, prior authorization) on services frequently used by 
patients with a particular high-cost conditions.
    Response: We believe establishing individual service cost-sharing 
thresholds is necessary to ensure that beneficiaries who utilize higher 
than average levels of health care services will not be discouraged 
from enrolling in MA plans with cost-sharing in excess of thresholds 
set by CMS and that our proposal to set specific amounts in advance 
improves the transparency of, and comparability between, plan choices 
for beneficiaries.
    We are therefore finalizing our proposal to allow us to annually 
set cost sharing thresholds for Medicare Parts A and B services.
    In establishing service category cost-sharing thresholds, we will 
be cognizant of the balance we must strike between affording 
beneficiaries reasonable protection from high out-of-pocket expenses 
that could discourage enrollment and our desire that the MA program 
remain viable for health plans and beneficiaries. We will carefully 
assess the impacts of the cost-sharing thresholds we establish, 
annually adjusting the limits and the particular Parts A and B services 
that are subject to such limits as necessary based on the previous 
year's experience and other factors as needed, to ensure that this 
balance is maintained. As we have in previous years, we plan initially 
to establish cost-sharing thresholds for those Parts A and B services 
that we have, through a number of years of experience with plan benefit 
reviews, identified as particularly likely to have a discriminatory 
impact on sicker beneficiaries. Specifically, under our current cost 
sharing review process which has developed from our past experience in 
reviewing benefit packages we focus our review on 14 service categories 
we have identified a particularly likely to have discriminatory impact 
on ``sicker'' beneficiaries: inpatient catastrophic (90) days, 
inpatient short stay (10 days), inpatient mental health (15 days), SNF 
(42) days, home health (37) days, physician mental health visits, renal 
dialysis (156) visits, Part B drugs, chemotherapy, radiation, DME, 
equipment, prosthetics, supplies and diabetes tests.
    As discussed elsewhere in this preamble, in addition to 
establishing a mandatory maximum out-of-pocket (MOOP) limit on overall 
cost-sharing for Parts A and B services, we also plan to continue our 
current policy of offering MA organizations the option of adopting a 
lower voluntary MOOP with greater flexibility in Parts A and B cost 
sharing than available for MA plans that meet only the higher mandatory 
MOOP. Under this approach, the voluntary MOOP would be set at an amount 
lower than the mandatory MOOP and would therefore not disadvantage 
those MA plans that have adopted the voluntary MOOP in previous 
contract years. In implementing thresholds for discriminatory cost-
sharing for individual services, we plan to establish two sets of Parts 
A and B service cost-sharing thresholds, one applicable to plans 
choosing the higher, mandatory MOOP, and the other applicable to those 
choosing the lower, voluntary MOOP. We plan to articulate the cost-
sharing thresholds associated with the lower, voluntary MOOP through 
subregulatory guidance such the annual Call Letter or similar guidance 
document.
    In establishing cost-sharing thresholds, we will consider an MA 
organization's need to use cost-sharing as a tool for preventing 
overutilization of services. While we have not been provided evidence 
that this requirement would increase plans' administrative costs, we 
also note that MA organizations will be able to account for any 
increased administrative costs in their annual bids. Finally, with 
respect to the comment about reviewing prior authorization, we believe 
that establishing cost-sharing thresholds is a more efficient and 
effective method for eliminating discriminatory MA plan designs.
    Comment: One commenter questioned our authority to impose 
individual service category thresholds, and urged us to withdraw our 
proposal.
    Response: We disagree with this commenter. As discussed in the 
preamble to the October 22, 2009 proposed rule, our proposal relies 
upon the authority in section 1852(b)(1) to ensure that an MA plan 
would not substantially discourage enrollment by certain MA eligible 
individuals and our authority under section 1857(e)(1) of the

[[Page 19713]]

Act, under which we may add ``necessary and appropriate'' contract 
terms; and, with respect to MA plan cost sharing, the authority in 
section 1856(b)(1) of the Act, under which we may establish MA 
standards by regulation.
    Comment: Some commenters sought clarification on how we will 
address cost sharing thresholds with regard to dual-eligible special 
needs plans (SNPs). These commenters specifically asked whether we 
would exempt dual-eligible SNPs from our proposed establishment of 
mandatory Parts A and B service thresholds, since States pay dual-
eligibles' cost sharing. These commenters argued that our proposed 
requirement could force dual-eligible and chronic care SNPs to charge a 
premium, thus making their plans unattractive to dual-eligibles and 
other low-income enrollees.
    Response: We disagree with commenters recommending that dual or 
chronic care SNPs should be exempted from our service category cost-
sharing thresholds. As long as a plan has at least some enrollees 
subject to all of a plan's cost-sharing amount, those enrollees could 
still be discouraged from enrolling or continuing their enrollment in 
the plan given particularly high cost-sharing for specific services. 
Even those SNPs that exclusively serve dual-eligible enrollees entitled 
to have their cost sharing paid by the Medicaid program can include 
some individuals who lose their Medicaid status midyear and become 
subject to plan cost sharing which would no longer be paid by the 
Medicaid program. Plans should not establish excessive cost-sharing 
regardless of whether the State is responsible for beneficiaries' cost-
sharing. We are therefore not exempting SNPs from the mandatory MOOP 
and cost sharing limits that apply to other MA plans.
    Comment: One commenter asked us to consider exempting employer 
plans from our cost-sharing threshold requirements, arguing that such a 
requirement would complicate their efforts to offer their current and 
retired employees parallel coverage.
    Response: We disagree with this commenter. The nature of employer 
arrangements varies greatly. In some cases, an employer may offer more 
than one MA plan option, and one or more of those plans may still 
discourage enrollment by certain beneficiaries through their benefit 
design. Also, in the case of an employer plan, if a compelling reason 
exists for an exemption from the limits in this final rule, and if we 
determine an exemption would be in the best interests of beneficiaries, 
employers could request a waiver of these limits under the employer 
waiver authority.
    Comment: Some commenters recommended that we establish cost sharing 
thresholds for Parts A and B services as soon as possible prior to the 
bid submission deadline (for example, in the Call Letter or Advance 
Notice of Methodological Changes) and provide stakeholders with an 
opportunity to provide comments regarding the thresholds and the 
methodology used to arrive at those thresholds. Some commenters 
representing non-plan stakeholders also requested that we provide this 
information via means other than the HPMS, since only plans have access 
to HPMS and advocates and other non-plan entities would like to receive 
the information we share with plans via HPMS. Another commenter 
recommended that we permit MA organizations to resubmit a bid and 
benefit package if the initial bid is rejected due to a finding by CMS 
of discriminatory cost sharing.
    Response: As stated in the preamble to the proposed rule, we intend 
to furnish information to MA organizations and Part D sponsors on our 
methodology and the cost sharing thresholds for the following contract 
year on a timely basis either through the annual Call Letter or similar 
guidance document. We will consider ways of disseminating this 
information through other means to ensure that all stakeholders have an 
opportunity to comment and note that we generally post draft Call 
Letters to the CMS Web site to ensure broad public availability. With 
regard to opportunities to resubmit bids and benefit packages, given 
that we expect to provide guidance regarding cost-sharing thresholds 
prior to bid submission, we do not anticipate the need to allow plans 
to resubmit bids or benefit packages if their submissions are 
inconsistent with published guidance. As part of our review of 
submitted bids and benefit packages, we may contact plans to give them 
the option of modifying their bids and benefit packages if we have made 
a determination that the proposed plan benefit package or cost sharing 
contains discriminatory amounts not outlined in published guidance.
    Comment: One commenter recommends that cost-sharing limits, and the 
service categories to which they apply, remain stable from year-to-
year.
    Response: We intend to implement cost-sharing thresholds carefully 
to ensure the right balance of ensuring against discriminatory effects 
of high cost-sharing and continued viability of the MA program. While 
we believe stability in the thresholds and the particular services to 
which those thresholds are applied is important, we also believe it is 
necessary to allow ourselves the flexibility to build on ``lessons 
learned'' each year, and to reevaluate both the thresholds and the 
Parts A and B service categories to which they apply, to account for 
any statutory changes in Original Medicare cost-sharing limits as well 
as other changes to the MA program, and refine our approach accordingly 
to maintain such a balance.
    Comment: Some commenters believed that we were not clear in the 
proposed rule regarding whether we would set cost sharing thresholds 
for all Parts A and B service categories, or only for selected 
categories identified as potentially discriminatory. These commenters 
requested further clarification on our intended approach.
    Response: As we have done in the context of benefits review in 
previous years, we intend to focus on service categories particularly 
likely to have a discriminatory impact on sicker beneficiaries. 
Initially, we will focus on the service categories we have targeted 
historically in our benefit review. We expect to refine our approach 
over time in order to achieve the right balance between plan choice and 
protection from high out-of-pocket costs. We intend to build on our 
experience, and potentially make modifications to the list of Parts A 
and B service categories to which we would apply cost-sharing 
thresholds.
    Comment: A couple of commenters recommended that, in setting cost-
sharing limits, CMS consider enrollees' cost-sharing both before and 
after members reach any deductible that may apply.
    Response: We will consider whether to take plan deductibles into 
account as part of our methodology to establish cost-sharing 
thresholds.
    Comment: One commenter requested clarification on how we will 
establish cost sharing thresholds based on the previous year's 
experience. One commenter urged that the thresholds not be adjusted 
based on current year data.
    Response: As described in the preamble to our proposed rule, we 
intend to review the prior year's bid data, as well as actuarial 
equivalency relative to Original Medicare, to identify cost sharing 
outliers and establish a reasonable threshold. With this information, 
and other factors we may identify as we gain experience in establishing 
these thresholds, we will annually set cost-sharing thresholds as 
described in this preamble. We do not

[[Page 19714]]

anticipate that these levels will need to be changed after bids have 
been submitted. However, as previously noted, we will conduct a review 
of submitted bids and we reserve the right to address discriminatory 
cost sharing or benefit design we identify in these post bid reviews by 
asking the plan to either modify or withdraw its bid to resolve 
discriminatory cost sharing.
    Comment: One commenter recommended that service category thresholds 
be set at fixed dollar amounts.
    Response: We understand that copayment amounts are more transparent 
and predictable for beneficiaries than coinsurance, and will attempt to 
establish thresholds as copayment amounts rather than coinsurance 
percentages where appropriate. Given the fact that original Medicare 
employs coinsurance percentages in its cost-sharing, there may be 
cases, in which we may limit the coinsurance percentage that can be 
imposed.
    Comment: One commenter recommended that we not set a cost sharing 
maximum for routine services, such as physician visits and lab 
services, where there is limited financial liability, or for durable 
medical equipment (DME), where they argue that any particular cost-
sharing maximum would invariably penalize one subset of enrollees. One 
commenter recommended that we establish thresholds on a per day, per 
stay, and per benefit period basis for SNF and inpatient services. 
Another commenter recommended that any threshold for Part B drugs apply 
to all Part B covered drugs.
    Response: We disagree that physician visits and lab services should 
necessarily be exempt from cost-sharing maximums, though we currently 
do not contemplate imposing limits in such cases, and would only do so 
to the extent that we saw cost-sharing imposed that had a 
discriminatory effect. As stated previously, we initially will focus on 
those service categories we have historically identified as 
particularly likely to have a discriminatory impact on sicker 
beneficiaries and will refine our approach as needed and in line with 
our ultimate goal of eliminating discriminatory benefit designs. We 
welcome the feedback provided by other commenters with regard to DME, 
SNF and Part B drug copayments and will consider these recommendations 
as we finalize our methodology and thresholds.
    Comment: Several commenters supported the proposal to review Part D 
plan bids to determine acceptable cost-sharing tiers for benefit 
designs that deviate from the standard benefit package. One commenter 
indicated that this would bring a level of standardization to plans and 
make it easier for them to compare out-of-pocket expenses.
    Response: We appreciate the comments.
    Comment: Several commenters wanted to limit Part D cost sharing to 
a total maximum out-of-pocket amount.
    Response: We do not believe that a regulatory overall liability 
limit for Part D would be practical or appropriate given the current 
design of Part D benefits (such as, the coverage gap). We also note 
that, under the Part D benefit, there is protection afforded to a 
beneficiary once they enter into the catastrophic phase of the benefit 
where there is nominal cost sharing.
    Comment: One commenter wanted us to establish clear and definitive 
limits on cost sharing. Another commenter wanted us to consider the 
overall affordability of cost sharing that is imposed on non-low-income 
(LIS) Medicare beneficiaries. The commenter argues that this is 
particularly important when considering a plan design in which 
preferred formulary tiers do not include equally safe and effective 
drugs for the beneficiary's medical condition. Another commenter wanted 
us to take into account separate rules for cost contracts with HMOs 
under section 1876. Additionally, another commenter wanted 
clarification on how we will review plans with more than or fewer than 
a three tier benefit design. This commenter suggested that all tiers 
may not exceed levels determined by CMS to be discriminatory.
    Response: We appreciate these comments. It is important to note 
that we review both formularies and benefit designs to ensure that a 
sponsor's prescription drug offering under Part D is not 
discriminatory. We have designed our yearly formulary reviews to ensure 
that all Part D plan formularies include a wide representation of drugs 
used to treat the Medicare population. As part of this review, we focus 
on identifying formularies with drug categories that may substantially 
discourage enrollment of certain beneficiaries, for example if the 
formulary places drugs in nonpreferred tiers without including commonly 
used therapeutically similar drugs in more preferred positions. As part 
of our yearly review of submitted benefit designs, we compare like 
plans to each other for the purpose of ensuring non-discriminatory 
cost-sharing. Specifically, we perform an analysis of cost sharing at 
the tier level, to look for outliers. The outlier analysis considers 
plan type (basic versus enhanced), tiering structure (for example, the 
number and type of tiers), and any differences among MA-PDs (including 
cost plans) and between MA-PDs and PDPs. When outliers are identified, 
we conduct negotiation calls with the relevant plan sponsors to ensure 
the cost sharing outliers are reduced prior to bid approval. We also 
require cost sharing levels for preferred tiers to be lower than cost 
sharing levels for nonpreferred tiers.
    Comment: A commenter expressed concern that when coverage of a 
nonformulary drug is secured on appeal, the cost sharing under the 
nonpreferred tier can approximate, or even exceed, the negotiated price 
of the drug.
    Response: The price charged to the beneficiary cannot exceed the 
negotiated price. The requirements related to qualified prescription 
drug coverage at Sec.  423.104(g)(1) make clear that Part D sponsors 
are required to charge beneficiaries the lesser of a drug's negotiated 
price or applicable copayment amount.
    Comment: Several commenters opposed setting cost sharing maximums, 
claiming that this will result in higher premiums for beneficiaries. 
One commenter asserted that CMS' proposal will limit the ability of 
Part D sponsors to design plans that provide choices for additional or 
richer benefits in other areas important to beneficiaries. For example, 
they argue that establishing maximum Part D brand cost-sharing levels 
will impact the ability to offer $0 copayment for generic drugs; 
therefore, ultimately inhibiting the greater affordability and access. 
A commenter contended that our proposal fails to consider a plan design 
that is associated with a robust formulary. The commenter believes that 
such a plan should have the flexibility to impose higher member cost 
sharing, particularly for nonpreferred drugs, compared to a formulary 
that meets minimum requirements and, coupled with low premium which may 
be attractive to those with minimal drug utilization who seek 
protection from potential future changes in health status.
    Response: In determining a maximum cost sharing amount for a tier 
above which we will view the plan's benefit design as discriminatory, 
we attempt to strike a balance between appropriate coverage under the 
benefit and the potential affect on the premium. As part of our benefit 
design review, and consistent with previous reviews, we consider all 
beneficiaries under the plan, and not just those beneficiaries expected 
to have limited utilization. Therefore, any actuarially-equivalent

[[Page 19715]]

cost sharing arrangement is reviewed, along with the rest of a plan's 
benefit design, to ensure that it does not discriminate against certain 
Part D eligible individuals. This sometimes results in a sponsor not 
being able to support higher member cost sharing amount under a robust 
formulary design for nonpreferred drugs or being able to support zero 
dollar generics. However, these cases are usually the exception since 
our review is designed to ensure the maximum utility of the benefit 
design for potential enrollees.
    Comment: One commenter wanted CMS to prohibit the use of both 
copayment and coinsurance tiers under nonstandard Part D benefit 
designs.
    Response: We disagree with the commenter and believe such a 
prohibition would unnecessarily limit plan design. Moreover, we believe 
that such a proposal is beyond the scope of this proposed rule, which 
addresses the authority of CMS to establish limits on cost sharing for 
purposes of determining whether or not such cost sharing is 
discriminatory. Our proposal did not address whether nonstandard 
benefit designs utilizing coinsurance are discriminatory.
    Comment: One commenter wanted us to require that at least one drug 
within each therapeutic class be on each tier.
    Response: We believe that such a proposal is beyond the scope of 
this proposed rule, which only addresses the authority of CMS to 
establish limits on cost sharing for purposes of determining whether or 
not such cost sharing is discriminatory. We also note that due to the 
varying number of drugs that may be available in a therapeutic class, 
this proposal may require many exceptions and be impractical to 
implement.
    Comment: Several commenters expressed concern about our specialty 
tier policy. A few commenters want us to eliminate the exemption from 
tiering exceptions for specialty tiers. Another commenter asserted that 
drugs in the specialty tier are so expensive, an argument could be made 
that specialty tier coinsurance above 25 percent is excessive. Another 
commenter argues that the use of specialty tiers is a discriminatory 
practice that targets individuals who have medical conditions that 
necessitate use of expensive medications.
    Response: We appreciate the commenters' concern in this area, which 
is one we will continue to study. Any revisions to the specialty tier 
policy will be done in future rulemaking. We note specifically that the 
commenters' request for us to eliminate the exemption from tiering 
exceptions for specialty tiers is outside of the scope of this 
proposal. We also note that we have only allowed a higher coinsurance 
percentage greater than 25 percent for specialty tiers under 
alternative prescription drug coverage designs with decreased or no 
deductibles. Thus, overall, consistent with statutory and regulatory 
requirements, a basic alternative design must be actuarially equivalent 
to the defined standard benefit design.
    Comment: One commenter wanted us to study the effects of high out-
of-pocket costs, improve drug pricing disclosure, prohibit plans from 
changing the price of drugs, notify beneficiaries when a drug price is 
going to increase, ensure that Part D plan sponsors inform 
beneficiaries how to get medications free or at lower prices, and end 
discriminatory practice cost sharing.
    Response: We appreciate the commenter's concerns over price 
fluctuations that may result in changes in cost sharing under a Part D 
plan benefit design that includes coinsurance and the effects that 
these changes may have on beneficiaries enrolled in these plans. 
However, several of these comments are outside of the scope of the 
proposed rule, which addresses our ability to establish threshold 
levels for cost sharing above which we would determine such cost 
sharing to be discriminatory. Moreover, we note that under section 
1860D-11(i) of the Act, commonly known as the ``Non-interference 
provision,'' we are prohibited from interfering in the negotiations 
among drug manufacturers, pharmacies, and sponsors of prescription drug 
plans (PDPs), and from requiring a particular formulary or price 
structure for the reimbursement of a covered Part D drug. Therefore, we 
do not have the authority to prohibit plans from changing the price of 
drugs.
    Comment: Several commenters wanted information on discriminatory 
cost sharing made available through Call Letter and other public means, 
and want such information to be made available timely so that it can be 
taken into account prior to bidding.
    Response: We appreciate the commenters' concern that we be as 
transparent and timely as possible with our guidance in this area. We 
will strive to make this information available as early as possible for 
sponsors to begin constructing their bids for the 2011 contract year.
    Comment: One commenter stated that if a plan sponsor offers a plan 
design with zero co-payment amounts for certain mail order prescription 
drugs, it should be required to offer the same cost sharing at retail 
pharmacies.
    Response: This comment is outside the scope of the proposed rule, 
which does not revise our level playing field policy between mail and 
retail drug offerings. We refer the commenter to section 50.2 of 
Chapter 5 of the Medicare Prescription Drug Benefit Manual at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/Chapter5.pdf for 
our current policy in this area.
7. Prohibition on Prior Notification by PPO, PFFS and MSA Plans Under 
Part C (Sec.  422.2, Sec.  422.4, and Sec.  422.105)
    In our October 22, 2009 proposed rule, we stated that we have 
become increasingly concerned about the use of prior notification by 
PPO and PFFS plans as a condition for lower cost sharing. Program 
experience has demonstrated that such prior notification provisions are 
confusing to beneficiaries, misleading in terms of cost-sharing 
transparency, and in some instances, are used inappropriately as a form 
of prior authorization. In the GAO report titled ``Medicare Advantage: 
Characteristics, Financial Risks, and Disenrollment Rates of 
Beneficiaries in Private Fee-for-Service Plans (GAO-09-25),'' the GAO 
stated that some PFFS plans it reviewed ``inappropriately used the term 
prior authorization rather than pre-notification in the informational 
materials they distributed to beneficiaries, which may have caused 
confusion about beneficiaries' financial risks.'' We have determined 
that the complexity of cost-sharing designs using prior notification 
has made it more difficult for both enrollees and providers to 
understand the enrollee's cost sharing obligation in advance of 
receiving services. Therefore, in order to reduce the complexity of MA 
plans' cost sharing designs and improve transparency for both enrollees 
and providers, we proposed to prohibit PPO plans (for out-of-network 
services) and PFFS plans from providing for lower cost sharing where 
prior notification rules have been satisfied. Specifically, we proposed 
to revise Sec.  422.4(a)(1)(v) and (a)(3) to provide that PPO and PFFS 
plans will be prohibited from establishing prior notification rules 
under which an enrollee is charged lower cost sharing when either the 
enrollee or the provider notifies the plan before a service is 
furnished. We are adopting Sec.  422.4(a)(1)(v) and (a)(3) without 
further modification in this final rule.
    In our October 22, 2009 proposed rule, we also proposed to prohibit 
MSA plans from establishing prior notification rules. We believe that 
prior notification rules established by MSA

[[Page 19716]]

plans are also confusing to enrollees of those plans and have similar 
negative effects as those described above for PPO and PFFS plans. 
Accordingly, we proposed to modify Sec.  422.4(a)(2) such that MSA 
plans will also be prohibited from establishing prior notification 
rules under which an enrollee is charged lower cost sharing when either 
the enrollee or the provider notifies the plan before a service is 
furnished. We are also adopting Sec.  422.4(a)(2) without further 
modification in this final rule.
    Finally, the October 22, 2009 proposed rule discussed similar 
concerns about beneficiary confusion in connection with PPO plans that 
included a POS-like benefit. As we noted in the October 22, 2009 
proposed rule and the Medicare Program entitled Establishment of the 
Medicare Advantage Program, published in the January 28, 2005 Federal 
Register (70 FR 4617 through 4619), we had stated that PPOs could offer 
a POS-like benefit under which beneficiary cost sharing would be less 
than it would otherwise be for non-network provider services, but still 
might be greater than it would be for in-network provider services, 
provided an enrollee follows preauthorization, pre-certification, or 
prenotification rules before receiving out-of-network services. For the 
same reasons discussed above, we determined that this approach is 
confusing, and is subject to abuse as a prior authorization mechanism 
for non-network services. Therefore, in order to reduce the complexity 
of PPO plans' cost sharing designs and improve transparency for both 
enrollees and providers, we proposed in our October 22, 2009 proposed 
rule to prohibit PPO plans from offering such a POS-like benefit. 
Specifically, we proposed to revise the definition of POS in Sec.  
422.2 and Sec.  422.105(b), (c), and (f) to indicate that only HMOs may 
offer a POS benefit. The proposed change is consistent with section 
1851(a)(2)(A)(i) of the Act, which states that an HMO may include a POS 
option. We are adopting Sec.  422.105 without further modification in 
this final rule and revising Sec.  422.2 as described below.
    Comment: Several commenters supported our proposals to prohibit PPO 
plans (for out-of-network services), MSA plans, and PFFS plans from 
establishing prior notification rules and prohibit PPO plans from 
offering a POS-like benefit. Some of the commenters indicated that 
these practices are confusing and misleading and penalize members who 
are not able to give prior notification or who were unaware of the 
option. Some commenters also indicated that they found several plans 
that charge exorbitant cost-sharing (up to 75 percent) for expensive 
items such as durable medical equipment when prior notification 
requirements have not been met. A number of commenters opposed our 
proposals to prohibit PPO plans (for out-of-network services), MSA 
plans, and PFFS plans from establishing prior notification rules and 
prohibit PPO plans from offering a POS-like benefit. Other commenters 
stated that these practices permit plans to alert the enrollee in 
advance of receiving a service that it may not be covered; reduce 
enrollees' cost sharing obligations when obtaining covered services 
from out-of-network providers; enable plans to better monitor and 
oversee members' use of out-of-network providers, thus allowing plans 
to assess and expand their provider networks; and identify those plan 
members who may qualify for plan disease management and case management 
programs. One commenter indicated that MA plan premiums likely would 
increase if this cost control technique were eliminated. Commenters 
opposed to CMS' proposals provided several recommendations for 
addressing our concerns about prior notification rules and POS-like 
benefits. Commenters' recommendations included retaining existing 
policies; enforcing the existing requirement (for example, requiring 
greater clarity in enrollee materials) to address concerns raised in 
the proposed rule; requiring PPO plans with POS-like benefit to better 
describe the cost-sharing amounts under each set of circumstances that 
may arise; requiring plans to more clearly describe the distinction 
between prior authorization and prior notification, and expressly 
identify those covered services subject to each process; and 
encouraging providers' outreach to plans to confirm prior 
authorization/notification provisions and members' cost sharing 
obligations.
    Response: We agree with the commenters supporting our proposals to 
prohibit PPO plans (for out-of-network services), MSA plans, and PFFS 
plans from establishing prior notification rules and prohibit PPO plans 
from offering a POS-like benefit. As we stated in the October 2009 
proposed rule, we believe that prior notification is confusing to 
beneficiaries, misleading in terms of disclosure of cost-sharing, and 
in some instances, used inappropriately as a form of prior 
authorization. Also, the complexity of cost sharing designs using prior 
notification and POS-like benefits has made it more difficult for both 
enrollees and providers to understand the enrollee's cost sharing 
obligation in advance of receiving services.
    We acknowledge the concerns raised by commenters who opposed our 
proposals. However, we believe that most of these concerns can be 
addressed if the plan takes an active role to educate enrollees and 
providers about their right to request a written advance coverage 
determination from the plan, in accordance with Subpart M of Part 422, 
before an enrollee receives a service in order to confirm that the 
service is medically necessary and will be covered by the plan. These 
MA plans should clearly explain the process for requesting a written 
advance determination in member materials and respond to requests from 
enrollees and providers on a timely basis. Plans may also encourage 
enrollees and providers to request advance coverage determinations 
prior to receiving costly services. These MA plans can also use 
requests for advance coverage determinations as a tool to identify 
enrollees who may qualify for disease management and case management 
programs or who require further care coordination. Plans can use the 
claims data submitted by non-network providers to expand their provider 
networks as well as identify those enrollees who would benefit from 
disease management and case management. We do not believe that 
prohibiting prior notification rules and POS-like benefits will lead to 
higher MA plan premiums. We believe that prohibiting PPO plans (for 
out-of-network services), MSA plans, and PFFS plans from creating prior 
notification rules and PPO plans from offering a POS-like benefit will 
reduce the complexity of these plans' cost-sharing designs and improve 
transparency for both enrollees and providers. Accordingly, we are 
adopting the proposals as set forth in the October 2009 proposed rule.
    We are making a technical correction to the definition of point-of-
service (POS) in Sec.  422.2 in this final rule. We are deleting the 
word ``additional'' from the definition since it no longer applies to 
the definition of a POS benefit option.
8. Requirements for LIS Eligibility Under Part D (Sec.  423.773)
    In the October 22, 2009 rule, we proposed amending the length of 
the period for which individuals are re-deemed eligible for the full 
low income subsidy to conform Sec.  423.773(c)(2), with guidance we 
issued in section 40.2.2 of Chapter 13 of the Medicare Prescription 
Drug Benefit Manual. As we noted in the October 2009 proposed rule, we 
review data from State Medicaid

[[Page 19717]]

Agencies and the Social Security Administration (SSA) every year to 
determine whether individuals currently deemed eligible for the subsidy 
should continue to be deemed (that is, ``re-deemed'') eligible for the 
subsidy. These data, which are sent in July and August every year, 
allow us sufficient time to update individuals' records in our systems, 
if necessary, and to make appropriate notifications if an individual is 
losing deemed status for the subsequent calendar year.
    We also noted that when we review data in July and August, we also 
identify individuals who are newly eligible for Medicaid, a Medicare 
Savings Program, or SSI, and deem them eligible for LIS for the 
remainder of the current calendar year. In addition, we also re-deem 
these individuals for the subsidy for the next calendar year, because 
we do not have sufficient time in the final months of the year to 
conduct a separate re-deeming process for them. Moreover, if we waited 
to re-deem these beneficiaries after the start of the next calendar 
year, they could incur greatly increased premium liability and cost 
sharing amounts at the start of the new calendar year than they would 
have otherwise.
    To address these issues, we proposed to amend Sec.  423.773(c)(2) 
to indicate that the deeming will be, at a minimum, for the following 
periods: If deemed status is determined between January 1st and June 
30th of a calendar year, the individual is deemed subsidy eligible for 
the remainder of the calendar year. If deemed status is determined 
between July 1st and December 31st of a calendar year, the individual 
is deemed subsidy eligible for the remainder of the calendar year and 
the next calendar year. We have found that this policy promotes 
effective administration of the LIS benefit and decreases the 
administrative burden on CMS, the Social Security Agency, and State 
Medicaid agencies, as well as on subsidy eligible individuals. In this 
final rule, we adopt this provision as proposed.
    Comment: Several commenters expressed support for our intent to put 
in regulation the minimum time periods for which beneficiaries are 
deemed eligible for the LIS.
    Response: We appreciate this support for our intent to outline the 
minimum time periods of LIS eligibility.
    Comment: One commenter urged us to consider making LIS deemed 
status permanent, or granting a 3-year period of presumptive 
eligibility. The commenter noted that while income and assets may 
fluctuate, most low-income Medicare beneficiaries are unlikely to 
experience increases that are enough to affect their eligibility. The 
commenter also noted that making eligibility permanent would eliminate 
the need for redeterminations of eligibility, thus reducing 
administrative costs for the program and inconvenience and stress for 
beneficiaries.
    Response: We understand the potential benefits to the LIS 
population of extending or making permanent their eligibility for the 
subsidy, and reducing the inconvenience and stress to beneficiaries is 
an ongoing goal of our administrative processes. Currently, 
approximately 95 percent of LIS-eligible beneficiaries are re-deemed 
for the following year prior to the end of the current calendar year, 
and half of those who are not initially re-deemed (that is, another 2.5 
percent) are re-deemed within next 6 months. In addition to this, the 
number of beneficiaries who actually receive the annual Loss of Subsidy 
Letter, also known as the gray notice, has been decreasing over the 
last 4 years. This suggests that CMS and State efforts to improve the 
administrative process are working, and that individuals who continue 
to qualify for the low income subsidy are being identified 
appropriately, while the small proportion of individuals who may no 
longer qualify for the subsidy also are being identified. We believe 
that the approach being adopted here strikes a balance between making 
the re-deeming process as efficient as possible while still ensuring 
that beneficiaries receiving the subsidy are truly LIS-eligible. For 
these reasons, we are not adopting the suggested modifications.
    Comment: A few commenters recommended that we require States to 
continue providing Medicaid coverage to a dual-eligible until the 
individual's Part D enrollment actually takes effect.
    Response: Section 1935(d) of the Act specifically precludes Federal 
medical assistance for Medicaid payments for prescription drugs for 
those Medicaid-eligible individuals who are also eligible for Part D, 
regardless of whether the person is enrolled in a Part D plan. 
Therefore, no modification to the regulations will be made.
    Comment: One commenter requested additional regulatory changes to 
require improvements to the way we administer the LIS benefit, 
including improving the Web site, notices to encourage appropriate 
actions, and putting in place better ``Best Available Evidence'' 
policies and procedures to ensure that LIS status discrepancies are 
corrected.
    Response: As noted previously, we continually consider ways to 
improve the administration of the LIS benefit and beneficiaries' 
understanding of it. We believe we have the authority to make the 
additional improvements the commenter suggested, as appropriate, 
without further modifying the regulation.
9. Enrollment of Full Subsidy Eligible Individuals and Other Subsidy 
Eligible Individuals Under Part D (Sec.  423.34)
    We proposed to codify in regulation the enrollment procedures that 
we use for LIS individuals, which are similar to those specified in the 
regulation for the dual-eligible population. We believe that our 
regulations would be more accurate and complete if they specifically 
addressed this population. Therefore, we proposed to include 
information on how we enroll all LIS-eligible individuals, including 
full benefit dual-eligible individuals, through the following changes:
     In Sec.  423.34(a), we expanded the general rule to refer 
to all LIS-eligible individuals, so that the rest of that section 
applies not only to full benefit dual-eligible individuals, but also to 
all LIS-eligible individuals.
     In Sec.  423.34(b), we retained the definition of full 
benefit dual-eligible individual, and added a definition for ``low-
income subsidy eligible individual.'' We have identified the need for a 
technical correction to the definition of ``low-income subsidy eligible 
individual.'' The proposed definition could be read to specify that the 
definition of full-benefit dual eligible--who are identified as a 
specific group of LIS eligibles--is that in Sec.  423.722, which is 
limited to such individuals already enrolled in a Part D plan. However, 
the enrollment rules in Sec.  423.34(b) applies to full-benefit dual 
eligibles not yet enrolled in a Part D plan. We made a technical 
correction to the regulation text to specify that the definition of 
full dual eligible individual is that in Sec.  423.34.
     We amended the paragraph heading of Sec.  423.34(c) to 
indicate that this paragraph describes the process we use to reassign 
LIS-eligible individuals during the annual coordinated election period. 
We indicate that the reassignment process applies to certain LIS 
eligible individuals (that is, not just full-benefit dual-eligible-
individuals).
     We revised the paragraph heading of Sec.  423.34(d) from 
``Automatic Enrollment Rules'' to ``Enrollment Rules.'' We made this 
change to reflect the inclusion of full subsidy and other subsidy 
eligible groups in the enrollment process, in addition to full benefit 
dual-eligible individuals. In our guidance, we refer to the process of 
enrolling full benefit dual-eligible individuals as ``automatic 
enrollment,''

[[Page 19718]]

and the process for other LIS eligibles as ``facilitated enrollment.'' 
(See section 30.1.4 of Chapter 3 of the Medicare Prescription Drug 
Benefit Manual.)
     We amended Sec.  423.34(e) to indicate that the rules 
regarding declining enrollment and disenrollment also apply to all LIS-
eligible individuals.
     In Sec.  423.34(f), we clarified that the paragraph 
heading and contents of this paragraph are limited to the effective 
date of enrollment for full benefit dual-eligible individuals. We also 
amended Sec.  423.34 (f)(3) to specify that, for individuals who are 
eligible for Part D and subsequently become eligible for Medicaid on or 
after January 1, 2006, the effective date of enrollment would be the 
first day of the month the individual becomes eligible for both 
Medicaid and Medicare Part D.
     In Sec.  423.34(g), we added a new paragraph to specify 
that the effective date for LIS eligibles who are not full benefit 
dual-eligibles would be no later than the first day of the second month 
after we determine that the individual meets the criteria for 
enrollment into a PDP under this section. This change conforms to 
section 30.1.4 of Chapter 3 of the Medicare Prescription Drug Benefit 
Manual. Unlike full benefit dual-eligible individuals who may have 
retroactive Part D coverage, these individuals have only prospective 
Part D coverage.
    In the proposed rule, we also acknowledged concern expressed by 
some commenters about auto-enrolling beneficiaries on a random basis. 
For example, focus groups of seniors suggest the possibility that some 
auto-enrolled beneficiaries may not realize they have been enrolled in 
a drug plan or that they have been reassigned to a different drug plan. 
We noted that we are committed to taking appropriate steps to improve 
this process and welcomed comments related to all aspects of these 
procedures. In this final rule, we adopt these provisions as proposed.
    Comment: Several commenters expressed support for expansion of 
auto-enrollment and reassignment to all individuals with LIS.
    Response: We appreciate the support for this policy and are 
adopting the proposal without change.
    Comment: Commenters urged us to shorten the time period for a plan 
enrollment so that it would take effect as of the date the person 
becomes subsidy eligible. The current time period can leave an 
individual who has applied and qualified for the subsidy with a gap of 
over 2 months between the time they express an interest in getting help 
with drug costs (via the application for the LIS) and the time they are 
actually enrolled into a plan and receive that assistance. This 
timeframe may have made sense initially, since it was not clear that 
nondually eligible LIS recipients would have an ongoing SEP. Now that 
they have been extended that protection, there is less of a need to 
wait for their selection. Instead, the enrollment should happen quickly 
to ensure access to prescription drugs.
    Response: Facilitated enrollment constitutes a passive enrollment 
process that requires advance notice of the opportunity to make an 
active election before the enrollment is effective. We have been unable 
to find a way to ensure that individuals who are facilitated at the end 
of the month can receive the required advance notice and have an 
opportunity to make an election on their own before that enrollment 
takes effect (though it is possible to do so for those at the beginning 
of the month). It is important to keep in mind that this population 
consists of individuals who have applied for LIS, are notified of their 
approved LIS eligibility, and informed via their LIS approval notice 
that they need to elect a plan in order to avail themselves of the 
subsidy. Thus, we believe they are likely to follow through on their 
previous actions and choose a plan on their own, leading to possible 
confusion if they receive a facilitated enrollment notice after they 
have already made an active election. Finally, we note that all 
individuals whose facilitated enrollment into a PDP has not yet taken 
effect may obtain coverage for immediate drug needs through the Limited 
Income NET demonstration.
    We are committed to continue exploring ways of shortening the 
facilitated enrollment process without infringing on an individual's 
ability to make a choice, or adding to the possibility of beneficiary 
confusion. However, it is important to note that proposed regulation 
text that we are now finalizing specifies that the enrollment effective 
date is ``no later than'' the first day of the second month'' after we 
determine that they meet the necessary enrollment criteria. Therefore, 
although we are declining to amend the regulation as requested while we 
continue to address a number of operational issues that remain 
unresolved, the regulation language does provide the flexibility to 
shorten the timeframe if warranted and feasible.
    Comment: One commenter noted that plans and beneficiaries would 
benefit from us specifying for both plans and beneficiaries any premium 
liability in instances when the beneficiary has a 25, 50, or 75 percent 
premium subsidy, in the process of conducting facilitated enrollment. 
As part of this, the commenter suggested revising of the facilitated 
assignment letter to include that portion of premium for which the 
beneficiary is liable.
    Response: When we notify plans of new facilitated enrollees, we do 
identify those beneficiaries who are partial versus full subsidy 
beneficiaries, both on the Transaction Reply Report confirming 
enrollments, as well as on the LIS History report. In addition, the 
individuals' subsidy level is fully explained in the LIS approval 
letter from the Social Security Administration. However, we appreciate 
the suggestion for modifying the facilitated enrollment letter to 
reference a partial subsidy beneficiary's premium liability, and will 
explore whether this is feasible. We believe the latter does not 
necessitate a regulation change since notification details are 
generally an operational issue, so we will not modify the regulation to 
reference this.
    Comment: A few commenters requested that we require that plans 
notify dual-eligibles in advance of potential involuntary 
disenrollments. They noted that we conduct a special auto-enrollment 
early each month--
     To identify full benefit dual-eligibles who are 
disenrolled from their previous plan;
     Who have not chosen a new one; and
     Where there continues to be a risk of a coverage gap if 
the plan submits the disenrollment request to CMS after the special 
auto-enrollment occurs.
    Response: Section 423.36(b) of the regulation and section 40.2 of 
Chapter 3 of the Medicare Prescription Drug Manual already require 
plans to provide advance notice of potential disenrollment, so there is 
no need for a regulation change to that effect. The special process we 
run each month to capture recently disenrolled individuals already 
represents a significant advance in our auto-enrollment procedures. 
However, we will continue to look at ways to modify auto-enrollment to 
more quickly place auto-enrolled beneficiaries in a new plan. Note that 
under any circumstances, full benefit dual-eligibles who are 
disenrolled will not encounter any coverage gap--instead their 
subsequent enrollment will be made retroactive to the date of the loss 
of coverage from the preceding plan.
    Comment: One commenter suggested adding in Sec.  423.34(f)(3) the 
phrase ``unless the individual is not a full benefit dual-eligible as 
identified in Sec.  423.34(g)'' to the end of the sentence that 
comprises this subsection. The commenter believes this addition would

[[Page 19719]]

clarify that Sec.  423.34(f)(3) does not apply to non-full benefit 
dual-eligibles who have LIS.
    Response: Section 423.34(f), including subparagraph (f)(3), is 
already limited to full benefit dual-eligibles by virtue of the 
introductory regulation text before subparagraph (f)(1). Given this, we 
see no need to further specify that Sec.  423.34(f)(3) does not apply 
to non-full benefit dual-eligibles, so we decline to amend the 
regulation as suggested by the commenter.
    Comment: Several commenters suggested that we expand the PDPs to 
which it assigns or reassigns LIS beneficiaries to include enhanced 
benefit plans. One commenter further clarified that reassignments 
should include enhanced plans whose portion of the basic premium falls 
below the LIS benchmark, as this would be no more costly to the 
government and would give LIS beneficiaries the same options as 
available to other beneficiaries to enroll in enhanced benefit plans.
    Response: While enhanced benefit plans may offer supplemental 
benefits, they always create a premium liability for the beneficiary, 
including those who are eligible for the 100 percent premium subsidy. 
This is because, by statute, the LIS does not cover the portion of the 
premium attributable to the enhanced benefit, even if the total premium 
is under benchmark, meaning that the beneficiary is liable for the 
enhanced portion of the premium. The statute clearly limits initial 
auto enrollments to plans where an individual has zero premium 
liability, and we have adopted the same policy approach for purposes of 
reassignments. Therefore, we decline to modify the regulation as 
requested. We note that LIS beneficiaries are always free to elect an 
enhanced benefit plan if they wish to access the enhanced benefits, but 
they would incur some premium liability.
    Comment: Several commenters urged us to move away from random 
reassignment of LIS eligible individuals to a system of beneficiary-
specific reassignment in which beneficiaries are matched with plans 
that include their current drugs and preferred pharmacy. They believe 
this would result in less disruption to beneficiaries, and increased 
adherence to currently-prescribed drug regimens, while potentially 
providing the LIS benefit at the lowest total cost to beneficiaries.
    Response: We continue to explore alternatives to random 
reassignment that would minimize the potential for disruptions to 
continuity of care, and appreciate the commenters' support for a 
beneficiary-specific process. While we believe there is merit to 
beneficiary-specific reassignment, we decline to amend the regulation 
to require it, given that Sec.  423.34(c) currently provides CMS the 
discretion to implement such changes if our ongoing exploration of such 
an approach indicates that revisions to the current reassignment 
methodology are warranted.
    Comment: A few commenters suggested that instead of reassigning LIS 
beneficiaries from plans whose premiums are going above the LIS 
benchmark, we should permit them to stay in the plan and be held 
harmless. They recommended a number of ways to do so, including giving 
affected beneficiaries a grace period of one year to remain in the 
plan, with no additional premium payment; letting the plan ``absorb'' 
any premium difference between the benchmark and the bid amount (up to 
$2.00 per one commenter); or waiving the requirement that plans attempt 
to collect delinquent premiums.
    Response: While we have discretion to determine which beneficiaries 
are subject to reassignment, we believe that section 1860D-13(a)(1)(F) 
of the Act, which requires uniform premiums, precludes us from adopting 
these recommendations (absent a demonstration such as the 2006-2008 
``de minimis'' demonstration, where premiums of ``de minimis'' amounts 
were waived). We note that we have already implemented a demonstration 
for the 2010 plan year that increased the LIS benchmark, which had the 
effect of substantially decreasing the number of beneficiaries who 
needed to be reassigned.
    Comment: One commenter suggested that CMS should allow the plan 
(rather than CMS) to move the LIS members in to a zero-dollar premium 
plan offered by the same sponsoring organization.
    Response: As outlined in section 30.1.5 of the PDP Eligibility, 
Enrollment, and Disenrollment Guidance, when we reassign a beneficiary, 
we first attempt to reassign to a PDP offered by the same organization. 
Only when that is not possible do we reassign to plans outside of the 
organization. Our experience has been that CMS-initiated actions are 
much easier to implement on a timely basis, and to monitor for accuracy 
and completion, than are actions that depend on sponsors to identify 
and submit enrollment transactions for the affected population. 
Therefore, we believe there is little or no benefit to delegating this 
responsibility to PDP Sponsors, and we decline to make the requested 
change.
    Comment: One commenter urged us to let plans communicate sooner 
with LIS enrollees they may lose to reassignment. The commenter 
suggested such communication be permitted earlier than is currently 
permitted in the reassignment process, to ensure affected beneficiaries 
understand their options.
    Response: Plan sponsors are already permitted to communicate with 
current enrollees, subject to Part D marketing guidelines; the 
reassignment regulations under discussion here do not contain 
additional constraints on these rules, and we make every effort to 
involve sponsors in the reassignment communications process as early as 
possible. Thus, we believe there is no need for changes to the 
regulation to address this issue.
    Comment: One commenter recommended that we include LIS recipients 
with partial premium subsidy as opposed to only full premium subsidy 
recipients in the annual reassignment process. The commenter noted that 
while it is true that recipients with partial premium subsidy will pay 
some premium no matter which plan they select, the amount they pay is 
lower if they are enrolled in a plan with the premium at or below the 
benchmark.
    Response: We acknowledge that a partial subsidy beneficiary's 
premium would be somewhat lower in a zero-premium plan versus a plan 
with a premium over the benchmark, but in either case, these 
beneficiaries would still have to pay some portion of the premium. As 
always, our policies with respect to reassignment are intended to 
strike a fair balance between our dual goals of limiting beneficiary 
exposure to premium costs and also avoiding any potential negative 
impact on an individual's prescription drug coverage (such as changes 
to a pharmacy network or drug regimen). Since reassignment cannot 
eliminate the premium liability for such individuals under any 
circumstances, in this situation, we believe that potential for 
disruption to the prescription drug coverage outweighs the potential 
financial risks associated with paying a higher premium. Therefore, we 
do not believe that there is sufficient benefit to reassigning these 
beneficiaries, and we decline to adopt the commenter's suggested change 
to our existing approach.
    Comment: A few commenters asked us to reconsider our decision not 
to include beneficiaries who elect their current plan (``choosers'') in 
the reassignment process. Our reconsideration of this issue should 
begin with an evaluation of how choosers have been affected by the 
current process. In particular, the

[[Page 19720]]

Agency should identify the number of choosers who--
     Affirmatively switch plans every fall;
     Affirmatively switch plans during the year; and
     Are involuntarily disenrolled due to nonpayment of 
premium.
    Response: We share the commenter's interest in this issue, and 
recently solicited input on whether we should reassign choosers who 
will face a premium liability of $10.00 or more in the following year 
(please see page 84 of the Advance Notice of Methodological Changes for 
Calendar Year 2011 for Medicare Advantage (MA) Capitation Rates, Part C 
and Part D Payment Policies and 2011 Call Letter, issued February 19, 
2010). We will continue to assess choosers' experience in Part D plans 
above the benchmark, including the extent to which they subsequently 
elect another plan and the extent to which they experience problems 
with premium payments. As noted previously, the regulations do provide 
the flexibility to change the existing process should our 
reconsideration of our approach show it to be warranted.
    Comment: Two commenters recommended that we send a notice to LIS 
choosers who have chosen to join or remain in plans in which they would 
incur a premium liability. The commenters suggested notifying them of 
their zero-premium options (including an analysis of drug utilization 
to determine most appropriate plan). The beneficiary would be permitted 
to respond to the mailing in an efficient manner (for example, via 
postcard, telephone call, or online) to indicate his or her choice.
    Response: We continue to assess the experience of LIS choosers who 
face premium liability, and as noted above, have solicited input on 
whether we should reassign choosers who have a premium liability of 
$10.00 or greater for the following year. We remain committed to 
reaching out to choosers whom we do not reassign to let them know about 
their options for zero premium prescription drug plans.
    Comment: A few commenters urged us to require State Medicaid 
Agencies to increase the frequency of state submission of MMA data 
exchange files, which is the primary vehicle for notifying CMS of new 
dual-eligible beneficiaries. This would further minimize enrollment 
delays for new dual-eligibles.
    Response: We believe this comment is outside the scope of this 
regulation, so we decline to amend the regulation in this manner. 
However, we continue to encourage states to submit these files more 
frequently, and provide technical assistance on how to do so.
    Comment: One commenter urged us to ensure that dual beneficiaries 
receive clearer information about all the options available to them, 
including information about Medicare Special Needs Plans that can 
provide their Part D benefits. The commenter was especially concerned 
about the new Limited Income NET demonstration, which will 
automatically enroll LIS-eligible individuals who fail to elect a plan 
and are in immediate need of drugs in one Part D plan. This could 
create obstacles to seamless conversion from a Medicaid-only managed 
care plan to a Medicare Special Needs Plan offered by the same 
organization. The commenter encouraged us to establish more effective 
procedures to find and transition new duals into their Medicare 
benefits, especially those who are becoming Medicare-eligible because 
they are reaching the end of their 24-month disability waiting period.
    Response: We appreciate the commenter's concern about ensuring 
dual-eligible beneficiaries receive information about all their 
options, and the need for ensuring a smooth transition for these 
beneficiaries between Medicaid and Medicare drug coverage. We have 
taken several steps to do so, and believe the Limited Income NET 
demonstration is an important step in further improving that 
transition. With respect to the concerns about the Limited Income NET 
demonstration, we note that the Limited Income NET process only 
involves auto enrollment to a single Part D plan for a short, 
retroactive period. For all prospective periods, the long-standing 
process of random enrollment among all PDPs with a premium at or below 
the LIS benchmark would continue to apply. Further, we do not believe 
the Limited Income NET demonstration specifically, or auto enrollment 
generally, creates obstacles to seamless conversion. In both cases, our 
processes are designed to ensure that new dual-eligibles have access to 
Medicare drug coverage on the first day of their eligibility for it. 
However, both those processes are also designed to ensure that any 
beneficiary election will trump a CMS-generated auto enrollment.
    Comment: One commenter expressed support for the Limited Income NET 
demonstration program, but raised other concerns that the commenter 
believes the demonstration will not address: enrollment delays, LIS 
recipients in non-benchmark plans, and the need for accurate, LIS-
specific information in plan mailings.
    Response: We appreciate the support for the Limited Income NET 
program, and will continue to work on improving other areas of the 
program referenced by the commenter.
10. Special Enrollment Periods Under Part D (Sec.  423.380)
    In the October 22, 2009 rule, we proposed to expand the SEP 
described in Sec.  423.38(c)(4), which currently applies to full 
benefit dual-eligible individuals, to all LIS-eligible individuals. 
This proposed change is consistent with our authority in section 1860D-
1(b)(3)(C) of the Act and will conform our regulations to current 
practice as reflected in CMS guidance in section 20.3.8, item 7, of 
chapter 3 of the Medicare Prescription Drug Benefit Manual. In this 
final rule, we adopt the provision as proposed.
    Comment: Several commenters expressed support for putting the 
continuous Special Enrollment Period (SEP) for non-full benefit dual-
eligible beneficiaries that is currently in operational guidance into 
regulation.
    Response: We appreciate the comments that support placing the SEP 
for non-full benefit dual-eligibles into the regulation.
11. Transition Process Under Part D (Sec.  423.120(b)(3))
    In the October 22, 2009 proposed rule, under the authority of 
section 1860D-11(d)(2)(B) of the Act, we proposed to codify in 
regulation certain plan transition policies at Sec.  423.120(b)(3) 
previously established through subregulatory guidance. We specifically 
proposed to codify in regulation that a Part D sponsor must provide for 
a transition for the following--
     New enrollees into PDPs following the annual coordinated 
election period;
     Newly eligible Medicare enrollees from other coverage;
     Individuals who switch from one plan to another after the 
start of the contract year; and
     Current enrollees remaining in the plan who are affected 
by formulary changes from one contract year to the next.
    We also proposed, consistent with our current guidance, that a Part 
D sponsor's transition process be applicable to nonformulary drugs, 
meaning both--
    (1) Part D drugs that are not on a sponsor's formulary; and
    (2) Part D drugs that are on a sponsor's formulary but require 
prior authorization or step therapy under a plan's utilization 
management rules. Additionally, consistent with our current guidance, 
we proposed to codify the timeframes for the transition process

[[Page 19721]]

and the days' supply limit for a transition fill of an enrollee's 
medication. Specifically, we proposed to codify the transition process 
timeframe to apply during the first 90 days of coverage under a new 
plan.
    In addition, noting that our existing guidance directs Part D 
sponsors to provide a temporary supply we proposed that Part D plan 
sponsors be required to ensure that the one-time temporary supply of 
nonformulary Part D drugs requested during the first 90 days of 
coverage in an outpatient setting be for at least 30 days of 
medication, unless the prescription is written by a prescriber for less 
than 30 days, in which case the Part D sponsor must allow multiple 
fills to provide up to a total of 30 days of medication. For a new 
enrollee in a LTC facility, the temporary supply may be for up to 31 
days (unless the prescription is written for less than 31 days), 
consistent with the dispensing practices in the LTC industry. In 
addition, due to the often complex needs of LTC residents that often 
involve multiple drugs and necessitate longer periods in order to 
successfully transition to new drug regimens. For these reasons, we 
proposed to require sponsors to honor multiple fills of nonformulary 
Part D drugs, as necessary during the entire length of the 90-day 
transition period. Further, we proposed requiring up to a 31-day 
transition supply for enrollees in an LTC facility given that many LTC 
pharmacies and facilities dispense medication in 31-day increments. 
Thus, a Part D sponsor would be required to provide a LTC resident 
enrolled in its Part D plan at least a 31 day supply of a prescription 
when presenting in the first 90 days of enrollment (unless the 
prescription is written for less) with refills provided, if needed, up 
to a 93 day supply.
    In addition to proposing to codify the preceding requirements, we 
also clarified our expectations of sponsors with respect to providing 
transition notices. Consistent with our guidance that specifies that 
Part D sponsors send a written notice, via U.S. First Class mail, to 
each enrollee who receives a transition fill, we proposed to codify the 
guidance that directs sponsors to send this notice to each affected 
enrollee within 3 business days of the temporary fill. In addition to 
this codification, we also proposed requiring plan sponsors to make 
reasonable efforts to notify prescribers, via mail, electronic or 
verbal communication, that the affected enrollees' prescription cannot 
be refilled, either because of utilization management requirements such 
as prior authorization or step therapy, or because the prescribed 
medication is not on the plan sponsor's formulary. All of these 
proposals were addressed by adding paragraphs (i) to (v) to our general 
transition policy requirement at Sec.  423.120(b)(3). We are adopting 
paragraphs (i), (ii), and (v) as proposed without further modification. 
As explained below, we are modifying proposed paragraph (iii) by 
clarifying the existing language to state that the temporary supply of 
nonformulary Part D drugs (including Part D drugs that are on a 
sponsor's formulary but require prior authorization or step therapy 
under a sponsor's utilization management rules) must be for up to 93 
days in 31 day supply increments, with refills provided, if needed, 
unless a lesser amount is actually prescribed by the physician, and 
paragraph (iv) by clarifying that transition notices must be sent to 
beneficiaries within 3 business days after adjudication of a temporary 
fill.
    Comment: A number of commenters supported our proposal of requiring 
an extended transition supply be given to enrollees residing in a LTC 
facilities. However, commenters requested that CMS provide the same 
protections to individuals requiring LTC in community-based settings as 
provided to those in institutions.
    Response: While we appreciate that there are community-based 
enrollees who have nursing facility level of care and may experience 
access to multiple pharmacies, we are not persuaded that we should 
extend the LTC extended transition requirement to such individuals. We 
believe that residents of LTC institutions are more limited in access 
to prescribing physicians hired by LTC facilities due to a limited 
visitation schedule and more likely to require extended transition 
timeframes in order for the physician to work with the facility and LTC 
pharmacies on transitioning residents to formulary products. We believe 
that community-based enrollees, in contrast, are less limited in their 
access to prescribing physicians and do not require an extended 
transition period to work with their physicians to successfully 
transition to a formulary product.
    Comment: Several commenters disagreed with the proposed timeframe 
in which to send out the transition notice of 3 business-days and 
recommended 3 calendar days. The commenters argue that a requirement of 
3 calendar days is clearer and easier to enforce, particularly during 
holiday periods, when holidays delaying U.S. mail combined with the 
normal delays in mail delivery can severely cut into the time a 
beneficiary needs to try a different drug and request a formulary 
exception.
    Response: We disagree with these commenters that the proposed 
timeframe be changed to 3 calendar days, which includes weekends and 
holidays when standard businesses are closed. We do not believe that a 
calendar day timeframe will allow sponsors an acceptable period in 
which to mail out a transition notice. Rather, we believe that the 3 
business day turnaround time for notice to be sent is consistent with 
current transition policy and it permits a beneficiary sufficient time 
to work with his/her prescriber to change to a therapeutically 
equivalent drug on a plan's formulary or begin the exceptions process.
    Comment: Several commenters supported the proposed requirement that 
sponsors notify the prescriber when a transition fill has been made. 
One commenter stated that the proposal is a positive that allows 
consistency across the MA population and it provides protection of 
certain vulnerable populations. Many commenters requested that we 
develop a standardized transition format for notices and explanations 
to be provided to plans. Another commenter requested our review notices 
that sponsors provide to ensure that beneficiaries are not unknowingly 
being steered to mail order pharmacies.
    Response: We appreciate the comments. We note that we have 
developed a model transition notice for plans to send beneficiaries and 
are considering for the future whether or not to make that model 
standardized. In addition, we have prepared model notices for sponsors 
to ensure that beneficiaries are not unknowingly being transferred to 
mail order pharmacies. Model transition notices may be found at Part D 
Marketing Model Materials.
    Comment: Many commenters opposed the requirement to send the 
transition notice within 3 business days of the temporary fill being 
dispensed. These commenters requested changing the proposal to notice 
being sent within 3 business days after a temporary fill is processed. 
The commenters argue that this is consistent with the current language 
in Section 30.4.10 of Chapter 7 of the Prescription Drug Benefit 
Manual, where the phrase ``within 3 business days of the temporary 
fill'' has been understood by the industry to refer to the date the 
temporary fill is processed, since it is only when the claim is 
processed that a plan learns about it and can act on it.
    Response: We agree and note that industry practice standards have 
interpreted the language to mean within

[[Page 19722]]

3 business days of a temporary fill being processed. Therefore, we are 
revising the language of Sec.  423.120(b)(3)(iv) to read ``within 3 
business days of adjudication of a temporary fill.''
    Comment: Some commenters expressed concerns with our proposal that 
Part D plan sponsors make reasonable efforts to notify the prescriber 
of the transition fill, with some commenters recommending that we make 
the prescriber notice requirement optional so that plans may exercise 
discretion to determine whether it is warranted. Another commenter 
stated that for the notification to be successful their master DEA file 
would need constant updating and that the requirement does not take 
into account emergency room or urgent care physicians covered by a 
blanket DEA number from the hospital. Another commenter suggested we 
should dialogue with the industry to review operational challenges to 
the prescriber notification. Yet another commenter suggested that we 
not implement the requirement unless we provides plan sponsors with 
access to databases with complete and accurate physician contact 
information cross-referenced with physician identifiers.
    Response: We disagree with the commenters' request to make the 
prescriber notice optional and leave it to the plan's discretion 
whether such notification is warranted. The prescriber notification is 
a means of further strengthening beneficiary protections when dealing 
with formulary changes or utilization management protocols for 
necessary medications because the prescriber is in the best position to 
advise the beneficiary on the benefits or risks of switching to a 
different medication. Prescriber notification is an additional step to 
ensure a beneficiary is receiving optimal medication therapy outcomes 
with little to no delay in their drug regimen. As a result of this 
provision, sponsors and network pharmacies will need to ensure that 
they update their databases on a more consistent basis. We intend to 
provide additional guidance on what constitutes ``reasonable 
notification efforts'' in the future, but we do not envision providing 
plans with a comprehensive database of physician contact information as 
this is not information that we keep track of, and therefore it is not 
feasible for plans to rely on us to completely and accurately maintain 
such a database.
    Comment: Several commenters stated that notification via U.S. mail 
occurs after the fact and suggests an alternative of beneficiary 
notification at the site of service.
    Response: We continue to work with the industry to work on 
automated methods whereby beneficiaries are notified at point of sale 
that a drug dispensed is non-formulary. Until such time as these 
notifications are automated, plan sponsors must send written notice of 
transition fills through the U.S. mail.
    Comment: One commenter requested CMS to define ``other coverage'' 
related to the requirement to provide a transition period for ``newly 
eligible Medicare enrollees from other coverage'' questioning whether 
this means that newly eligible Medicare enrollees who do not have 
``other coverage'' should not qualify for a transition period. The 
commenter requests that we clarify that ``newly eligible Medicare 
enrollee'' would not include anyone who had been eligible for Medicare 
as a result of a disabling condition and moves to being eligible for 
Medicare as a result of reaching the specified age (such as, 65).
    Response: We agree and clarify that ``newly eligible Medicare 
enrollee'' would include anyone who had been eligible for Medicare as a 
result of a disabling condition and moves to being eligible for 
Medicare as a result of reaching the specified age (such as, 65), 
including enrollees who do not have ``other coverage'' but who may be 
paying out of pocket for drugs they are currently taking.
    Comment: One commenter supported the transition proposal but 
requests that CMS further revise Sec.  423.120(b)(3) to standardize the 
amount of the temporary supplies that PDP sponsors are required to 
provide in the LTC setting. Some PDP sponsors have interpreted this 
element of CMS' transition policy that temporary supplies ``may be for 
up to'' 31 days to enable them to authorize fills of less than 31 days, 
even when physicians have prescribed a 31-day fill. The commenter 
recommends that we revise its proposed regulation to require PDP 
sponsors to provide transition supplies of at least 31 days unless a 
lesser amount is actually prescribed by the physician.
    Response: We agree and are clarifying the existing language to 
state that the temporary supply of nonformulary Part D drugs (including 
Part D drugs that are on a sponsor's formulary but require prior 
authorization or step therapy under a sponsor's utilization management 
rules) must be for up to 90 days in 31-day supply increments unless a 
lesser amount is actually prescribed by the physician. We believe this 
clarification is necessary to protect beneficiaries residing in LTC 
facilities from unnecessary delays in obtaining the full amount of a 
temporary fill or from uneven interpretation among plan sponsors.
    Comment: Many commenters suggested that we articulate in regulation 
the extension of transition fills through the completion of any 
requested exception, even if that process takes longer than 30 days. 
Moreover, commenters suggested that we also require a transition fill 
whenever a member encounters formulary difficulties obtaining current 
prescriptions. A few commenters urged us to codify in regulation the 
requirement that Part D plans cover an emergency supply of nonformulary 
drugs outside of the initial 90-day transition period. One commenter 
suggested that the regulations should be strengthened to provide that 
without evidence of timely written notice to the affected enrollee, the 
enrollee should be entitled to continue to receive the relevant 
medication(s). Other commenters requested we codify current guidance 
encouraging Part D sponsors to incorporate processes in their 
transition plans that allow for transition supplies to be provided to 
current enrollees with level of care changes.
    Response: We note that current policy directs Part D sponsors to 
provide for a transition extension on a case-by-case basis when 
enrollees have not been successfully transitioned to the sponsor's 
formulary requirements. We do not believe that it is appropriate to 
codify this ``case-by-case'' directive into the existing rule. Our 
guidance already addresses that sponsors need to review an enrollee's 
request for an extension and the circumstances requiring such a request 
on an individual basis.
    We also disagree with the comments that the regulation should be 
strengthened to provide that without evidence of timely written notice, 
the enrollee should be entitled to continue to receive the relevant 
medication(s). We believe that this situation would be more 
appropriately be handled through the complaint process given the level 
of scrunity that would be required to verify whether evidence exists 
that notice was provided to the enrollee by the plan sponsor.
    We also disagree with the comment requesting that we codify into 
regulation at this time our current guidance encouraging transition 
supplies to be provided to current enrollees with level of care 
changes. As we have not encountered large number of complaints, we will 
continue to examine this issue. If we decide to mandate transition in 
this area, we will do so through future rulemaking.

[[Page 19723]]

    Finally, we will consider codifying our emergency supply policy for 
LTC enrollees in future rulemaking.
    Comment: Some commenters urged us to adopt the GAO recommendation 
to make the ANOC sent prior to each open season more individualized and 
thus more valuable to plan enrollees.
    Response: We appreciate commenters recommending a more 
individualized ANOC being sent out prior to each open season. We 
believe that this is outside the scope of this proposal, which is to 
strengthen beneficiary protections during the transition process.
12. Part D Sponsor Responsibility for Retroactive Claims Adjustment 
Reimbursements and Recoveries Under Part D (Sec.  423.464, Sec.  
423.466, and Sec.  423.800)
    In the October 22, 2009 proposed rule, under the authority of 
sections 1860D-23 and 1860D-24 of the Act, we proposed that sponsors 
make retroactive claim adjustments and take other payer contributions 
into account as part of the coordination of benefits. In making these 
proposed changes, we noted that some beneficiary changes (such as LIS 
status changes or midyear Part D enrollment changes), LTC pharmacy 
billing practices for dual-eligible beneficiaries, and the presence of 
secondary, tertiary, and even quartenary payers have contributed to a 
higher than expected volume of retroactive claims adjustments requiring 
Part D sponsor reimbursements and recoveries, as well as a greater than 
anticipated complexity of calculating these amounts. While we 
previously anticipated that beneficiaries would be owed reimbursements 
due to changes in LIS status, and that plan sponsors would be required 
to make such reimbursements under Sec.  423.800(c), we did not believe 
our current regulations addressed the other entities that may sometimes 
need to be taken into account in reimbursement or recovery 
transactions. Moreover, we noted that no industry standard electronic 
process exists to explicitly handle underpayment recoveries or 
overpayment reimbursements created by these adjustments, and that the 
current Health Insurance Portability and Accountability Act (HIPAA) 
standard for coordination of benefits for pharmacy claims only partly 
supports these activities when the pharmacy initiates ``reverse and 
rebill'' transactions. As a result, Part D sponsors sometimes struggle 
with how to manage these retroactive adjustments and those sponsors 
that are refunding overpayments or seeking underpayment recovery are 
each doing it differently.
    We also noted in the October 22, 2009 proposed rule that, since our 
current regulations do not address retroactive adjustments and the 
complexities associated with coordination of benefit activities that 
cannot be accomplished between the Part D sponsor and the pharmacy 
through reversal and rebilling, we have issued general guidance to 
direct sponsor coordination of benefit activities. As part of our 
implementation guidance on the automated process for the transfer of 
TrOOP-related data, we established a 45-day maximum time limit for the 
sponsor to take adjustment action, make a refund, and initiate 
recovery. We established this time limit after an informal survey and 
discussions with Part D sponsors and their processors.
    We noted in the October 22, 2009 proposed rule (74 FR 54663) that 
many of the post-adjudication adjustments, such as those that are due 
to enrollment changes, are changes that affect beneficiary cost 
sharing, premiums and plan benefit phase. Establishing a reasonable 
time limit for all Part D adjustment, refund, and recovery activity is 
in the beneficiaries' best interests because it ensures that required 
changes are effectuated on a timely basis, thus correcting retroactive 
and prospective beneficiary premium and cost-sharing amounts. Moreover, 
it is in the best interest of others who have paid a claim on the 
beneficiary's behalf because it ensures that these amounts are resolved 
timely.
    For these reasons, we proposed at Sec.  423.464 and Sec.  423.466 
to codify our previous policy guidance by proposing that sponsors must 
make retroactive claim adjustments and take other payer contributions 
into account as part of the coordination of benefits. Further, we 
proposed adding a new timeliness standard at Sec.  423.466 to require 
adjustment and issuance of refunds or recovery notices within 45 days 
of the sponsor's receipt of the information necessitating the 
adjustment.
    As part of making these proposed changes, we noted that, to date, 
most Part D coordination of benefits activity has been performed at 
point-of-sale or soon after, so pharmacy reversal and rebilling of 
claims can be accomplished within the payers' timely filing windows. 
For Part D, this window must be a minimum of 90 days, but for other 
(non-Part D) providers of prescription drug coverage the filing window 
could be as short as 30 days. However, we acknowledged that with the 
volatility of LIS data and Part D enrollments creating a significant 
volume of retroactive adjustments, Part D sponsors are facing more 
claims adjustments than current pharmacy claim reversal and rebilling 
approaches can adequately address.
    In addition, we acknowledged issues regarding proprietary pricing 
information and the chilling effect that disclosure of this information 
might have upon the ability of pharmacies to negotiate with payors. To 
ensure the confidentiality of pricing information, coordination of 
benefits on the initial claim is accomplished without reporting 
complete information on negotiated pricing. The amount then reported in 
the (Nx) transaction to the Part D plan is the amount of the 
beneficiary payment after the supplemental payment. As a result, a Part 
D sponsor attempting to determine refund or recovery amounts without 
having the pharmacy reverse and rebill the original claim can generally 
only impute the amount of any supplemental payment made by another 
payer by determining the difference between the Part D cost-sharing and 
the beneficiary amount paid after the supplemental payment. The only 
alternative is to ask the pharmacy to reverse and rebill the claim to 
all payers. However, such a procedure would be generally impractical 
after the industry standard 30-day window because many supplemental 
payers will not accept the late claim.
    In the absence of legal authority to compel supplemental payer 
cooperation and to avoid pharmacy underpayment, imposing a requirement 
on sponsors to nonetheless calculate a precise reimbursement or 
recovery liability would require the creation of a new payer-to-payer 
transaction that would both enable reprocessing and address pharmacies' 
concerns about revealing their proprietary pricing. However, as we 
noted in the proposed rule (74 FR 54663), it is not clear that both 
goals can be achieved. Nor is it clear that even if this conflict could 
be resolved, that the cost of doing so would be justified by the 
benefits.
    Therefore, while simple adjustments involving just the Part D 
sponsor and the pharmacy are relatively straightforward (and can and 
should be promptly transacted), those involving other payers are not. 
We solicited comments on alternative approaches to improving post-
adjudication coordination of benefits necessitated by retroactive 
Medicare enrollment and low-income subsidy changes when multiple payers 
are involved, as well as our assessment that the costs of achieving 
precision in such transactions may outweigh the benefits.
    Our specific proposals to modify Sec.  423.464 included the 
following changes:

[[Page 19724]]

     Revising paragraph (a) to clarify that all Part D sponsors 
must comply with administrative processes and requirements established 
by CMS to ensure effective coordination between Part D plans and other 
providers of prescription drug coverage for retroactive claims 
adjustments, underpayment reimbursements and overpayment recoveries; 
and
     Adding a new paragraph (g)(7) to address the sponsors' 
responsibility to account for payments by SPAPs and other providers of 
prescription drug coverage in reconciling retroactive claims 
adjustments that create overpayments and underpayments, as well as to 
account for payments made, and for amounts being held for payment, by 
other individuals or entities. The new paragraph would also specify 
that Part D sponsors must have systems to track and report adjustment 
transactions and to demonstrate that--
    (1) Adjustments involving payments by other plans and programs 
providing prescription drug coverage have been made,
    (2) Reimbursements for excess cost-sharing and premiums for LIS 
eligible individuals have been processed in accordance with the 
requirements in Sec.  423.800(c), and
    (3) Recoveries of erroneous payments for enrollees have been sought 
as specified in Sec.  423.464(f)(4).
    Except as otherwise provided below, after considering the comments 
received in response to the proposed rule, this final rule adopts the 
proposed changes to the retroactive claims adjustment reimbursement and 
recovery provisions in Sec.  423.464 and Sec.  423.466.
    Comment: Multiple commenters agreed that the costs of achieving 
precision in retroactive COB transactions outweigh the benefits of 
creating specialized electronic transactions for calculating payer-to-
payer claims adjustments. A number of these commenters offered 
recommendations to CMS in response to our request for alternative 
approaches to improving post-adjudication coordination of benefits, 
including establishing a process to notify supplemental payers when an 
Nx transaction was not generated and the Part D sponsor is making a 
retroactive adjustment to the primary amount paid.
    Response: We appreciate the commenters' concurrence with our 
assessment that the costs to create a specialized transaction for 
retroactive claims adjustments outweigh the benefits and their 
recommendations for improving post-point-of-sale adjudication 
coordination of benefits. Until such time as any cost effective 
alternative approaches are identified, we will not require the 
development of payer-to-payer coordination of benefit transactions for 
retroactive claims adjustments. Instead, we will work with the industry 
to develop work-around solutions, such as imputing amounts to be 
reimbursed based on best available information, and will take the 
commenters' recommended approaches into consideration during that 
effort.
    In the interim, the existing coordination of benefit requirements 
require sponsors to coordinate not only with beneficiaries, but also 
with SPAPs, other plans or programs providing prescription drug 
coverage and beneficiaries and other individuals or entities that have 
made payment on the beneficiaries' behalf. These requirements include 
coordination of benefits at point-of-sale, as well as retroactive 
claims adjustments necessitated by not only beneficiary changes, such 
as retroactive LIS eligibility determinations, LIS status changes or 
mid-year Part D enrollment changes, but also other payer changes, 
beneficiary submission of paper claims, etc. In addition, as discussed 
elsewhere in this rule, sponsors must have systems to track and report 
adjustment transactions and to process adjustments and issue refunds or 
recovery notices within 45 days of the sponsor's receipt of information 
necessitating a retroactive claims adjustment.
    As specified in subregulatory guidance in the Medicare Prescription 
Drug Benefit Manual chapters on Coordination of Benefits and Premium 
and Cost-Sharing Subsidies for Low-Income Individuals, Part D sponsors 
should also: work with other providers of prescription drug coverage to 
resolve payment issues; have a process in place to handle payment 
resolution that is not restricted by implementation of timely filing 
requirements; make retroactive adjustments and promptly refund monies 
owed to the correct party (including, but not limited to, the 
beneficiary); and generally limit requests for pharmacy reprocessing to 
those situations where the total payment to the pharmacy changes. 
Coordination of benefits guidance also includes the need to transfer 
TrOOP and gross covered drug cost balances to the new plan whenever a 
beneficiary transfers enrollment between Part D sponsors during the 
coverage year. As discussed elsewhere in this final rule, sponsors have 
a 45-day maximum time limit from receipt of changes in the reported 
transfer data to make an adjustment and issue a refund or initiate 
recovery.
    Comment: One commenter suggested that CMS establish an exception 
that would permit a Part D sponsor to refund the beneficiary directly 
without accounting for other payers if the net claims adjustment is $10 
or less and there is no N transaction reporting another payer amount 
paid on the claim.
    Response: We disagree with this suggestion. Although individual 
claims adjustments may not exceed the suggested threshold, cumulative 
amounts due to other payers (such as SPAPs) could be substantial. 
Additionally, the other payers would be unaware that a claim had been 
retroactively adjusted and that a refund was issued to the beneficiary. 
As a result, the other payers would not know to seek recovery from the 
beneficiary. Therefore, we continue to believe that sponsors must 
comply with the coordination of benefits requirements without regard to 
the monetary amount of the adjustment.
    Comment: One commenter asked that we clarify in Sec.  423.464 that 
pharmacies holding copayments are exempt from the coordination of 
benefits requirements since they do not meet the definition of a plan 
or program providing prescription drug coverage. The commenter noted 
that this clarification will ensure that pharmacies recognize they are 
not a provider of prescription drug coverage, and are only entitled to 
reimbursement if the member should receive reimbursement and the 
pharmacy has attested that it is holding the member's cost-sharing 
amounts due and has not billed the member. Several other commenters 
requested that specific language be added to the regulations at either 
Sec.  423.800(c), or Sec.  423.464(g) and Sec.  423.466(a), to clarify 
that the requirements, including the 45-day time period for issuing 
refunds or initiating recoveries due to retroactive adjustments, apply 
not only when a supplemental payer is involved, but also when a 
pharmacy is owed for cost-sharing initially withheld by the sponsor for 
LIS beneficiary claims.
    Response: We agree that pharmacies are not providers of 
prescription drug coverage and, therefore, are not covered under Sec.  
423.464(g). However, it was our intention to apply the 45-day time 
limit to all retroactive adjustment regardless of whether a pharmacy 
alone, a pharmacy and the beneficiary, or a pharmacy, the beneficiary 
and another payer are involved. As a result, we are finalizing Sec.  
423.464(g) as proposed. In response to the concerns raised by the 
commenters regarding the application of the 45-day timeframe to 
pharmacies, in this final rule we are also amending Sec.  423.800 to 
add a new paragraph (e) to make it clear that the 45-day timeframe

[[Page 19725]]

applies to adjustments involving pharmacies and beneficiaries, 
including LTC pharmacies holding cost-sharing amounts due. Generally, 
sponsors will reimburse the beneficiary for adjustments made to retail 
claims, but for full benefit dual-eligible individuals, in the absence 
of other information indicating the cost-sharing has been waived, the 
sponsor will reimburse the LTC pharmacy.
    Comment: Several commenters argued that the 45-day time period for 
issuing reimbursement or initiating recovery should be changed to 90 
days because of the various research and coordination issues that may 
need to be resolved with other stakeholders in the industry.
    Response: We disagree with these commenters. We believe a 45-day 
period is more than sufficient to resolve any coordination of benefits 
issues and refund overpayments or institute recovery of underpayments 
resulting from the retroactive claims adjustments. As we stated in the 
proposed rule, we considered a 90-day time limit, but concluded that 
this longer timeframe was not in the best interests of beneficiaries 
because it would delay the payment of refunds and notification of the 
need for payment recovery. Moreover, we noted that as part of the 
automated transfer of TrOOP-related data, we established a 45-day 
maximum time limit for sponsors to take adjustment action, make a 
refund and initiate recovery. We further explained that we established 
this time limit after an informal survey and discussions with Part D 
sponsors and their processors. For these reasons, we continue to 
believe that a 45-day time limit represents a reasonable compromise. 
Therefore, we are finalizing the requirement as proposed.
13. Time Limits for Coordination of Benefits (Sec.  423.466)
    In the October 22, 2009 proposed rule (74 FR 54664), we proposed to 
revise Sec.  423.466 by adding a new paragraph (b) that would establish 
a 3-year time limit on Part D coordination of benefits. In making this 
proposed change, we noted that currently, there is no statutory or 
regulatory time limit for Part D sponsor coordination of benefits with 
SPAPs, other providers of prescription drug coverage, or other payers. 
Current CMS guidance as set forth in the Coordination of Benefits (COB) 
chapter of the Medicare Prescription Drug Benefit Manual only directs 
Part D sponsors to establish at least a 90-day timely claims filing 
window and to make appropriate allowances for COB claims on a case-by-
case basis. The COB chapter also directs sponsors, in retroactive 
enrollment situations, to coordinate benefits with other payers as 
required by the regulations at Sec.  423.464(f), as well as to accept 
claims from the beneficiary without imposing time limits. This chapter 
further states that sponsors, even in those situations when retroactive 
enrollment is not an issue, are liable for claims received after the 
end of the coverage year as defined in Sec.  423.308 and that, while 
contract provisions regarding timely claims filing may limit claims 
from network pharmacies, non-network pharmacies and beneficiaries must 
still have the opportunity to submit claims for reimbursement without 
the imposition of time limits by the Part D sponsor.
    We also noted the benefits to be derived from this proposed change. 
In addition to limiting sponsors' financial liability, a specified time 
limit would strengthen the ability of SPAPs, other providers of 
prescription drug coverage and other payers, including beneficiaries, 
to obtain payment for covered Part D drugs within that time frame. 
Moreover, we would benefit from a COB time limit because it would 
enable us to conduct reopening efficiently and on a predictable 
schedule.
    In considering whether to establish time limits on the submission 
of claims to Part D sponsors by beneficiaries and other payers of 
prescription drug coverage for proper coordination of benefits, we 
noted that the Medicare FFS time limit for filing claims, as specified 
in Sec.  424.44, is 15 to 27 months depending on the date that the item 
or service was furnished and that under certain circumstances these 
time limits may be extended an additional 6 months. We also noted that 
the Deficit Reduction Act of 2005 (Pub. L. 109-171) (DRA) amended 
section 1902(a)(25) of the Act, to provide for a 3-year time limit for 
States to seek recovery of Medicaid claims payments when the State is 
not the primary payer. Although this DRA provision does not address 
SPAPs and, therefore, does not impose a time limit on the requirement 
for Part D sponsors to coordinate benefits with SPAPs, it does 
establish the time limit for State Medicaid programs to recover from 
Part D plans.
    Having considered these filing limit precedents, we proposed to 
establish a 3-year filing limit for Part D coordination of benefits 
with SPAPs, other entities providing prescription drug coverage, and 
all other payers, including beneficiaries or other individuals or (non-
network) entities paying, or holding amounts for payment, on the 
beneficiaries' behalf. Specifically, we proposed to revise new Sec.  
423.466 by adding a new paragraph (b) that would establish a 3-year 
time limit on Part D coordination of benefits. Part D sponsors would be 
required to coordinate benefits with SPAPs, other entities providing 
prescription drug coverage, and other (non-network) payers for a period 
not to exceed 3 years from the date on which the prescription for the 
covered Part D drug was filled. Adding this provision to the regulation 
would clarify timely filing responsibilities and deadlines for all 
beneficiaries and payers, as well as place a limit on Part D sponsors' 
claims payment liabilities and coordination of benefits 
responsibilities.
    As noted in our response to the comments below, after considering 
the comments received in response to this proposal, we continue to 
believe a 3-year time limit on Part D coordination of benefits is 
reasonable, and in this final rule, we are adopting the provision as 
proposed.
    Comment: Two commenters expressed support for the establishment of 
a clear timeframe for coordination of benefits, and two others 
expressed agreement with the proposed 3-year time limit. A number of 
other commenters suggested alternative time limits of 2 years, 18 
months or 1 year. The rationale cited by commenters for a shorter time 
period was that it would more closely align the COB time limit with the 
regulatory deadline for submission of Part D cost data, thereby 
reducing the number of payment reconciliation reopenings and curtailing 
the costs associated with maintaining open claims databases.
    Response: We disagree that we should shorten the proposed 
coordination of benefits time limit. Other payers need time to seek 
reimbursement and sponsors need a clear limit in order to resolve 
claims for which they are responsible. We believe that a 3-year limit 
would permit CMS to address both needs. A timeframe that aligned with 
the regulatory deadline for submission of PDE data would allow only 6 
months for submission of claims incurred late in the coverage year, a 
timeframe that we believe Part D experience to-date has demonstrated 
would not allow sufficient time for claim identification and 
subrogation. As we noted in the proposed rule, the 3-year limit is also 
aligned with the DRA timeframe, providing a uniform period for 
coordination of benefits for all payers, rather than creating different 
timeframes based on payer type (for example, SPAPs or other entities 
providing prescription drug coverage). This alignment will, in our 
view, ease administration for all parties.

[[Page 19726]]

    Therefore, in the final rule, we adopt the requirement for Part D 
sponsors to coordinate benefits with SPAPs, other entities providing 
prescription drug coverage, and other (non-network) payers for a period 
not to exceed 3 years from the date on which the prescription for the 
covered Part D drug was filled. By the effective date of this final 
rule, the timeframe for coordination will have ended for claims for 
prescriptions filled any time in 2006, as well as for prescriptions 
filled in the early months of 2007. For example, a Part D sponsor would 
be responsible for coordinating benefits on a claim for a covered Part 
D drug filled on March 3, 2008 until March 3, 2011.
    It is important to note that this final rule establishes a time 
limit for Part D sponsor liability for coordination of benefits with 
other payers and does not affect the timeframes for Part D sponsors to 
pursue Medicare secondary payer (MSP) claims and to recover amounts 
paid by the sponsor as primary when an MSP payer is identified. Such 
timeframes are separately identified in 42 CFR part 411.
    Comment: One commenter stated the application of the DRA's health 
claim reimbursement rules and standards to prescription drugs is 
inequitable, because Part D claims processing, unlike health claims 
processing, is predominantly real-time. As a result, a 3-year 
submission window is not necessary.
    Response: We disagree. Although no interpretive guidance has been 
issued on this provision, the plain reading of section 1902(a)(25)(J) 
of the Act encompasses all Medicaid claims, including claims for 
prescription drugs. As a result, we believe the application of this 
standard for Part D is appropriate.
    Comment: One commenter recommended that CMS impose time limits for 
the payment of COB claims once filed with the Part D sponsor.
    Response: This suggestion is outside the scope of the proposed 
rule. We can consider whether such a time limit is warranted and 
address the issue as appropriate in future rulemaking. However, we note 
that once a COB claim has been submitted, we expect Part D sponsors 
will make good faith efforts to promptly coordinate benefits with the 
submitter of the claim, whether an SPAP, another entity providing 
prescription drug coverage, a beneficiary or someone acting on his or 
her behalf, or another payer. Any payer that does not believe a Part D 
sponsor is making good faith efforts to coordinate claims on a timely 
basis should report the complaint to CMS.
14. Use of Standardized Technology Under Part D (Sec.  423.120)
    Under the authority of section 1860D-4(b)(2)(A) of the Act, we 
proposed to revise our regulations at Sec.  423.120(c)(3) to require 
Part D sponsors to contractually mandate that their network pharmacies 
submit claims electronically to the Part D sponsor or its intermediary 
on behalf of the beneficiary whenever feasible unless the enrollee 
expressly requests that a particular claim not be submitted to the Part 
D sponsor or its intermediary.
    As we noted in the October 22, 2009 proposed rule (74 FR 54665), 
the only way that an enrollee can be assured access to the negotiated 
price at the point of sale is through online adjudication of the 
prescription drug claim. Any other price available to the beneficiary 
at the point of sale cannot be deemed to be the negotiated price 
mandated under section 1860D-2(d) of the Act. Therefore, to ensure 
access to these negotiated prices, billing information on the NCPDP 
``Pharmacy ID Card Standard'', which is the standard for identification 
cards for the Part D program, must be used by the pharmacies filling 
the beneficiaries' prescriptions to submit claims to the Part D sponsor 
(or its intermediary).
    We noted that CMS guidance set forth in the Coordination of 
Benefits Chapter of the Prescription Drug Plan Manual (in section 50.4 
entitled, ``Processing Claims and Tracking TrOOP''), instructs plan 
sponsors to process all claims online real-time. The requirements of 
accurate TrOOP accumulations, Part D benefit administration of multiple 
coverage intervals, and coordination of benefits with other payers all 
necessitate online real-time adjudication of individual pharmacy 
claims. This guidance states further that we expect that Part D plan 
sponsors will establish policies and procedures appropriately 
restricting the use of paper claims to those situations in which on-
line claims processing is not available to the beneficiary at the point 
of sale in order to promote accurate TrOOP accounting, as well as to 
minimize administrative costs to the Part D plans and the Medicare 
program and reduce opportunities for fraudulent duplicative claim 
reimbursements. We proposed to revise Sec.  423.120(c)(3) to require 
Part D sponsors to contractually mandate that their network pharmacies 
submit claims electronically to the Part D sponsor or its intermediary 
on behalf of the beneficiary whenever feasible unless the enrollee 
expressly requests that a particular claim not be submitted to the Part 
D sponsor or its intermediary.
    We proposed to codify this guidance in regulation because we have 
been made aware of an increasing number of instances in which network 
pharmacies are not submitting pharmacy claims to Part D Sponsors on 
behalf of Part D enrollees. Generally, we believe it is in the best 
interest of Part D enrollees to have their claims consistently 
processed through the Part D sponsor (or its intermediary). Not only 
does processing claims through the Part D sponsor ensure access to Part 
D negotiated prices, but it also ensures that proper concurrent drug 
utilization review (including safety checks) is performed. In addition, 
online, real-time processing facilitates accurate accounting for 
enrollees' true out-of-pocket (TrOOP) and total drug costs by the Part 
D sponsor so that each claim is processed in the appropriate phase of 
the benefit and accurate cost sharing assessed.
    We also proposed to add a new paragraph (c)(2) to Sec.  423.120 to 
codify our existing guidance that Part D sponsors utilize standard 
electronic transactions established by 45 CFR 162.1102 for processing 
Part D claims. We noted that we would issue guidance on the use of 
optional or conditional fields in the HIPAA standard transactions 
through the Call Letter and Prescription Drug Benefit Manual 
instructions. We noted further that we routinely work with NCPDP and 
industry representatives in arriving at recommendations for 
standardized use of such fields when necessary to improve 
administration of the Part D benefit.
    Finally, noting that pharmacies cannot routinely distinguish 
Medicare Part D claims from other types of prescription drug coverage 
when the same routing information (``RxBIN and RxPCN'') is used for all 
lines of business managed by a single processor, we also proposed to 
add a new paragraph (c)(4) in Sec.  423.120 to require that sponsors 
and their intermediary processors establish and exclusively utilize 
unique RxBIN or ``RxBIN/RxPCN combinations'' to identify all Medicare 
Part D member claims, as well as to assign unique ``RxID'' identifiers 
to individual Part D beneficiaries. We solicited comments on the 
operational issues and timelines that would be involved in making these 
proposed technical changes to claims processing systems.
    After reviewing the comments received in response to these 
proposals, we are adopting these provisions with some modification. 
Specifically, we revised Sec.  423.120(c)(4) to specify that effective 
on January 1, 2012 sponsors assign and exclusively use unique Part D 
identifiers. Exclusive use of these

[[Page 19727]]

identifiers requires that claims will only be paid if these specific 
numbers are submitted in the claims transaction.
    Comment: Many commenters concurred with our proposal that Part D 
sponsors mandate that pharmacies electronically submit all claims to 
the Part D sponsor or intermediary unless the beneficiary expressly 
requests otherwise. Several commenters offered recommendations related 
to implementation of this new requirement, including that CMS modify 
standard beneficiary communications (such as the EOB) to include 
language that helps the beneficiary understand that they should review 
their EOBs to confirm that all of their claims are being submitted and, 
permit either home infusion providers to attest to the plan, or the 
plan to validate on audit, the beneficiary's claims submission 
election, since it is impractical for small home infusion providers to 
bill electronically.
    Response: We appreciate the support expressed for the proposed new 
provision and the commenters' recommendations. However, we believe the 
clarifications associated with the recommendations, since these are 
related to implementation, are better addressed in subregulatory 
guidance. As we develop our implementation guidance, we expect to 
consider the clarifications and to continue to seek input from the 
industry and NCPDP.
    Comment: One commenter asked how the requirement that pharmacies 
electronically submit all claims to Part D unless the beneficiary 
expressly requests otherwise would be enforced if members do not show 
their ID card.
    Response: The requirement applies to pharmacies and not the 
beneficiary. Therefore, we will undertake no enforcement action against 
the beneficiary if the claim is not submitted to the Part D sponsor. 
However, even if the member does not show his or her ID card, 
pharmacies will be able to identify Part D claims based on the unique 
RxBIN/PCN identifiers already in the pharmacy system or in the response 
to an eligibility query from the TrOOP Facilitator, and will generally 
be expected to submit claims whenever such data are on file.
    Comment: One commenter urged us to allow 6 months for plan sponsors 
to implement the required network pharmacy contract change and noted 
that sponsor experience suggests that contract language alone will not 
ensure pharmacy compliance.
    Response: We agree that this provision will require time for Part D 
sponsors to implement. Therefore, we will implement the requirement 
effective January 1, 2011. We likewise agree that contract language 
alone may not guarantee pharmacy compliance, but we expect other 
contract provisions will address the procedures the Part D sponsor will 
follow in the event a pharmacy fails to comply with this requirement.
    Comment: One commenter requested that CMS clarify that notifying 
beneficiaries or discussing their options does not constitute 
``solicit[ation]'' as mentioned in the preamble, that our lower cash 
price policy is still in place, and that any voluntary request to waive 
claim submission to the plan survives the entire life of the 
prescription and there would be no need to expect the beneficiary to 
make a request each time they refill that prescription.
    Response: We agree with the commenter that discussing options per 
se does not constitute solicitation or steering. However, this must be 
a bona-fide discussion of options initiated by the beneficiary; that 
is, the discussion should not be initiated by the pharmacy with the 
intent to encourage the beneficiary to request his or her claims not be 
submitted to Part D in order for the pharmacy to avoid transactions 
fees. With regard to our lower cash price policy, we have not altered 
this policy. Finally, we intend to confirm in subregulatory guidance 
that any voluntary request to waive claim submission to the plan 
survives the entire life of the prescription and there would be no need 
to expect the beneficiary to make a request each time the prescription 
is refilled.
    Comment: One commenter encouraged us to ensure that Part D 
sponsors' contracts with network pharmacies charge the beneficiary and 
the plan sponsor the lesser of the usual and customary price (U&C) or 
contracted rate without regard to special programs offered by the 
pharmacy.
    Response: We believe that this comment is outside the scope of this 
proposal, which would only require that pharmacies submit all claims to 
Part D sponsors, unless the beneficiary requests otherwise. When a 
pharmacy's U&C prices are lower than the plan's negotiated price, we 
agree it is in the best interests of beneficiaries and taxpayers for 
the pharmacy to extend those U&C prices to Part D enrollees. However, 
because we do not directly regulate pharmacies, we have no authority to 
require them to do so.
    Comment: Several commenters agreed with our proposed requirement 
related to unique payer/processor and enrollee identification, with 
several commenters suggesting that implementation be no sooner than 
January 1, 2011 or January 1, 2012 and not mid-plan year. One commenter 
stated that we should accommodate the continued use of unique 
identifiers already established by Part D sponsors, without regard to 
length or combination of characters. Other commenters were opposed to 
the requirement for Part D sponsors to create, and exclusively use, an 
RxBIN or an Rx BIN/PCN combination for Part D enrollees as well as to 
assign an Rx identifier to a Part D enrollee, because of the costs 
associated with implementation and potential disruption for pharmacies 
and beneficiaries. One commenter stated that CMS should emphasize that 
the RxBIN and RxPCN numbers should be assigned and differentiated at 
the sponsor level, and another commenter specifically requested 
clarification of the reference to ``individual'' Part D beneficiaries.
    Response: We appreciate the general support for this provision and 
agree with the suggestions related to the timing of implementation, 
particularly in light of industry wide programming for HIPPA version 
D.0 conversion. Thus, the effective date for the requirement for a 
unique RxBIN or RxBIN/RxPCN combination and a unique Part D Rx 
identifier for each individual Part D member will be January 1, 2012. 
We believe this date will provide sufficient time for sponsors to 
implement necessary systems changes. Currently established unique 
identifiers may continue to be used. With regard to the level of 
assignment of the unique RxBIN or RX BIN/RxPCN combination, the 
appropriate level of assignment is at the Part D sponsor's parent 
organization rather than at the contract.
    The assignment and exclusive use of these unique Part D Rx 
identifiers have a number of advantages for Part D. The primary 
advantage is the use of these identifiers enables pharmacies to 
recognize Part D beneficiaries, which is possible only with the level 
of identification supported by unique identifiers. Distinguishing Part 
D enrollees from the commercial insured permits the pharmacy to comply 
with any Part D-specific processing requirements, such as the 
requirement to submit claims electronically to the Part D sponsor or 
its intermediary, on behalf of the beneficiary unless the beneficiary 
makes an explicit request to do otherwise.
    Other advantages to the use of unique Part D identifiers relate to 
the coordination of benefits. Currently, the TrOOP Facilitator and 
other switches that relay electronic pharmacy claims are unable to 
accurately determine whether an initial claim was paid by

[[Page 19728]]

Part D. As a result, the TrOOP facilitation process receives and 
processes coordination of benefits claims transactions even when the 
initial claims were not paid by Part D. This results in added 
processing costs for us and added workload for Part D sponsors 
receiving N transactions that cannot be matched to an initial claim 
because no Part D payment was made. Unique Part D Rx identifiers permit 
Part D claims to be processed independently and easily segregated for 
reporting and other purposes.
    Comment: One commenter noted that the proposed requirements may 
have to be modified to conform to the new privacy provisions included 
in the Health Information Technology for Economic and Clinical Health 
(HITECH) Act that allow an individual to request that a covered entity 
restrict the disclosure of his or her protected health information.
    Response: Our proposal would require Part D sponsors to require 
their network pharmacies to submit claims electronically to the Part D 
sponsor or its intermediary on behalf of the beneficiary ``whenever 
feasible.'' Federal regulations implementing the privacy provisions of 
the HITECH Act have not yet been published. Upon publication of those 
regulations, we will review the provisions to determine if 
modifications of this requirement are necessary.
15. Absence from Service Area for More Than 12 Months Under Part D 
(Sec.  423.44)
    We proposed to amend Sec.  423.44 to allow a temporary absence from 
the PDP plan service area for up to 12 months before disenrollment 
would be mandatory, consistent with the time frame provided under the 
MA visitor/traveler policy, the nature of the Part D benefit and the 
strong likelihood that a PDP enrollee can access the full range of PDP 
benefits while temporarily out of the service area. In this final rule, 
we adopt this provision as proposed.
    Comment: Most commenters supported our proposal. One commenter 
opposed the proposed change and preferred that we either make no change 
or revise the PDP rules to permit the offering of a visitor/traveler 
benefit, similar to the policy applicable to MA organizations.
    Response: Although the permissibility of visitor/traveler benefits 
under the Part D program is not strictly within the scope of this 
proposed rule, we recognize that these types of policies serve an 
important function in the MA program. However, for the Part D program 
we believe that delivery of the drug benefit is much more easily 
accomplished through out-of-area access rather than a visitor/traveler 
benefit, given the national pharmacy networks that are generally 
involved in providing enrollees with their prescription drugs. Thus, we 
continue to believe, as did most commenters, that this population is 
better served by extending plans' flexibility to deliver services on an 
out-of-area basis, rather than by requiring the establishment and 
approval of formal visitor/traveler policies whenever an enrollee is 
out of the service area for more than 6 months.
    Comment: One commenter wanted us to further codify that PDP 
enrollees temporarily absent from the plan service area and residing in 
a LTC facility be disenrolled after an absence of 6 months.
    Response: We disagree with the commenter that an individual 
residing in a LTC facility while temporarily absent from the plan 
service area should be considered to have a permanent residence outside 
the plan service area and disenrolled on an involuntary basis due to 
his or her out-of-area status. Current subregulatory guidance (Sec.  
50.2.1 of Chapter 2 of the Medicare Managed Care Manual and Sec.  
40.2.1 of Chapter 3 of the Medicare Prescription Drug Benefit Manual) 
instructs PDP sponsors to determine whether an enrollee's out-of-area 
status is temporary or permanent, such that involuntary disenrollment 
would occur prior to the expiration of the 6-month period only if it is 
confirmed that the enrollee has permanently relocated outside the plan 
service area. Under our proposed revision, PDP sponsors would 
effectuate an involuntary disenrollment upon confirmation of an 
enrollee's permanent residence outside the plan service area or 
expiration of a 12-month period, whichever occurs first. We believe 
this addresses the concern raised by the commenter with respect to 
ensuring a beneficiary's continued access to the Medicare prescription 
drug benefit while residing in an out-of-area long term care facility. 
Accordingly, we are adopting without change the revision as set forth 
in the proposed rule.
    Comment: One commenter requested that we not extend the period of 
permissible temporary out-of-area residence for individuals enrolled in 
MA-PD plans.
    Response: Since our proposed revision applies only to stand-alone 
PDP plans, we believe that this clarification is not necessary. The 
current 6-month rule for MA plans under Sec.  422.74(d)(4)(B)(ii) will 
remain in effect.
16. Prohibition of Midyear Mass Enrollment Changes by SPAPS Under Part 
D (Sec.  423.464(e)
    Consistent with the authority of sections 1860D-23(a)(1) and (b) of 
the Act, we proposed to add a requirement to Sec.  423.464(e) to 
prohibit midyear mass enrollment changes by SPAPs. In making this 
proposed change we noted that most SPAPs perform mass enrollments on a 
calendar year basis for all its members who have not chosen a Part D 
plan. However, some SPAPs have chosen to perform these enrollments on a 
noncalendar year basis. In these situations, Part D sponsors have found 
that substantial disenrollment of large numbers of SPAP members from 
one plan, followed by mass enrollment into another during the calendar 
year significantly affects their financial operations. We also stated 
our belief that mass re-enrollment into a new plan midyear disrupts any 
continuity of care the beneficiary has established with his other 
current Part D plan, and introduces transition risks such as drugs not 
being covered by the member's new plan, or requiring the member to 
change his or her pharmacy that are not outweighed by any 
administrative convenience to the SPAP. In this final rule, we adopt 
these provisions as proposed.
    Comment: A few commenters were concerned that SPAPs may need to 
change Part D enrollment midyear for their SPAP enrollees because the 
SPAP determines that its members are not being adequately served by the 
Part D plan (for example, the plan does not adequately cover the drugs 
needed by the individual SPAP member), or the Part D plan fails in its 
obligation to coordinate benefits with the SPAP. One commenter in 
particular suggested we change the regulation text to indicate that 
SPAPs not ``routinely'' engage in midyear plan or non-calendar year 
plan enrollment changes, but allow nonroutine mass re-enrollment when 
an SPAP has determined that such enrollment changes would better serve 
the needs of its members and has provided CMS with the appropriate 
prior notification.
    Response: We disagree with the commenters that SPAPs should be 
allowed to mass re-enroll its members during the calendar year, even 
when it is nonroutine. There are currently two actions the SPAP can 
take when it finds that its members are not being adequately served by 
a Part D plan. First, if an individual SPAP member is not being 
adequately served by the Part D plan (for example, the SPAP member's 
drugs are not covered or

[[Page 19729]]

pharmacy access is impeded under the plan), the SPAP may, using its 
authorized representative status, re-enroll that individual into 
another Part D plan. This one-time special enrollment period for 
individual SPAP members is allowed and further discussed in our current 
enrollment guidance (Chapter 3 of the Medicare Prescription Drug 
Benefit Program Manual). If an SPAP finds that the Part D plan is not 
serving its members because the Part D sponsor is in violation of 
Federal statute or regulation, the SPAP should contact us to report the 
plan's violation(s). We will then take the appropriate action in 
accordance with its compliance rules. Actions by CMS may include 
developing a corrective action plan with the Part D sponsor, suspending 
enrollment into the Part D sponsor's plan, or, if necessary, 
termination of the Part D sponsor's contract. We believe that both of 
these actions will adequately address problematic plans and that an 
exception for nonroutine mass midyear enrollments will not be 
necessary.
17. Nonrenewal Beneficiary Notification Requirement Under Parts C and D 
(Sec.  422.506, and Sec.  423.507)
    In the October 22, 2009 proposed rule, under the authority of 
sections 1857(a) and (c) and 1860D-12(b)(1) and (b)(3)(B) of the Act, 
we proposed revisions to the nonrenewal beneficiary notification 
requirements at Sec.  422.506(a)(2)(ii) and (b)(2)(ii) of the MA 
regulations and Sec.  423.507(a)(2)(ii) and (b)(2)(ii) of the Part D 
regulations to change the beneficiary notice requirement from at least 
60 days to at least 90 days.
    We noted that the existing regulations required notification 60 
days prior to the effective date of the nonrenewal for both enrollees 
and the general public. Changing the requirement for the personalized 
beneficiary specific CMS-approved notice to at least 90 days provides 
beneficiaries with an increased notice period giving beneficiaries more 
time to choose a new Medicare plan prior to the start of the new 
benefit year. We also noted that when we previously changed the 
required notice period to 60 days, we did so primarily to provide 
adequate time for the appeals process to conclude prior to the start of 
the next calendar year; however, our recent experience has indicated 
that the vast number of nonrenewals are voluntarily elected by the PDP 
sponsor or MA organization, so there is rarely a need to accommodate 
the appeals process. For this reason, we proposed at Sec.  
422.506(a)(2)(ii) and (b)(2)(ii) of the MA regulations and Sec.  
423.507(a)(2)(ii) and (b)(2)(ii) of the Part D regulations to change 
the beneficiary notice requirement from at least 60 days back to at 
least 90 days.
    We also proposed removing the requirement for nonrenewing plans (in 
voluntary nonrenewal situations) and for us (in CMS-initiated 
nonrenewal situations) to provide notice of the nonrenewal to the 
general public by publishing a notice in one or more newspapers of 
general circulation. This change was motivated by the cost of newspaper 
advertisements and the declining rate of newspaper circulation, weighed 
against the very limited benefit gained from notice to the general 
public who is minimally, if at all, affected by the nonrenewal. Also, 
nonrenewal information is now easily available to the general public 
through Internet Web sites maintained by us (for example, http://www.Medicarsuch asov), a resource not available to the public when the 
newspaper notice requirement was first adopted. We believe that this 
information, in conjunction with the requirement to provide 
personalized nonrenewal information to plan enrollees is sufficient to 
ensure adequate notice of the plan's nonrenewal. Therefore, we proposed 
deleting Sec.  422.506(a)(2)(iii) and (b)(2)(iii) of the MA regulations 
and Sec.  423.507(a)(2)(iii) and (b)(2)(iii) of the Part D regulations 
to remove the requirement that the general public be informed of the 
impending nonrenewal through the publication of newspaper notices.
    Comment: One commenter stated that in order to improve the member 
experience and make the requirements consistent, the ``90 day prior to 
the effective date of nonrenewal'' notification deadline should only 
apply to enrollees whose coverage is being terminated, and not to 
enrollees that are being mapped to another plan (such as Consolidated 
Renewal or Renewal Plan with SAR/Modified ANOC scenarios) because they 
are not losing coverage.
    Response: The change to the nonrenewal regulation only applies to 
beneficiaries who are losing coverage for the upcoming benefit year. It 
does not, as the commenter suggests, apply to beneficiaries who are 
involved in a plan consolidation, as their coverage will continue 
without interruption in the upcoming benefit year.
    Comment: Many commenters support the change in the notice 
requirement from 60 to 90 days. Commenters agreed that beneficiaries 
should be given more time to choose a new Medicare plan prior to the 
start of the new benefit year.
    Response: CMS appreciates these comments.
    Comment: Many commenters agreed that the publication of a 
nonrenewal notice in newspapers is no longer an effective means of 
communication, and support removing this requirement for nonrenewing 
plans.
    Response: CMS appreciates these comments.
    Comment: Several commenters stressed the importance of CMS issuing 
its model nonrenewal notice in time for plans to meet the 90 day 
requirement.
    Response: CMS agrees with these comments and plans to issue the 
model notice during the summer of each year, as it has in the past, to 
ensure that plans have enough time to fulfill this requirement.
    Comment: One commenter asked if the 90-day period runs from the 
start of open enrollment.
    Response: The regulation clearly indicates that the notice must be 
sent ``at least 90 calendar days before the date on which the 
nonrenewal is effective.''
    Comment: One commenter suggested that the CMS approved nonrenewal 
letter which provides information about sources for help in comparing 
Medicare plans is a good means to provide information in the case of 
mutual terminations.
    Response: We believe that the topic of notices for plans that are 
undergoing a mutual termination is outside of the scope of this 
proposed regulatory change. We note, however, that Sec.  423.508 of the 
regulation requires that when a contract is terminated by mutual 
consent, the Part D plan sponsor must notify its Medicare enrollees of 
the termination ``within timeframes specified by CMS.''
18. Notice of Alternative Medicare Plans Available To Replace 
Nonrenewing Plans Under Parts C and D (Sec.  422.506(a)(2)(ii) and 
Sec.  423.507(a)(2)(ii))
    To allow additional operational flexibility, in the October 22, 
2009 proposed rule, we suggested changing the requirement for PDP 
sponsors and MA organizations to provide written notification of the 
alternative Medicare plans available to replace the nonrenewing plan. 
We proposed changing the existing requirement to permit the option of 
either providing a written list of alternatives available, or placing 
outbound calls to all affected enrollees to ensure beneficiaries know 
whom to contact to learn about their enrollment options. We believe 
this change is advantageous for beneficiaries because, depending on 
where the beneficiary resides, a listing of available plan options is 
often very long and may be too overwhelming for the beneficiary

[[Page 19730]]

to use appropriately. We noted that a much more useful approach would 
be to provide beneficiaries with contact information and resources for 
identifying the most appropriate option given their unique, individual 
circumstances. For this reason, we proposed revising Sec.  
422.506(a)(2)(ii) of the MA regulations and Sec.  423.507(a)(2)(ii) of 
the Part D regulations, to provide the option of sending written 
notices of all available alternatives or placing outbound beneficiary 
calls to ensure beneficiaries know whom to contact to learn about their 
enrollment options. As discussed above, in either case, a personalized, 
CMS- approved beneficiary notice regarding the nonrenewal must still be 
sent to each beneficiary.
    After reviewing the comments received in response to these 
proposals, we adopt the proposed changes into this final rule with some 
modification. Specifically, we revised the regulation at Sec.  423.507 
to require that both Part C and Part D organizations inform 
beneficiaries of all MA and PDP available options. We also revised the 
regulation at Sec.  422.506(a)(2)(ii)(A) to require that Part C 
organizations inform beneficiaries of all MA, MA-PD, and PDP options.
    Comment: One commenter suggested that instead of providing 
alternative plan information in the nonrenewal letter, organizations 
should have the voluntary option of calling beneficiaries. 
Additionally, the commenter believed that organizations should provide 
a letter that contains language that directs impacted members to the 
Medicare Web site for the most current Medicare plan information 
available in their service area.
    Response: The requirement to list alternative plans is independent 
of the requirement to provide a personalized beneficiary notice. The 
required personalized beneficiary notice already contains information 
about using the Medicare Web site to obtain information about available 
plans. We disagree with the commenter's recommendation that 
organizations should not be required to provide alternative plan 
information and that the phone calls to notify beneficiaries be 
voluntary. Some beneficiaries may not be comfortable with, or do not 
have access to the Internet. Therefore, we believe it is in the best 
interest of the beneficiaries to be provided with either a written list 
of alternative plans or to receive a phone call informing them of whom 
to contact to learn about their enrollment options.
    Comment: Several commenters supported the proposed change that 
provides nonrenewing plans with the option to choose to give advance 
information to enrollees about alternative Medicare plan options in 
writing or to make outbound calls to all affected enrollees to ensure 
beneficiaries know whom to contact to learn about their enrollment 
options. It was stated that this approach also provides plan sponsors 
with the flexibility to vary the outreach methods used in order to 
accommodate different segments of their membership on a timely basis.
    Response: We appreciate the commenters support of our proposed 
changes.
    Comment: One commenter suggested that in the event of a nonrenewing 
MA plan, CMS should require that the written notification include 
Original Medicare and stand-alone PDPs among the alternative options 
available to the affected beneficiary. (Under the proposed rule change, 
the MAO would only be required to ``provide a CMS-approved written 
description of alternative MA plan options available for obtaining 
qualified Medicare services within the beneficiaries' region.'') Should 
the information be communicated via telephone by the MAO, then the 
person responsible for informing the beneficiary of his or her 
enrollment options should similarly be required to tell the beneficiary 
about Original Medicare and stand-alone PDPs in addition to other 
relevant plan options.
    Response: The list of available options is accompanied by the 
required personalized beneficiary nonrenewal notice that provides 
information about the beneficiary's various options including, when 
applicable, Original Medicare. We do agree with the commenter's 
suggestion to include additional alternative available Medicare plans; 
and therefore, have revised the regulation to require that both Part C 
and Part D organizations inform beneficiaries of both MA and PDP 
available options.
    Comment: Several commenters requested that the notification 
requirements mandate different personalized notices with more 
specialized information for different populations, particularly dual 
eligible and SNP beneficiaries.
    Response: We believe this comment is outside of the scope of the 
proposed regulatory changes because these changes did not address the 
information required within the personalized beneficiary notification. 
Rather, the proposed changes only discussed the list of alternative 
plans that must be provided with the personalized notice.
    Comment: Multiple commenters raised strenuous objections to the 
change that allows plan sponsors and organizations to place outbound 
calls to enrollees in plans that they are terminating to tell them who 
to call to learn about enrollment options. Commenters believed that 
allowing telephone calls invites the possibility of marketing abuses. 
Specifically, the commenters stated that this change ``creates a major 
marketing loophole, and allows plans to steer enrollees to other plans 
offered by the same sponsors and organizations, regardless of whether 
those plans are best for them.'' The commenters believed that 
beneficiaries need to be provided with all of the information about 
alternative plans, and all other options including returning to 
traditional Medicare. They stated that the information should be 
provided by CMS or by a neutral, trained counselor. In addition, they 
believed once plans have been told that their contracts will not be 
renewed, there is no incentive for the plans to act appropriately and 
according to Medicare marketing guidelines when interacting with 
beneficiaries. Commenters suggested that the proposed regulation 
authorizing calls to beneficiaries should be clarified to include 
strict plan communication restrictions that properly protect 
beneficiaries who are especially vulnerable as a result of plan 
terminations. Furthermore, CMS should make clear that any sponsor that 
markets plans when notifying beneficiaries of plan terminations will be 
considered to be violating Medicare marketing rules.
    Response: We do ensure that beneficiaries are informed of all of 
their options by requiring all nonrenewing plans to provide a 
personalized beneficiary notice which is separate from the plan's 
requirement to provide a list of alternative plans or make outbound 
call to inform beneficiaries of whom to contact to learn about their 
enrollment options. The required personalized notice includes 
information about all of the beneficiaries' choices and provides 
contact information for CMS and SHIP offices so that beneficiaries can 
contact ``neutral'' parties to obtain additional information about 
enrollment options. CMS does not believe that plans should be 
prohibited from contacting beneficiaries by phone, especially in light 
of the fact that plans regularly speak to beneficiaries by phone as 
part of the normal course of administering Medicare benefits. 
Furthermore, we believe that phone calls can provide beneficial 
individualized beneficiary service. Additionally, CMS will issue

[[Page 19731]]

guidance that instructs plans to submit all nonrenewal related scripts 
for CMS approval so that plans are providing appropriate and accurate 
information about the beneficiary's plan choices.
    Comment: One commenter stated that when plans map beneficiaries to 
an alternative plan offered by the sponsor rather than nonrenewing, the 
beneficiaries are not afforded nonrenewal rights that include a special 
election period and the personalized beneficiary nonrenewal notice. The 
commenter believed that the rights of members should be the same, and 
they should all default to Original Medicare with the option of 
enrolling in a PDP.
    Response: This comment concerns Part C and D enrollment policy and 
is outside the scope of the proposed regulatory changes related to 
beneficiary notification included in the proposed rule. CMS will 
consider this comment when we prepare the annual nonrenewal guidance.
    Comment: Several commenters proposed allowing plans to provide the 
alternative list of plans available via electronic format for 
beneficiaries who have chosen to ``opt-in'' to receiving communications 
by electronic means.
    Response: We believe that for the purposes of ensuring consistency 
in the application of the notification requirements, the list of 
alternative plans should be provided only in hard copy at this time. 
Also, CMS believes that beneficiaries' access to and use of on-line 
resources is not yet widespread enough to justify the adoption of 
regulations that allow for notification exclusively (even on an opt-in 
basis) through electronic communication. Should Medicare beneficiaries' 
Internet use patterns change in the coming years, CMS may make 
appropriate revisions to this policy.
    Comment: One commenter asked what number of attempts would be 
required of sponsors that elect the option to make calls to 
beneficiaries.
    Response: We believe that it is appropriate to address this 
question through the issuance of nonrenewal or marketing sub-regulatory 
guidance which provides more flexibility for changes than the 
rulemaking process.
    Comment: One commenter asked what to do if the list of alternative 
plans that is sent in the mail to the beneficiary is returned.
    Response: We believe that the standard practices organizations have 
presently adopted for handling beneficiary mail that is returned should 
be applied by the nonrenewing sponsor in such instances.
    Comment: One commenter stated that the rules for consolidation that 
map beneficiaries to another plan for the following benefit year 
results in disparate treatment of beneficiaries. For example, if one 
Plan Benefit Package (PBP) is entirely mapped into another PBP (so only 
one PBP continues in the upcoming year), all members in both original 
PBPs receive a standard Annual Notice of Change (ANOC). However, if 
some counties are mapped into another PBP but others remain (so both 
PBPs exist in both the current and upcoming years), members in the 
mapped counties receive a modified ANOC. The commenter stated that from 
the member standpoint, it doesn't matter which situation they are in, 
in either case they are mapped into a new plan. This disparate 
treatment of members in similar situations can lead to confusion among 
members and creates difficulties for customer service staff attempting 
to explain the contents of ANOC packets.
    Response: This comment is outside of the scope of the proposed 
regulatory change.
    Comment: One commenter stated that CMS must issue alternative plan 
information far enough in advance for plans to meet the requirement to 
include alternative plan information in the beneficiary specific 
letters that are due on October 1.
    Response: We have an HPMS module that provides plan option 
information to nonrenewing sponsors. We acknowledge that we cannot hold 
sponsors accountable for meeting the October 1 deadline unless we 
provide timely plan option information through HPMS to the sponsors, 
and CMS intends to make every effort to ensure that sponsors receive 
this information in a timely manner.
    Comment: One commenter proposed that if a plan chooses to call 
beneficiaries instead of sending a list, the plan should be obligated 
to document that the beneficiary was reached and that a message left on 
an answering machine in not sufficient.
    Response: We believe that the issue of call documentation is better 
addressed through the issuance of nonrenewal guidance which provides 
more flexibility for changes than the rulemaking process.
19. Timeframes and Responsibility for Making Redeterminations Under 
Part D (Sec.  423.590)
    In the October 22, 2009 proposed rule, we proposed to reconcile a 
discrepancy with respect to notice of completely favorable expedited 
redeterminations by adding new paragraph (d)(2) to Sec.  423.590. The 
proposed change would allow Part D plan sponsors to make the initial 
notice of a completely favorable expedited redetermination orally, so 
long as a written confirmation of the fully favorable decision is 
mailed to the enrollee within three calendar days of the oral notice. 
As noted in the preamble to the proposed rule, the change is consistent 
with the requirements in Sec.  422.590(d)(3) of the MA regulations.
    We also proposed in Sec.  423.590(d)(2) to allow Part D plan 
sponsors to make the initial notice of an adverse expedited 
redetermination orally, so long as a written confirmation of the 
decision is mailed to the enrollee within 3 calendar days of the oral 
notice. In addition, we proposed to revise paragraph (g) by adding 
cross references to paragraphs Sec.  423.590(d)(1) and (d)(2) in order 
to apply the written notice requirements in paragraph (g) to adverse 
expedited redetermination decisions. As noted in the preamble to the 
proposed rule, we believe adding these two notice requirements to the 
Part D expedited redetermination process is in the enrollee's best 
interests given the expedited status of these requests, and is 
consistent with our subregulatory guidance and the process for 
notifying enrollees of adverse expedited coverage determination 
decisions in Sec.  423.572(b).
    Similarly, we proposed adding Sec.  423.590(h) to establish the 
form and content requirements for fully favorable redetermination 
decisions, and proposed making those notice requirements applicable to 
redeterminations issued under paragraph (a)(1). We also proposed to 
reference paragraphs (d)(1) and (d)(2) in paragraph (h), so that the 
form and notice requirements in paragraph (h) would also apply to fully 
favorable expedited redetermination decisions. As we noted in the 
proposed rule, incorporating these Part D standard redetermination 
notice requirements will provide an important beneficiary protection by 
ensuring continuity of care for Medicare beneficiaries who are 
obtaining refills of prescription drugs under Part D, and doing so does 
not conflict with the related MA provisions. After considering the 
comments received in response to these proposals, we adopt these 
provisions without modification in this final rule.
    Comment: We received a number of comments supporting the proposal 
allowing Part D plan sponsors to make the initial notice of a fully 
favorable expedited redetermination orally, so long as a written 
confirmation of the fully favorable decision is mailed to the enrollee 
within three calendar days of the oral notice. However, one commenter 
suggested revising the 3

[[Page 19732]]

calendar day requirement to 3 business days.
    Response: We appreciate the comments we received in support of this 
provision. With respect to the comment recommending that we revise the 
calendar day requirement to business days, we have consistently used 
the calendar-day timeframe for all Medicare appeals processes, and we 
do not believe there is a compelling reason to depart from that 
standard for written notice of favorable decisions. We note that plan 
sponsors are required to mail (not deliver) the notice within 3 
calendar days.
    Comment: We also received many comments favoring our proposal 
giving Part D plan sponsors the option of making the initial notice of 
an adverse expedited reconsideration orally and then following up with 
written confirmation of the decision. Commenters also supported 
applying the written notice requirements in paragraph (g) to adverse 
expedited redetermination decisions. However, a number of commenters 
expressed concern about starting the 60-day timeframe for requesting an 
appeal on the date an enrollee receives oral notice of an adverse 
decision. The commenters noted that it may be very difficult for an 
enrollee to keep track of the deadline for filing an appeal if the 60-
day timeframe begins on the date they receive oral notice of a plan's 
decision. The commenters suggested starting the 60-day timeframe on the 
date printed on the written denial notice.
    Response: We agree and believe the 60-day timeframe for requesting 
an appeal of an adverse decision should begin on the date printed on 
the written denial notice. However, we believe the appropriate place to 
make this clarification is in our subregulatory guidance. Therefore, we 
will make this clarification in Chapter 18 of the Prescription Drug 
Benefit Manual.
    Comment: A commenter requested that CMS develop a model letter for 
fully favorable redetermination decisions and written redetermination 
decisions that follow oral notice under Sec.  423.590.
    Response: We agree that it would be helpful to provide plan 
sponsors with either model language or standardized notices for use in 
issuing fully favorable redetermination decisions and written 
redetermination decisions that follow oral notice, and will explore the 
feasibility of implementing these options. Any notice(s) we develop 
will be published in Chapter 18 of the Medicare Prescription Drug 
Benefit Manual.
    Comment: Numerous commenters supported the proposal requiring plan 
sponsors to include specific information (such as, the conditions of 
approval) in favorable decision notices. However, one commenter opposed 
the proposed requirement and suggested instead that we allow plan 
sponsors to provide the approval conditions on request.
    Response: Currently, plan sponsors must provide the conditions of 
approval to enrollees upon request. Thus, the commenter's suggestion 
would not address the issue we were trying to resolve in the proposed 
rule. As noted in the preamble to the proposed rule, we believe it is 
important to include the conditions of approval in favorable notices to 
help ensure continuity of care for Medicare beneficiaries who receive 
prescription drugs under Part D. Prescription drugs are often provided 
to beneficiaries on a recurring basis. Therefore, it is important for 
an enrollee to know the conditions of the approval (such as, duration, 
limitations, and coverage rules for refills) before a refill is needed, 
so that, if necessary, the enrollee can work with his or her prescriber 
to secure prior approval for additional refills, obtain an exception, 
or switch to an appropriate alternative prescription.
20. Requirements for Requesting Organization Determinations Under Part 
C (Sec.  422.568)
    We proposed specific language related to oral requests for 
organization determinations, except for payment-related requests. As we 
noted in the October 22, 2009 proposed rule, section 1852(g)(3) of the 
Act allows an enrollee to request an expedited organization 
determination either orally or in writing. However, the method for 
requesting a standard determination is not addressed in either the Act 
or the implementing regulations at Sec.  422.568. Both beneficiary 
advocates and MA plans have voiced concern about the absence of express 
regulatory authority that would allow enrollees to request standard 
organization determinations both orally and in writing. Therefore, we 
added specific language in Sec.  422.568 to allow oral requests for 
organization determinations, except where the request is for payment.
    Comment: Although one commenter opposed allowing oral requests 
because of concerns about proving that a request was made, we received 
several comments in support of our proposed revision. Many of those who 
supported our proposal also suggested that we require plans to develop 
a confirmation and tracking system for oral requests.
    Response: For several years, we have, without difficulty, allowed 
enrollees and physicians to orally request expedited organization 
determinations. Thus, we believe allowing enrollees to also request 
standard organization determinations orally will not pose any issues 
regarding tracking such requests. Currently, Chapter 13 of the Medicare 
Managed Care Manual (section 50.2) instructs plans to maintain a 
process for tracking expedited organization determinations, and we 
agree with the commenters' recommendation to place a similar 
requirement on plans regarding oral requests for standard organization 
determinations. Accordingly, we are revising Sec.  422.568 as proposed 
without change. We will also add this requirement to Chapter 13 of the 
Medicare Managed Care Manual to ensure compliance.
21. Organization Determinations Under Part C (Sec. Sec.  422.566 and 
422.568)
    We proposed to remove the language from Sec.  422.566(b)(4) and 
Sec.  422.568(c) that an enrollee must disagree with the plan's 
discontinuation or reduction of a service for the plan's decision to be 
considered an organization determination. Section 1852(g)(1)(A) of the 
Act requires MA organizations to have a procedure for making 
determinations regarding whether an enrollee is entitled to receive 
health services or payment under the program. In accordance with 
section 1852(g)(1)(A) of the Act, Sec.  422.566 and Sec.  422.568 
establish the requirements related to organization determinations and 
notices. Existing Sec.  422.566(b)(4) specifies that an organization 
determination includes a decision resulting in ``[d]iscontinuation or 
reduction of a service if the enrollee believes that continuation of 
the services is medically necessary'' (emphasis added). Similarly, 
under Sec.  422.568(c), a plan must give an enrollee a written notice 
of the determination ``if an enrollee disagrees with the MA 
organization's decision to discontinue or reduce an ongoing course of 
treatment''(emphasis added). We indicated that we no longer believe 
that it is necessary to require an enrollee's ``belief'' that the 
services in question are medically necessary in order to consider these 
reductions or discontinuations to be organization determinations, nor 
did we believe that it is appropriate to condition the delivery of a 
notice on an enrollee's ``disagreement'' with the discontinuation or 
reduction of an ongoing course of treatment. Therefore, we proposed to 
change this language by removing the phrases ``if the enrollee believes 
that continuation of the

[[Page 19733]]

services is medically necessary'' and ``if an enrollee disagrees with 
an MA organization's decision.'' We noted that Sec.  422.620 through 
Sec.  422.626 already provide enrollees who are receiving care in an 
inpatient hospital, skilled nursing facility, home health, or 
comprehensive outpatient rehabilitation facility (CORF) setting with 
the right to receive a notice and expedited review of service 
terminations for ongoing courses of treatment in these settings. Thus, 
our intention was to ensure that enrollees who are receiving previously 
authorized ongoing courses of treatment outside the settings covered by 
Sec.  422.620 through Sec.  422.626 would automatically receive notice 
and appeal rights if such services were terminated, and enrollees in 
all settings would automatically receive notice and appeal rights if 
the level of care or amount of such services was reduced.
    Comment: Most commenters supported our proposed revisions. However, 
a few commenters requested further clarification about whether and how 
this revision altered plan or provider notice requirements. One of 
these commenters also requested clarification that the changes proposed 
would not create a new requirement for plans to notify enrollees each 
time a participating provider discontinues treatment under Sec.  
422.566 and 422.568. This commenter noted that the clauses proposed for 
deletion were originally added as part of the notice and comment 
process when the requirements for an enrollee's expression of 
dissatisfaction were first adopted.
    Response: As we note previously, Sec.  422.620 through Sec.  
422.626 automatically trigger the requirement for plans and providers 
to give a notice with appeal rights whenever enrollees experience 
service terminations while they are receiving care in the inpatient 
hospital, skilled nursing facility, home health, or CORF settings. 
Conversely, Sec.  422.566 and Sec.  422.568 currently require an 
enrollee to express dissatisfaction about a termination or reduction of 
services in order to receive notice and appeal rights. Therefore, our 
goal in no longer requiring an enrollee's disagreement was to ensure 
that plans would be required to provide notices whenever they 
discontinued or reduced a previously authorized ongoing course of 
treatment, regardless of the setting. However, as we considered these 
comments, we recognized that some additional restructuring of the 
provision would be needed to ensure a clear and consistent 
understanding of the policy.
    Enrollees who are receiving care in settings governed by Sec.  
422.620 through Sec.  422.626 receive notices with appeal rights only 
when services are being terminated. However, enrollees do not 
automatically receive notices when previously authorized ongoing 
courses of treatment are reduced in these settings. Consistent with our 
proposal, we are establishing the policy to require notice and appeal 
rights, in all settings, for previously authorized ongoing courses of 
treatment that either end or are reduced prematurely. We note that the 
phrase ``previously authorized ongoing course of treatment'' means a 
series of services or treatments that have been approved in writing 
(such as through a plan of care). Accordingly, a reduction in the level 
of care of a previously authorized ongoing course of treatment may 
include a change in the mix or range of services/sessions, a decrease 
in the intensity of the care, or a reduction in the amount of services/
sessions provided relative to the original authorization.
    Unlike the provider settings under Sec.  422.620 through Sec.  
422.626, when a course of treatment ends in other settings under Sec.  
422.568(c), it will not result in automatic notice and appeal rights if 
the enrollee received all of the services as planned in the original 
authorization. In these cases, if an enrollee believes that those 
services should continue, he or she must request a new organization 
determination from the health plan. Accordingly, we are finalizing 
Sec.  422.566(b)(4) and Sec.  422.568(c) to include the revisions noted 
previously.
22. Representatives (Sec.  422.561, Sec.  422.566, Sec.  422.574, and 
Sec.  422.624)
    We proposed to amend Sec.  422.561 to clarify that a representative 
may act on an enrollee's behalf with respect to the grievance process. 
As we explained in the preamble to the October 22, 2009 proposed rule, 
for various reasons, enrollees may choose or need to have someone 
represent them in order to protect their interests. Presently, under 
sections 1852(f) and (g) of the Act, a representative may act on behalf 
of an enrollee or other party when filing a grievance. However, unlike 
the corresponding Part D regulation, existing Sec.  422.561 does not 
explicitly permit representatives to file grievances on behalf of an 
enrollee. In order to rectify this and be consistent with the Part D 
definition of representative at Sec.  423.560, we proposed to amend the 
definition of representative under Sec.  422.561. Similarly, we 
proposed to remove the term ``authorized'' before ``representative'' in 
Sec.  422.574 and Sec.  422.624, so that the definition is consistent 
throughout subpart M.
    Comment: Several commenters supported removing the word 
``authorized'' before ``representative'' in order to be consistent with 
the definition of the term ``representative'' and less limiting in the 
application of the term. However, a perceptive commenter noted that we 
overlooked making this revision in two places under Sec.  422.566(c).
    Response: We intended to make this change throughout all of subpart 
M, and as such, will finalize Sec.  422.566(c) in the final rule to 
include these additional revisions.
    Comment: A few commenters requested that we restructure all of 
subpart M of part 422 so that the general provisions section (Sec.  
422.562) includes provisions about enrollee rights and MA provider 
notice responsibilities for services rendered by skilled nursing 
facilities (SNFs), home health agencies, (HHAs), and comprehensive 
outpatient rehabilitation facilities (CORFs) and services provided in 
the inpatient hospital setting. These commenters also recommended 
creating new sections to describe provider notice requirements for all 
settings and the notice requirements and appeal rights specifically 
related to Part B services. This restructuring, the commenters 
suggested, would provide a more thorough overview of beneficiary rights 
under subpart M, and place the notice and appeal language in a more 
appropriate place in the regulatory scheme.
    Response: This comment is beyond the scope of the proposed rule. 
However, we note that subpart M, like subpart I of part 405 and subpart 
M of Part 423, describes the various levels of the MA appeals process, 
including the associated beneficiary rights and provider notice 
requirements, in the order in which they occur. We believe this 
structuring of the appeals provisions makes it easier to follow the 
process. We do not agree with the suggestion that the current order of 
the regulatory provisions prevents enrollees from appealing adverse 
decisions about Part B (or any other Medicare) services and believe 
that restructuring subpart M as recommended, would not result in 
additional notice or appeal rights for enrollees. Finally, to make 
certain that beneficiaries understand the MA appeals process and their 
rights under this process, we ensure that beneficiary materials and 
notices, such as the Evidence of Coverage and Notice of Medicare 
Noncoverage are comprehensive, clear, and easy for enrollees to 
understand.

[[Page 19734]]

23. Disclosure Requirements Under Parts C and D (Sec.  422.111(g) and 
Sec.  423.128(f))
    In the October 2009 proposed rule, we proposed adding new 
provisions (Sec.  422.111(g) and Sec.  423.128(f)) to the existing 
regulations that govern the information that must be disclosed to 
enrollees and potential enrollees. Specifically, we proposed to add 
that CMS may require a sponsoring organization to disclose to its 
enrollees and potential enrollees information concerning the sponsoring 
organization's performance and contract compliance deficiencies in a 
manner specified by CMS. While a number of commenters opposed this 
proposal, an equal number of commenters supported it. The latter noted 
that they support the goals of this proposal to provide beneficiaries 
with the information they need to assess the quality of care they are 
receiving and to make sponsoring organizations accountable for their 
performance deficiencies, which should improve compliance with the 
rules and requirements of the Medicare program. We also solicited 
comments on whether these disclosure requirements should be imposed 
only in those circumstances where a beneficiary would be afforded the 
opportunity to act on them (for example, requiring disclosure during 
the particular times of the year when beneficiaries would ordinarily be 
able to make change or elections, except in those situations where the 
compliance deficiency is so significant that a beneficiary may be 
afforded a special enrollment opportunity).
    We are finalizing the proposed changes to Sec.  422.111(g) and 
Sec.  423.128(f)) with a modification to Sec.  422.111(g) discussed in 
detail below.
    Comment: A number of commenters were concerned that we have not 
provided enough detail about the proposal, including what compliance 
and performance deficiencies would rise to a level to trigger the 
disclosure requirement, as well as the types, format and timing of 
these disclosures. These commenters were concerned that the proposed 
regulations allow CMS too much discretion, could be inconsistently 
applied and may lead to unnecessary confusion and alarm for 
beneficiaries. Also, commenters stated that the existing performance 
ratings, through the Medicare Web site, currently provide adequate 
disclosure to beneficiaries.
    Response: As we clarified in the proposal, our intent is to invoke 
this disclosure authority when we become aware that a sponsoring 
organization has serious compliance or performance deficiencies such as 
those that may lead to an intermediate sanction or require immediate 
correction and where we believe beneficiaries should be specifically 
notified. One example of a situation where enrollees should be notified 
of performance or compliance deficiencies would be when a sponsoring 
organization fails to provide beneficiaries with the proper premium 
notices to collect premium amounts in arrears. Another example would be 
if a sponsoring organization failed to provide access to services and 
we instructed the sponsor to contact enrollees regarding this issue and 
assist them with obtaining needed services or medications. In each of 
these situations we would require a sponsoring organization to disclose 
the deficiency to its enrollees and take affirmative steps to alleviate 
any problems for enrollees, such as providing enrollees with options to 
fix the issue.
    The performance ratings routinely available to beneficiaries, while 
equally important for the promotion of transparency and informed 
choice, generally will not include information about the type of 
performance deficiencies that will be the subject of these disclosure 
requirements. Also, we intend to use the normal account management 
oversight processes to review and approve any disclosures before they 
are made to beneficiaries to ensure that information disclosed is 
clear, and unambiguous and to lessen the potential for confusion, alarm 
or other potential negative impacts on beneficiaries.
    Comment: Several commenters raised concerns that this requirement 
would be administratively and financially burdensome on some sponsoring 
organizations either because these disclosures could lead to a 
significant increase in grievances and expenditures responding to 
beneficiary concerns over the disclosures or could unnecessarily alarm 
beneficiaries and lead to requests for disenrollment. These commenters 
also were concerned about the utility of these kinds of disclosures 
based on their experience that Medicare beneficiaries rarely request 
information about compliance and performance and have demonstrated no 
interest in information about sanctions taken by CMS.
    Response: As we stated in our October 22, 2009 proposed rule, the 
primary purpose of this requirement is to promote transparency and 
informed choice especially in those situations where we believe 
beneficiaries need or should have access to this information. We intend 
to exercise our authority judiciously in those situations where we 
believe that the information being required to be disclosed will have a 
positive effect on transparency and informed choice. Similarly, we 
intend to use our normal account management oversight processes of 
review and approval of materials disclosed to beneficiaries to lessen 
the prospect for beneficiary confusion or concern which could lead to 
unnecessary grievances and requests for disenrollment. Finally, we 
believe that beneficiaries would be interested in receiving information 
about serious or significant compliance or performance deficiencies 
which potentially could affect them.
    Comment: Several commenters provided suggestions concerning how we 
should make this information available to enrollees. One commenter 
stated that we should require that sponsoring organizations make 
information available upon request or on the Medicare Web site and 
another commenter requested that we consider alternative means of 
supplementing existing performance information available to 
beneficiaries through the CMS Web site.
    Response: We do not agree with the suggestion that sponsoring 
organizations should only make such information available upon request 
or on the Medicare Web site. We intend to require that enrollees 
receive this information from sponsoring organizations in those 
circumstances where we believe beneficiaries must be affirmatively made 
aware of these deficiencies. Providing information upon request or 
merely posting on a Web site which enrollees may or may not access does 
not promote the degree of transparency and accountability by sponsoring 
organizations, for their deficiencies, that was contemplated by our 
proposal. Also, not all beneficiaries have access to the Medicare Web 
site and we believe beneficiaries may not be aware that they can 
request this information.
    Comment: One other commenter suggested that sponsoring 
organizations should not be required to disclose deficiencies that 
occurred in the past because those issues may have been corrected and 
are not relevant to the current status of the plan.
    Response: We intend to conduct our oversight responsibilities in a 
manner such that the kinds of compliance and performance deficiencies 
contemplated by these disclosures come to our attention as quickly as 
possible and are similarly disclosed to enrollees in a timely manner. 
However, it is not always possible for us to be aware of situations 
contemporaneous with their occurrence. We intend to take into account 
whether the deficiencies have been corrected and the utility of making

[[Page 19735]]

such disclosures to beneficiaries in these instances when making a 
decision as to whether disclosure will be required.
    Comment: A number of commenters expressed concern with the timing 
of these required disclosures and the related issue of whether 
beneficiaries may elect other options once they receive one of these 
disclosures. Several commenters requested that disclosure be imposed 
only in those circumstances where a beneficiary would be afforded the 
opportunity to elect another plan option, some requested that 
disclosure of performance deficiencies be immediate so that 
beneficiaries would have more time to plan their health care decisions 
and several commenters believe that disclosures throughout the plan 
year would decrease the likelihood that information would get lost 
during the annual coordinated election period (AEP) or open enrollment 
period (OEP).
    Response: We agree with the commenters who recommended that 
disclosure of these compliance and performance deficiencies be made as 
expeditiously as possible to beneficiaries and therefore we also agree 
that these disclosures may be required throughout the plan year. Also, 
with respect to the comments relating to allowing beneficiaries to 
elect other options, based on the nature and extent of the deficiencies 
that necessitated the disclosure, we intend to exercise our authority 
to grant a special election period for beneficiaries affected by the 
plan's compliance or performance deficiencies as permitted in Sec.  
422.64 and Sec.  423.38. Our intention is to provide actionable 
information to beneficiaries. In some cases, the appropriate action may 
be to afford beneficiaries an opportunity to elect another plan option. 
In other cases, it may be sufficient to require plans to disclose the 
deficiency to its enrollees and provide enrollees with options to fix 
the issue.
    Comment: We received one comment that questioned CMS' authority to 
require a sponsoring organization to disclose to its beneficiaries its 
compliance or performance deficiencies. The commenter provided no 
specifics for the assertion and merely stated that they have expressed 
to us on numerous occasions the ``well-founded legal and policy 
objections'' to self-disclosure.
    Response: We currently have both statutory authority pursuant to 
sections 1851(d) and 1860D-1(c) of the Act and existing regulatory 
authority under Sec.  422.111(f)(8)(v) and Sec.  423.128(c)(1)(vii) to 
require sponsoring organizations to disclose information to its 
enrollees to help them make informed choices about their healthcare. We 
note that the commenter did not provide a further description or 
citation to the ``well founded legal and policy objectives'' that they 
stated had been previously submitted to us. To the extent that the 
commenter is referring to a prior proposal related to the mandatory 
self-disclosure of fraud, waste, and abuse issues, the disclosures that 
are the subject of these proposals are entirely distinguishable and 
this proposal is completely unrelated to any past proposals involving 
the mandatory self-disclosure of fraud, waste, and abuse issues. The 
current provision, for which there is explicit statutory authority, 
involves disclosures of compliance and performance deficiencies that we 
are already aware of and has determined involve an issue that enrollees 
should be notified of expeditiously. However, we are modifying the 
language in Sec.  422.111(g) to replace the term ``self-disclosure'' 
with ``disclosure'' to avoid any confusion.
    Comment: One commenter questioned how CMS intends for sponsoring 
organizations to disclose to their enrollees that they have resolved 
the disclosed compliance/performance issues after the required 
disclosure is made.
    Response: We recognize that sponsoring organizations will want to 
correct any underlying compliance or performance deficiencies that led 
to these kinds of disclosures quickly. Our proposal was specifically 
intended to utilize transparency to incentivize and promote sponsoring 
organizations' compliance with CMS requirements. As with the required 
disclosure notice, we intend to use the normal account management 
oversight processes to review and approve any notices that sponsoring 
organizations wish to provide to enrollees concerning a correction of 
the underlying compliance or performance deficiencies that led to the 
disclosure.
    Comment: One commenter requested that we issue a written warning to 
sponsoring organizations before sending the actual notice requiring 
disclosure.
    Response: We do not believe issuing a written warning to sponsoring 
organizations prior to requiring disclosure furthers any particular 
compliance or oversight objectives and additionally may not always be 
feasible, especially if the deficiency has just occurred and 
beneficiaries need to be notified immediately. We retain the discretion 
to issue a compliance action (including a written warning), separate 
and apart from the requirement to have sponsoring organization's 
disclose deficiencies to enrollees, based on the underlying associated 
compliance or performance deficiency. Therefore we are not 
incorporating this commenter's suggestion.
    Comment: One commenter expressed concern that sponsoring 
organizations do not have the opportunity to challenge or appeal the 
application of this requirement.
    Response: These disclosure provisions merely require sponsoring 
organizations to provide beneficiaries with access to information. 
There is no statutory or regulatory right to challenge or appeal a CMS 
requirement to disclose information to enrollees. However, to the 
extent we take a contract or enforcement action (for example, an 
intermediate sanction or a civil money penalty) against the sponsoring 
organization for an associated underlying compliance or performance 
deficiency, the sponsoring organization would be afforded any appeal 
rights associated with the action taken.
    Comment: One commenter was concerned that sponsoring organizations 
would not comply with the requirement.
    Response: We have established mechanisms for ensuring compliance 
and fully intend to enforce these requirements and to take appropriate 
corrective and enforcement action should sponsoring organizations fail 
to comply with this requirement.
    Comment: One commenter recommended that defined timeframes be 
issued in which CMS should respond to a beneficiary's inquiry related 
to the disclosure of a plan's performance or compliance deficiencies.
    Response: We have established mechanisms for ensuring we respond to 
all beneficiary inquiries and these established mechanisms would apply 
equally to any inquiries received from beneficiaries concerning these 
kinds of disclosures.
    Comment: One commenter suggested that we make public the 
information on its Web site in a manner that is more detailed and 
easier to find.
    Response: Our proposal was not intended to solicit comments about 
the information on our Web site and therefore we are not specifically 
addressing this comment.
    Comment: One commenter requested that we modify the plan ratings 
for special needs plans (SNPs) because they do not accurately measure 
plan performance.
    Response: Our proposal was not intended to address the methodology 
for plan ratings and therefore we are not specifically addressing this 
comment.

[[Page 19736]]

24. Definition of MA Plan Service Area (Sec.  422.2)
    We proposed to amend the definition of an MA plan ``service area'' 
at Sec.  422.2 to exclude facilities in which individuals are 
incarcerated, consistent with the definition of service area for a Part 
D plan and in light of the fact that incarcerated beneficiaries are 
unlikely to have access to MA plan services, as required under Sec.  
422.112. We received several comments on this provision, all of which 
supported our proposal. We appreciate the support for the changes and 
are finalizing the proposed revision to the definition of MA plan 
``service area'' without modification.

C. Changes To Provide Plan Offerings With Meaningful Differences

    This section addresses proposals in our October 22, 2009 proposed 
rule that were designed to promote plan offerings with meaningful 
differences, and ensure plan viability. We discuss below proposed 
revisions that would help ensure that plans offered by the same 
organization in the same area have meaningful differences from each 
other, provide for a transition to the applicability of such rules when 
an existing organization is acquired by or merged with another 
organization, and provide that plans that have failed to attract 
enrollees over a period of time without justification may be non-
renewed. We believe that these revisions will help us accomplish the 
balance we wish to strike between encouraging robust competition and 
providing health plan and PDP choices to beneficiaries that do not 
create confusion for beneficiaries because there are meaningful 
differences in benefit packages among the plans offered. We discuss 
these provisions in connection with comments we received in response to 
the proposals outlined in Table 3.

                     Table 3--Provisions To Ensure Meaningful Differences in Plan Offerings
----------------------------------------------------------------------------------------------------------------
                                                 Part 422                                Part 423
            Provision            -------------------------------------------------------------------------------
                                        Subpart             Section             Subpart             Section
----------------------------------------------------------------------------------------------------------------
Bid Submissions: Ensuring         Subpart F.........  Sec.   422.254....  Subpart F.........  Sec.   423.265
 Significant Differences.
Bid Review Process..............  Subpart F.........  Sec.   422.256....  Subpart F.........  Sec.   423.272
Transition Process in Cases of    Subpart F.........  Sec.   422.256....  Subpart F.........  Sec.   423.272
 Acquisitions and Mergers).
Non-renewing Low-enrollment       Subpart K.........  Sec.                Subpart K.........  Sec.
 Plans.                                                422.506(b)(1)(iv).                      423.507(b)(1)(iii
                                                                                               )
----------------------------------------------------------------------------------------------------------------

1. Meaningful Differences in Bid Submissions and Bid Review (Sec.  
422.254, Sec.  423.265; Sec.  422.256, and Sec.  423.272)
    Under our authority in section 1857(e)(1) of the Act, incorporated 
for Part D by section 1860D-12(b)(3)(D) of the Act, to establish 
additional contract terms that CMS finds ``necessary and appropriate'' 
and with respect to Part D, our authority under section 1860D-
11(d)(2)(B) of the Act to propose regulations imposing ``reasonable 
minimum standards'' for Part D sponsors, our October 22, 2009 proposed 
rule proposed changes to our regulations to ensure that plan offerings 
by MA organizations and Part D sponsors represent meaningful 
differences to beneficiaries with respect to benefit packages and plan 
cost structures. Specifically, we proposed to revise Sec.  
422.256(b)(4)(i) and Sec.  423.272(b)(3)(i) to specify that we would 
only approve a bid submitted by an MA organization or Part D sponsor if 
its plan benefit package or plan cost structures were substantially 
different from those of other plans offered by the organization or 
sponsor in the area with respect to key plan characteristics such as 
premiums, cost-sharing, formulary structure, or benefits offered. We 
also proposed to make related changes to Sec.  422.254(a)(5) and Sec.  
423.265(b)(3)(i) to require that MA organizations and Part D sponsors 
must ensure that multiple bids submitted for plans in the same area are 
submitted only if the plans meet the foregoing test of being 
substantially different from each other.
    After reviewing the comments we are finalizing our proposals with 
the technical changes to Sec.  422.254(a)(4), Sec.  423.265(b)(2), 
Sec.  422.256(b)(4)(i) and Sec.  423.272(b)(3)(i), explained below.
    Comment: Most commenters supported our proposal to require 
meaningful differences in bids but asked for greater specificity about 
how the new rules would apply. Several commenters requested that CMS 
identify the specific thresholds and criteria to be used in determining 
that meaningful differences between plans exist, and several others 
requested that CMS annually publish the standards early in the year 
preceding the contract year to which the thresholds and criteria apply. 
A few commenters requested that criteria for meaningful differences be 
published annually and be subject to public comment. One commenter 
requested that CMS include public notice of areas with limited plans.
    Response: We agree with the commenters that it is important to 
provide more information and greater specificity concerning standards 
that we will use in assessing meaningful differences, and agree that MA 
organizations and Part D sponsors should have this information early in 
the year preceding the contract year to which the standards would apply 
in order to assist them in developing their plan offerings for the 
contract year. However, we also believe it is important to retain 
flexibility when considering meaningful differences. Therefore, as 
specified in our October 2009 proposed rule, our final regulations at 
Sec.  422.256(b)(4) and Sec.  423.272(b)(3) continue to include the 
general substantive standard we will use when assessing plan bids, with 
the expectation that greater specificity in how this standard will be 
applied will be provided, with an opportunity for comment on our more 
detailed criteria, through guidance such as our annual call letter. We 
do not agree that it is necessary to provide a separate public notice 
of areas with limited plan choices, as the number of choices available 
in an area is already provided to beneficiaries in that area in the 
Medicare & You Handbook, and on the Medicare Web site.
    Comment: One commenter opposed the proposed changes and recommended 
that CMS reevaluate its policy on differences that are meaningful to 
beneficiaries, which the commenter believed was based purely on 
actuarial policies. The commenter argued that CMS' policy could be 
considered discriminatory because geography would be a factor in 
whether multiple plans had to be different from each other.

[[Page 19737]]

    Response: We believe our proposed policies would require 
differences in criteria that beneficiaries, not actuaries, would find 
meaningful, while still providing MA organizations and Part D sponsors 
with flexibility in offering different plan options. We disagree with 
the commenter who believes that considering the geographical region of 
a plan could be considered discriminatory, since the beneficiary 
confusion issue we are addressing in this rule only applies when 
duplicative plans are offered by the same organization in the same 
area. Moreover, we believe that greater scrutiny of differences between 
an organization's plan offerings in an area where more plans are 
offered is justified in that the higher the total number of plans 
offered in an area, the greater is the potential for beneficiaries to 
be confused and overwhelmed.
    Comment: Several commenters had specific questions, concerns, or 
suggestions about how to best assess meaningful differences. Several 
commenters wrote that CMS should not place so much focus on Part D 
formularies as a means of determining meaningful differences. In 
connection with this issue, several commenters believed that focus on 
the plan formulary could lead to sponsors offering at least one plan 
with a ``bare bones'' formulary. Such ``baseline'' or ``benchmark'' 
plans could harm LIS enrollees, as such enrollees would likely be 
disproportionately enrolled in such plans and are least able to 
navigate barriers such as utilization management restrictions. 
Concerning other specific issues, a commenter wrote that MA-PD plans 
offered by the same organization should be assessed for meaningful 
differences based on the health care benefits offered by each plan and 
not the Part D benefits of each, as standardization of the Part D 
benefit is generally helpful for beneficiaries.
    Response: With respect to focusing on plan formularies as a 
criterion for assessing meaningful differences in Part D plans, we note 
that while we believe differences in formularies to be a fundamental 
area for assessing plan differences, this was not the only element of 
Part D plan offerings we proposed to assess. Indeed, we proposed to 
look at premiums and cost-sharing, as well. With respect to the 
concerns that focusing on the formulary could lead to ``bare bones'' 
plans in which LIS beneficiaries could be disproportionately enrolled, 
the Part D program requirements clearly specify the minimum 
requirements for basic prescription drug coverage, and plans' 
formularies are reviewed and approved only if they are determined to 
provide adequate access consistent with those requirements. As 
explained in 30.2.7 of Chapter 6 of the Medicare Prescription Drug 
Manual (see http://www.cms.hhs.gov/PrescriptionDrugCovContra/12_PartDManuals.asp#TopOfPage), we review submitted drug lists to ensure 
that they are consistent with best practice formularies currently in 
widespread use today. Our goal is to ensure that all Part D formularies 
are sufficiently broad in scope so as to contain the drugs most 
commonly used to treat the conditions faced by Medicare beneficiaries. 
Nothing in our proposed regulations would permit a sponsor to offer 
anything less than the current standard for the basic Part D benefit.
    Comment: A commenter asked if five SNP plans offered by the same MA 
organization would be considered meaningfully different, even if the 
formulary offered by each resulted in similar out-of-pocket costs, 
simply because the plans offered were SNPs. Another commenter cautioned 
that coverage in the gap may be little different than no coverage in 
the gap if such coverage consists solely of generic drugs. The 
commenter suggested that a plan's initial coverage limit is a better 
indicator of meaningful differences between plans. A commenter noted 
that that his studies indicate that enhanced Part D benefits are 
increasingly meaningless, and that genuine coverage in the gap is the 
primary indicator between enhanced and standard plans, given that cost-
sharing and premiums are often no different between enhanced and basic 
prescription drug coverage. According to this commenter, his studies 
show that gap coverage is also often not meaningfully different because 
such coverage is: (1) Almost always accomplished through generic drugs; 
(2) many generic drugs are not normally covered by plans claiming to 
offer such coverage; and (3) copayment amounts in the gap are higher 
than copayments before reaching the initial coverage limit. The 
commenter suggested that a plan should be required to cover all 
formulary drugs in the gap if the plan wants to offer gap coverage and, 
if this is not feasible, plans offering gap coverage for generics 
should be required to offer the same coverage in the gap for generics 
that they offer in the initial coverage period. Another commenter wrote 
that its experience was that utilization of generic drugs is one of the 
best ways that a member can delay onset of the coverage gap.
    Response: With respect to the comment on multiple SNPs offered by 
the same organization, we would not consider five SNPs offered by the 
same organization to be meaningfully different simply because the plans 
offered are SNPs. As is also the case in our provision to non-renew low 
enrollment plans, we believe that SNPs may warrant special attention 
when assessing meaningful differences because of such factors as the 
enrollee population served and differences in benefits (Medicare and 
Medicaid in the case of dual-eligible SNPs). However, we do not believe 
that such plans should receive exemptions from either the requirements 
concerning low enrollment or meaningfully different plans simply 
because they are SNPs.
    Half of all Medicare beneficiaries have over 40 MA plan choices 
(this figure does not include special needs plans or employer group 
health plans which have additional criteria for enrollment), and many 
states offer 50 or more stand alone Part D plans, a number that can 
double when one includes Medicare Advantage plans with a Part D 
benefit. Several studies suggest that the MA and Part D program 
offerings are so numerous that they can be confusing. In a report by 
Marsha Gold of Mathematica Policy Research, Inc., for example, Gold 
writes of the MA program that ``Existing research suggests that 
simplification may have advantages for beneficiaries,'' and that one 
such advantage is preventing competitors from taking advantage of the 
system ``through product design.'' \1\ Gold continues by identifying 
the sheer array of plan types with their different characteristics, 
such as access to services or cost structures, as confusing to 
beneficiaries to the point that they may not choose the plan that is 
best for them in terms of costs or benefits. In his study, ``How Much 
Choice is too Much? The Case of the Medicare Prescription Drug Benefit, 
T. Rice argues, based on Part D beneficiary studies that he and others 
in the field have conducted, that ``The results show that decision 
quality [of seniors' ability to choose plans with the lowest annual 
total cost] deteriorated as the number of plans increases.'' \2\ In 
another study of Part D plan offerings, published in a 2009 paper by 
Jason T. Abaluck and Jonathan Gruber, the authors determine that 
``elders place much more weight on plan premiums than they do on the 
expected out of pocket costs that they will incur under the plan'' and 
that

[[Page 19738]]

``they substantially under-value variance reducing aspects of 
alternative plans,'' confirming that the array of Part D plan offerings 
can often lead to inconsistent choices among seniors with respect to 
determining costs, and plan features most beneficial to them.\3\
---------------------------------------------------------------------------

    \1\ Gold, Marsha. Strategies for Simplifying the Medicare 
Advantage Market. Publication prepared for the Kaiser Family 
Foundation. July, 2009.
    \2\ Rice, T. Reducing the Number of Drug Plans for Seniors: A 
Proposal and Analysis of three Case Studies. Presentation at Academy 
Health Annual Research Meeting: Washington, DC. June 9, 2008.
    \3\ Abaluck, Jason T, and Jonathan Gruber. Choice 
Inconsistencies among the Elderly: Evidence from Plan Choice in the 
Medicare Part D Program. NBER Working Paper Series. Working paper 
14759. February, 2009. http://www.nber.org/papers/w14759.
---------------------------------------------------------------------------

    We agree with the commenter who wrote that coverage in the gap may 
not always be meaningfully different if such coverage consists solely 
of a subset of formulary generic drugs but we disagree that an enhanced 
alternative plan should be required to cover all formulary drugs in the 
gap if the plan wishes to claim to offer gap coverage. Rather, we 
believe that a meaningful difference with respect to an enhanced plan 
must be represented by a significant increase in benefits over basic 
coverage. Similarly, if two enhanced plans are offered by the same 
sponsor in a service area, a meaningful difference among those two plan 
offerings must be represented by a significant difference in benefits 
offered.
    Comment: One commenter recommended that we permit an MA 
organization to offer three plans of each plan type in a service area, 
while another wrote that CMS should not arbitrarily limit the number of 
plans offered by an MA organization in a service area.
    Response: Although permitting an MA organization to offer three 
plans of each plan type may be reasonable in some circumstances, we do 
not agree with the commenter that this should necessarily be the case. 
To the extent that the three plans have meaningful differences from 
each other that avoid beneficiary confusion, we believe that three 
plans of the same type (for example, coordinated care plan) would be 
permissible. Because the number of plans of the same type that would be 
permitted under this rule would depend on the plan design, and on 
ensuring that beneficiaries are not confused, we disagree with the 
commenter that we are imposing an ``arbitrary'' limit on plan 
offerings.
    Comment: A commenter suggested that CMS require all health care 
plans to have at least one basic, standardized plan that would be 
transparent and understandable to beneficiaries no matter where or by 
which organization the plan was offered.
    Response: We do not agree with the commenter that all MAOs offer at 
least one standardized plan no matter where or by which organization 
the plan is offered. While it is important to ensure that plan options 
are meaningfully different, we also believe MAOs should have the 
flexibility to craft distinct plan options for beneficiaries.
    Comment: One commenter implied that CMS was not aware that plan 
benefit designs with low or no premiums and higher cost-sharing may be 
attractive to some beneficiaries, and plans with no deductibles and 
higher premium attractive to others and, as a result, both structures 
should remain a viable choice in the marketplace. A commenter urged CMS 
to look at an organization or sponsor's plans ``holistically'' when 
assessing meaningful differences. Another commenter cautioned that 
while establishing meaningful differences among plans offered by an MAO 
or sponsor is important, CMS must watch for complexities in plans' 
cost-sharing structures, as these various structures make it far more 
difficult for beneficiaries to evaluate differences between or among 
benefit packages.
    Response: Contrary to the commenter's suggestion, we are well aware 
that some beneficiaries prefer plan benefit designs with low or no 
premiums and higher cost-sharing while others may prefer high 
deductible/high premium plans, and we have no intention of prohibiting 
these as ``a viable choice'' for beneficiaries. To the contrary, our 
requirement that plans have meaningful differences from one another is 
designed to promote such differences in plan design. CMS' concern is 
with MAOs and Part D sponsors that offer several plans in the same 
service area that have few distinctions, not with plans with benefit or 
cost structures which are clearly quite different.
    Comment: A commenter requested that we consider premiums, the 
provision of health and wellness programs, and dental or vision 
coverage in our assessment of meaningful differences between MA plans. 
Another commenter took exception to our example in the proposed rule 
that an HMO with a point of service (POS) option and local PPO can 
sometimes be similar, that is, may not be meaningfully different, and 
wrote that local PPOs are, in fact, different by virtue of offering 
out-of-network coverage. Another commenter agreed that HMOs with a POS 
option are largely indistinguishable from local PPO plans.
    Response: The focus of our review for meaningful differences is 
primarily on cost differentials between plans for Parts A and B 
services, the presence of a Part D benefit, the ways beneficiaries 
access services (that is, through a network, as in an HMO or in a non-
network context such as a PPO) and overall plan costs. The addition of 
individual supplemental benefits may not trigger the annual thresholds 
we have used to establish significant differences in overall plan costs 
among an MA organization's plan offerings in a service area. That said, 
our recent experience in reviewing plan benefit packages suggests that 
the addition of some supplemental benefits can result in significant 
differences in out-of-pocket costs. Therefore, it is possible that an 
individual supplemental benefit or group of supplemental benefits could 
result in plans being meaningfully different from one another. With 
respect to the comments concerning our example that PPOs and HMOs with 
a POS option could be considered similar if offered by the same MAO 
even though they technically are different plan types, we cited this 
example to illustrate that even though these are different plan types 
it is possible that such plans, if offered by the same MAO, could be 
considered similar under some circumstances. For example, if access to 
care in-network, and coverage of services out-of-network is essentially 
the same in both plans, and there are no other significant differences 
between the two in benefits or costs, there would not be ``meaningful'' 
differences between the two plans.
    Comment: A commenter cautioned that CMS should be aware that an MA 
organization offering several dual SNP plans might have several similar 
benefit packages for Medicare benefits, but the same plans could have 
quite different Medicaid benefits. Another commenter supported our 
intention, as expressed in the proposed rule, to permit multiple plan 
filings by the same MA organization in certain circumstances and wrote 
that CMS should formally recognize the ``Medicaid agency's purchasing 
strategy'' ' in any assessment of meaningful differences among dual 
eligible SNP plans.
    Response: We do not consider differences in Medicaid benefits among 
dual eligible SNPs offered by the same MA organization as significant 
differences for purpose of our review, since we are reviewing 
differences in MA plan offerings, not Medicaid benefits. We would 
consider Medicare premiums (as part of a plan's cost structure) as part 
of its review of bids. In short, as an earlier commenter urged, CMS 
intends to look ``holistically'' at an organization or plan sponsor's 
offering in a service area when determining whether or not an 
organization's or

[[Page 19739]]

sponsor's offerings are meaningfully different.
    Comment: A commenter wrote that CMS should ensure that CMS' 
policies do not inadvertently remove meaningful choices in areas where 
choices may be comparatively limited (Barrow County, Alaska v. Dade 
County, Florida, for example). Another commenter wrote that CMS should 
consider limiting an organization's or sponsor's plan offerings in a 
geographic area similar to the Federal Employee Health Benefits Program 
or plans offered by some other employers.
    Response: We do not intend to prevent plan choice in rural areas 
through implementation of the requirement for meaningfully different 
plans. The intent of the provisions is to ensure genuine choices for 
beneficiaries as well as transparency in plan offerings so that 
beneficiaries can make informed decisions about their health care plan 
choices. For this reason, we do not agree with the commenter who 
suggests that we limit an organization/sponsor's plan offerings in a 
geographical area to an arbitrary number of plans, since this could 
actually limit additional meaningful choices.
    Comment: Two commenters cited discrepancies in the preamble and 
regulations text for Parts C and D concerning bid submissions (Sec.  
422.254(a)(4) and Sec.  423.265(b)(2)) and asked that we ensure the 
final regulations text reflects the language of the preamble by 
specifying that meaningful differences include differences in ``cost-
sharing or benefits offered, (MA regulations)'' and ``premiums, cost-
sharing, formulary structure, or benefits offered'' (Part D 
regulations) instead of the proposed regulations text for these 
sections, which was more general ``benefit packages and plan costs'' 
(MA regulations), ``beneficiary out-of-pocket costs, and formulary 
structures'' (Part D regulations). In addition the commenters asked 
that the list of meaningfully different elements cited in the bid 
submission and review sections be connected with the coordinating 
conjunction ``or'' instead of ``and.'' One of the commenters 
recommended that the bid review sections for both the Part C and D 
regulations at Sec.  422.256(b)(4)(i) and Sec.  423.272(b)(3)(i) cross 
reference the criteria for meaningful differences in the bid submission 
sections for both programs (Sec.  422.254(a)(4) and Sec.  
423.265(b)(2)).
    Response: We agree with the comments suggesting that the 
regulations text for the bid submission and review sections specifying 
the criteria we will use in assessing if an MA organization's or Part D 
sponsor's bids are meaningfully different should be connected with 
``or'' instead of the coordinating conjunction ``and.'' As a result, we 
are revising our regulations at Sec.  422.254(a)(4), Sec.  
422.256(b)(4)(i), Sec.  423.265(b)(2), and Sec.  423.272(b)(3) to state 
that an [MA or Part D] organization's bids must reflect differences in 
``benefit packages or plan costs.'' We also are making conforming 
changes to Sec.  422.256(b)(4)(ii) and Sec.  423.272(b)(3)(ii) which 
concern acquisitions and mergers, as these sections use similar 
language. However, we disagree with the commenter who urged that the 
preamble language referencing ``plan characteristics such as premiums 
or cost-sharing'' (MA program) or ``premiums, cost-sharing, formulary 
structure,'' (Part D program) should be reflected in the regulations 
text. Although these are certainly elements that may result in 
meaningfully different plans, we believe the current language captures 
these elements while providing the necessary flexibility to view plans 
``holistically.''
    In addition, the commenter correctly points out that in order to 
make the Part C and D regulations consistent, Sec.  422.256(b)(4)(i), 
which concerns MA bid reviews, should cross reference Sec.  
422.254(b)(4), which concerns submission of MA bids.
    With the exception of the revisions noted previously, we are 
finalizing the provisions as proposed.
2. Transition Period in Cases of Mergers and Acquisitions (Sec.  
422.256, Sec.  423.272)
    In connection with our proposal to ensure that plan offerings 
represent meaningful differences, we proposed to add Sec.  
422.256(b)(4)(i) and Sec.  423.272(b)(3)(ii) to provide MA 
organizations and Part D sponsors involved in mergers or acquisitions a 
2-year transition period from the merger or acquisition to ensure that 
plans offered by the MA organization or Part D sponsor are 
significantly different from each other. After a transition period of 2 
years, we would only approve a bid submitted by an MA organization or 
Part D sponsor, or a parent organization to that entity, if the 
benefits or plan cost structure represented by that bid were 
substantially different from any other bid submitted by the same MA 
organization or Part D sponsor (or parent organization of that entity). 
We requested comments regarding the adequacy of our proposed transition 
period length of 2 years in both the MA and Part D contexts, 
particularly since we had previously, as articulated in the 2008 Call 
Letter for Medicare health plans and PDPs, that PDP sponsors affected 
by mergers or acquisitions would be afforded a 3-year transition 
period. After reviewing the comments received in response to this 
proposal, we are finalizing the proposed provisions without 
modification.
    Comment: Several commenters agreed with our proposal to require 
organizations and sponsors acquiring or merging with existing entities 
to offer plans with meaningful differences within two years of the 
merger or acquisition. One of the commenters wrote that 2 years was 
``more than adequate'' for affected organizations and sponsors to offer 
meaningfully different plans. Another wrote that while 2 years was 
sufficient, CMS should consider notifying beneficiaries 1 year in 
advance of a plan's non-renewal so that they have clear notice of any 
changes.
    Several commenters disagreed with the proposal to permit 2 years 
for transition, recommending, instead, that CMS maintain the current 3-
year requirement articulated in the 2008 Call Letter. A few commenters 
believed that the language in the proposed rule could be interpreted to 
permit as little as one bidding cycle/bidding year between an 
acquisition or merger and the offering of meaningfully different plans. 
One commenter said that a 2-year transition period would be disruptive 
to beneficiaries and would not permit plans to develop adequate benefit 
packages. This commenter requested that CMS permit a 3-year transition 
period. Another commenter contended that organizations/sponsors need 3 
years after a merger or acquisition in order to adapt their benefit 
packages to comply with the meaningful differences rule, and to 
implement a robust communications plan for implementing required 
changes.
    Another commenter argued that CMS should not state that the 
transition period will be ``as determined by CMS,'' but rather specify 
how the transition period will be measured. The same commenter wrote 
that if CMS does finalize the proposed requirement, we should not apply 
it to any acquisition prior to issuance of the rule, as the 
organization would have already taken action based on transition-
related guidance in the 2008 and 2009 call letters.
    Response: As stated in the preamble to the proposed rule, based on 
our experience, we believe that our proposed timeline for transitions 
provides ample time for organizations and sponsors to ensure that 
benefit packages are sufficiently different and to notify enrollees of 
any changes. Because the transition period actually applies for

[[Page 19740]]

the two contract years following the year of the acquisition or merger, 
that is, if a merger takes place in 2010, the MAO or sponsor would have 
until 2013 to offer meaningfully different plans, we believe this 
period is disruptive neither to plans nor to beneficiaries, and thus 
disagree with the commenter who asserted that a 3-year transition was 
needed to allow MA organizations and Part D plan sponsors to adapt 
their benefit structures and communicate to beneficiaries about the 
changes being made.
    We clarify that only organizations or sponsors that merge or are 
acquired after the effective date of this final rule will be subject to 
the requirement at Sec.  422.256(b)(4)(ii) and Sec.  423.272(b)(3)(ii) 
that their offerings are meaningfully different after a 2-year 
transition period. In the case of plans offered by organizations or 
sponsors that merge or acquire other plans prior to the effective date 
of this regulation, the previously articulated 3-year transition period 
would apply.
3. Non-Renewing Low-Enrollment Plans (Sec.  422.506(b)(1)(iv), Sec.  
423.507(b)(1)(iii))
    As part of our process to streamline and simplify the plan 
selection process for beneficiaries, and ensure that beneficiaries are 
only offered plans with long-term viability, we proposed in Sec.  
422.506(b)(1)(iv) and Sec.  423.507(b)(1)(iii) to include, as a 
specific ground for non-renewal of a contract, a finding that a Part C 
or Part D plan has failed to attract a significant number of enrollees 
over a sustained period of time. We justified this requirement on the 
grounds that, as a general matter, continuing such a low enrollment 
plan was not consistent with effective and efficient administration of 
the Medicare program for purposes of section 1857(c)(2)(B) of the Act 
(incorporated for Part D under section 1860D-12(b)(3)(B) of the Act), 
which provides authority to terminate a contract under such 
circumstances. In the preamble to the proposed rule, we acknowledged 
that there may be instances in which low enrollment over a sustained 
period of time is a function of the type of beneficiaries served, 
geographic location, or other circumstances, and that we would consider 
continuing to renew a low enrollment plan in such situations including, 
but not limited to, chronic care SNPs offering health care services 
especially tailored to this category of beneficiaries and not available 
elsewhere or employer group health plans offering benefits augmenting 
those of an MA plan to employees of a small business. We further stated 
that, if a case could be made that low enrollment is justified, and the 
absence of such a plan would significantly limit beneficiary health 
care options in a service area, consistent with effective and efficient 
administration of the Part C or Part D benefit, we would not non-renew 
that plan. Similarly, we also stated that the threshold for low 
enrollment could fluctuate, although we noted that we used a threshold 
of 100 enrollees for purposes of reducing the number of low enrollment 
plans for contract year 2010. Therefore, we did not propose to revise 
our regulations to specify a specific threshold. We solicited comments 
on this approach and whether we had provided sufficient clarity on how 
we would determine whether a low-enrollment plan would be non-renewed.
    Comment: Several commenters supported the proposal to non-renew low 
enrollment plans, but recommended that the threshold and guidelines we 
would use to apply this requirement (including such factors as the 
number of plans in a market, plan enrollment, and the number of years 
of operation with low enrollment numbers) be clear and transparent, and 
that they be made available publicly early in the year preceding the 
contract year to which they will apply. One commenter wrote that CMS 
should convene a working group prior to enacting our proposed policy to 
non-renew low enrollment plans. Another commenter wrote that CMS should 
consider low enrollment to be in the 250 to 500 enrollee range rather 
than 100 enrollees (the number used in our efforts to reduce low-
enrollment plans for contract year 2010, as detailed in the preamble to 
our proposed rule). Another recommended a low enrollment threshold of 
1000 enrollees because it believes that plans serving fewer than 1000 
people in a service area would be unable to offer negotiated savings, 
quality managed care, or popular plan features. A commenter asked CMS 
to clarify what is meant by ``a small number of enrollees over a period 
of time.''
    Response: We agree that guidelines concerning minimum enrollment 
thresholds and criteria should be published annually and as early as 
possible in the year preceding the contract year to which they will 
apply. While we disagree that we should specify thresholds in 
regulations, we intend to provide opportunities for the public to 
review and comment on our proposed thresholds and criteria for 
assessing low enrollment for the following contract year (for example, 
through our annual call letter). We recognize that we must be flexible 
in assessing minimum enrollment to ensure that plans with legitimate 
reasons for low enrollments, such as lack of other health care plan 
options, specialized plan offering (such as, a chronic care SNP), or 
recent establishment of the plan, may continue to operate and that 
beneficiaries who might not otherwise have access to health care 
options offered by a low-enrollment plan will continue to have such 
access. Because we intend to provide for public input annually on our 
implementation guidance and will consider the suggestions for specific 
threshold amounts submitted by the commenters in that context, we do 
not believe the suggested ``workgroup'' to be necessary. With respect 
to the question of what constitutes ``a small number of enrollees'' 
over a period of time, the process described above may also be used to 
determine the number of enrollees that would trigger application of 
this regulation, as well as the period of time for which the small 
number would have to be sustained.
    Comment: Another commenter recommended that CMS make clear that the 
length of time a plan has had low enrollment will be a primary factor 
in determining whether a plan is non-renewed, and that we should modify 
our regulations language to explicitly provide for ``waivers'' of the 
proposed requirement at Sec.  422.506(b)(1)(iv) (Sec.  
423.507(b)(1)(iii) for Part D plans) when special circumstances such as 
the type of beneficiaries served, geographic location, and absence of 
the plan would significantly limit beneficiary health care options in a 
service area.
    Response: The length of time in which a plan has had low enrollment 
is only one of the factors that we will consider in determining whether 
it is consistent with effective and efficient administration of the 
Part C or Part D benefit. We will also consider the type of benefits 
being offered under the plan and the nature of the enrollment in the 
plan. As stated above, we recognize that we must be flexible in 
applying any minimum enrollment requirement to ensure that plans with 
legitimate reasons for low enrollments, such as lack of other health 
care plan options, specialized plan offering or recent establishment of 
the plan, may continue to operate. This flexibility will ensure that 
beneficiaries who might not otherwise have access to health care 
options offered by a low-enrollment plan will continue to have such 
access. Because we intend to apply this requirement in a flexible 
manner that considers the particular circumstances of each low 
enrollment plan, we do not

[[Page 19741]]

believe it is necessary to modify the proposed regulations at Sec.  
422.506(b)(1)(iv) and Sec.  423.507(b)(1)(iii) to provide explicitly 
for ``waivers'' of this requirement.
    Comment: A commenter recommended that non-renewed plans be 
permitted to passively enroll affected enrollees into another plan 
offered by the MA organization or Part D sponsor.
    Response: With respect to the recommendation to provide for passive 
enrollment of beneficiaries in a non-renewed plan into another plan 
offered by that organization, we believe this is appropriate only in 
limited circumstances when a compelling case can be made that such 
passive enrollment is in beneficiaries' best interests. In making such 
determinations, we take into consideration criteria such as benefits, 
cost sharing, the provider network, and premiums to ensure a comparable 
plan offering. In all other cases, we believe it is most appropriate to 
leave enrollment decisions to beneficiaries, who will have an 
opportunity during the annual coordinated election period to select 
another MA plan or Part D plan offered by the MA organization or Part D 
sponsor offering the plan being terminated. If a plan is terminated or 
nonrenewed, the affected organization or sponsor must follow all 
beneficiary and CMS advance notification requirements as specified in 
Sec. Sec.  422.506, 422.508, 422.510, and 422.512 (MA program 
regulations), Sec. Sec.  423.507, 423.508, 423.509, and 423.510 (Part D 
program regulations) and related guidance for both programs. In 
addition, passive enrollment initiated by an organization or sponsor in 
the absence of CMS approval is not among the transactions permitted by 
us in our annual renewal/non-renewal guidance. Because of these 
requirements and policies, an MA organization or Part D sponsor wishing 
to enroll members from the terminating or non-renewing plan into 
another of their plans could not do this without prior CMS review and 
consent. If we were to determine that such a transaction was in 
beneficiaries' best interests, we would, as is our practice, facilitate 
and closely monitor the process. We note as well that beneficiaries in 
terminated or non-renewed plans have guaranteed issue Medigap rights, 
access to information about other available health care options, and 
other information that will assist them in finding plans most suited to 
their needs.
    Comment: Several commenters supported our proposal but asked that 
we make exceptions for SNPs. One commenter requesting the SNP exception 
wrote that ``status as a SNP should be prima facie evidence that low 
enrollment is justified.'' A few of these commenters specifically 
requested that such exceptions be codified in the final regulations 
text. One commenter requested an exception be made for employer group 
plans. One commenter requested an exception for MA-only plans, stating 
that enrollees who get their prescription drugs through some means 
other an MA-PD should still have the option of remaining in an MA-only 
plan, and another commenter requested that ``national'' plans be 
exempted from these requirements.
    Response: While we will consider exceptions on a case-by-case basis 
to any low-enrollment thresholds we establish, we do not believe it is 
necessary to exempt any specific plan type a priority. As we stated in 
the preamble to the proposed rule, there may be reasons for exceptions 
based on plan type, geography, or special health conditions of 
enrollees served that warrant a waiver of the requirements. However, a 
specific plan type, for example, a SNP or employer group plan, will not 
automatically be exempt from the minimum enrollment standard for 
renewal due to plan type alone. While sustained low enrollment may well 
be justified in the case of certain SNPs serving individuals with a 
relatively rare condition, a SNP serving an individual with a more 
common disease such as diabetes, or serving dual eligibles, should be 
able to attract enrollees. Similarly, we do not believe there is 
justification for exempting MA-only plans or ``national'' plans from 
the requirements unless there are other reasons to exempt them (for 
example, lack of other health care plan options, the specialized nature 
of the plan, or the recent establishment of the plan).
4. Medicare Options Compare and Medicare Prescription Drug Plan Finder
    In the proposed rule we asked for comments on ways to improve the 
web tools, Medicare Options Compare (MOC), and the Medicare 
Prescription Drug Plan Finder (MDPF). We summarize and respond to these 
comments below.
    Comment: One commenter requested that CMS add a function to limit 
the information that can be seen in the MOC so that users of the tool 
can focus on information they need most.
    Response: The 2011 contract year update will include functions that 
expand and collapse which will help users of the MOC better focus on 
specific information.
    Comment: Another commenter asked that the MOC contain direct links 
to the plan(s) discussed, not just the organization's Web site as is 
now often the case.
    Response: We are not making the suggested change at this time as we 
believe that MOC already includes sufficient information to contact 
plans.
    Comment: Another commenter requested that the tool clearly indicate 
what is meant by an ``enhanced plan,'' even if this is just a general 
description in the tool of the typical features of an enhanced plan.
    Response: We do not believe that revisions are necessary as 
information on enhanced plans is currently available in the glossary 
and at http://www.medicare.gov/medicarereform/howtoread.asp.
    Comment: A commenter requested that CMS add back the search 
function in MPDPF notifying the user of the number of drugs covered by 
a particular plan. The same commenter requested that information be 
included about when a plan last updated its drug pricing information 
and that the tool includes information about coverage of drugs 
traditionally covered under Part B, for example, infused and injectable 
drugs for MA-PD plans.
    Response: Currently the drugs an individual beneficiary takes may 
be entered and displayed to determine coverage, but the MPDPF does not 
permit display a list of all the drugs a plan covers as this would take 
a very long time for the tool to display. CMS reviews drug pricing on a 
regular basis and the data is updated monthly to reflect any changes. 
We believe the compare function best permits users to tailor their 
searches for the specific drugs in the specific forms that they need.
    Comment: Another commenter wrote that the MOC is relatively 
thorough but inconsistent in that some plans in the tool do not include 
information about health care costs and that saved searches often yield 
different results when retrieved later. The commenter recommended that 
the tool be refined to allow the user to move easily back and forth 
between information for MA and Part D plans, that the conditions 
required for enrollment in a chronic care SNP be specified, and that 
the function concerning costs for tiers of drugs is ``incredibly 
unfriendly and confusing.''
    Response: We are considering how best to streamline and make the 
use of these comparative functions easier.

[[Page 19742]]

D. Changes To Improve Payment Rules and Processes

    This section addresses three payment issues under Part C. These 
provisions are outlined in Table 4.

                                 Table 4--Improving Payment Rules and Processes
----------------------------------------------------------------------------------------------------------------
                                           Part 417/422            Part 417/422      Part 423        Part 423
            Provision            -------------------------------------------------------------------------------
                                              Subpart                 Section         Subpart         Section
----------------------------------------------------------------------------------------------------------------
Risk Adjustment Data Validation.  Subpart F.....................    Sec.   422.2             N/A            N/A.
Dispute and Appeals Process.....  Subpart G.....................  Sec.   422.311  ..............  ..............
Payments to Medicare Advantage    Subpart F.....................  Sec.   422.254             N/A            N/A.
 Organizations-Actuarial
 Valuation.
Determination of Acceptable       Subpart O.....................  Sec.   417.564             N/A            N/A.
 Administrative Costs by HMO/CMP
 Cost Contract and Health Care
 Prepayment Plans (HCPPs).
Calculation of the Minimum        Subpart G.....................  Sec.   422.306             N/A            N/A.
 Percentage Increase under Part
 C.
----------------------------------------------------------------------------------------------------------------

1. Definitions Related to Risk Adjustment Data Validation Appeals 
(Sec.  422.2) and Addition of Medicare Advantage Organization Risk 
Adjustment Data Validation--Dispute and Appeal Procedures (Sec.  
422.311)
    In the October 22, 2009 proposed rule, we proposed regulations 
establishing an appeals process to be used by MA organizations to 
appeal the error calculation resulting from Risk Adjustment Data 
Validation (RADV) audits. As explained in the preamble of that proposed 
rule, under RADV audits and medical records are reviewed to determine 
whether they support diagnosis codes (known as Hierarchical Condition 
Codes, or HCCs) submitted to us under the MA risk adjustment 
methodology. Under this methodology, certain diagnosis codes are 
considered to signify higher costs for the enrollee, and therefore, we 
pay a higher amount to the MA organization for an enrollee to reflect 
these higher costs. If, in fact, a diagnosis code was not justified by 
the enrollee's medical condition, the higher payment amount associated 
with that diagnosis code would have been an overpayment. Under the RADV 
audit process we plan to recover the overpayments identified during the 
RADV audit. The appeals process we proposed in the October 22, 2009 
proposed rule was intended to provide a mechanism for MA organizations 
to appeal the error calculation associated with the overpayments 
identified under RADV audits. We invited and received a large number of 
comments from health plans, managed care industry trade associations, 
and other interested parties regarding not only the proposed appeals 
process, but on the RADV audit process and underlying MA payment policy 
producing the overpayment findings and our definitions proposed at 
Sec.  422.2. Since neither the statute nor existing MA program 
regulations currently specify a process for appealing overpayments 
resulting from RADV audits, the appeals process we proposed was based 
on our authority to establish MA program standards by regulation at 
section 1856(b)(1) of the Act. Specifically, we proposed adding a new 
Sec.  422.311 to part 422, subpart G, to specify RADV dispute and 
appeal rights for MA organizations. We proposed regulatory provisions 
allowing MA organizations that undergo RADV audit(s) to--(1) submit 
physician and other practitioner signed attestations relating to 
physician and other outpatient medical records that had a missing 
signature, or credentials that resulted in a payment error finding; (2) 
dispute certain other types of medical record review-related findings 
through the use of a documentation dispute process; and (3) appeal our 
RADV payment error calculation. By availing themselves of these RADV 
dispute and appeal processes, we noted that MA organizations would be 
able to reduce their RADV payment error and thereby, reduce their 
overall estimated MA payment error. Therefore, we proposed the 
following provisions under part 422:
     To revise Sec.  422.2 to add definitions of six terms that 
pertain to RADV activities, and thus to our proposals for implementing 
a RADV dispute and appeal processes.
     A new Sec.  422.311 describing procedures that we would 
implement to afford MA organizations facing a potential overpayment 
determination resulting from RADV audits the opportunity to have 
certain potential RADV payment errors addressed in advance of RADV-
audit-related payment error determinations, and to have other types of 
confirmed payment errors overturned. At Sec.  422.311(a) and (b), we 
summarized the RADV audit procedures. Beginning with Sec.  422.311(c), 
we proposed implementing a three-pronged RADV dispute and appeal 
procedure that MA organizations could employ to reduce their RADV 
payment error rate, including--
     Physician/practitioner attestation(s);
     Documentation dispute; and
     RADV payment error calculation appeal.
    We noted that analysis of data originating from medical records 
submitted by MA organizations that have undergone RADV audit indicates 
that a substantial percentage of medical record-related payment error 
determinations are due to missing signatures or credentials on medical 
records. Medicare program rules dictate the necessity of physician 
signatures on medical records, and MA risk adjustment requirements 
dictate that risk adjustment diagnosis data be accepted only for health 
services that were provided by certain physician specialties. 
Therefore, RADV audit procedures require that, in addition to finding 
diagnosis information that would support the HCCs submitted by the MA 
organization for risk adjustment purposes, physician signatures, and 
appropriate credentials must be present on medical records. Medical 
records with missing signatures or credentials are scored as errors 
under RADV audit procedures. We estimated that if given the opportunity 
to do so, many physicians and other practitioners that provided the 
diagnosis information on RADV-reviewed medical records would in fact 
attest that they documented the information in these medical records, 
even though signatures and credentials were missing from those records. 
Moreover, the presence of a signature or credential attestation to 
accompany these medical records would in our opinion, provide 
justification for preventing both contract-level and national-level 
RADV payment errors

[[Page 19743]]

that would otherwise originate from medical record signature, or 
credential-related discrepancies.
    Therefore, in proposed Sec.  422.311(c)(1), we proposed to 
implement a process that would allow MA organizations to voluntarily 
submit CMS attestations (that is, attestations developed and pre-
populated by CMS). These attestations would be signed by physicians/
practitioners who would attest responsibility for providing and 
documenting the health services in the physician and outpatient medical 
record(s) that were submitted for RADV audit. We specified at proposed 
Sec.  422.311(c)(1)(ii) and (iii) that MA organizations would be 
eligible to use attestations to address signature or credential-related 
discrepancies only from physician or outpatient medical records; 
attestations would not be allowed to address signature or credential-
related discrepancies found on inpatient medical records. The proposed 
use of an attestation would not in any way supplant the medical record, 
nor would it permit attesting physicians/practitioners to alter the 
existing medical record. Attestations would not be acceptable to 
address any issues outside of the RADV-audit process.
    At proposed Sec.  422.311(c)(1)(C)(iv), we indicated that we would 
prospectively notify MA organizations that if the ``one best'' medical 
record used to validate an audited HCC were missing a physician/
practitioner signature or credential, the MA organization would be 
permitted to submit a CMS-RADV attestation along with the medical 
record, to fulfill the requirement that medical records contain 
physician/practitioner signatures and credentials.
    We described the proposed process that we would jointly undertake 
to review attestations submitted for our review at proposed Sec.  
422.311(c)(1)(iv) and (v), noting the following:
     Only CMS-generated attestations that meet certain 
requirements described at Sec.  422.311(c)(1) and (d) would be eligible 
for consideration. Failure to meet these requirements would result in 
us not reviewing or accepting submitted attestations.
     CMS attestations that have been altered or amended (for 
example, striking out prepopulated words and replacing them with hand-
written replacement words) without instruction or written concurrence 
from us would not be accepted.
     Attestations would need to accompany the medical record at 
the same time that the medical record was submitted to us for RADV 
audit. MA organizations would not be permitted to submit attestations 
before or after submission of their RADV medical records.
     Attestations would need to originate from the physician/
practitioner whose medical record accompanies and corresponds to the 
attestation. We would not accept attestations or medical records from 
any party other than the MA organization.
     Organizations would not be permitted to submit 
attestations during the documentation dispute or RADV reconsideration 
processes described at Sec.  422.311(c)(2) and Sec.  422.311(c)(3).
    At proposed Sec.  422.311(c)(1)(iv), we described the process that 
we would undertake to review attestations and notify appellant MA 
organizations of the results of these attestation reviews. Our 
attestation review determinations would be final and binding upon both 
parties and would not be eligible for further appeal.
    We further proposed affording MA organizations the option of 
disputing other nonsignature or credential-types of RADV-related 
medical record diagnosis coding discrepancies via a proposed 
documentation dispute process that we described in new paragraph Sec.  
422.311(c)(2). Under our proposal, in order to be eligible for 
documentation dispute, MA organizations would need to submit their 
``one best'' medical record in accordance with RADV medical record 
submission deadlines established by us during the RADV medical record 
request process.
    At proposed Sec.  422.311(c)(2)(a), we specified the types of RADV-
related errors that would be eligible for the proposed documentation 
dispute process. The documentation dispute process would apply only to 
the errors that arise out of operational processing of medical records 
selected for RADV audits and submitted to us by established deadlines. 
In this context, errors that arise from operational processing mean 
errors that arise from the collection and processing of medical records 
for a RADV audit.
    At Sec.  422.311(c)(2)(ii), we proposed limitations that we would 
impose upon the documentation dispute process; namely that MA 
organizations would not be permitted to dispute any medical record 
coding discrepancies, nor would MA organizations be permitted to submit 
altogether new medical records in place of previously submitted medical 
records. Payment errors that resulted from missing medical records 
would not be eligible for documentation dispute. At proposed Sec.  
422.311(c)(2)(iii) and (iv), we indicated that we would prospectively 
notify MA organizations of RADV payment errors that would be eligible 
for documentation dispute, describe the documentation dispute process 
that we would undertake, along with the process that we would undertake 
to notify MA organizations of the results of documentation dispute 
reviews. As described at proposed Sec.  422.311(c)(2)(v), our 
documentation dispute review determination would be final and binding 
upon both parties and would not otherwise be eligible for further 
administrative appeal.
    Proposed Sec.  422.311(c)(3) would establish an appeals process 
under which RADV payment error calculations would be subject to appeal. 
Unlike our proposed attestation process described at Sec.  
422.311(c)(1), and proposed documentation dispute process describe at 
Sec.  422.311(c)(2), which would afford MA organizations the 
opportunity to dispute aspects of our medical record review process, 
the proposed RADV payment error calculation appeal process was 
specifically designed to afford MA organizations the opportunity to 
appeal our contract-level RADV payment error calculation. Under the 
proposed RADV payment error calculation appeal process, we proposed 
establishing a three-level appeal process whereby MA organizations 
may--
     Seek reconsideration;
     Appeal the reconsideration decision to an independent CMS 
Hearing Officer; and
     Appeal the decision of the independent CMS Hearing Officer 
to the CMS Administrator.
    Given the complexity of RADV audits in general, and the calculation 
of RADV-related error rates in particular, we stated our belief that it 
was prudent to afford appellant MA organizations multiple-layers of 
RADV-related payment error appeal.
    At proposed Sec.  422.311(c)(3)(ii), we also specified that MA 
organizations would not, under the proposed RADV payment error 
calculation appeal process, be permitted to appeal medical record 
review errors, nor would MA organizations be permitted to seek formal 
appeal of physician or practitioner signature or credential-related 
review errors. We believed that medical record review-related issues 
would be addressed as a result of the rigorous medical record review 
process, and the attestation and documentation dispute processes 
described earlier in the proposed regulation. In accordance with our 
proposed regulation at Sec.  422.311(c)(3)(i), the RADV payment error 
calculation appeals process would only apply to errors identified in 
the RADV payment error calculation. MA organizations would not be 
permitted to

[[Page 19744]]

utilize the payment error calculation appeal process as a method for 
submitting any medical records for consideration in the calculation of 
the payment error. In order to be eligible for RADV payment error 
calculation appeal, MA organizations would need to adhere to 
established RADV audit requirements, including the submission of 
medical records in the manner and by the deadlines specified by CMS.
    Furthermore, we noted that MA organizations would not be permitted 
to appeal our RADV payment error calculation methodology. Our 
justification for excluding methodological appeals was two-fold. First, 
we said the methodology that we planned to employ to calculate RADV 
payment errors was methodologically sound and academically defensible. 
We stated that we intended to ensure that all MA organizations 
understand the RADV payment error calculation methodology by providing 
annual notice to all MA organizations of the methodology that will be 
employed for calculating Part C payment errors. MA organizations that 
object to CMS' RADV payment error calculation methodology would be 
given an opportunity to provide comment to us under ours annual notice 
of RADV audit methodology. Second, in addition to providing an annual 
notice of RADV audit methodology, we stated that we would provide an 
expanded explanation of methodology as part of each RDV audit report 
that we send to MA organizations that undergo RADV audit. Included in 
this expanded explanation of methodology would be RADV payment error 
calculation factors unique to each audited MA organization that would 
enable the MA organization to independently calculate its own RADV 
payment error.
    At proposed Sec.  422.311(c)(3)(iii) and (v), we specified that MA 
organizations would be notified of their RADV payment error calculation 
appeal rights at the time we issue a RADV audit report to that 
organization. MA organizations would have 30 calendar days from the 
date of this notice to submit a written request for reconsideration of 
its RADV payment error calculation. A request for reconsideration would 
need to specify the issues with which the MA organization disagrees, 
the reasons for the disagreements and explain why the organization 
believes the issues are eligible for reconsideration. The request for 
reconsideration would need to include additional documentary evidence 
that the MA organization considers material to the reconsideration, 
though MA organizations would be prohibited from submitting medical 
record-related evidence such as new or previously submitted medical 
records or physician or practitioner attestations and from appealing 
any issues pertaining to the methodology applied in any part of the 
RADV audit. At proposed Sec.  422.311(c)(3)(iv), we further specified 
that the MA organization would bear the burden of proof to demonstrate 
that our RADV payment error calculation was clearly incorrect.
    We described our proposal regarding the conduct of a RADV payment 
error calculation reconsideration, the decision of the reconsideration 
official and the effect of the CMS reconsideration decision official at 
proposed Sec.  422.311(c)(3)(e) and (f).
    At proposed Sec.  422.311(c)(3)(v) and (vi), we described the first 
level of RADV payment error calculation appeal, the request for 
reconsideration of our RADV payment error calculation. Under this 
process a CMS official or our contractor not otherwise involved in 
error-rate calculation activity would review our RADV payment error 
calculation and any written evidence submitted by the MA organization 
that pertains to CMS' RADV payment error calculation, recalculate the 
payment error utilizing our RADV payment error calculation methodology 
(as specified in our standard operating procedures), and render a 
determination whether the RADV payment error calculation was accurate. 
This CMS official or CMS contractor not otherwise involved in RADV 
error-rate calculation activity would recalculate and arrive at an 
independent RADV payment error. Whether the official or contractor 
agreed with our payment error calculation, or overturned the 
calculation and established a new RADV payment error, this party's RADV 
payment error calculation determination would be issued to a CMS 
reconsideration official. The CMS reconsideration official would review 
their analysis and make a determination whether to accept or reject the 
findings of the CMS official or CMS contractor that recalculated the 
RADV payment error. In instances when the CMS official or contractor 
recommended overturning CMS' RADV payment error calculation and the 
reviewing CMS reconsideration official agreed with the newly calculated 
RADV payment error, we would issue a reconsideration decision which 
informed the appealing MA organization in writing of its 
reconsideration decision, in effect, notifying the MA organization of 
its new RADV payment error. If the reconsideration official upheld the 
decision of the CMS official or contractor to sustain our initial RADV 
payment error calculation, the reconsideration official similarly would 
notify the appellant MA organization of its determination. In either 
instance, the decision of the reconsideration official would be final 
and binding, unless a request for hearing was filed by CMS or the 
appellant MA organization.
    At proposed Sec.  422.311(c)(4), we clarified that if CMS or an MA 
organization were dissatisfied with the decision of the CMS 
reconsideration official described at Sec.  422.311(c)(3), CMS or the 
MA organization would be permitted to request a second-level RADV 
payment error calculation appeal, which is a hearing on the RADV 
payment error calculation determination. CMS or MA organization 
choosing to pursue a hearing would be required to file a request for 
hearing within 30 calendar days of the date the MA organization 
received the written RADV payment error calculation reconsideration 
decision, as described at proposed Sec.  422.311(c)(3)(vi).
    We noted that CMS or MA organizations requesting a hearing would 
need to do so in writing, including a copy of the CMS reconsideration 
official's decision to either uphold or overturn the initial RADV 
payment error calculation, and specify the findings or issues in that 
reconsideration decision that they disagreed with and why they 
disagreed with them. The hearing would be conducted by the CMS Office 
of Hearings and presided over by a CMS Hearing Officer who neither 
receives testimony nor accepts any new evidence that was not presented 
with the request for reconsideration of the RADV payment error 
calculation. The hearing would be held on the record, unless the 
parties requested, subject to the Hearing Officer's discretion, a live 
or telephonic hearing. The Hearing Officer would also be permitted to 
schedule a live or telephonic hearing upon their own motion. The CMS 
Hearing Officer would be limited to a review of the record that was 
used for the initial RADV payment error calculation and the 
reconsidered RADV payment error calculation.
    Additionally, we noted that the Hearing Officer would have full 
power to make rules and establish procedures, consistent with the law, 
regulations, and CMS rulings. These powers would include the authority 
to take appropriate action in response to failure of an organization to 
comply with such procedures.
    At proposed Sec.  422.311(c)(4)(iv), we also indicated that the CMS 
Hearing Officer would review and decide

[[Page 19745]]

whether the reconsideration official's decision was correct and to 
notify CMS and the MA organization in writing of his/her decision, 
explaining the basis for the decision, which would be final and 
binding, unless the decision was reversed or modified by the CMS 
Administrator in accordance with Sec.  422.311(c)(5).
    We explained that the third level of RADV payment error calculation 
appeal that MA organizations can request would be discretionary review 
by the CMS Administrator. We described this proposed process at Sec.  
422.311(c)(5). At this level of appeal, CMS or the MA organization 
would be permitted to appeal the decision of the CMS Hearing Officer by 
requesting that the CMS Administrator review the CMS Hearing Officer's 
determination. Parties requesting CMS Administrator review would have 
to request the review within 30 calendar days of receipt of the CMS 
Hearing Officer's determination. If the Administrator agreed to review 
the case, the Administrator would review the Hearing Officer's decision 
as well as any other information included in the record of the Hearing 
Officer's decision and would determine whether to uphold, reverse, or 
modify the CMS Hearing Officer's decision. The Administrator's 
determination would be final and binding.
    We also noted that, based on our experience with appeals of MA and 
Medicare Part D program contract determinations, we have determined 
that it would be necessary for us to establish a ``compliance date'' to 
use as a reference point in issuing a ruling regarding RADV audit 
findings. Therefore, we proposed at Sec.  422.311(b)(2), to require 
that the compliance date for meeting Federal regulations requiring MA 
organizations to submit medical records for the validation of risk 
adjustment data (Sec.  422.310(e)) also be the due date when MA 
organizations (or their contractor(s)) selected for RADV audit would 
need to submit medical records to us. We stated we would inform an MA 
organization in writing regarding selection for RADV audit, including 
the due date for submission of medical records.
    We invited and received a large number of comments from health 
plans, managed care industry trade associations, and other interested 
parties regarding not only the proposed appeals process described in 
proposed Sec.  422.311--but also the RADV audit process and underlying 
Medicare Advantage payment policy. These comments have resulted in 
changes to our above-described proposals as discussed below.
    While many comments that we received relate to the underlying RADV 
audit process and risk adjustment methodology and may not directly 
address the RADV appeals process specifically, we are responding to 
these comments, because they appear to be relevant to the RADV appeals 
process that we had proposed in our Notice of Proposed Rulemaking. 
Certain comments were outside the scope of our proposed rule and we 
have not included responses to those comments.
    Comment: A comment alleged that it was premature for CMS to propose 
rules related to the RADV appeals process because the commenter stated 
that the Administrative Procedure Act (APA) required that the 
underlying RADV audit process giving rise to the overpayments that 
would be appealed under our proposed regulations be subjected to notice 
and comment rulemaking.
    Response: We disagree and believe that the RADV audit process does 
not establish any substantive rules within the meaning of the APA or 
section 1871 of the Act, but rather is a means for ensuring that 
payments made to MA organizations comply with substantive rules 
governing MA payments that are set forth in the statute, and in 
regulations that have been subjected to notice and comment procedures. 
Regulations specifying that payment amounts are subject to audit (for 
example, Sec.  422.504(d)(1)(i) have been subjected to notice and 
comment procedures, and provide ample notice of the fact that we have 
the right (and, indeed, the duty) to ensure that MA payment amounts are 
accurate. See also, Sec.  422.310(e), which states that MA 
organizations and their providers and practitioners will be required to 
submit a sample of medical records for the validation of risk 
adjustment data, as required by CMS, and that there may be penalties 
for submission of inaccurate data.
    Indeed, we would point out that throughout the Medicare program, 
and government programs generally, audit policies and procedures 
intended to ensure or verify payment accuracy assist in the enforcement 
of rules, and are not themselves substantive rules subject to APA 
notice and comment procedures. Therefore, to the extent we are 
providing a RADV appeals process, we are providing an opportunity that 
does not currently exist for MA organizations to appeal audit findings 
that they would otherwise not have been permitted to question.
    Comment: Some commenters stated that CMS did not follow proper 
procedures and stated that procedures set forth in our proposed 
regulations, such as our ``one best medical record'' and other 
documentation requirements, established a substantive legal standard 
governing the payment to MA organizations, and therefore, they had to 
be included in the annual notice of changes to payment methods required 
under section 1853(b)(2) of the Act, which requires that MA 
organizations be afforded an opportunity to comment on changes in the 
methodology for determining MA payments.
    Response: We disagree. The requirement in section 1853(b)(2) of the 
Act to provide an advance notice of methodological changes to MA 
organizations of proposed changes to the methodology and assumptions 
used to compute annual MA capitation rates pertains to the methodology 
for determining the proper amount of payment. All substantive changes 
to the risk adjustment methodology at issue in the RADV audit process 
have been described in the annual advance notice. The RADV audit 
process and appeals procedures proposed in the October 22, 2009 
proposed rule do not make any substantive changes in the methodology 
for determining MA payment amounts. Rather, they are designed to ensure 
that this payment methodology has been applied correctly, and the MA 
organization has received the amount to which it was entitled under 
this methodology. The risk adjustment methodology provides that a 
specific amount be paid if an enrollee has a particular condition. The 
RADV audits and appeals process are designed to ensure that the 
enrollee in fact has that condition, and that the MA organization is 
thus entitled to the amount that has been paid for that condition. The 
fact that audits might determine that an MA organization was not, in 
fact, paid correctly, is not a change in methodology or assumptions 
related to how the payment amount is to be determined and therefore is 
not subject to the advance notice requirements under section 1853(b)(2) 
of the Act. Nonetheless, in our October 22, 2009 proposed rule, we 
proposed to provide notice of RADV audit methodology to the public, as 
well as a summary of RADV methodology issues for each audited MA 
organization at the time we issue our audit finding pursuant to an 
actual RADV audit. We offered to provide details of our RADV audit 
methodology in an attempt to provide additional transparency related to 
the process. We anticipate providing additional notice of RADV audit 
methodology to the public by publishing the methodology in some

[[Page 19746]]

type of Medicare program document--most likely in a Medicare manual 
later this year (2010).
    Comment: A commenter stated that CMS was not complying with 
requirements in section 1871(a)(2) of the Act, which states that ``No 
rule, requirement, or other statement of policy (other than a national 
coverage determination) that establishes or changes a substantive legal 
standard governing the scope of benefits, the payment for services, * * 
* shall take effect unless it is promulgated by the Secretary by 
regulation* * *''
    Response: As discussed previously, the RADV audit process, and the 
appeals procedures addressed in this rulemaking, do not ``establish'' 
or ``change'' any ``substantive legal standard governing * * * 
payment.'' To the contrary, they are designed to ensure that the 
substantive legal standards for payment set forth in the statute and 
regulations are correctly applied. The substantive rules governing the 
amount of payment to which the MA organization is entitled are 
unchanged as governed by statute and implementing regulations.
    Comment: A commenter urged that CMS suspend RADV audits until such 
time as CMS subjects the rules to notice and comment rulemaking.
    Response: As discussed previously, we do not believe subjecting the 
RADV audit process to rulemaking is required or appropriate, there 
would be no basis for suspending the audit process.
    Comment: One commenter noted that when the risk adjustment system 
was initially established, the Secretary was required to submit a 
report to Congress in accordance with section 1853(a)(3)(A) of the Act 
that documented the proposed method of risk adjustment of MA payment 
rates, and that included an evaluation of the method by an outside, 
independent actuary of the actuarial soundness of the proposal. The 
commenter believed that such an evaluation was required in the case of 
the RADV audit process.
    Response: We disagree that RADV audits impact the risk adjustment 
system in any manner. As indicated earlier, RADV audits are solely to 
verify that the risk adjustment methodology is being correctly applied.
    We also received a large number of comments from MA organizations, 
managed care trade associations and a law firm regarding RADV 
methodological-related issues. While some comments were not relevant to 
the rules that CMS proposed regarding the RADV appeals process, there 
were a number of comments that we believe should be addressed, and as 
such, we do so as follows.
    Comment: Many commenters recommended that CMS independently test 
and validate its RADV methodology before CMS implements it. The 
commenters indicated that CMS failed to provide any record of 
submitting its methodologies to an academic review and that if CMS has 
done so, we should have included such studies with the proposed rule so 
that interested parties could review and comment on any of these 
academic studies. The commenters recommended that CMS provide a process 
that permits thorough review and comment by plans of RADV audit 
methodology issues before undertaking further RADV audits. Several 
commenters further recommended that all methodological issues 
pertaining to RADV audits be appealable.
    Response: Previously in this preamble we indicate that the process 
of independently reviewing medical records to validate risk adjustment 
data submitted by MA organizations for payment purposes has been 
established and operational for more than 10 years. Over the course of 
this timeframe, we have been advised on the RADV process by 
statisticians, senior analysts, expert medical record coders, 
physicians, managed care professionals, and other health care 
providers. From a medical record coding perspective, we have secured 
expert direction from Peer Review Organizations (PROs) (in the past) 
and Quality Improvement Organizations (QIOs) (currently) by 
incorporating them into the RADV team. From an analytic design and 
implementation perspective, we have in the past and continue to employ 
senior level expert analysts from different academic fields as 
independent contributors to the RADV operations team to review and 
validate the accuracy of the findings across the RADV process, 
including peer review of statistical sampling and payment error 
calculation methodologies. The independent expert analysis and review 
is similar to that conducted in an academic setting in that the 
participating parties are credentialed in a specific field of study, 
such as statistics, and possess substantial years of expertise 
conducting similar processes and analyses. The independent methodology 
review processes also involve the use of internal controls, and tests 
for consistency and accuracy. RADV procedures are subject to the 
evaluation requirements of the CMS Annual Financial Audit.
    In addition, the RADV methodology that we employ in the process of 
reporting a component of the national Part C payment error is similar 
to the methodological approach that we employ in conducting contract-
specific RADV audits and error calculations. This methodology has been 
reviewed and approved by officials at the HHS.
    This notwithstanding, in considering the commenters' questions, 
where necessary, we will incorporate additional independent third party 
review for purposes of validating RADV error-calculation methodology. 
As indicated in our proposed rule and cited elsewhere in the preamble 
to this final rule, we intend to publish its RADV methodology in some 
type of public document-most likely, a Medicare Manual, so that the 
public can review and provide comment as it deems necessary. Finally, 
to ensure that audited organizations understand how their RADV error 
rate was calculated, as indicated in our proposed rule, we further 
intend to describe our RADV methodology in each audited organization's 
RADV audit report.
    Given these efforts to ensure that the RADV process is transparent 
to audited MA organizations and the public, and that the methodology 
used under that process is reasonable, consistent, and accurate, we do 
not believe any further action is required.
    Comment: Several commenters argued that CMS should include Medicare 
plan enrollees for whom no diagnosis code was submitted under the risk 
adjustment methodology as part of its RADV error testing samples. These 
commenters also recommended that CMS include ``under-coding'' findings 
in the audit error estimates in order to more accurately account for 
members' health status.
    Response: Our RADV audit policy does account for both underpayments 
and overpayments. The RADV process addresses under-coding through the 
application of rules for crediting a sampled enrollee with additional 
HCCs that are identified incidentally, during medical record review. We 
emphasize that these ``additional'' diagnoses were not originally 
submitted for payment for enrollees selected in the sample, and yet we 
provide audited organizations credit through our RADV medical record 
review process.
    However, we have not and do not expect to sample enrollees for whom 
no HCCs were submitted. This is because the RADV is an audit process 
that is intended to validate the HCCs that were submitted by MA 
organizations in order to determine whether the additional payment 
amounts associated with these

[[Page 19747]]

diagnosis codes were properly made. Under our separate Risk Adjustment 
Data Submission Process, the data submission period for any given 
payment year is lengthy and extends beyond the actual payment year, 
providing a substantial amount of time for organizations to submit and/
or correct enrollee HCC risk adjustment data for any given payment 
year--to reflect of enrollee health status. This is sufficient time for 
plans to submit data on all their enrollees, including those with no 
HCCs. The RADV audit process is not intended to serve as a de facto 
mechanism for extending the HCC data submission deadlines under which 
MA organizations operate.
    We received a number of comments from MA organizations and a law 
firm regarding the financial impact of RADV audits. While these 
comments did not pertain directly to our proposed RADV appeals 
procedures, some comments nevertheless indirectly impact the RADV 
appeals rules. Therefore, we respond to several of these comments here.
    Comment: Several commenters suggested that CMS's proposed 
methodology to calculate and apply error rates and payment adjustments 
across contract years after payments were made undermines the 
actuarially-based risk assumptions inherent in Plans' bid submissions.
    Response: Regarding the assertion that RADV audits undermine the 
Part C bidding process, beginning with the introduction of the HCC risk 
adjustment model for CY 2004, we have published clear guidelines to be 
followed by MA organizations in the collection and support of diagnosis 
codes underlying risk scores for plan enrollees. In their preparation 
of a MA bid, certifying actuaries are expected to ensure that the 
underlying data are reasonable and appropriate for the circumstance, 
including the base year risk scores. If the ultimate risk scores for a 
plan's population are lower than initially forecast by the certifying 
actuary, then the plan is likely to experience lower than expected 
margin. Conversely, if the ultimate risk scores for a plan's population 
are higher than initially forecast by the certifying actuary, then the 
plan is likely to experience greater than expected margin. These 
results illustrate the nature of health plan capitation and the risk 
borne by MA organizations.
    Comment: Commenters stated that the establishment of an audit 
methodology that involves retrospective contract-level payment 
adjustments creates the potential for unpredictable retroactive 
liability that MA organizations could not have considered in developing 
bids for affected prior years. Commenters suggested that CMS' sampling 
methodology undercuts the mandate in section 1854(b)(6)(B)(iv) of the 
Act that MA organizations' rates reflect the revenue needs of the 
organization. The commenters assert that MA organizations did not 
develop bid submissions for calendar years 2006 through 2009 with an 
expectation that CMS would implement contract-wide payment adjustments 
based on provider documentation issues outside of the MA organizations' 
control. As a result, if payments effectively are reduced retroactively 
as the result of RADV audits, the bid submissions (and resulting 
payments) arguably would not adequately reflect Plans' risks, and MA 
organizations may be forced to dip into their reserves to repay dollars 
that were not anticipated to be at risk.
    Response: We disagree. If plan bids are developed based on faulty 
data, such as inappropriate claim costs or risk score data, there is a 
greater likelihood of error in the bid projection. There are many 
factors that influence the accuracy of bid projection, and data quality 
is just one such factor. There is no legal authority to change a bid 
amount after it has been accepted regardless if additional information 
suggests that the bid is too high or too low.
    In general, it is our belief that health plans are confusing 
actuarial equivalence in payment amount-- which demographic 
adjustments, risk adjustment methodology, and coding intensity 
adjustment are all designed to achieve-- with differences in the way 
costs are documented. Because MA organizations are paid on a capitation 
basis, costs are not covered for a specific service provided. Rather, 
they are based on the actuarial value of such costs. The risk 
adjustment methodology uses diagnosis codes as a proxy for higher costs 
associated with a particular diagnosis. Because, under original 
Medicare, costs of specific services received are reimbursed, the 
diagnoses leading to such costs being incurred have a different 
relevance under original Medicare than they do under the Medicare Part 
C payment system. The risk adjustment methodology and RADV audit 
process that we employ to ensure accuracy under Medicare Part C 
actually further actuarial equivalence, rather than conflicting with 
it. The differences between MA and original Medicare are simply 
attributable to differences in how payment is made. It is these 
differences that necessitate the actuarial equivalence standard in the 
first place.
    Comment: Several commenters questioned whether CMS's RADV medical 
record review coders have the qualifications and experience necessary 
to code RADV-related medical records. Commenters specifically 
questioned whether RADV coders were equipped to code accurately in 
situations in which clinical training may be required in order to 
recognize all extractable ICD-9 codes. They inquired into the 
certification and coding experience qualifications for the RADV coders.
    Response: The coders that CMS uses to review RADV medical records 
are fully qualified to code RADV-related medical records. All coders 
are professionally certified for example, Certified Professional Coder 
(CPC), Certified Coding Specialist (CCS), Registered Health Information 
Administrator, (RHIA) and Registered Health Information Technician 
(RHIT), and must have prior experience coding medical records. Coders 
have access to physician consultation as needed. Coders also have 
access to our Independent Coding Consultant--a coding expert with more 
than 10 years of professional coding experience, which we require to be 
RHIA, coding certified and to have at least 5 years of experience in 
RADV-specific coding.
    Comment: Several commenters objected to what they contend is a 
burden that RADV audits impose upon the physicians and physician 
practices who must produce medical records necessary to conduct audits. 
These commenters recommended that CMS take into account the potential 
impacts of more aggressive program integrity efforts on the medical 
practices that provide care to MA plan enrollees. Outside of the 
proposed rule, we have also received letters arguing that the burden 
associated with RADV audits is not limited to the CMS' audits but also 
extends to internal audit activity undertaken by Medicare health plans 
that mimics the RADV audits that we undertake for Medicare payment 
validation. These commenters raised concerns that Medicare health plans 
were misrepresenting their internal audit activity as official CMS RADV 
audits.
    Response: Section 422.310(e) requires that providers who 
voluntarily enter into contracts with MA organizations submit data to 
CMS contractors/IVCs for RADV audits. In an effort to minimize the 
burden associated with this activity, we have developed best practices 
that we encourage health plans to employ in their efforts to gather 
medical records from providers and hospitals. To the extent MA 
organizations employ these practices, it is our belief that the impact 
of RADV audits on providers can be minimized.

[[Page 19748]]

    We also understand the increasing need for providers to be able to 
distinguish when they are being asked for medical records in 
association with an MA plan's own audit or in accordance with an 
official Medicare program RADV audit which is subject to legislative 
requirements. Therefore, we issue letters on our letterhead that MA 
organizations must use when requesting medical records from providers 
when the request is specifically related to an official CMS RADV audit. 
Providers may rely upon these letters as an indicator that a given 
medical record request is for CMS' RADV, and providers may request this 
authorizing letter before responding to requests by the MA plan.
    We received a large number of comments from MA organizations, 
managed care trade associations and a law firm regarding the ``one best 
medical record'' policy that CMS proposed to apply to the RADV program. 
By way of explanation, the ``one best medical record'' policy specifies 
that for any one sampled beneficiary--with any one HCC--the MA 
organization is allowed to select and submit supporting medical record 
documentation of a face-to-face encounter for a physician or outpatient 
visit (one date of service) or an inpatient stay (range of dates from 
admit to discharge). The face-to-face encounter would have needed to 
occur at some point during the data collection year (from January 1st 
to December 31\st\).
    Comment: Commenters contended that the one best medical record 
policy forces plans to omit relevant data that could be supported 
through documentation that CMS does not permit--such as prescription 
drug data and lab results.
    Response: The RADV risk adjustment model is based upon FFS claims 
data from specific risk adjustment provider types, and not alternative 
data sources, such as, prescription drug data or lab results. 
Therefore, the RADV audit process is based upon supporting medical 
record documentation from provider data sources that are used to 
calibrate the model. As for the one best medical record policy, while 
MA organizations that voluntarily submit HCCs for Medicare payment are 
prospectively paid based on these unaudited and unvalidated HCCs 
submissions, we, upon the recommendation of MA organizations, agreed to 
allow any one medical record from across an entire data collection 
period to validate an HCC incorporated into the payment to the MA 
organization.
    Comment: Some commenters contend that if CMS is going to rely on 
the one best medical record policy to the exclusion of other sources of 
information that might confirm an HCC, the RADV appeals process should 
allow for HCC medical record review findings to be appealed.
    Response: To address these comments as described in Sec.  
422.311(c)(2) of this final rule, we have revised the process so that 
MA organizations may appeal medical record review determinations in 
accordance with the procedures specified in Sec.  422.311(c)(2).
    Comment: A number of commenters argued that the one best medical 
record policy is flawed in that it provides an insufficient basis for 
confirming an HCC for members with chronic diseases when a collection 
of several records, perhaps from various providers, considered in the 
aggregate might better verify a patient's condition.
    Response: We disagree. In the case of a chronic disease such as 
congestive heart failure, all that is required is medical record 
documentation from one visit to a physician or a hospital, over the 
course of the data collection year, to validate the audited HCC.
    Comment: We received several comments comparing the RADV audit and 
appeals process to varying program attributes of the Medicare FFS 
program. For example, some commenters argued that CMS' one best medical 
record rule conflicts with Medicare FFS standards since there is no one 
best medical record rule applied to Medicare payment error-rate testing 
for FFS providers.
    Response: Payment error-testing under original Medicare is 
different than payment error testing under Medicare Part C. Under 
original Medicare, much of what comprises the error testing regimen is 
aimed at validating that a particular level of service was provided and 
therefore justifies a given level of Medicare payment. Under RADV, the 
payment error testing focuses on validating HCCs by examining medical 
records to determine whether they contain supporting diagnostic codes. 
This error testing is aimed at validating that a particular Medicare 
beneficiary indeed has the medical condition for which the MA 
organization has been paid for, and not whether a particular level of 
service (for example, level 1 office visit vs. level 2 office visits) 
was provided. Moreover, there is no evidence to support the notion that 
the Congress, in establishing the Part C payment process, ever intended 
the Part C payment process to mimic payment processes under Original 
Medicare. Indeed, they are fundamentally different.
    Moreover, we believe that the one best medical record policy and 
the operational process associated with it are far less restrictive 
than Medicare FFS. MA organizations are not limited to the specified 
date(s) of service they reported to us with regard to selecting a 
medical record as supporting documentation for a specific HCC. We 
continue to believe that the one best medical record policy is 
appropriate for the Medicare Part C risk adjusted payment system which 
is distinct from a FFS payment system where payment is determined on a 
claim-by-claim basis. Under Part C, we only require that plans send one 
HCC for payment for an entire year; it therefore logically follows that 
we would only require one medical record to validate this HCC.
    Comment: Some commenters stated that the one best medical record 
rule was inconsistent with the mandate that MA payment adjustments be 
actuarially equivalent to the FFS sector.
    Response: It is our belief that health plans are confusing 
actuarial equivalence in payment amount-- which demographic 
adjustments, risk adjustment methodology, and coding intensity 
adjustment are all designed to achieve--with differences in the way 
costs are documented. Because MA organizations are paid on a capitation 
basis, costs are not covered for a specific service provided. Rather, 
they are based on the actuarial value of such costs. The risk 
adjustment methodology uses diagnosis codes as a proxy for higher costs 
associated with a particular diagnosis. Because, under original 
Medicare, costs of specific services received are reimbursed, the 
diagnosis leading to such costs being incurred has a different 
relevance under original Medicare than they do under the Medicare Part 
C payment system. The risk adjustment methodology and RADV audit 
process that we employs to ensure accuracy under Medicare Part C we 
believe furthers actuarial equivalence, rather than conflicts with it. 
The differences between MA and original Medicare are simply 
attributable to differences in how payment is made. It is these 
differences that necessitate the actuarial equivalence standard in the 
first place.
    Comment: A commenter noted that in Medicare Part A and B appeal 
contexts, supplemental information and testimony are considered, and 
given such weight as the fact finder determines is appropriate.
    Response: Under our proposed appeals procedures that affords MA 
organizations the ability to appeal the Part C error calculation 
specifiedat Sec.  422.311(c)(3), the CMS Hearing Officer

[[Page 19749]]

has the discretion to conduct the hearing in alternative ways beyond 
conducting the hearing on the record. For example, the Hearing Officer 
can choose to conduct the hearing by way of teleconference or in 
person. The CMS Hearing Officer also has the discretion to request 
supplemental information or to accept testimony, as he or she deems 
necessary. Also, under the medical record review appeal processes that 
we specify at Sec.  422.311(c)(2), we afford MA organizations the 
ability to submit supplemental information--the attestation reviewed by 
the IVC-- to validate the same HCC that the Initial Validation 
Contractor (IVC) initially determined to be in error.
    Comment: Several commenters, focusing on the relationship between 
MA organizations and their providers, noted that errors in 
documentation are ultimately attributable to providers, not MA 
organizations. These commenters argued that, due to the nature of the 
MA program, while CMS makes a capitated payment to organizations that 
have relationships with providers, these providers may not have an 
incentive to document the HCCs which affect payment to the MA 
organization. The commenters also stated that contract-level payment 
adjustments penalize MA organizations, while it is providers who are 
responsible for maintaining adequate records. A commenter also 
suggested that we accept ``other data'' to supplement, or substitute, a 
medical record.
    Response: Section 422.504(i)(1) clarifies for MA organizations that 
they are ultimately responsible for the risk adjustment information 
submitted to CMS. This section of the regulations states, 
``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.'' MA 
organizations are further directed in Sec.  422.504(i)(2) that all 
their ``first tier, downstream, and related entities are required to 
agree that HHS, the Comptroller General, or their designees have the 
right to audit, evaluate, and inspect * * * medical records.'' 
Therefore, while we acknowledge the comments, we maintain that it is 
the responsibility of MA organizations to ensure that they submit 
accurate risk adjustment information, and that the providers with whom 
they contract are aware that we have authority to audit medical records 
to verify this information.
    We do not require MA organizations to submit HCCs for 
beneficiaries; MA organizations choose whether or not to do so. For 
risk adjustment diagnoses that are submitted, it is the responsibility 
of the MA organization to obtain appropriate documentation. If MA 
organizations are not confident in the information they obtain from 
their providers, they may wish to initiate education efforts, or 
include provisions in their contracts that ensure providers 
appropriately document diagnoses and provide medical record 
documentation to the plan upon request.
    In regards to supplemental information, we have determined, and MA 
plans have been informed multiple times, that the appropriate format 
for obtaining risk adjustment information is a medical record. For 
validation purposes, plans are asked to submit the one best medical 
record documenting the HCC. We carefully determined the one best 
medical record policy, after consultation and input from the industry 
supporting this policy. We do not believe that supplemental information 
would be sufficient, or add value to a record that does not support an 
HCC for which the plan had been paid.
    Comment: Many commenters from the MA industry recommended that 
before CMS audit MA organizations under RADV, the agency first account 
for any error rates inherent in Medicare FFS data that affect MA error 
rates. These commenters stated that through the proposed RADV audit 
appeal process, CMS is imposing a set of rules regarding physician 
recordkeeping that were not anticipated in the ICD-9CM coding 
guidelines, is not consistent with standard practices and is not 
enforced on original Medicare claims. The result, they allege, is de 
facto MA payment adjustments based on recordkeeping discrepancies 
without an adjustment to original FFS Medicare risk scores for the same 
recordkeeping discrepancies.
    Response: We recognize that there may be potential merit in further 
refining the error rate calculation. We are currently studying this 
issue.
    Comment: A number of commenters stated that the CMS-defined 
attestation process was overly narrow and should be expanded to provide 
for more widespread use of attestations in the RADV audit process. 
Commenters contended that attestations should be expanded to provide MA 
organizations with a greater ability to correct medical record coding-
related errors or deficiencies in submitted medical records. Commenters 
requested that CMS permit MA organizations to submit attestations that 
attest to the presence of medical conditions not fully supported in the 
medical record submitted to CMS. The commenters further argued that CMS 
should permit attestations to be used to validate not only the 
physician signature and credentials that are missing from a medical 
record, but also for patient name, identifier, date of service, and 
other documentation inadequacies that can result in a RADV medical 
record coding error.
    Response: Taken in the aggregate, commenters' recommendations 
regarding an expanded use of attestations in the RADV audit process 
reflect a misunderstanding of what attestations are intended to 
accomplish. Many of the comments submitted suggest that we adopt a 
policy that in effect, allows attestations to stand in the place of the 
medical records that are required to validate the HCCs that have 
resulted in higher payments already made to MA organizations. For 
example, permitting physicians to use attestations to ``correct' 
medical record coding-related deficiencies determined pursuant to 
medical record review; or allowing attestations to be an acceptable 
vehicle for the submission of new HCCs that were not otherwise already 
submitted to CMS for payment.
    We believe that we must validate the HCCs that result in additional 
payment through the existence of clear, unambiguous diagnostic 
information in a beneficiary's medical record. A medical record 
provides the written support for the diagnosis that was made and must 
meet certain well recognized documentation requirements. Consistent 
with the Medicare FFS program, medical record documentation, rather 
than other alternative documentation, such as attestations, is required 
to validate information provided to us for the purpose of making 
provider payments. The existence of an accompanying attestation simply 
provides a mechanism for the physician to validate that the medical 
record that is missing a signature or credential is in fact his or her 
patient's medical record. That is, attestations are intended to 
complement medical records, not stand in the place of them.
    We continue to believe that the Medicare program is best served by 
limiting the applicability of attestations to instances in which the 
original diagnosing physician submits a signed and dated attestation to 
validate that the medical record in question is theirs. We see no 
justifiable reason for CMS to expand the applicability of attestations 
beyond this intended purpose and therefore, we are not accepting these 
comments.

[[Page 19750]]

    Comment: Several commenters objected to CMS' prohibition on using 
attestations for inpatient medical-record-related RADV coding errors, 
and noted that CMS did not provide sufficient explanation why CMS would 
not permit them. The commenters recommended that CMS permit 
attestations to be submitted with respect to inpatient records.
    Response: We do not believe that permitting attestations for 
inpatient medical records is justifiable. The decision to permit 
attestations for RADV was in response to industry concerns about the 
lack of signatures in medical records that are generated out of 
physician-office settings and not hospital settings. Upon preliminary 
evaluation of RADV findings, our data corroborates industry concerns in 
that it clearly shows that the majority of RADV-identified payment 
errors associated with lack of provider signatures were derived from 
medical records submitted and reviewed under the guidelines for 
physician/outpatients settings. Indeed, the data further corroborates 
that payment errors related to the lack of signature in inpatient 
medical records is minuscule.
    Note that, with respect to the ongoing use of attestations within 
the RADV audit context, we reserve the right to continue to evaluate 
payment error related to physician/practitioner signatures, and the 
impact that attestations have upon these types of errors. We further 
reserve the right to amend the regulations in the future regarding the 
use of attestations should experience under the program justify this 
change.
    Comment: Several commenters recommended that CMS implement an 
administrative appeals process for reviewing attestation determinations 
made by CMS.
    Response: We understand the commenters' concerns, but do not 
believe this additional appeals process is necessary. As noted in 
section Sec.  422.311(c), in light of the changes we are making in this 
final rule to the proposed RADV appeal procedures that permit MA 
organizations to appeal medical record review determinations made at 
the RADV IVC review-level, MA organizations will be permitted to appeal 
medical record review-related determinations whose outcome was 
determined by the existence or absence of an attestation.
    Comment: Some commenters recommended that CMS allow attestations to 
be used as acceptable vehicles for introducing new HCCs to the Medicare 
Part C payment process. Several commenters suggested that MA 
organizations be allowed to submit a letter from a provider group or 
other responsible party, along with an attestation in instances where 
the diagnosing physician is no longer able to sign and date an 
attestation--for example, in instances in which the diagnosing 
physician has died, moved or is no longer working for the medical 
practice.
    Response: As stated previously in our response to earlier 
commenters' recommendations that we expand the applicability of 
attestations, we do not agree that attestations are acceptable vehicles 
for submitting new risk adjustment data and enrollee HCCs for payment 
to CMS. The data submission period for any given payment year opens 12 
to 18 months before the start of payment year, and closes 3 months 
after the actual payment year ends, providing in total, at least 27 
months for MA organizations to submit or correct enrollee HCC data for 
any given payment year. This provides ample time for MA organizations 
to voluntarily submit HCCs to CMS for Medicare payment.
    Furthermore, a fundamental tenet of RADV is validating the 
existence of diagnoses information in a medical record. Consistent with 
Medicare FFS, medical record documentation rather than other 
documentation, such as attestations, is required to validate 
information provided to us for the purpose of making Medicare payments. 
Therefore, we see no justifiable reason to abandon this principle by 
allowing the submission of unsubstantiated HCCs via attestations, and 
therefore, reject the commenters' recommendations.
    Under our RADV audit policy, to the extent we discover acceptable 
diagnoses codes contained in the one best medical record that plans 
submit for purposes of HCC validation that were not earlier submitted 
to CMS for payment via the Risk Adjustment Payment System (RAPS) system 
(what are known as ``additional HCCs'') --we credit these diagnoses 
codes to the submitting MA organization. Our reason for giving health 
plans credit for these additional diagnoses is precisely because they 
existed in beneficiaries' medical record(s)--and not in other types of 
documentation that would not be acceptable in any Medicare venue for 
justifying Medicare payment.
    Comment: Several commenters stated that the 12-week timeframe for 
submitting attestations was unreasonably short. These commenters 
recommended that CMS afford plans additional time to gather and submit 
attestations.
    Response: We do not agree. We proposed that the submission 
timeframe for attestations line-up with the deadline for submitting 
medical records in order to simplify the medical record and attestation 
submission process for plans. Under the proposed process the medical 
record and associated attestation are submitted together. We strongly 
believe that 3 months is sufficient time for MA organizations to obtain 
and submit to us the medical records and attestations necessary to 
validate audited HCCs. To provide additional time beyond the 12 weeks 
afforded to MA organizations to submit the requested medical records 
would split-up and unnecessarily complicate the medical record and 
attestation submission process. Since the attestation is intended to in 
effect--make the medical record ``whole'' by way of the signature and/
or credential attestation--we believe it is unreasonable to set up a 
submission system that separates the attestation from the submission of 
the medical record. Therefore, we are not accepting this recommendation 
and instead are finalizing the requirement that attestations be 
submitted to us by the medical record submission deadline.
    Comment: Several commenters recommended that CMS permit health plan 
officials to amend the CMS attestation form through hand-written 
annotations or to submit MA organization or provider-developed (that 
is, attestation forms that were not generated by CMS) attestation forms 
to CMS. A more limited number of commenters recommended that CMS allow 
physicians not involved in the diagnostic face-to-face encounter to 
attest to medical records in instances where the diagnosing physician 
is either dead or no longer at the medical practice or facility from 
which the medical record originated. These commenters reasoned that in 
extenuating circumstances such as the death of a provider or a provider 
having relocated, another provider within the medical practice could be 
permitted to sign the attestation on behalf of the treating provider. 
Under this scenario, the signing provider would annotate the CMS 
attestation form explaining the situation--for example, ``Due to the 
expiration of Dr. Smith on June 1, 20xx, I am signing this attestation 
on his behalf.''
    Response: We believe opening the door to allowing modifications to 
a CMS payment-related document raises serious program integrity-related 
concerns and could result in fraud to the Medicare program. The extent 
to which one provider can reliably and

[[Page 19751]]

validly attest to a medical record prepared by another provider is 
questionable. We consulted with other Medicare program components 
within CMS that are or will be utilizing attestations or similar-like 
documents (for example, certificates of medical necessity, attestations 
used in conjunction with Comprehensive Error Rate Testing (CERT)) that 
have some bearing on Medicare payment and confirmed that there are very 
limited circumstances under which we permit external modification to 
any payment-related documents. Given these program integrity-related 
concerns, we are rejecting these recommendations.
    We received a large number of comments regarding our proposed RADV 
documentation dispute procedures.
    Comment: A commenter noted that the proposed definition of 
``Documentation Dispute Process'' in Sec.  422.2 indicates that MA 
organizations can ``dispute medical record discrepancies that pertain 
to incorrect ICD-9-CM coding * * *'' and appeared to conflict with 
language in proposed Sec.  422.311(c)(2)(ii)(A) stating that medical 
record coding discrepancies are ineligible for the documentation 
dispute process. Another commenter contended that the term 
``operational processing'' as described in the regulation, was vague 
and needed to be further defined. One commenter recommended that CMS 
allow MA organizations 60 days to request documentation dispute instead 
of the proposed 30 days. Several commenters recommended that MA 
organizations be permitted to appeal documentation dispute review 
determinations.
    Many other commenters asserted that the proposed documentation 
dispute process was too limited in scope, and effectively amounted to 
nothing more than a mechanism for rectifying clerical errors that 
provided no meaningful way to contest the accuracy of the auditors' 
interpretation of the medical records submitted, or to supplement the 
record being audited.
    Response: As noted in Sec.  422.311(c) of this final rule, in light 
of the changes to the proposed RADV appeal procedures that we are 
making in this final rule that permit MA organizations to appeal 
medical record review determinations made at the RADV IVC review-level, 
we are withdrawing the proposed documentation dispute procedures 
described in the proposed rule. By way of this final rule, MA 
organizations that wish to dispute RADV medical record review 
determinations that arise out of operational processing of medical 
records selected for RADV audit (that is, determinations that arise 
from the collection and processing of medical records by CMS' RADV IVC) 
will now be permitted to do so via the medical record appeals process 
described in this final rule at Sec.  422.311(c).
    We received many comments from MA organizations and a managed care 
industry trade association regarding the proposed RADV appeals process 
at Sec.  422.311(c)(3).
    Comment: Many commenters stated that the proposed RADV appeals 
process was too narrow, and failed to allow for all relevant evidence 
to be considered as part of the appeal process. Of particular interest 
to many commenters was the fact that MA organizations were prohibited 
from appealing the substance of medical record coding determinations, 
as described in our proposed regulation at Sec.  422.411(c)(3). With 
regard to the RADV appeals process, these commenters specifically 
recommended that CMS:
     Expand the scope of issues that may be raised in the 
appeals process to include, at minimum, challenges to medical record 
coding decisions and challenges to methodology--audit methodology, 
sampling methodology, and error-calculation methodology.
     Permit MA organizations to appeal HCC findings from the 
medical record review process.
     Permit MA organizations to submit coding corrections along 
with the additional medical records necessary to validate audited HCCs 
that CMS determines are in error.
     Incorporate diagnoses identified in medical records, but 
not previously submitted nor assigned to a member (so called 
``additional'') in its RADV-related payment adjustment calculations.
    Response: At proposed Sec.  422.311(c)(3)(ii) we specified that MA 
organizations would not be permitted to appeal medical record review 
because medical record review-related issues would be resolved as a 
result of the medical record review process and the attestation and 
documentation dispute processes described earlier in the proposed 
regulation. However, based on the public comments we received, we have 
reconsidered this proposed restriction, and are for purposes of this 
final rule, changing our policy to now allow MA organizations to appeal 
medical record review that occurs at the IVC level.
    Therefore, under a new final Sec.  422.311(c)(2), we are 
implementing a process that would allow MA organizations to appeal 
medical record review that occurs at the IVC level of medical record 
review.
    In order to be eligible for RADV medical record review appeal, MA 
organizations must adhere to established RADV audit and RADV appeals 
requirements, including the submission of medical records and documents 
in the manner and by the deadlines specified by CMS. Failure to do so 
will render the MA organization ineligible for RADV medical record 
review appeal. At Sec.  422.311(c)(2)(i)(1) of this final rule, we 
specify that in order to be eligible for medical record review 
determination appeal, MA organizations must adhere to established RADV 
audit procedures and RADV appeals requirements. Failure to follow our 
rules regarding the RADV medical record review audit procedures and 
RADV appeals requirements may render the MA organization's request for 
appeal invalid.
    At Sec.  422.311(c)(2)(i)(2) of this final rule, we provide that 
the medical record review determination appeal process applies only to 
error determinations from review of the one best medical record 
submitted by the MA organization and audited by the RADV IVC.
    MA organizations must submit the original, IVC-audited medical 
record and any attestation reviewed by the IVC to CMS for consideration 
under the appeals process. MA organizations' request for appeal may 
include the attestation reviewed by the IVC in accordance with Sec.  
422.311(c)(1) but may not include any additional documentary evidence.
    At Sec.  422.311(c)(2)(ii), we specify that MA organizations may 
not appeal errors that resulted because MA organizations failed to 
adhere to established RADV audit procedures and RADV appeals 
requirements. This includes failure by the MA organization to meet the 
medical record submission deadline established by CMS. We also specify 
that any other documentation submitted to us beyond the one best 
medical record and attestation submitted to and audited by the IVC will 
not be reviewed by us under the medical record review determination 
appeal process. MA organizations' written requests for medical record 
review determination appeal must specify the audited HCC(s) that we 
identified as being in error and eligible for medical record review 
determination appeal, and that the MA organization wishes to appeal. A 
request for medical record review determination appeal must specify the 
issues with which the MA organization disagrees and the reasons for the 
request for appeal.
    We describe the manner and timing of a request for medical record 
appeal at

[[Page 19752]]

Sec.  422.311(c)(2)(iii). We will issue each audited MA organization an 
IVC-level RADV audit report that provides details on the results of the 
medical record review findings. This RADV audit report will clearly 
specify the HCC determinations that are eligible for appeal. MA 
organizations will have 30 calendar days from the date of the issuance 
of the RADV audit report to submit a written request for medical record 
review determination appeal. A request for RADV medical record review 
appeal must specify the HCCs that we have identified as being eligible 
for medical record review appeal and that the MA organization wishes to 
appeal. The request for appeal must also include the IVC-audited one 
best medical record and may include an attestation form in accordance 
with the rules at Sec.  422.311(c)(1), but may not include additional 
documentary evidence. Please note that MA organizations are not 
obligated to appeal HCCs that we have identified as being eligible for 
medical record review determination appeal.
    At Sec.  422.311(c)(2)(iv), we describe the process that we will 
undertake to conduct the medical record review appeal. We designate a 
Hearing Officer to conduct the medical record review determination 
appeal. The Hearing Officer need not be an ALJ. We also describe 
procedures for disqualifying a Hearing Officer in the event either 
party objects to the designation of a Hearing Officer. We provide 
written notice of the time and place of the hearing at least 30 
calendar days before the schedule date. The hearing is conducted by a 
CMS Hearing Officer who neither receives testimony nor accepts any new 
evidence that was not presented to the IVC. The CMS Hearing Officer is 
limited to the review of the record that was before the IVC.
    The CMS Hearing Officer reviews the IVC-audited one best medical 
record and any attestation submitted by MA organizations to determine 
whether it supports overturning medical record determination errors 
listed in the MA organization's IVC RADV audit report. As soon as 
practical after the hearing, the Hearing Officer issues a decision 
which provides written notice of the Hearing Officer's review of the 
appeal of medical record review determination(s) to the MA organization 
and to CMS. Pursuant to the Hearing Officer's decision, we recalculate 
the MA organization's RADV payment error and issue a new RADV audit 
report to the appellant MA organization.
    As described at Sec.  422.311(c)(2)(v), the decision of the CMS 
Hearing Officer regarding RADV medical record review appeal will be 
final and binding upon the MA organization unless the MA organization 
requests review by the CMS Administrator. At Sec.  422.311(c)(2)(vi), 
we indicate that the MA organization has 30 calendar days to request a 
review of the CMS Hearing Officer's determinations and that the CMS 
Administrator has discretionary authority whether to review the 
determination of the Hearing Officer. After receiving a request for 
review, the Administrator has the discretion to elect to review the 
Hearing Officer's decision or to decline to review the hearing 
decision. If the Administrator elects to review the hearing decision, 
the Administrator must review the CMS 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. 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 CMS Hearing Officer is final. It is important to note that 
notwithstanding our implementing procedures that permit MA 
organizations to appeal HCC determinations at the IVC level of medical 
record review that we have identified as being eligible for medical 
record review appeal and that the MA organization wishes to appeal, the 
ability of MA organizations to appeal these IVC-level medical record 
review determinations does not otherwise alter MA organizations' 
ability to appeal RADV payment error calculations described at Sec.  
422.311(c)(3). However, MA organizations cannot appeal RADV payment 
error calculations until all RADV medical record review-related appeals 
are finalized.
    Comment: Several commenters suggested that CMS afford MA 
organizations a reasonable amount of time after the medical record 
submission deadline to submit additional documentation that 
corroborates an already-submitted medical record.
    Response: We do not agree that the amount of time provided to MA 
organizations to submit medical records under existing RADV audit 
policy is unreasonable. We provide MA organizations 3 months to obtain 
and submit to CMS the medical records necessary to validate the HCCs 
that MA organizations voluntarily submitted to CMS for Medicare 
payment. Moreover, a policy that supports submitting corroborating 
evidence to accompany an already-submitted medical record violates CMS' 
one best medical record policy. Therefore we are not accepting the 
commenters' suggestion.
    Comment: Several commenters recommended that CMS afford MA 
organizations 60 days, rather than 30 days, to submit a written request 
for reconsideration of its RADV payment error calculation to provide 
sufficient time to prepare for the request.
    Response: We do not agree. We continue to believe that 30 calendar 
days is sufficient time for any MA organization considering appealing 
its RADV payment error calculation to prepare and submit such a 
request. We are therefore, rejecting this recommendation.
    Comment: Several commenters objected to the fact that all RADV-
related appeals tasks are conducted by either CMS employees or agents 
employed by CMS. The commenters suggest that to ensure impartiality and 
an independent review of plan appeals, the appeals process should allow 
for independent reviewers outside of CMS. Plans should be allowed to 
choose and pay for a third party review of the error-rate calculation 
under reconsideration--rather than use the CMS contractor.
    Response: As described in our proposed rule at Sec.  
422.311(c)(3)(v) and (vi), the CMS officials and/or contractors that 
will adjudicate individual appeal cases will be fully independent of 
the initial RADV error determinations. One important attribute in 
constructing an independent appeal structure for the RADV program is 
ensuring that the review officials or contractors called upon to 
perform these tasks have the necessary expertise to serve in the 
capacity of an independent appeal official. It would be altogether 
unreasonable for us to assume that plans would select appeal officials 
that meet our standards, not would we be able to validate this process 
in a timely manner. We cannot be put in the position of having to 
review the qualifications of plan-selected appeal officials and still 
be able to effectively administer the appeals process in a timely 
manner. As such, we are rejecting the suggestion that plans be allowed 
to choose and pay for their own independent review officials.
    Comment: A commenter stated that the CMS' RADV appeal rules should 
provide for a meaningful way to appeal payment determinations.
    Response: We believe that the commenter means that our ability to

[[Page 19753]]

adjust payments once RADV audit results are finalized should likewise 
be subject to appeal. We agree and for this reason, as explained in the 
proposed regulation, we are providing multiple avenues for MA 
organizations to appeal the RADV findings, including the ability to 
appeal mistakes in the contract specific payment error estimate as 
determined by our payment error estimate calculation methodology. These 
opportunities to appeal provide ample recourse to MA organizations to 
have RADV findings fairly readdressed. As part of this process, at 
Sec.  422.311(c)(3) (vi)(B) and (D), we specified that we would hire an 
independent RADV payment error appeals contractor to replicate and 
validate the payment determinations that result in our error-
calculation. Therefore, MA organizations that seek to appeal their 
error rate calculation can rest assured that the payment determinations 
that result in our error calculation are reviewed by an independent 
contractor.
    Comment: Several commenters noted that, although the proposed rule 
provides for the review of the RADV calculation by a neutral third 
party, the proposed rule did not specify the criteria that the 
independent third party will utilize in determining whether the error 
rate calculations are correct. These commenters recommend that CMS be 
required to accept the third-party's findings or that CMS otherwise 
ensure that the decision on the findings is not made by an official who 
has a role in the RADV payment error calculation that is under review.
    Response: The independent third party will utilize the same error-
calculation criteria that will be employed by us in calculating its 
initial error calculation. This methodology will be known to audited MA 
organizations. In the preamble to our proposed rule and as stated 
previously in this preamble, we state that we intended to ensure that 
all MA organizations understand the RADV payment error calculation 
methodology by providing notice to all MA organizations of the 
methodology that will be employed for calculating Part C payment 
errors. We anticipate publishing the RADV error calculation methodology 
in some type of CMS document--most likely some type of Medicare 
manual--and annually providing notice of any changes that will be made 
to this manual. In addition to providing an annual notice of RADV audit 
methodology, we indicated we would provide an expanded explanation of 
methodology as part of each RADV audit report that we send to MA 
organizations that undergo RADV audit.
    At proposed Sec.  422.311(c)(3)(v) and (vi), we specified that a 
CMS official or contractor not otherwise involved in error-rate 
calculation activity would review the written request for 
reconsideration, the RADV payment error calculation and any written 
evidence submitted by the MA organization that pertains to CMS' RADV 
payment error calculation. We are finalizing that proposal in this 
rule.
    Comment: A commenter believed that the level of detail proposed for 
the RADV appeals process was too specific. This commenter indicated 
that because MA organizations' and CMS' experience with data validation 
is relatively new, CMS should avoid putting a high level of detail into 
the regulation and should instead, maintain the flexibility necessary 
to do what makes sense in the context of the data validation.
    Response: We do not agree that our experience with data validation 
is relatively new, since we have been performing RADV audits for over 
10 years. The expertise and experience brought to the development of 
this function in that timeframe has enabled us to present a balanced 
level of detail with regard to the proposed regulation.
    While we certainly appreciate the commenters' concerns regarding 
the level of specificity proposed--and now finalized--in the 
regulation, we contend that this level of detail is necessary in order 
for the public to fully understand how the RADV appeals process will 
operate. We concur with the recommendation that we remain flexible as 
we take further steps to implement these rules.
    Comment: One commenter stated that the compliance date proposed by 
CMS is unduly restrictive. This commenter recommended that CMS consider 
additional evidence and testimony after the compliance date has passed.
    Response: We disagree. Based on our experience with appeals of MA 
and Medicare Part D program contract determinations, it is absolutely 
essential for us to establish a compliance date to use as a reference 
point in issuing a ruling regarding RADV audit findings. In proposed 
Sec.  422.311(b)(2), we specified that the compliance date be the date 
that MA organizations are required to submit medical records for the 
validation of risk adjustment data (Sec.  422.310(e)). By way of this 
final rule, we are extending the compliance date to include the date 
that MA organizations that choose to appeal IVC medical record review 
in accordance with Sec.  422.311(c)(2) must submit medical records for 
review by the date we determine for the appeal process.
    Without a specific date as a reference point for evaluating 
compliance, MA organizations could choose to assert that while they 
were unable to meet RADV audit requirements on the date we specified as 
the due date for medical record submission, they were later able to do 
so. Under this scenario, organizations would be free to assert the 
right to submit medical records in place of, or in addition to, records 
that were or were not, as the case may be, submitted to us by the RADV 
audit due date. The medical record review process could continue ad-
infinitum, preventing us from closing out RADV audits and collecting 
any identified overpayments. The notion of considering additional 
evidence and testimony after the compliance date has passed negates the 
intended purpose of establishing a compliance date in the first place, 
and is therefore rejected.
2. Payments to Medicare Advantage Organizations--Actuarial Valuation 
(Sec.  422.254)
    We proposed amendments to Sec.  422.254 to expressly require an 
actuarial certification for Part C bids. As we noted in the preamble to 
the proposed rule, operationally we require an actuarial certification 
to accompany every bid, for both Parts C and D. A qualified actuary who 
is a Member of the American Academy of Actuaries (MAAA) must complete 
the certification. The objective of obtaining an actuarial 
certification is to place greater responsibility on the actuary's 
professional judgment and to hold him/her accountable for the 
reasonableness of the assumptions and projections. This requirement is 
already set forth in the Part D regulations at Sec.  423.265(c)(3). We 
noted that our change in the Part C regulation text will bring the Part 
C regulation at Sec.  422.254(b)(5) in line with current operational 
requirements and Part D. We are adopting Sec.  422.254(b)(5) as 
proposed into this final rule.
    Comment: We received three comments supporting the addition of this 
operational requirement to regulatory text. We also received one 
comment asking us if this requirement would apply to 2011 Part C bids.
    Response: The 2011 Part C bids are due on June 7, 2010, the first 
Monday of June. Regardless of whether this regulation is final by that 
date, we will expect MA organizations to submit Part C bids in 
accordance with current operational guidance, which guidance is 
consistent with the regulatory language we are finalizing in this rule.

[[Page 19754]]

3. Determination of Acceptable Administrative Costs by HMO/CMP Cost 
Contractors and Health Care Prepayment Plans (HCPPs) (Sec.  417.564)
    We proposed revising the regulations governing payments to health 
care prepayment plans (HCPPs) authorized under section 1833(a)(1)(A) of 
the Act and cost HMOs/CMPs authorized under section 1876 of the Act to 
clarify how we believe the reasonable cost principles in section 
1861(v) should apply to HCPPs and HMOs/CMPs by specifying the 
methodologies that must be used in determining the different allowable 
administrative costs for both such entities.
    Specifically, we proposed revising Sec.  417.564(b)(2) to clarify 
how HCPP and cost contractors authorized under section 1876 of the Act 
must determine ``reasonable'' administrative costs. At Sec.  
417.564(b)(2)(iii), we proposed that personnel costs claimed for 
administrative costs in both HCPP and cost contracts authorized under 
section 1876 of the Act must be linked to the specific administrative 
function performed by persons, at a specific rate of pay, for a 
specified period of time. We also clarified in the proposed rule that 
this level of information must be available to us upon request or in 
the course of a review. Additionally, we proposed revising Sec.  
417.564 by adding a new paragraph (c) that specifies that, in order for 
costs to be considered ``reasonable costs'' within the meaning of 
section 1861(v) of the Act, which expressly excludes ``incurred cost 
found to be unnecessary in the efficient delivery of needed health 
services,'' the following costs must be excluded when computing 
reimbursable administrative costs:
     Donations.
     Fines and penalties.
     Political and lobbying activities.
     Charity and courtesy allowances.
     Spousal education.
     Entertainment.
     Return on equity.

In the proposed rule we specifically asked for comments on our 
clarification of reimbursable administrative costs. As indicated below, 
after considering the comments we received, we are adopting our 
proposed Sec.  417.564(b)(2)(iii) and Sec.  417.564(c) without further 
modification in this final rule.
    Comment: We received two comments that supported the list of costs 
that we proposed must be excluded by HCPPs and HMO/CMP cost contractors 
when computing reimbursable administrative costs. The commenters agreed 
that these costs should not be included in cost reports and that the 
new provision codifies what they understood to be CMS' existing policy 
regarding the exclusion of these costs.
    Response: We agree with the commenters supporting our proposal to 
exclude the costs described in Sec.  417.564(c) when reimbursable 
administrative costs are computed by HCPPs and HMO/CMP cost 
contractors. Accordingly, we are adopting Sec.  417.564(c) without 
further modification in this final rule.
    Comment: Two commenters agreed with our proposals to clarify how 
HCPPs and HMO/CMP cost contractors must determine reasonable 
administrative costs, and the requirement that this information be 
available to CMS upon request. However, these commenters wanted CMS to 
consider the following recommendations with respect to the proposed 
requirements--(1) providing guidance that would further clarify CMS' 
expectations about how cost contractors will document this information, 
including examples of how time should be tracked and how to evaluate 
the match between skill level and tasks performed; (2) ensuring that 
the documentation requirements will be reasonable and structured in a 
manner that is not unduly burdensome to cost contractors; (3) providing 
cost contractors an opportunity to comment on this guidance before it 
is finalized to ensure that operational issues can be fully considered; 
and (4) applying the requirements to cost years following the year in 
which the regulation is effective.
    One of the commenters also recommended that CMS consider modifying 
this proposal to clarify the meaning of the term ``task,'' and limit 
the tracking of time for the performance of separate tasks performed by 
a single individual to circumstances when it is necessary to achieve 
the objectives of the rule (for example, when the tasks, consistent 
with CMS rules and policy, have different apportionment statistics). 
The commenter also suggested that CMS clarify in the final rule that 
when personnel perform some administrative functions that are included 
in the administrative and general specified cost areas while performing 
some administrative functions that are viewed as plan administration, 
only the time spent on the administrative and general functions should 
be tracked and documented.
    Response: We believe that it is important for HCPPs and HMO/CMP 
cost contractors to have the flexibility to establish their own 
methodology for determining reasonable administrative costs in order to 
meet the requirement described in Sec.  417.564(b)(2)(iii); therefore, 
we are not providing the specific guidance that was requested by these 
commenters at this time. We intend to provide further sub-regulatory 
guidance to HCPPs and HMO/CMP cost contractors on issues that would 
generally impact all HCPPs and cost contractors. We will also provide 
assistance to individual HCPPs and cost contractors on a case-by-case 
basis.
4. Calculation of the Minimum Percentage Increase Under Part C (Sec.  
422.306)
    In the October 22, 2009, proposed rule, we proposed to revise Sec.  
422.306 to eliminate the 2 percent minimum update for all rate 
calculations other than ESRD. As we noted in the preamble to the 
proposed rule, section 5301 of the DRA added section 1853(k) of the Act 
to create a single rate book for calculating MA payments and applicable 
adjustments. Section 5301 of DRA also modified the methodology for 
updating the MA payment rates by adding section 1853(k)(1)(B) of the 
Act. Beginning in 2007, the statute requires, for purposes of 
calculating the minimum percentage increase rate, that the previous 
year's benchmarks be updated annually using only the national per 
capita MA growth percentage for the year--as described in section 
1853(c)(6) of the Act. Prior to 2007 the minimum percentage increase 
rate was the greater of 102 percent of the MA capitation rate for the 
preceding year, or the MA capitation rate for the preceding year 
increased by the national per capita MA growth percentage for the year.
    We noted that since the statute, as revised by the DRA, no longer 
provides for the 2 percent minimum update, we can no longer apply it to 
the MA rates. The 2 percent minimum update still applies to the end 
stage renal disease MA update because the statute at section 
1853(a)(1)(H) of the Act provides that ESRD rates are to be calculated 
in a manner consistent with the way those rates were calculated ``under 
the provisions of [section 1853 of the Act] as in effect before the 
date of enactment of the MMA.'' The pre-2003 version of section 1853 of 
the Act included the 2 percent minimum update. Therefore, we proposed 
to revise Sec.  422.306 to eliminate the 2 percent minimum update for 
all rate calculations other than ESRD. We are adopting Sec.  422.306(a) 
as proposed into this final rule.
    Comment: A few commenters supported CMS's proposed requirement. A 
commenter believed CMS' interpretation of section 1853(k) of the Act 
was incorrect and suggested that

[[Page 19755]]

CMS retain the 2 percent minimum update requirement and recalculate 
(and pay) any retroactive payment from prior years (where the 2 percent 
minimum update would have caused payments to be higher than they would 
have been in its absence). The commenter contended that section 
1853(k)(1)(B) of the Act only removes the minimum percentage increase 
for years prior to 2004.
    Response: We disagree with the commenter. Section 1853(k)(1)(B) of 
the Act is clear in saying that it applies to years subsequent to 2007, 
in other words, to payment years beginning with calendar year 2008. 
Section 1853(k)(1)(B)(i) of the Act applies to all payment years other 
than years in which rebasing is done in accordance with section 
1853(c)(1)(D)(ii) of the Act. In rebasing years, the calculation of MA 
payment rates is determined by section 1853(k)(1)(B)(ii) of the Act 
where the amount payable is the greater of: Either the amount 
calculated under section 1853(k)(1)(B)(i) of the Act, the MA payment 
amount for the previous year increased by the national per capita MA 
growth percentage; or the amount calculated under section 1853(c)(1)(D) 
of the Act, which is 100 percent of fee-for-service costs. Further, in 
section 1853(k)(1)(B)(i) of the Act, we are also required to ignore any 
adjustment under section 1853(c)(6)(C) of the Act for any year before 
2004 when calculating the national per capita MA growth percentage. 
This adjustment, called the ``adjustment for over or under projection 
of national per capita MA growth percentage,'' also did not include 
such an adjustment for years before 2004 when the minimum percentage 
increase was calculated per section 1853(c)(1)(C)(v) of the Act for 
years between 2004 and 2006. Finally, the calculation of MA payment 
increases based on the national per capita MA growth percentage 
beginning with payment year 2007 were never less than 2 percent. 
However we note that even if it were, there would be no additional 
payment due MA organizations on this basis because the 2 percent 
minimum increase was eliminated beginning with 2007.

E. Changes To Improve Data Collection for Oversight and Quality 
Assessment

    This section discusses and finalizes four proposals in our October 
22, 2009 proposed rule intended to improve Part C and D data collection 
and use for oversight and quality assessment. The first proposal would 
address quality improvement programs and data on quality and outcomes 
measures under Part C. As part of this proposal, we proposed to address 
data collected by Quality Improvement Organizations for MA quality 
improvement and performance assessment purposes.
    The second and third proposals would address payment for 
beneficiary surveys and independent yearly audits of Part C and Part D 
measures (collected pursuant to our reporting requirements) to 
determine their reliability, validity, completeness, and comparability 
in accordance with specifications developed by us. The last proposal 
would amend our rules on the collection and use of prescription drug 
event data for nonpayment-related purposes.

                                          Table 5--Improve Data Collection for Oversight and Quality Assessment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Part 422                                        Part 423
                Provision                ------------------------------------------------------------------------------------------------    Part 480
                                                    Subpart                 Section                 Subpart                 Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Requirements for Quality Improvement      Subpart D..................     Sec.   422.152  N/A........................                N/A  Sec.   480.140
 Programs under Part C.                                                   Sec.   422.153
Require that Sponsors pay for the         Subpart D..................               Sec.  Subpart D..................     Sec.   423.156             N/A
 Consumer Assessment Health Plan Survey                                    422.152(b)(5)
 (CAHPS).
Require validation of reporting           Subpart D..................     Sec.   422.516  Subpart D..................     Sec.   423.514             N/A
 requirements.                                                            Sec.   423.514
Allow collection of all PDE data          N/A........................                N/A  Subpart D..................     Sec.   423.505             N/A
 elements to be collected for non-
 payment purposes.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Requirements for Quality Improvement Programs Under Part C (Sec.  
422.152, Sec.  422.153, and Sec.  480.140)
    In our October 22, 2009 proposed rule, under the authority in 
sections 1851(d)(4)(D), 1852(e)(1) and 1852(e)(3)(A) of the Act, we 
proposed several new requirements related to quality improvement 
programs and data on quality and outcomes measures under Part C.
    Section 1851(d)(4)(D) of the Act requires us to make available to 
MA eligible individuals information comparing MA plan options, 
including information on plan quality and performance indicators to the 
extent this information is available. Separately, section 1852(e)(1) of 
the Act requires that each MA organization have an ongoing quality 
improvement program for the purpose of improving the quality of care 
provided to enrollees in each MA plan offered by the MA organization. 
Section 1852(e)(3)(A) of the Act requires that, as part of this quality 
improvement program, MA organizations collect, analyze, and report data 
that permits the measurement of health outcomes and other indices of 
quality as part of their quality improvement program for their 
coordinated care plans. To the extent that local PPO, regional PPO, 
PFFS, and MSA plans have a network of contracted providers, these plan 
types must meet the same quality improvement requirements as other 
coordinated care plans. Section 1852(e)(3)(B)(i) of the Act generally 
limits the collection of data on quality, outcomes, and beneficiary 
satisfaction under section 1852(e)(3)(A) to facilitate consumer choice 
and program administration to ``the types of data'' that were collected 
as of November 1, 2003.
a. Quality Improvement Programs
    In our October 22, 2009 proposed rule, we noted that under our 
current regulations at Sec.  422.152(c) and Sec.  422.152(d), MA 
organizations have flexibility to develop criteria for chronic care 
improvement programs (CCIPs) and initiate any quality improvement 
projects that focus on clinical and non-clinical areas based on the 
needs of their enrolled population. However, based on our experience 
with MA organizations employing inconsistent methods in developing 
criteria for their CCIPs and quality improvement projects, we expressed 
concerns in the proposed rule that giving MA organizations complete 
discretion to establish their own CCIPs and quality improvement 
projects does

[[Page 19756]]

not allow beneficiaries to effectively compare plans and organizations 
to manage and report projects. More importantly, we expressed concerns 
that these projects are not addressing quality improvement areas that 
we believe best reflects beneficiary needs. For example, some projects 
may be designed to improve processes only, without linking the 
processes to clinical outcomes. We are interested in MA organizations 
focusing on individual as well as population-specific health risk 
needs, such as MA organizations' use of internal data sources to 
identify clinical outcomes that not only fail to meet national 
averages, but also may jeopardize the overall health and quality of 
life of the beneficiary.
    As a result of our concerns, we proposed to revise Sec.  
422.152(a)(1) and Sec.  422.152(a)(2) to require that MA organizations 
conduct CCIPs in patient populations, and conduct their required 
quality improvement projects, in areas identified by CMS based on our 
review of data collected from MA organizations. Specifically, we 
proposed to determine what areas would most benefit from quality 
improvement, and to provide guidance on specific quality improvement 
projects for MA organizations to implement, either based on those 
organizations' specific quality improvement needs, or quality 
improvement needs for MA plans generally. We also proposed suggesting 
methods and processes by which to manage a quality improvement project 
as appropriate.
    We proposed in the preamble to our October 22, 2009 proposed rule 
to annually inform MA organizations individually and/or generally which 
patient populations and areas we have determined would benefit most 
from a CCIP and quality improvement project, respectively. We would 
convey generally applicable information via the Medicare Managed Care 
Manual and the Health Plan Management System (HPMS), and convey 
information that is plan specific directly to the organizations 
offering the MA plans in question. We are adopting Sec.  422.152(a)(1) 
and Sec.  422.152(a)(2) without further modification in this final rule 
and are clarifying, in our responses to comments below, that MA 
organizations will continue to have the flexibility to develop criteria 
for CCIPs and quality improvement projects based on the needs of their 
enrolled population.
    Comment: We received many comments that supported our proposals to 
require that MA organizations conduct CCIPs in patient populations, and 
quality improvement projects in areas, identified by CMS. Some of these 
commenters wanted CMS to consider additional recommendations with 
respect to our proposed requirements, including: (1) Providing an 
opportunity for public comments as CMS develops priority areas for MA 
organizations and on the process that CMS will use to identify specific 
areas for quality improvement with respect to particular MA 
organizations; and (2) establishing a fixed time period after CMS 
establishes its CCIP goals during which CMS could not establish new 
CCIP goals.
    Response: As we develop our requirements, we will offer 
opportunities for the industry and other interested parties to offer 
recommendations. While our goal is to keep any such requirements 
stable, we note that it may be important for us to modify our 
requirements in keeping with our goal of ensuring that CCIPs and 
quality improvement projects address those quality improvement areas we 
believe reflect beneficiary needs.
    Comment: Many commenters opposed our proposals to require that MA 
organizations conduct CCIPs in patient populations, and quality 
improvement projects in areas, identified by CMS. Some of the concerns 
commenters raised were: (1) CMS' requirements may not be aligned with 
MA organizations' identified priorities for benefiting their enrollees; 
(2) systemic inequities would develop among competing MA plans that 
would undermine the competitive structure of the MA program; and (3) 
organizations would lose the flexibility to pursue projects of special 
clinical and operational value to their enrollees.
    Response: We agree that CCIPs and quality improvement projects 
should be based on the needs of the plan's enrolled population, and in 
line with the organizations' identified priorities for benefiting their 
enrollees. We will continue to provide MA organizations generally with 
the flexibility to identify topics for the development of CCIPs and 
quality improvement projects based on the particular needs of their 
members. However, we are finalizing the revisions to Sec.  
422.152(a)(1) and Sec.  422.152(a)(2) to require that, under certain 
circumstances, some MA organizations conduct CCIPs in patient 
populations and quality improvement projects in areas identified by CMS 
based on our review of data collected from MA organizations and the 
populations served by the plans.
    To date, we have communicated with MA organizations about specific 
operational areas and member populations for which we believe, based on 
data collected through HEDIS, audit findings, member complaints, and 
other survey data, there is a need for CCIP or quality improvement 
projects development due to performance and/or clinical outcomes. We 
have offered MA organizations identified through this targeted 
methodology assistance during our initial communication regarding the 
need for CCIP or quality improvement project development. Technical 
assistance for the development of CCIPs and quality improvement 
projects is also available to all MA organizations on an as needed 
basis.
    Using the HPMS, the Medicare Managed Care Manual, and other means 
of communication that we determine to be appropriate, we will annually 
inform MA organizations individually and/or generally of the process by 
which CCIPs and quality improvement projects must be conducted, which 
tools to use to report activities, and the time frame for submitting 
data and reports. We will also use these communication methods to 
identify the patient populations and areas we have determined would 
benefit most from CCIPs and quality improvement projects. However, as 
noted previously, this does not preclude MA organizations from 
developing CCIPs and quality improvement projects that they 
independently determine to be needed for their population.
    Comment: Many commenters suggested alternatives for CMS to consider 
to its proposed requirements for CCIPs and quality improvement 
projects. These recommendations generally fell into three groups--(1) 
CMS should not adopt the proposed policies and should allow MA 
organizations to develop their own CCIPs and quality improvement 
projects; (2) CMS should provide general guidance to MA plans on CCIPs 
and quality improvement projects and develop a process for approving a 
plan's CCIPs and quality improvement projects prior to the plan 
implementing them; and (3) CMS should consult industry before making 
changes to CCIP and quality improvement project requirements.
    Some commenters specifically recommended that CMS impose CCIP or 
quality improvement project obligations on all MA organizations 
operating within a given geographic area rather than on an MA plan-
specific basis and that CMS provide a list of programs and projects for 
MA plans to choose from and allow plans to select the programs, 
projects, and populations to which they should apply in order to 
maximize the benefit to beneficiaries. One commenter suggested that, to 
address CMS' concern that some plans focus on process, rather than 
outcomes, CMS focus on those plans, and work with them to identify

[[Page 19757]]

more appropriate programs and projects. Another commenter believed that 
CMS could provide more generalized guidance on the types of measures 
that are acceptable (for example, the commenter suggested that CMS 
consider requiring that CCIPs and quality improvement projects link 
processes to clinical outcomes). Several commenters suggested that CMS 
consult with experts in the industry to before imposing specific CCIP 
and quality improvement project requirements on MA plans. One commenter 
recommended that CMS hold MA organizations accountable for choosing a 
CCIP based on their own population and data, and prior approve quality 
improvement project topics and methodologies based on specific quality 
improvement needs identified by MA organizations. This commenter 
further indicated that a prior approval process would allow CMS to 
assist MA organizations in focusing on quality improvement areas that 
reflect beneficiary needs and include sound methodologies that address 
clinical as well as process outcomes.
    Response: As discussed previously, MA organizations will continue 
to have the flexibility to choose CCIP and quality improvement project 
topics that meet the needs of their population and operational 
processes, and we will offer opportunities for the industry to offer 
recommendations for fine-tuning our CCIP and quality improvement 
project requirements. We will take into consideration the specific 
recommendations offered by commenters as we develop future guidance 
related to CCIPs and quality improvement projects.
    Comment: Several commenters were concerned that the proposed 
requirements could impinge on the efforts of MA organizations to 
satisfy accreditation standards for National Committee for Quality 
Assurance (NCQA) or other accrediting bodies.
    Response: MA organizations that participate in the quality 
improvement deeming program will be subject to the standards of their 
accreditation organization. We will continue to ensure that standards 
applied by deeming organizations are at least as stringent as those 
applied by us.
    Comment: Several commenters were concerned about special needs 
plans (SNPs) meeting the proposed requirements. Commenters recommended 
allowing MA organizations to customize overall quality improvement 
programs for their specialized populations in chronic care special 
needs plans (C-SNPs), deeming all the individual model of care and 
quality improvement initiatives required of C-SNPs to fulfill this 
requirement, and allowing dual-eligible SNPs (D-SNPs) to implement 
specific projects for the dual-eligible population. Several commenters 
were concerned that the CCIP and quality improvement project models 
that CMS develops may not be appropriate for special needs plans (SNPs) 
and that some SNPs will face significant challenges meeting State as 
well as MA requirements in the event that CMS requirements for specific 
quality improvement topics that differ from State requirements.
    Response: As discussed previously, MA organizations will continue 
to have the flexibility to choose CCIP and quality improvement project 
topics that meet the needs of their population and operational 
processes. When MA organizations are required to conduct CCIPs in 
patient populations and quality improvement projects in areas that we 
identify which are appropriate for SNPs, SNPs will follow the same 
quality improvement project and CCIP processes identified for other 
types of MA plans. We will not expect SNPs to employ quality 
improvement project or CCIP programs that are not appropriate for their 
population. We note that CMS may use data collected from SNPs to 
determine if there are population-specific topics that require targeted 
monitoring in the future.
    Comment: A few commenters were concerned about the challenges MA 
organizations would face in allocating additional resources to meet the 
proposed requirements as well as the potential for increased 
administrative costs.
    Response: With respect to commenters' concerns about the additional 
cost of implementing these requirements, we do not believe that MA 
organizations will experience significant additional financial burdens 
as a result of these requirements.
b. New Quality Measures
    In our October 22, 2009 proposed rule, we stated that as we 
strengthen our oversight of quality improvement programs implemented by 
MA organizations, we believe it is necessary to collect additional data 
on quality and outcomes measures in order to better track plan 
performance. We currently collect from MA organizations data on 
quality, outcomes, and beneficiary satisfaction under the Healthcare 
Effectiveness Data and Information Set (HEDIS[supreg]), the Health 
Outcome Survey (HOS), and the Consumer Assessment Health Providers 
Survey (CAHPS). We stated in the proposed rule that we anticipated 
additional collection and reporting of the same types of data on health 
outcomes and quality measures that we currently collect as part of 
these processes.
    We also noted that we believed the collection of these data to be 
consistent with our authority under section 1852(e)(3)(A) of the Act, 
and that we do not believe that the limitation described under section 
1852(e)(3)(B) of the Act limits this proposed additional data 
collection because the data collected would be of the same ``type'' of 
data that we currently collect as part of the HEDIS[supreg], HOS, and 
CAHPS[supreg] processes. In the preamble to the proposed rule, we noted 
post-surgical infections or patient falls as examples of additional 
areas on which we planned to collect data. Therefore, we proposed to 
modify Sec.  422.152(b)(3) and Sec.  422.152(e)(2) to require MA plans 
to collect, analyze, and report quality performance data identified by 
CMS that are of the same type of data that plans are currently required 
to collect and report to CMS. We also proposed that, consistent with 
the Paperwork Reduction Act (PRA), we would provide the public at least 
two opportunities for public comment before imposing additional 
quality-related collection and reporting requirements.
    We are finalizing our proposal to require MA plans to collect, 
analyze, and report quality performance data identified by CMS as 
described in the proposed rule and adopting Sec.  422.152(b)(3) and 
Sec.  422.152(e)(2) without further modification in this final rule.
    Comment: A number of commenters supported CMS' proposal to require 
MA plans to collect, analyze, and report quality performance data 
identified by CMS that are of the same type of data that plans are 
currently required to collect and report to CMS. Commenters also 
supported CMS' proposal to provide the public at least two 
opportunities for public comment before imposing additional quality-
related collection and reporting requirements, consistent with the PRA.
    Response: We agree with the commenters supporting our proposal to 
require MA plans to collect, analyze, and report quality performance 
data of the same type of data that plans are currently required to 
collect and report, that we identify. Accordingly, we have finalized 
our proposed Sec.  422.152(b)(3) and Sec.  422.152(e)(2) in this final 
rule.
    Comment: A few commenters did not support our proposal to require 
MA plans to collect data on additional quality performance measures. 
Commenters were concerned about the administrative burden and costs 
associated with additional data collection and recommended that CMS

[[Page 19758]]

use existing quality measures rather than require new measures. One 
commenter questioned whether additional quality measures beyond the 
HEDIS, HOS, and CAHPS would be useful since these measures are accepted 
industry standards. One commenter questioned CMS' efforts to use 
quality measures to ``score'' plans, indicating that plans with lower 
enrollment and more direct control over patient care, for example a 
closed model HMO, could achieve better measures through more intensive 
interventions.
    Response: As the MA program has evolved, attracting an increased 
number of beneficiaries that present with specialized health concerns, 
it has become increasingly important for us to focus on developing 
measures that meet the MA population's needs. We believe that 
collection of additional data on quality outcomes measures is necessary 
to better track plan performance in this area. As noted previously, we 
disagree with commenters that MA plans will experience significant 
additional financial burden as a result of these requirements.
    Comment: Commenters provided suggestions on how to identify the 
measures for which additional collection of quality performance data 
will be required. Several commenters recommended that we use existing 
nationally endorsed, clearly specified measures for any new reporting 
requirements we place on MA organizations, and that the measures be 
those of national standard setting organizations. One commenter 
indicated that it would like to work with CMS to see if any of the new 
measures should be incorporated into HEDIS. Two commenters requested 
that the new quality measures be measurable through administrative data 
instead of chart reviews. One commenter supported the examples we 
provided of new quality reporting requirements we indicated in our 
proposed rule, specifically, post-surgical infections or patient falls 
and recommended that the reporting be expanded to all health care 
acquired conditions (the Medicare ``never events'') and all infections. 
Another commenter indicated that additional broad based measures, such 
as readmission rates, also could provide critical insights on 
performance. Additionally, one commenter suggested that CMS consult 
with the Medicare Payment Advisory Commission, which recently finalized 
recommendations related to quality in the MA program and the measures 
that could be adopted to compare MA plans to one another as well as to 
Original Medicare. Some commenters suggested that CMS involve the 
industry in the development of the new measures for which additional 
collection of quality performance data will be required.
    Response: We will identify measures and standards using internal 
CMS methods as well as nationally recognized methodologies. These 
measures and standards will be based on the information that is 
currently collected, as well as any additional data we find to be 
necessary to collect for this purpose. We have begun a year-long 
project to research and analyze population specific health outcomes and 
plan operations data. As an important part of this project, industry 
leaders, researchers, and individuals with expert knowledge of the 
Medicare population will be involved in the discussions as we identify 
appropriate quality measures and standards for the MA program. We plan 
to use this information to further develop and analyze the 
effectiveness of the current and future measures associated with health 
outcomes, operational procedures and processes, and member experience. 
As indicated in the proposed rule, we will provide the public at least 
two opportunities for public comment through the PRA process before 
imposing additional quality-related collection and reporting 
requirements.
    Comment: One commenter encouraged us to explore ways to release 
timely, plan-specific data to third parties to allow them to experiment 
with different ways to analyze claims data, and underlying plan 
performance data, to assist consumers with the identification, 
selection, and use of their MA plans or PDPs based on plan performance 
or quality attributes.
    Response: We do not collect claims data from MA and Part D plans. 
However, we do collect Part D prescription drug event (PDE) data, which 
is based on claims data submitted by pharmacies to Part D sponsors. 
These data are available for research purposes, consistent with Sec.  
423.505. We are working to provide additional public use files based on 
PDE data in the future. More information on PDE data for research 
purposes may be found at http://www.resdac.umn.edu/Available_CMS_Data.asp. For the quality and performance data for Part C and Part D 
plans, we release a database with all of the contract-level individual 
measures that make up the Part C and Part D plan ratings. These data 
are available on the CMS Web site at http://www.cms.hhs.gov/PrescriptionDrugCovGenIn/06_PerformanceData.asp.
c. Use of Quality Improvement Organization Review Information
    In our October 2009 proposed rule, we asserted that data collected 
by Quality Improvement Organizations (QIOs) to accomplish their mission 
represent an important data resource for CMS in our efforts to improve 
quality under the MA program. QIOs collect survey, administrative, and 
medical records data in order to monitor and assess provider 
performance. These data are frequently required by scope of work 
contracts administered by CMS to assess whether or not QIOs are meeting 
performance goals.
    We discussed several proposed uses of the data collected by the 
QIOs. For example, certain QIO data could be used to develop a 
standardized core set of clinical and non-clinical quality and 
performance measures that could be applied to all MA plans in order to 
allow beneficiaries to make better comparisons across all MA plan types 
and make an informed decision when selecting a plan. These measures 
could also be used to rate plans according to their performance.
    We also outlined our plan to develop minimum performance levels and 
requirements that address clinical and nonclinical areas from the data 
collected by QIOs, as part of our efforts to provide meaningful 
information to beneficiaries when selecting an MA plan. In addition to 
tracking plan performance, these data could also be used to monitor 
plan compliance with MA contract requirements and support compliance or 
enforcement actions against plans that are poor performers on certain 
quality and performance measures. These data would also be appropriate 
for use in a competitive value-based purchasing program based on 
quality of care.
    Finally, we explained our intent to use one particular type of 
information already collected by QIOs, that is, quality review study 
(QRS) information (defined in 42 CFR 480.101(b)) and retool the data 
elements to make them specific to beneficiaries enrolled in MA plans. A 
QRS is ``an assessment, conducted by or for a QIO, of a patient care 
problem for the purpose of improving patient care through peer 
analysis, intervention, resolution of the problem and follow-up.'' By 
QRS information, we mean all documentation related to the QRS process. 
We proposed to obtain from the QIO only the data that relate to MA plan 
beneficiaries, providers, practitioners, and services and to then 
aggregate the data applicable to each MA plan based on beneficiary 
enrollment.

[[Page 19759]]

    Accordingly, we proposed adding a new Sec.  422.153 to indicate 
that we would obtain and use quality review study information that is 
generated, collected, or acquired by QIOs under 42 CFR part 480. We 
stated our intent to use these data for the following functions:
     Enabling beneficiaries to compare health coverage options 
and select among them, measuring performance under the plan.
     Ensuring compliance with plan requirements under Part 422.
     Other purposes related specifically to MA plans, as 
specified by CMS.
    We also clarified that we did not plan to disclose any beneficiary 
identifiable information.
    In addition, we proposed amending Sec.  480.140 to add a new 
paragraph (g), authorizing our use of quality review study information 
solely for the purposes specified in Sec.  422.153. As described below, 
we are modifying Sec.  422.153 and Sec.  480.140(g) in this final rule.
    Comment: A number of commenters were concerned about the use of 
data collected from QIOs to measure plan performance and recommended 
that CMS reconsider its proposal. One commenter recommended that CMS 
discuss current MA experience with QIO studies and the potential future 
uses of QRS information with plans. Some of the concerns cited by 
commenters are that--
     There may be inconsistencies among QIOs on their 
assessments and findings, which may disadvantage some plans. Individual 
QIOs may offer consistent and reliable data sources, but aggregating 
data from multiple State-specific entities may dilute the consistency 
and reliability that would be required to accomplish CMS' proposed 
uses;
     Some MA organizations have experienced delays in the 
receipt of QIO study findings; therefore, the organizations do not have 
timely notice of any deficiencies and are not able to use the findings 
in their quality improvement activities. The delay in dissemination of 
findings may not be sufficiently timely for CMS' intended purpose;
     Depending on the QIO, there is often a substantial lag in 
the availability of QIO data. Current MA performance assessment should 
not be assessed based on data that are 2 or 3 years old; and
     There may be additional burden placed on deemed plans that 
do not submit to the QIOs so that the data could be all inclusive from 
the QIOs.
    Commenters recommended that CMS clarify whether plans that are 
already deemed by NCQA would also be required to send additional 
information to their QIO to comply with the proposed regulation. One 
commenter indicated that the use of QIO review information would be 
administratively burdensome and duplicative of current reporting 
measures such as HEDIS.
    Response: We share the concerns raised by commenters about the 
inconsistency and timeliness of the data collected by QIOs. These 
concerns relate to QIO review of beneficiary quality of care concerns, 
medical necessity reviews, appeals, and other case reviews.
    After reviewing these comments, we have discovered that the data 
that will be needed to meet the functions described in Sec.  422.153 is 
not collected from QIO case reviews. Instead, hospitals report this 
information to us as part of the Reporting Hospital Quality Data for 
Annual Payment Update (RHQDAPU) program, which is authorized under 
section 1886(b)(3)(B)(viii) of the Act. Much of this data is self-
reported by hospitals on a quarterly basis, and some is validated for 
accuracy. Further, the data does not possess any of the timeliness and 
reliability issues cited by the commenters. Hospitals self-report 
patient-level quality measure data for patients covered by MA plans, 
Original Medicare, and other payors to CMS for the RHQDAPU program.
    In response to the comments we received, we are narrowing the scope 
of our proposed Sec.  480.140(g) to provide that QIOs must disclose to 
us QRS information collected as part of the RHQDAPU program following 
hospital review of the data (with identifiers of MA plan beneficiaries, 
hospitals, practitioners, and services) when we request this 
information for the sole purpose of conducting activities related to MA 
organizations as described in Sec.  422.153. We believe that 
restricting our access to include only RHQDAPU hospital quality data 
that we may use for the functions described in Sec.  422.153 will 
address the concerns about the timeliness and reliability of this data. 
We are also modifying Sec.  422.153 to indicate that we will acquire 
RHQDAPU data from QIOs and may use it for the limited functions 
described in Sec.  422.153. As proposed, we do not plan to disclose any 
beneficiary identifiable information. We also do not plan to disclose 
any provider or practitioner identifiable information.
    Comment: Many comments supported our proposal to obtain and use QRS 
information that is generated, collected, or acquired by QIOs. 
Commenters also supported CMS's proposal to use these data to enable 
beneficiaries to compare health coverage options and select among them, 
measure performance under the plan, and ensure compliance with plan 
requirements under Part 422, and other purposes related specifically to 
MA plans as specified by CMS. Commenters agreed that CMS should not 
plan to disclose any beneficiary identifiable information.
    Some of these commenters asked CMS to consider additional 
recommendations with respect to our proposals. Some of the 
recommendations were that CMS should ensure that an adequate sample of 
QIO data for dual eligibles is reviewed; allow plans to review the 
information the QIO intends to submit to CMS in order to give plans the 
opportunity to correct errors; ensure appropriate procedures are 
available for plans that may dispute the data that CMS intends to make 
available to beneficiaries before those data are released; provide 
ample notice to plans of the specific data that CMS intends to collect 
to allow for programming and testing of data collection tools prior to 
submission to CMS; and make Original Medicare data available to 
beneficiaries, where available, along with MA plan data.
    One commenter indicated that CMS should develop a methodology to 
stratify the data so that MA organizations would be grouped by local or 
regional MA organizations, and defined by statewide or selected 
geographic areas such as number of counties within a State, benefit 
design, and plan type. This commenter also indicated that data provided 
to beneficiaries would be misleading if CMS compared all MA 
organizations in a State without classifying these organizations by 
type and service area.
    Response: As we refine our work plan for using the data collected 
under section 1886(b)(3)(B)(viii) of the Act (RHQDAPU data) for the 
functions described in Sec.  422.153, we will consider these 
commenters' recommendations to ensure we achieve our goals of providing 
meaningful information to beneficiaries, developing minimum performance 
levels and requirements that address clinical and non-clinical areas 
from the data collected by QIOs, and ensuring plan compliance with MA 
contract requirements.
    Comment: Commenters recommended that CMS ensure that the measures 
it develops are based on nationally endorsed measures, are collected in 
a uniform fashion, and have large enough sample sizes to support public 
reporting as well as any value based purchasing decisions. One 
commenter recommended that CMS specify that

[[Page 19760]]

plans will have multiple opportunities to comment on any performance 
measures proposed for the MA program.
    Response: We will identify measures and standards using internal 
CMS methods as well as nationally recognized methodologies. The process 
for developing measures based on data collected by the QIOs is not 
subject to the PRA review process since it does not represent a new 
data collection requirement for MA plans.
2. CAHPS Survey Administration Under Parts C and D (Sec.  417.472, 
Sec.  422.152, and Sec.  423.156)
    In the October 22, 2009 proposed rule, under the authority of 
sections 1857(e)(1), 1860D-12, and 1876(i)(3)(D) of the Act to impose 
additional contract requirements that the Secretary finds ``necessary 
and appropriate,'' we proposed to revise the regulations to require 
that MA organizations, Part D sponsors, and section 1876 cost 
contractors would pay for the data collection costs of the annual CAHPS 
survey beginning in 2011. As we noted in the preamble to the proposed 
rule, in the 2010 Call Letter to Part C and D sponsoring organizations, 
we informed all MA and Part D contracts with at least 600 enrollees as 
of July 1 of the prior calendar year that they would be expected to pay 
for the data collection costs of the CAHPS survey starting with the 
administration of the 2011 annual CAHPS survey. The proposed rule set 
forth this requirement in regulations at Sec.  422.152 for Part C, 
Sec.  417.472 for section 1876 cost contracts, and Sec.  423.156 for 
Part D.
    The proposed rule would require only MA organizations, Part D 
sponsors, and section 1876 cost contractors with 600 or more enrollees 
to pay for the data collection costs of the CAHPS survey. For reasons 
of statistical precision, a target minimum of 300 or more completed 
Medicare CAHPS Surveys must be received for each contract. In order to 
obtain 300 or more completed surveys, we determined that plans would 
need to have 600 or more enrollees because some enrollees will not be 
eligible to receive the survey, such as institutionalized enrollees, 
and not all enrollees selected to be surveyed will respond to the 
survey.
    In making this proposal, we noted that we conduct other Medicare 
quality surveys, such as the Hospital CAHPS and the Medicare Health 
Outcomes Survey (HOS) for which the MAOs are responsible for the cost 
of the data collection, and that this model for data collection is 
standard industry practice. For example, Federal Employees Health 
Benefit (FEHB) plans pay for the administration of the CAHPS survey to 
their members. Under our proposal, Part C & D contractors and section 
1876 cost contractors would select a vendor from a CMS list of approved 
vendors to conduct the survey on their behalf. We also noted that this 
change would provide the sponsoring organizations with the flexibility 
of adding their own questions to the Medicare CAHPS survey.
    We also noted that the first survey using the new model of data 
collection would be conducted in early 2011. Contracts that were in 
effect on or before January 1, 2010, would use the number of enrollees 
in a plan as of July 1, 2010 to determine whether they are required to 
conduct the 2011 CAHPS survey. In late 2010, all MA and Part D 
contracts that are subject to the CAHPS survey requirement in 2011 
would need to select an approved Medicare CAHPS survey vendor to 
administer the survey.
    Finally, we noted that, in addition to approving a list of survey 
vendors to conduct the survey on behalf of all MA and Part D contracts, 
we would select the sample of enrollees to be surveyed for each 
contract, approve survey vendors, provide oversight of survey vendor 
activities, analyze the CAHPS data for plan ratings, and produce 
individual-level reports for quality improvement use by MA and Part D 
contracts. Vendors will be trained by CMS to collect and submit data 
within specified timeframes.
    After reviewing the comments received in response to this proposal, 
we are adopting the proposed CAHPS data collection requirements as 
final. However, we are revising Sec.  417.472 and Sec.  422.152 to 
clarify the distinction between cost contracts under section 1876 and 
coordinated care plans. Specifically, the revised wording is: ``All 
coordinated care contracts (including local and regional PPOs, 
contracts with exclusively SNP benefit packages, private fee-for-
service contracts, and MSA contracts), and all cost contracts under 
section 1876 of the Act, with 600 or more enrollees in July of the 
prior year must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Medicare plan enrollees in 
accordance with specifications and submit the survey data to CMS.''
    Comment: CMS received comments concerning the proposed requirements 
for Part C and D contracts regarding the CAHPS survey. A few commenters 
noted that CMS did not provide any estimate of, or other information 
related to, the costs associated with collection of data for the CAHPS 
survey, asserting that this information is necessary in order to 
appropriately account for the costs in their annual bid submissions.
    Response: We respectfully disagree. Both the estimated CAHPS costs 
and burden were addressed in the proposed rule. As stated therein, the 
estimated mean annual cost per contract is approximately $5,000 for MA 
organizations, cost contracts, and Part D sponsors with more than 600 
enrollees for the CAHPS annual survey. (74 FR 54711). Data collection 
is to be performed by a contractor hired by the MAO or Part D sponsor.
    Comment: A few commenters noted that proposed Sec.  422.472(i) 
would require section 1876 cost contractors to contract with approved 
CAHPS survey vendors to conduct the Medicare CAHPS satisfaction survey 
for ``MA plan enrollees.'' However, they assert that cost plans do not 
have MA plan enrollees. Moreover, cost plans are not ``coordinated care 
plans,'' which is a term that describes certain MA plans. The 
commenters recommend that CMS delete the references to coordinated care 
plans and other MA references.
    Response: We appreciate the commenters' suggestions and are 
revising Sec.  417.472 and Sec.  422.172 as follows: ``All coordinated 
care contracts (including local and regional PPOs, contracts with 
exclusively SNP benefit packages, private fee-for-service contracts, 
and MSA contracts), and all cost contracts under section 1876 of the 
Act, with 600 or more enrollees in July of the prior year must contract 
with approved Medicare Consumer Assessment of Healthcare Providers and 
Systems (CAHPS) survey vendors to conduct the Medicare CAHPS 
satisfaction survey of Medicare plan enrollees in accordance with 
specifications and submit the survey data to CMS.''
    Comment: Several commenters expressed approval and support for 
CAHPS, applauding CMS's efforts to provide enrollees with consumer-
tested, standardized information about plan choices. The commenters 
also support changes that will increase data collection, provide 
beneficiaries with additional information with which to make plan 
comparisons, and overall improve quality of plans.
    Response: We appreciate these commenters' support of our quality 
efforts.
3. Validation of Part C and Part D Reporting Requirements (Sec.  
422.516 and Sec.  423.514)
    In the October 22, 2009 proposed rule, under the authority of 
sections 1857(e)

[[Page 19761]]

and 1860D-12 of the Act, we proposed to amend Sec.  422.516 and Sec.  
423.514 to state that each Part C and Part D sponsor be subject to an 
independent yearly audit of Part C and Part D measures (collected 
pursuant to our reporting requirements) to determine their reliability, 
validity, completeness, and comparability in accordance with 
specifications developed by us.
    Additionally, in the preamble we noted that our rationale for 
making this proposed change, which was also announced in the 2010 Call 
Letter to Part C and D sponsoring organizations, was that only an 
independent data validation audit conducted by an external entity under 
contract to the MAO or PDP sponsoring organization would ensure that 
the results of the audit are in accordance with CMS specifications, 
that data used to develop plan performance measures are credible to 
other stakeholders, and that information used to respond to 
Congressional and public inquiries are reliable. We noted that we were 
working with a contractor to develop data validation specifications to 
ensure that the goals of reliability, validity, completeness, and 
comparability are met at the conclusion of the data validation audit. 
We intend that these specifications will focus on how organizations and 
sponsors compile numerators and denominators, take into account 
appropriate data exclusions, and verify the sponsor's calculations, 
computer code, and algorithms. In addition, the specifications will be 
used to inform CMS as to how the MAOs, cost plans, and Part D sponsors 
collect, store, and report data. We expect that these specifications 
will be utilized by the auditors hired by MAOs and Part D sponsors to 
conduct the data validation audits, the results of which will be 
forwarded to us. We indicated that we expected to make these 
specifications available on our Web site for public comment early in 
2010. We solicited comment on this approach.
    Subsequent to publication of the proposed rule, in an HPMS 
memorandum dated December 23, 2009, we noted that after careful review 
of the reporting requirements and CMS' continued data needs, the amount 
of data required to be reported to CMS for CY 2010 and contract years 
contract beyond was to be reduced. We noted that the reason for the 
reduction in reporting was that some of the data could be derived from 
other means (that is, through analyses of prescription drug event data 
already collected by CMS). We believe these adjustments reduce the 
overall burden on sponsoring organizations while maintaining the 
integrity of the CMS data collection, plan reporting, and plan 
validation processes so that needed data for monitoring and public 
reporting are timely, reliable, valid, and comparable among 
organizations. Specifically, the following changes became effective 
January 1, 2010:
 Part C Reporting Requirements
    ++ Reporting of the Agent Compensation and Agent Training and 
Testing measures will be suspended.
    ++ The frequency of reporting of two Part C measures will be 
reduced.
    -- Only annual reporting for Plan Oversight of Agents will be 
required; the quarterly reporting will be suspended.
    -- Only annual reporting for Employer Group Plan Sponsors will be 
required; the semiannual reporting will be suspended.
    ++ Validation of PFFS Provider Payment Dispute Resolution and PFFS 
Plan Enrollment verification calls will not be required.
 Part D Reporting Requirements
    ++ Reporting of five sections will be suspended: Vaccines, Generic 
Drug Utilization, Transition, Drug Benefit Analyses, and Agent Training 
and Testing.
    ++ The frequency of reporting of six Part D sections will be 
reduced as follows:
    -- Only annual reporting for Employer/Union-sponsored Group Health 
Plan Sponsors, Fraud, Waste and Abuse Compliance Programs, Long Term 
Care (LTC) Utilization, and Medication Therapy Management Program 
(MTMP) will be required; the semi-annual reporting will be suspended.
    -- Only annual reporting for Plan Oversight of Agents and P & T 
Committees/Provision of Part D Functions will be required; the 
quarterly reporting will be suspended.
    ++ Validation of eight sections will not be required: Enrollment, 
Access to Extended Days.
    -- Supply, Prompt Payment by Part D Sponsors, Pharmacy Support of 
Electronic Prescribing, P&T Committees/Provision of Part D Functions, 
Pharmaceutical Rebates, Discounts and Other Price Concessions, 
Licensure & Solvency, and Fraud, Waste and Abuse Compliance Programs.
    We are also excluding PACE organizations from CY 2010 Part D 
Reporting Requirements, which is consistent with Part C Reporting 
Requirements.
    These changes will be incorporated in the final CY 2010 Part D 
Reporting Requirements document and the Part C and D Reporting 
Requirement Technical Specifications documents, which will be updated 
and posted to our Web site. The data validation standards will also be 
updated and provided for comment as part of a PRA package in 2010. We 
note that these changes do not affect our proposal to require an annual 
independent audit of Part C and Part D measures. Rather, because these 
changes reduce the amount of data that must be submitted by plan 
sponsors, they will make the data validation audits somewhat less time-
consuming.
    After considering the comments received in response to the proposed 
rule, in this final rule, we adopt the requirements as proposed.
    Comment: Several commenters argued that plans need information 
regarding the data validation requirement in a timelier manner to allow 
for consideration during preparation of the 2011 bids. They also noted 
that CMS should provide plans with sufficient information and time to 
modify their operations to incorporate any new requirements prior to 
the data validation mandates taking effect.
    Response: With this final rule, we believe that we are providing 
plans with information in sufficient time to allow for consideration in 
their 2011 bids. A regulatory impact analysis for this proposed 
requirement was included in the October 22, 2009 proposed rule. The 
proposed rule also contained the information collection requirements. 
Plans should be able to use the burden and cost estimate information to 
develop an estimate of any increase in resources and costs associated 
with the implementation of these provisions. Additionally, two HPMS 
memoranda were released this fall: Part C and Part D reporting 
requirements and data validation dated November 23, 2009 and 
Implementation changes in the Medicare Part C and Part D Reporting 
Requirements and Data Validation dated December 23, 2009. These 
memoranda contain detailed, updated information on changes in 
implementation of the data validation requirement. The first memorandum 
clarified the timing of implementation (that is, the data validation 
needs to occur in the spring of 2011 for reported 2010 data), while the 
second memorandum reduced the overall data validation and reporting 
requirements for Part C and Part D measures.
    Comment: While one commenter supported the implementation of the 
data validation audit requirements for 2011, others recommended we 
delay codifying the data validation audit requirement. They argued that 
codifying the requirement before the process has

[[Page 19762]]

been evaluated and finalized is premature and will take away CMS' 
flexibility to refine the requirements as it gains experience with the 
process. The commenters were also concerned that the validation 
mechanisms are very preliminary and should be vetted through the 
subregulatory process. They noted that the validation approach 
stipulated in the proposed regulation places the full cost burden of 
the audit on the health plan. One commenter specifically recommended 
that the proposed new paragraphs (g) be revised by striking Each Part C 
[Part D] sponsor must and inserting instead, CMS may require each Part 
C [Part D] sponsor to * * * and strike independent audit and insert 
audit.
    Response: We disagree with the recommendation to delay codifying 
the data validation audit. We have begun evaluating the data validation 
audit process and will have completed a pilot evaluation by May 2010, 
that is, approximately 10 months before the implementation of the data 
validation audits. Therefore, we believe we will have sufficient time 
to perform any needed refinements of the requirements well before 
actual implementation of the data validation process. We strongly 
believe that it is important to have the data validation audit process 
in place by 2011 since there is a need to monitor the Part C and D 
programs effectively and to respond to questions from Congress, 
oversight agencies, and the public with data that are timely, reliable, 
valid, and allow for comparisons among plans.
    We also disagree that the data validation audit requirements should 
be provided only in subregulatory guidance. We proposed to implement 
these requirements through notice-and-comment rulemaking in order to 
ensure that, if they were adopted, they would be enforceable with the 
full force and effect of law. Detailed procedures for meeting the 
regulatory requirements will be provided through sub-regulatory 
guidance and will also undergo the PRA process. As a result, we believe 
we will retain sufficient flexibility to make necessary changes before 
the requirements are implemented as well as to update the procedures in 
the future as necessary. We further believe that it is necessary to 
conduct the data validation audit on all plans so that there is 
assurance that all the data are reliable, valid, and can be used to 
compare health plan performance. If we find through the data validation 
audit process that some plans are not reporting accurate data, then it 
will be possible to take this factor into account when reporting plan 
performance and in comparing performance among plans.
    Comment: Several plans expressed concern that the cost of 
implementing the data validation audit will be high or excessive.
    Response: We do not agree that the costs of implementing the data 
validation audit will be excessive. In the October 22, 2009 proposed 
rule (74 FR 54711), we estimated that the costs of these independent 
audits would be approximately $5,200 per plan. Because the costs on a 
per plan basis are not excessive, they will likely be reflected in only 
minimally higher bid prices across the board.
    Comment: Two commenters stated that plans should have the option of 
using their own internal auditing staff.
    Response: We disagree that plans should have the option of using 
their own internal auditing staff in lieu of an independent, external 
auditor. The data validation needs to be credible to stakeholders, 
including Congress and the American public. We believe that only an 
external independently conducted audit can establish this credibility.
    Comment: One commenter requested clarification as to whether CMS 
intends to issue a list of certified contractors from which an 
organization may select a vendor. This commenter also recommended that 
the validation and testing of a plan's compliance with Fraud, Waste, 
and Abuse (FWA) programs regulations include the use of a certified 
fraud investigator.
    Response: At this time, we do not expect to issue a list of 
certified contractors from which an organization may select a vendor to 
conduct data validation audits. Instead, we will be issuing standards 
for selected vendors. A draft of these standards was issued for 
informal comments last fall and a revised version will be issued with 
the PRA package associated with the data validation specifications that 
will be available for public comment. We also note that the commenter's 
second recommendation is likely in reference to a CMS program audit. 
Because this proposal relates to a data validation audit, we do not 
believe that plans should be required to use a certified fraud 
investigator.
    Comment: One commenter stated that flexible criteria should be 
considered in the data validation audit's report specifications, that 
is, CMS should consider using flexible criteria in developing the 
specifications for the data validation report.
    Response: We agree that the criteria used in developing the 
specifications for the data validation report should accommodate 
different types of reportable data that a plan collects for each Part C 
and D measure. We believe that the standards and procedures under 
development for the data validation effort provide sufficient 
flexibility to accommodate different types of available reportable 
data.
    Comment: One commenter states that any final rule on data 
validation requirements should take into consideration the plan's state 
regulatory requirements and the plan's processes required to comply 
with state mandates, laws, and regulations and consider deeming in 
areas of overlap.
    Response: We appreciate that plans may also have state reporting 
requirements with respect to licensure and solvency. We believe, 
however, that deeming with respect to issues subject to state reporting 
requirements is outside the scope of this proposal, which is to require 
an independent data validation audit of information reported to CMS.
    Comment: One commenter questioned whether CMS needed to define 
performance benchmarks so plans can manage and monitor data before they 
are submitted to CMS.
    Response: We will be defining the data validation standards prior 
to the data validation audit. Performance benchmarks relevant to these 
standards will be made available prior to the data validation audit.
    Comment: One commenter offered to review the measures on behalf of 
CMS and explore ways for including them in the HEDIS measurement set 
and audit program.
    Response: Although we appreciate the commenter's interest in this 
issue, we are not committing to the inclusion of the new Part C and D 
measures as part of the HEDIS measurement set and audit program at this 
time.
4. Collection of Additional Part D Claims Elements for Nonpayment-
Related Purposes (Sec.  423.505)
    In the October 22, 2009 proposed rule, we proposed to use the 
authority under section 1860D-12(b)(3)(D) of the Act to collect all 
additional elements added to the prescription drug event (PDE) record 
beyond the original 37 elements currently collected under section 
1860D-12(b)(3)(D) of the Act. As a result, we would be able to use 
these data elements for nonpayment-related purposes.
    As we explained in the preamble to the proposed rule, section 
1860D-12(b)(3)(D) of the Act, which incorporates section 1857(e) of the 
Act, provides the Secretary with authority to include in Part D sponsor 
contracts any terms or conditions the Secretary deems necessary and 
appropriate, including

[[Page 19763]]

requiring the organization to provide the Secretary with such 
information as the Secretary may find necessary and appropriate. We 
noted that under this authority, in the May 28, 2008 Federal Register 
(73 FR 30664), we published a final rule that allowed the Secretary to 
collect Part D ``claims'' data from the prescription drug event (PDE) 
record and use the information gathered for non-payment purposes. 
However, this rule limited what data (hereinafter referred to as PDE 
elements) we may collect and use for nonpayment purposes to the 
original 37 elements reported on the PDE record. The rule also 
described circumstances under which we may disclose the data to other 
government and external entities, and the limitations associated with 
any such release.
    In the October 2009 proposed rule, we also noted that in 2008 the 
number of PDE elements collected was expanded from the original 37 
elements to 39 elements. The additional PDE elements are ``Rebate 
Amount Applied to the Point-of-Sale Price'' and ``Vaccine 
Administration Fee.'' The ``Rebate Amount applied to the Point-of-Sale 
Price'' is generally the standard amount of a rebate that the plan 
sponsor has elected to apply to the negotiated price as a reduction in 
the drug price made available to the beneficiary at the point of sale. 
The ``Vaccine Administration Fee'' is the amount charged for the 
administration of a vaccine separate from the actual vaccine.
    In the 2010 Call Letter to Part C and D sponsoring organizations, 
we noted that we were planning to make mandatory the collection of a 
new (40th) element to the PDE record, referred to as the ``Prescription 
Origin Code.'' (at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/CallLetter.pdf). The prescription origin code is designed to 
capture the frequency with which providers use e-prescribing.
    Under our proposal, we would be able to utilize these data for non-
payment related purposes. Similarly, we would be able to release these 
elements to governmental and external entities, under the authority of 
section 1106 of the Act, using the same process that we now use to 
release the original 37 elements, namely our minimum necessary data 
policy, our data sharing procedures, and the encryption of certain 
identifiers and aggregation of cost data to protect beneficiary 
confidentiality and commercially sensitive data of Part D sponsors.
    Our proposal would allow us to collect and use for non-payment-
related purposes any data obtained as a result of the addition of new 
elements to the PDE record without undertaking rulemaking for each 
additional element added in the future. We believe that the May 28, 
2008 Part D Claims Data final rule (73 FR 30664) resolved any statutory 
ambiguity surrounding our broad authority to collect PDE data under 
section 1860D-12(b)(3)(D) of the Act. Accordingly, we may use this same 
authority to collect additional elements that have been added to the 
PDE record since 2007. Once data have been collected under section 
1860D-12(b)(3)(D) of the Act, we may use these data for nonpayment-
related purposes and may release PDE data consistent with our minimum 
necessary policy and our data sharing procedures.
    We also noted in the preamble to the proposed rule that we believe 
the ability to analyze new claims-related elements added to the PDE 
record will increase both specific and general knowledge of Medicare 
beneficiaries' healthcare and the operation of the Part D program and 
would aid our ability to conduct program oversight, support operational 
tasks, and provide more information for use in internal and external 
healthcare research studies. Moreover, as a result of the proposal, we 
would not be required to undertake a separate rulemaking and public 
comment process each time new elements are added to the PDE record, but 
rather would automatically begin collecting for nonpayment purposes 
elements added to the PDE record using our authority under section 
1860D-12(b)(3)(D) of the Act and Sec.  423.505(f)(3) of the 
regulations. However, because we did not propose any change to our data 
sharing procedures or our minimum data necessary policy, we will 
continue to--
     Ensure that beneficiary, prescriber, or pharmacy 
identifiers are not released unless absolutely necessary for a project 
(for example, to link to another database);
     Encrypt Part D plan identifiers and aggregate cost data 
elements (ingredient cost, dispensing fee, and sales tax) when sharing 
PDE data with external requesters; and
     Subject each request to our data sharing procedures which 
includes ensuring that requestors have the appropriate experience and 
are working for, or on behalf of, a reputable institution and that, 
when appropriate, make their project results public. External requests 
concerning beneficiary identifiable data would continue to be reviewed 
by the CMS Privacy Board, and would require the requestor to sign a 
data use agreement.
    We also noted our current policy of protecting various Part D 
elements when responding to external research requests. Thus, the 
beneficiary ID, plan ID, prescriber ID, and pharmacy ID are encrypted 
prior to release to external entities. However, in the case of 
beneficiary ID, prescriber ID, and pharmacy ID, this information may be 
provided in an unencrypted format when needed to link to another data 
set. In contrast, under the current rule, there is no exception to the 
requirement that plan identifiers be encrypted for all external 
research requests. Under the current regulation, grantees of HHS 
agencies are treated as external entities and may not access plan 
identifiers. However, contractors acting on behalf of HHS are not 
considered to be external entities and may receive unencrypted plan 
identifiers when necessary for a particular project.
    Because some HHS agencies accomplish their mission through grants, 
rather than contracts, and hence cannot rely on the access that is 
provided to HHS contractors and the fact that research performed by HHS 
grantees will advance the interests of Medicare beneficiaries, who may 
also be served by other HHS programs, we proposed to revise Sec.  
423.505(m)(iii)(C) to permit CMS disclosure to HHS grantees of 
unencrypted plan identifiers when certain conditions are met. The 
conditions we proposed to be met include--
     The plan identifier is essential to the study and there is 
no other source of CMS data that would substitute for plan identifiers 
in order to carry out the study;
     The study is key to the mission of the sponsoring agency;
     The study provides a benefit to the Medicare program; and
     The requestor attests that any public findings or 
publications will not identify plans or plan sponsors.
    In evaluating requestors' proposals to determine whether these 
conditions are met, we propose the following evaluation standards:
     Plan identifier, we will evaluate the requestor's 
rationale to determine whether an encrypted plan identifier would be 
sufficient for the study design or if the real identifier is necessary 
for the study.
     Agency mission, we will review the requestor's agency's 
rationale for the study and how the study would help the agency achieve 
its mission.
     Medicare program benefit, we will review the requestor's 
rationale for the importance of study findings to the Medicare program.
     Public reporting, we require an attestation from the 
requestor that the requestor will not identify specific plans

[[Page 19764]]

or plan sponsors in any public reporting.
    In the proposed rule, we indicated that we believed that these 
conditions would mitigate the risk of unauthorized use or disclosure of 
commercially sensitive plan information. We also solicited comments on 
whether it would be appropriate to extend the proposal to permit 
grantees of other Federal agencies to have access to plan identifiers 
when this access may be necessary for a particular research project and 
that project otherwise meets the conditions described above. After 
considering the comments received in response to our proposals, we are 
finalizing the proposed changes to Sec.  423.505(f) and (m) without 
modification.
    Comment: Some commenters questioned CMS' authority to share PDE 
data for non-payment purposes given the limiting language in section 
1860D-15 of Act. One commenter alleges the approach outlined in the 
proposed rule would result in a potential violation of the Trade 
Secrets Act. Another commenter mentioned that section 1927(b)(3)(D) of 
the Act protects pricing, rebates and other financial information from 
disclosure except to very specific recipients (such as CBO or the 
Comptroller), which does not extend to HHS grantees. One commenter does 
not want the release of rebate data, estimated or otherwise, stating 
that rebates at point of sale reflect proprietary business information.
    Response: We respectfully disagree with the commenters' assertions. 
In the May 28, 2008 Federal Register (73 FR 30664), we published a 
final rule regarding the collection and use of Part D claims data. This 
regulation resolved the statutory ambiguity between sections 1860D-
12(b)(3)(D) and 1860D-15 of the Act, noting that section 1860D-
12(b)(3)(D) of the Act (and its incorporation of section 1857(e)(1)) of 
the Act) provide broad authority to the Secretary to require Part D 
sponsors to provide the Secretary with ``such information as the 
Secretary may find necessary and appropriate'' and that when 
information is collected through a statutory authority independent of 
section 1860D-15 of the Act, the restrictions of section 1860D-15 of 
the Act would not apply. Following the issuance of this Part D claims 
data final rule, Congress enacted the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA). Section 181 of MIPPA added 
clause (ii) to section 1860D-12(b)(3)(D) to provide that any Part D 
data collected under the authority of section 1860D-12(b)(3)(D) ``shall 
be made available to Congressional support agencies (in accordance with 
their obligations to support Congress as set out in their authorizing 
statutes) for the purposes of conducting Congressional oversight, 
monitoring, making recommendations, and analysis of the program under 
this title.'' While section 181 of MIPPA did not directly address the 
issues of statutory ambiguity associated with Part D claims data 
collected by CMS, it can be read as an implicit Congressional 
ratification of the arguments presented by CMS, in the Part D claims 
rule, as the legislation only overrides one provision of that rule. 
Specifically, under section 181 of MIPPA the Secretary must make data 
collected under section 1860D-12(b)(3)(D) available to Congressional 
support agencies, without regard to CMS' minimum data necessary 
standard. Accordingly, for reasons detailed in our May 29, 2008 final 
rule, we believe the restrictions of section 1860D-15 of the Act do not 
apply to PDE data collected under the authority of 1860D-12(b)(3)(D) of 
the Act. As a result, these data may be used for purposes other than 
payment.
    In response to concerns about releasing proprietary data to 
external entities, we note that this rule pertains to additional 
elements added to prescription drug event data and does not extend to 
plan bid or reconciliation payment data provided outside of the PDE. 
Because PDE data are collected under section 1860D-12(b)(3)(D), rather 
than section 1860D-2(d)(2), they are not subject to the limitations on 
disclosure under section 1927(b)(3)(d). In addition, as we explained in 
the May 28, 2008 final rule (73 FR 30680), because Sec.  423.505(m) was 
issued under the authority of section 1106 of the Act, any release of 
potentially proprietary data pursuant to this provision would be also 
be authorized by law under the Trade Secrets Act. Furthermore, we also 
note that rebates applied at point of sale are not the same as 
aggregate rebates estimated by plans as part of their bid or actual 
rebates received from manufactures that are submitted outside of the 
claim for payment reconciliation purposes. Rather, they most often 
reflect a standard amount that the manufacturer is providing to a 
particular sponsor for a specific drug that is then passed through to 
consumers as part of the plans' price at point of sale, the net amount 
of which is available to beneficiaries as an estimate on the drug plan 
finder tool. We also remind commenters that we place certain 
limitations on PDE data when released outside of CMS. Through the 
application of our ``minimum data necessary policy,'' additional 
restrictions to protect beneficiary confidentiality and commercially 
sensitive data of Part D sponsors, and our data sharing procedures 
(which ensure the agency's compliance with the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA), the Privacy Act of 
1974, and other applicable laws), we limit the use and disclosure of 
Part D claims data to ensure that the data are only used or disclosed 
as permitted or required by applicable law, and not inappropriately 
disclosed in a manner which could undermine the competitive nature of 
the Part D program.
    Comment: We received a number of varied comments on the sharing of 
PDE data. Several commenters provided recommendations related to the 
sharing of Part D PDE information for non-payment purposes, suggesting 
that CMS--
     Use only non-identifiable information for any public 
analysis, arguing that research can be done without an actual plan ID;
     Exclude data elements that could because of geographic 
information, and/or other aggregated information indirectly identify 
plan sponsors; and
     Share information (especially plan IDs, or PHI) only with 
written approval from the sponsor and publish guidance well before 
adding another element to the PDE format.
    Another commenter stated that despite the restrictions in sharing 
plan IDs, certain plans could easily be identified. A few other 
commenters stated that CMS has no specific restrictions in the 
regulation protecting price information.
    Response: We believe these comments are outside of the scope of the 
proposed rule, which was issued not to reopen our May 28, 2008 final 
rule on Part D claims data but rather to address the use and disclosure 
of additional PDE data elements beyond the original 37 elements that 
were the subject of the May 28, 2008 final rule. To the extent the 
comments are applicable, we disagree with the recommendations on using 
only aggregate data and obtaining written plan approval prior to use of 
the PDE data. Our rationale is the same as the one we expressed in 
response to a similar comment to the May 28, 2008 final rule on Part D 
claims data: if PDE data are collected only under the authority of 
section 1860D-15 of the Act CMS, HHS and external entities can never 
use the data for evaluations, analyses, and research important to 
public health, and vital to program oversight. In the Part D claims 
data final rule we provided a detailed description

[[Page 19765]]

of the potential purposes for which these data might be used, including 
evaluating the effectiveness of the prescription drug benefit and its 
impact on health outcomes, performing Congressionally mandated or other 
demonstration and pilot projects and studies, reporting to Congress and 
the public regarding expenditures and other statistics involving the 
Medicare prescription drug benefit, studying and reporting on the 
Medicare program as a whole, and creating a research resource for the 
evaluation of utilization and outcomes associated with the use of 
prescription drugs. Balancing these important objectives with the 
potential sensitivity of PDE data, we implemented a rule that ensures 
that, subject to many safeguards put in place to guard against 
inappropriate use and disclosure of commercially sensitive and 
beneficiary identifiable information, Part D PDE data are available for 
research purposes under similar data sharing processes to those used 
for sharing Parts A and B claims data. While we agree with the 
commenter that in some situations, even if we provide samples of PDE 
data with masked plan identifiers, public information may be added to 
the PDE record to identify the particular plan, we believe that our 
data sharing procedures mitigate against any inappropriate use or 
disclosure. Under these procedures, we require each researcher to sign 
a Data Use Agreement (DUA) that spells out the multiple restrictions on 
the use of the data and the penalties for any failure to comply with 
the terms of the agreement. In addition, we require research using 
beneficiary identifiable data to be conducted by an experienced entity 
at a reputable organization, with an appropriate research design, and 
with assurances to protect beneficiary confidentiality. Research is to 
be made available to the public and identifiable data is not released 
for commercial purposes. Further we will only release beneficiary 
identifiable data for research purposes if the CMS privacy board 
approves the data release and then, will only release the minimum data 
necessary for the study. We believe these procedures allow us to safely 
balance the need to support legitimate research while at the same time 
guarding against the misuse or inappropriate disclosure of data that is 
sensitive in nature.
    Comment: A commenter asked to what extent are PDE data uses and 
disclosures subject to requests under the Freedom of Information Act 
(FOIA).
    Response: Requests for Part D PDE data should be directed through 
our contractor, the Research Data Assistance Center, at http://www.resdac.umn.edu/, as opposed to FOIA. However, as noted in our May 
28, 2008 final rule on Part D claims data, if a FOIA request is 
received for PDE data used for non-payment purposes, we will follow our 
ordinary FOIA procedures and not release under FOIA data the agency 
determines are trade secrets, or commercial or financial information 
protected by FOIA Exemption 4 (5 U.S.C. 552(b)(4).
    Comment: Commenters opposing the rule pointed out that it does not 
place any perimeters on the type of additional data CMS may classify as 
claims data, and thereby make available for disclosure. The commenters 
expressed concern that nothing in the proposed regulation would require 
confidentiality of rebate and pricing information if it were collected 
under section 1860D-12 of the Act.
    One commenter also questioned CMS' conclusion that we could use 
section 1860D-12(b)(3)(D) of the Act to collect new elements to the PDE 
record without undertaking rulemaking for each additional element added 
in the future.
    Response: We reiterate that our authority to collect PDE elements 
for non-payment purposes has already been decided with the 
clarification of our authority under 1860D-12(b)(3)(D) of the Act, as 
set forth in Medicare Part D Claims Data rule published on May 28, 
2008. Because that final rule was expressly limited to the 37 original 
elements of the PDE claim, it was necessary for us to undertake further 
rulemaking in order to collect new elements that have been added to the 
PDE record. Rather than proposing to collect only the 3 new elements 
that have been added to the PDE record since 2007, we concluded that it 
was appropriate to propose to collect all elements that are currently 
part of the PDE record or that may be added to the PDE record in the 
future. As we stated in the preamble to the October 22, 2009 proposed 
rule, we believe that the ability to analyze new claims-related 
elements added to the PDE record would increase both specific and 
general knowledge of Medicare beneficiaries' healthcare and the 
operation of the Part D program and would aid in our ability to conduct 
program oversight, support operational tasks, and provide more 
information for use in internal and external healthcare research 
studies. These rationales apply not only to the collection of the 3 new 
PDE elements that have been added since 2007, but also to the 
collection of any new elements that may be added in the future. 
Furthermore, the addition of more PDE elements beyond those that are 
currently collected is at the Secretary's discretion and will be 
diligently reviewed and accorded the proper protection consistent with 
the principle outlined in the May 28, 2008 final rule. Plan sponsors 
will be notified of any changes to the collection of PDE data through 
the CMS Call Letter to Part D plan sponsors, or via HPMS memoranda. 
Therefore, we do not believe it is necessary to undertake a separate 
rulemaking to authorize CMS, to use section 1860D-12 of the Act to 
collect each new element that we may add to the PDE record in the 
future.
    Comment: Some commenters opposed sharing the Plan identification 
element from the PDE record in an unencrypted form with HHS grantees 
expressing concern about the data security and the need to protect 
sensitive data, and arguing that encrypted data should satisfy most 
research needs. Other commenters supported the PDE data sharing 
provisions in the proposed rule, with some supporting a proposed option 
in the preamble of the proposed rule that would also permit grantees of 
non-HHS Federal agencies access to plan identifiers. One commenter 
supporting the rule asked that we go further and with proper 
restrictions allow access to plan identifiers to all legitimate 
researchers.
    Response: After the Part D Data rule was published in May 2008, we 
limited the use of actual plan identifiers, but after gaining 
experience in releasing Part D data it soon became apparent that there 
was a compelling need for other HHS (such as FDA and NIH) agencies to 
use plan identifiers in their linking, oversight and research (for 
example, influence of brand name recognition, and benefit design on 
consumer choice) under certain conditions. These agencies cannot 
possibly conduct all of their own research. Accordingly, they engage 
grantees to perform approved studies. These studies often assist CMS in 
better understanding and improving the Medicare program. Furthermore, 
HHS is able to affect more oversight of its own grantees through the 
threat of future withdrawal of funding--a great disincentive for 
researchers--should any terms of the data use agreements be broken (as 
opposed to a study independently funded by a University). Therefore, 
with this final rule we are permitting access to plan identifiers HHS 
grantees for nonpayment purposes when the following conditions are 
present:
     The plan identifier is essential to the study and there is 
no other source of CMS data that would substitute for plan identifiers 
in order to carry out the study;

[[Page 19766]]

     The study is key to the mission of the sponsoring agency;
     The study provides a benefit to the Medicare program; and
     The requestor attests that any public findings or 
publications will not identify plans or plan sponsors.
    While we believe that similar benefits may accrue to grantees of 
non-HHS entities and to many external researchers conducting studies of 
beneficiary plan choices, we believe that additional time is needed to 
evaluate this issue. Therefore, for now, we will limit the exception to 
the prohibition against releasing unencrypted plan identifier elements 
to external entities in Sec.  423.505(m)(1)(C) to HHS grantees at this 
time.
    Comment: One commenter asked for clarification on whether or not 
CMS intended to allow unencrypted data to be transmitted to requesters 
of data. The commenter had concerns with regard to potential risk of 
violation of the security rules under HIPAA.
    Response: We ensure that any data transmission is done only after 
undergoing an approval process that requires requesters to detail their 
security procedures during transmission, storage of and access to Part 
D data.
    Comment: Another commenter wanted clarification as to whether the 
fields discussed in the proposal had already been added to the PDE 
layout.
    Response: We note that the vaccine administration fee and the 
rebate at point-of-sale were added to the original 37 elements for CY 
2008, and that in the 2010 Call Letter we notified sponsors that a 40th 
element, Prescription Origin Code, collected on an optional basis in 
2009, would be part of the mandatory reporting requirements beginning 
January 1, 2010.
    Comment: A commenter asked about downstream entities, noting that 
the rule does not specify who may have access to this sensitive data.
    Response: We share the commenter's concerns over the re-release of 
data to entities not included on the DUA. Under our current data 
sharing procedures, researchers or other external entities wishing to 
re-release Part D data must notify us and receive express permission 
for any subsequent release, with appropriate modifications made to any 
DUAs.

F. Changes To Implement New Policy

    This section addresses two policies under Parts C and D 
respectively. Under Part D, we proposed new regulatory requirements 
pertaining to the required inclusion of protected drug categories and 
classes on Part D formularies. While our proposals initially were 
intended to implement provisions in section 1860D-4(b)(3)(G) as in 
effect at the time of our October 22, 2009 proposed rule, since that 
time on March 23, 2010 section 3307 of the PPACA was enacted.
    Rather than specifying statutory criteria for identifying protected 
classes of drugs, as did section 1860D-4(b)(3)(G)(i) of the Act at the 
time of the proposed rule, section 1860D-4(b)(3)(G) of the Act now 
provides that the Secretary shall establish criteria for determining 
``classes of clinical concern'' and until such time as the Secretary 
establishes such criteria, the following six classes of drugs shall be 
protected: anticonvulsants, antidepressants, antineoplastics, 
antipsychotics, antiretrovirals, and immunosuppressants for the 
treatment of transplant rejection. As there are many provisions in the 
PPACA affecting Medicare Part D beneficiaries, we believe it is 
important to take some time to thoughtfully consider how best to 
establish appropriate criteria. As such, and in accordance with 1860D-
4(b)(3)(G) of the Act, we are protecting the six statutorily-specified 
drug classes and categories of drugs of ``clinical concern'' and will 
turn in the future to consider the criteria the Secretary would issue 
under the statute.
    Under Part C, we proposed to revise our rules to allow 
beneficiaries who elect MSAs as a type of health insurance plan to pay 
only a pro-rated deductible if their MSA deposit is pro-rated because 
they enroll after January 1. These revisions are detailed in Table 6.

                                   TABLE 6--Revisions to Implement New Policy
----------------------------------------------------------------------------------------------------------------
                                             Part 422                                 Part 423
           Provision           ---------------------------------------------------------------------------------
                                      Subpart           Section           Subpart                Section
----------------------------------------------------------------------------------------------------------------
Provide Criteria and a Process  N/A...............             N/A  Subpart C.........  Sec.   423.120(b)(2)(v)
 for identifying Protected
 Classes of Drugs.
Pro-rating the Plan Deductible  Subpart C.........  Sec.   422.103  N/A...............  N/A
 for Part C MSA Enrollments
 Occurring During an Initial
 Coverage Election Period.
----------------------------------------------------------------------------------------------------------------

1. Protected Classes of Concern Under Part D (Sec.  423.120(b)(2)(v))
    In the October 22, 2009 proposed rule, based on comments that we 
received on an earlier January 16, 2009 interim final rule with comment 
period (IFC) (74 FR 2881), we proposed criteria and procedures for 
identifying ``protected classes'' of drugs, within which all covered 
Part D drugs must be included in Part D formularies. While we had 
previously identified six such classes under our authority in section 
1860D-11(e)(2)(D) of the Act to ensure that formularies were not 
discriminatory, section 176 of MIPPA added a new section 1860D-
4(b)(3)(G)(i) to the Act which required the Secretary, effective plan 
year 2010, to address the issue of protected classes and undertake to 
identify classes of drugs that met two criteria specified statutory 
criteria:
     Restricted access to the drugs in the category or class 
would have major or life threatening clinical consequences for 
individuals who have a disease or disorder treated by drugs in such 
category or class.
     There is a significant need for such individuals to have 
access to multiple drugs within a category or class due to unique 
chemical actions and pharmacological effects of the drugs within a 
category or class.
    Under section 176 of MIPPA, the Secretary was provided discretion 
to establish exceptions permitting Part D sponsors to exclude from 
their formularies, or to otherwise limit access to (including 
utilization management restrictions or prior authorization), certain 
Part D drugs in the protected categories and classes. Section 176 of 
MIPPA required that such exceptions be subject to a public notice and 
comment process.
    In the October 22, 2009 proposed rule, we proposed interpreting 
several of the statutory terms used in the criteria set forth in 
section 176 of MIPPA to better define the scope of the protections 
afforded under that section. To that end, we proposed to add several 
new definitions at Sec.  423.100, including: ``restricted access,'' 
``major or life-threatening clinical consequences,'' ``significant need 
for access to multiple

[[Page 19767]]

drugs,'' ``a short period of time,'' and ``multiple drugs.'' Further, 
we proposed that the MIPPA protections did not apply to non-Part D 
drugs and their exclusion from the formulary requirements would not be 
based on the exceptions authority under section 1860D-4(b)(3)(G)(iii) 
of the Act.
    We also proposed to add a new paragraph to Sec.  423.120(b)(2) to 
identify exceptions to the inclusion of all drugs meeting the criteria 
set forth in section 176 of MIPPA and our implementing regulations. 
Under proposed Sec.  423.120(b)(2)(vi), exceptions would include the 
following:
     Drug products that are determined to be therapeutic 
equivalents under the FDA's Orange Book.
     Edits that limit the quantity of drugs due to safety.
     Other drugs that we may specify through a process that is 
based upon scientific evidence and medical standards of practice (and, 
in the case of antiretroviral medications, is consistent with the 
Department of Health and Human Services Guidelines for the Use of 
Antiretroviral Agents in HIV-1-Infected Adults and Adolescents) and 
which permits public notice and comment. We welcomed comment on these 
proposed definitions and clarifications.
    Finally, we noted in the preamble to the October 22, 2009 proposed 
rule that we continue to believe that the best way to determine which 
drug classes and categories should be identified as a protected class 
and category is through a data-driven process, which includes an 
analysis of prescription drug event data, a review of widely used 
treatment guidelines, validation of the results by a expert committee 
of clinicians, and acceptance by the Secretary.
    We also offered two approaches for consideration, and solicited 
comment on which option the public believed would allow us to make 
timely determinations in a transparent manner. Those options were--
     Option 1: Announce protected classes through subregulatory 
guidance (for example, the Call Letter) that provides a notice and 
comment process but does not entail formal Federal Register notice and 
comment rulemaking; and
     Option 2: Announce the protected classes through formal 
notice and comment rulemaking.
    Since issuance of the October 22, 2009 proposed rule, the PPACA was 
enacted. Accordingly, new section 1860D-4(b)(3)(G) of the Act replaces 
section 176 of MIPPA. Section 1860D-4(b)(3)(G) of the Act requires a 
PDP sponsor to include ``all'' covered part D drugs in the categories 
and classes identified by the Secretary as classes and categories of 
``clinical concern.'' It requires the Secretary to establish criteria 
to determine, as appropriate, categories and classes of drugs of 
``clinical concern.'' It provides for an exceptions authority similar 
to the one included in section 176 of MIPPA. Section 3307 of PPACA 
further requires that until the Secretary establishes criteria to 
determine classes of ``clinical concern,'' the following categories and 
classes of drugs shall be identified and protected as classes of 
``clinical concern'': anticonvulsants, antidepressants, 
antineoplastics, antipsychotics, antiretrovirals, and 
immunosuppressants for the treatment of transplant rejection.
    Given that PPACA was recently enacted and there are many provisions 
affecting Medicare Part D beneficiaries, we need time to thoughtfully 
consider how best to establish criteria to identify classes and 
categories of drugs of ``clinical concern.'' Accordingly, consistent 
with the PPACA, at this time we are requiring that PDP sponsors include 
all covered part D drugs in the following categories and classes: 
anticonvulsants, antidepressants, antineoplastics, antipsychotics, 
antiretrovirals, and immunosuppressants for the treatment of transplant 
rejection. This requirement will be in effect for plan year 2011 and 
until such time as we undertake additional notice-and-comment 
rulemaking to establish the criteria for identifying classes and 
categories of drugs of ``clinical concern.'' Continuing to protect the 
current six classes of ``clinical concern'' will ensure that 
beneficiaries will continue to have access to the medications they need 
and will not experience a disruption in care. We note that PPACA 
requires that sponsors cover ``all'' Part D drugs rather than ``all or 
substantially all'' as required under section 30.2.5 of the 
Prescription Drug Manual.
    Consistent with this approach, we have decided to adopt, in 
regulatory text, neither the criteria we proposed in the October rule 
which were specified by MIPPA for identifying classes and categories of 
drugs of ``clinical concern,'' nor the definitions used to interpret 
the MIPPA criteria. However, we are retaining the exceptions process in 
the regulatory text, as new Section 1860D-4(b)(3)(G) of the Act retains 
the exceptions process established under MIPPA.
    Comment: Several commenters expressed opposition to our exception 
that inclusion of ``all covered Part D drugs'' on formulary from a 
protected class or category does not extend to the inclusion of all 
brand-name drugs and generic versions of a covered drug in question. 
They argue that this exception is inconsistent with other CMS formulary 
requirements, namely our midyear formulary change policy for which they 
argue that CMS makes it clear that a brand-name drug and its generic 
counterpart are different ``drugs'' for the purpose of submitting 
formulary changes. In addition, one commenter expressed concerns about 
different exceptions in therapeutic equivalent products, stating that 
some may not provide the same benefit in the physician's judgment.
    Response: We disagree with the commenters' arguments. It is 
important to distinguish our formulary change policy from the 
definition of a ``drug'' for the purpose of explaining therapeutic 
equivalence. For the protection of beneficiaries who may experience 
cost sharing changes, we require that when a new generic equivalent is 
released into the market and a plan sponsor proposes to add the new 
generic to its formulary and remove the brand-name drug, we approve the 
change and notice be sent to affected beneficiaries to make them aware 
that a generic equivalent is available and that there may be a change 
in their cost-sharing if they continue to take the brand-name.
    For the purpose of formulary submission to us, our regulations 
specify at Sec.  423.120(b)(2)(i) that two therapeutically equivalent 
drugs cannot be used to satisfy our requirement that there be at least 
two drugs per category and class on formulary. Contrary to the 
commenters' assertions, we believe this existing formulary requirement 
is consistent with our proposal in that both standards acknowledge that 
therapeutically equivalent products are the same drug. Further, as 
stated in our January 28, 2005 Part D final rule (70 FR 4260), 
inclusion of ``all covered Part D drugs'' within a class or category of 
clinical concern does not extend to inclusion of all brand-name drugs 
and generic versions of the covered drug in question. The Orange Book, 
published by the FDA, is a widely accepted standard for determining 
therapeutically equivalent drugs within the same class/category (see 
http://www.accessdata.fda.gov/scripts/cder/ob/default.cfm). Therefore, 
we disagree that our policy stating that inclusion of ``all covered 
Part D drugs'' on formulary from a protected class or category does not 
extend to the inclusion of all brand-name drugs and generic versions of 
a covered drug in question is somehow inconsistent with other formulary 
policies.

[[Page 19768]]

    Finally, with regard to the one comment that some therapeutically 
equivalent drugs may not provide the same benefit in the physician's 
judgment, we note that a beneficiary, working with his or her 
physician, may pursue an exception if they believe that a drug 
considered to be a therapeutic equivalent is not providing the same 
benefit as the brand drug originally prescribed.
    Comment: Several commenters oppose the application of any 
utilization management edit applications for protected class drugs. 
Other commenters contended that our proposal undermines the benefits of 
formulary and utilization management processes. A few commenters in 
particular oppose our exception for drugs ``with very limited 
applicability to the Medicare Part D population and non-Part D drugs'' 
to be included on formulary under the regulatory protected classes 
provision, arguing that if a drug fits the criteria, it should be 
protected.
    Response: We disagree with these commenters. Consistent with the 
definition of a Part D drug under Sec.  423.100, we do not require 
inclusion on formularies those drugs that are paid for under Part B 
(for example, ``incident to'' drugs supplied and administered by 
physicians during patient visit and paid for under Part B), and drugs 
whose regulatory status under the definition of a Part D drug is 
unknown. To do so when they are not payable under Part D would lead to 
beneficiary confusion. Therefore, we are maintaining this policy in 
this final rule.
    Comment: A few commenters expressed concern over CMS's proposal 
permitting the use of utilization management processes that limit the 
quantity of drugs under protected classes due to safety. One commenter 
argues that this policy would create a significant opening for plans to 
expand ``restrictive policies'' and that CMS should be clear on what we 
mean by safety edit. The commenter asserted that it is important for 
CMS to further define what a valid safety edit is and to specifically 
link it to prevention of imminent harm to the health of the 
beneficiary. Another commenter asserted that the safety of any course 
of drug therapy is a clinical concern and it is critical for 
utilization controls not to interfere with appropriate clinical 
decisionmaking. This commenter notes that the imposition of safety-
based quantity limitations--even where well-intentioned--may harmfully 
interfere with patient needs if his or her clinical context is not 
fully taken into account. The commenter suggested that in evaluating 
safety-based exceptions, CMS should not rely only on information 
contained in the package insert, but should also consider clinical 
trial data and accepted standards of care.
    Response: We have been clear on what is meant by a safety edit. As 
indicated in section 30.2.2.1of Chapter 6 of the Medicare Prescription 
Drug Manual (see http://www.cms.hhs.gov/PrescriptionDrugCovContra/downloads/R2PDBv2.pdf), safety edits refer to point-of-sale (POS) edits 
implemented to satisfy concurrent drug utilization review (DUR) 
requirements set forth in Sec.  423.153(c)(2). Examples include 
screening for therapeutic duplication, age or gender-related 
contraindications, over-utilization, under-utilization, drug-drug 
interactions, incorrect drug dosage or duration of drug therapy, drug-
allergy contraindications, and clinical abuse/misuse. For the 
protection of beneficiaries, we continue to believe that the protected 
classes provision must not interfere with this POS DUR to help ensure 
that adverse events do not occur. We believe that such edits must be 
consistent with FDA labeling to ensure that they are based on 
scientific evidence and medical standards of practice. To the extent 
that an individual's clinical needs require a quantity greater than 
permitted under the FDA labeling, we believe that the exceptions 
process is the appropriate vehicle for resolution of such cases. 
Finally, in response to the comment that permitting the use of safety 
edits would create a significant opening for plans to establish 
restrictive policies, we disagree. Rather, our guidance is clear that 
edits need to conform to FDA labeling. To the extent that a plan 
sponsor would establish safety edits that were more restrictive than 
FDA labeling contrary to our guidance, we would likely uncover such 
edits through complaints or through a review of exceptions and appeals 
data and would instruct the plan to revise its processes immediately.
    Comment: A commenter requested that CMS clarify what is meant by 
``scientific evidence'' and specify how the use of such evidence would 
be validated with respect to CMS' proposed language that we may 
identify other exceptions ``through a process that is based upon 
scientific evidence and medical standards of practice (and, in the case 
of antiretroviral medications, is consistent with the Department of 
Health and Human Services Guidelines for the Use of Antiretroviral 
Agents in HIV-1-Infected Adults and Adolescents) and which permits 
public notice and comment).'' Another commenter urged CMS to establish 
any exception to the inclusion of all drugs and biologicals in a 
protected category or class only when warranted by scientific evidence 
and medical standards of practice, and only after a notice and comment 
period.
    Response: We will undertake future rulemaking to identify 
additional exceptions, as necessary. Further, where appropriate, we 
will provide the citation for the supporting scientific evidence and 
medical standards of practice to support our findings. We note that an 
example of scientific evidence may include information contained in the 
FDA drug approval records or may include evidence referenced in widely-
used treatment guidelines, such as those approved by the Agency for 
Healthcare Research and Quality (AHRQ).
2. Pro-rating the Plan Deductible for Part C MSA Enrollments Occurring 
During an Initial Coverage Election Period (Sec.  422.103)
    In the October 22, 2009 proposed rule, we proposed to revise the 
regulations to provide for the pro-rating of the plan deductible under 
an MA MSA plan in the case of enrollments occurring during an initial 
coverage election period at a time other than the beginning of the 
year. As we noted in the preamble to the proposed rule, section 
1851(a)(2)(B) of the Act provides that Medicare Advantage Medical 
Savings Account (MSA) plans are a type of MA plan that a MA-eligible 
Medicare beneficiary can elect to receive his or her Medicare Part A 
and B benefits. An MSA plan combines both a tax advantaged Medical 
Savings Account (MSA) and a high-deductible health insurance policy. 
Under this MA plan option, Medicare pays the MA organization offering 
the MA plan the premium amount charged by the organization for a high-
deductible insurance policy and the remainder of the MA payment amount 
is deposited in the enrollee's MSA. If an individual enrolls in such a 
plan midyear, under section 1853(e) of the Act, a pro-rated share 
corresponding to the number of months remaining in the calendar year is 
placed into the individual's savings account. However, as provided 
under Sec.  422.103(d) beneficiaries newly eligible for Medicare who 
enroll in MSAs midyear pursuant to an initial coverage election period 
(ICEP) are currently required to pay the full ``high deductible'' for 
the calendar year. For example, an enrollee whose 65th birthday is in 
May and who chooses to enroll May 1 will be given 8/12ths of the 
deposit that has been approved for the plan for the year, but this 
enrollee is required to pay the full deductible approved for the plan 
for the

[[Page 19769]]

entire calendar year. An enrollee whose 65th birthday is later in the 
year could enroll, for example, on September 1 and would receive a pro-
rated deposit representing only 4/12ths of the year; however, this 
enrollee would also be required to pay the full calendar year 
deductible.
    The deductible under an MSA plan is governed by section 
1859(b)(3)(B) of the Act, which specifies the maximum amount of what 
the statute refers to as the ``annual deductible'' under an MSA plan. 
In the October 22, 2009 proposed rule, we proposed to infer from the 
statute's use of the term ``annual'' that the deductible amount at 
issue was intended to apply to a full 12-month period, and thus to 
specify in a proposed revised Sec.  422.103(d) that an individual who 
enrolls in an MSA plan under an ICEP other than at the beginning of the 
calendar year would only be subject to that portion of the ``annual'' 
deductible corresponding to the number of months in which the 
individual is enrolled. Interested beneficiaries would be able to 
inquire with organizations sponsoring MSA plans about their options 
prior to enrollment, and, upon enrollment, would receive a confirmation 
of enrollment letter that would inform them of both their pro-rated 
deposit amount and their pro-rated deductible. As the result of our 
review and consideration of commenter support for our proposal, we are 
modifying Sec.  422.103(d) in this final rule to provide for a pro-
rated deductible in the case of any beneficiary enrolling in an MSA 
plan after January 1, not just an enrollment pursuant to an ICEP.
    Comment: A commenter supported as ``positive'' our proposal to 
``revise the regulations to specify that beneficiaries who enroll in a 
Part C MSA during the year'' be required to ``pay only a pro-rated 
deductible consistent with a pro-rated deposit.''
    Response: While the commenter's point in support of the policy 
rationale for our proposed revision to Sec.  422.103(d) was made in the 
context of our proposal to pro-rate deductibles for beneficiaries who 
enroll after January 1 under an ICEP, the commenter's point in support 
of symmetry between a pro-rated deposit and a pro-rated deductible 
would apply to any situation in which a beneficiary enrolls in an MSA 
plan after January 1. It is noteworthy that the language in section 
1853(e) of the Act limiting the Medicare payments to months in which 
the individual is enrolled is not limited to a late enrollment under an 
ICEP. We thus believe that the symmetry supported by the commenter 
should apply in all cases of midyear enrollment in an MSA plan. For 
example, a beneficiary who receives a special election period for 
relocating, and enrolls in a MSA plan after January 1, should be 
required to pay only a pro-rated deductible. Therefore, we are 
modifying Sec.  422.103(d) in this final rule to allow all 
beneficiaries who enroll in a MSA plan midyear to pay a pro-rated 
deductible.

G. Changes to Clarify Various Program Participation Requirements

    This section addresses proposals from the October 22, 2009 proposed 
rule that would either clarify existing regulations or implement new 
requirements consistent with existing policy guidance, to assist MA 
organizations with and PDP sponsors in attaining the goals envisioned 
by the Congress when the legislation implementing the Medicare 
Advantage and Prescription Drug Benefit programs was first passed. 
These clarifications are detailed in Table 7.

                  Table 7--Clarifications of Various Sponsor Program Participation Requirements
----------------------------------------------------------------------------------------------------------------
                                                 Part 422                                Part 423
            Provision            -------------------------------------------------------------------------------
                                        Subpart             Section             Subpart             Section
----------------------------------------------------------------------------------------------------------------
Clarify what we mean by uniform   Subpart C.........  Sec.   422.100(d).  Subpart C.........  Sec.   423.104.
 benefits.
Ensure security of protected      Subpart K.........  Sec.   422.504....  Subpart K.........  Sec.   423.505.
 health information and other
 personally identifiable
 information.
Require plans to report other     Subpart C.........  Sec.   422.108....  Subpart C.........  Sec.   423.464.
 payer information to support
 coordination of benefits (COB).
Visitor/Traveler Benefit under    Subpart B.........  Sec.   422.74.....  N/A...............  N/A.
 Part C for the Purpose of
 Extending Enrollment up to 12
 Months.
Codify authority to establish     N/A...............  N/A...............  Subpart D.........  Sec.   423.153(d).
 (MTM) Program requirements.
Clarify Pharmacy & Therapeutics   N/A...............  N/A...............  Subpart C.........  Sec.   423.120.
 (P&T) Committee requirements.
Generic equivalent disclosure...  N/A...............  N/A...............  Subpart C.........  Sec.   423.132.
Application of access standards   N/A...............  N/A...............  Subpart C.........  Sec.   423.120.
 at application level.
Standard Timeframe for coverage   N/A...............  N/A...............  Subpart M.........  Sec.   423.568.
 determinations.
Clarify Novation requirements...  N/A...............  N/A...............  Subpart L.........  Sec.   423.551.

[[Page 19770]]

 
Cost Contract Program revisions:  Subpart O.........  Sec.   417.428....  N/A...............  N/A.
 Appeals and Marketing                                Sec.   417.492....
 Requirements.                                        Sec.   417.494....
                                                      Sec.   417.500....
                                                      Sec.   417.640....
----------------------------------------------------------------------------------------------------------------

1. Uniform Benefits Under Parts C and D (Sec.  422.100(d) and Sec.  
423.104(b))
    In the October 22, 2009 proposed rule, we proposed to revise Sec.  
423.104(b) to mirror the language at Sec.  422.100 to specify that Part 
D sponsors apply uniform premiums and cost-sharing. As we noted in the 
proposed rule, section 1852(d)(1)(A) of the Act requires a MA 
organization offering a plan to select the providers from whom the 
benefits under the plan are provided so long as the organization makes 
such benefits available and accessible to each individual electing the 
plan within the plan's service area with reasonable promptness and in a 
manner which assures continuity in the provision of benefits. Section 
1860D-2(a) of the Act defines qualified prescription drug coverage to 
mean access to standard or actuarially equivalent prescription drug 
coverage and access to negotiated prices (in accordance with section 
1860D-2(d) of the Act). We codified these sections of the statute in 
our regulations at Sec.  422.100(d) and Sec.  423.104(b) prior to the 
proposed rule, but believed that Sec.  423.104(b) should be further 
clarified in regards to the PDP sponsor's imposition of uniform 
premiums and cost sharing. In this final rule, we adopt this provision 
as proposed with a minor revision.
    Comment: One commenter is concerned about how the uniform 
requirement would be applied in unusual circumstances that may not be 
in the enrollee's best interests. For example, the commenter asked what 
would happen if an enrollee has already paid the applicable cost 
sharing amount once, but by no fault of the beneficiary, the drug is 
either no longer usable, or available because of a natural disaster. 
Waivers should be considered in these special circumstances.
    Response: The circumstance the commenter refers to is more 
appropriately addressed by our emergency access policy and not by a 
revision to, or waiver of, the uniform benefit requirement. Our 
emergency access policy is currently provided in Chapter 5 of the 
Medicare Prescription Drug Benefit Program Manual and outlines our 
expectations of Part D sponsors when administering the Part D benefit 
during a natural disaster or public health emergency.
2. Ensuring the Security of Protected Health Information (PHI) and 
Other Personally Identifiable Information (Sec.  422.504 and Sec.  
423.505)
    In our October 2009 proposed rule (74 FR 54690), we specified that 
we interpret the Secretary's right to audit or inspect the facilities 
of MAOs and Part D sponsors to monitor compliance with MA and Part D 
program regulations as including the evaluation of compliance with our 
requirements for maintaining the privacy and security of protected 
health information (PHI) and other personally identifiable information 
of Medicare enrollees. In order to clarify our policy that 
beneficiaries' PHI and other personally identifiable information must 
remain secure, we proposed to revise Sec.  422.504 and Sec.  423.505 to 
make this interpretation explicit. In a related change, we proposed to 
clarify that we interpret the term ``facilities'' to include an MAO's 
or Part D sponsor's computer or other electronic systems. We proposed 
to implement these proposed changes at Sec.  422.504(e)(1)(ii) and 
Sec.  423.505(e)(1)(ii). We also proposed conforming changes to the 
contract requirements related to downstream entities at Sec.  
422.504(i)(2)(i) and Sec.  423.505(i)(2)(i), respectively. We noted in 
the preamble to the proposed rule that we may review systems and 
computer information generated by downstream and related entities for 
compliance with privacy and security requirements. Such information 
includes, but is not limited to, backup tapes, print outs of screen 
shots, CDs, and similar information, whether in the possession of a 
downstream or related entity or obtained from such entities by the MAO 
or Part D sponsor. We are adopting the revisions to Sec.  422.504 and 
Sec.  423.505 as specified in the proposed rule.
    Comment: Several commenters supported the proposed provisions with 
one commenter suggesting that CMS draw upon its expertise in evaluating 
and assessing plan compliance with personal health information-related 
requirements.
    Response: We appreciate the suggestion and will consider this as we 
develop any additional guidance on PHI-related requirements.
    Comment: A commenter questioned CMS' authority to request backup 
tapes and computer-generated information held by pharmacies as part of 
CMS' review of privacy/security of PHI requirements. The commenter 
writes that tapes and computer data can contain information beyond that 
normally submitted by plans and which is often unrelated to a 
pharmacy's Part D contract. If CMS is, in fact, asking for information 
outside of that provided as part of the pharmacies' contracts with Part 
D plans or claims data that pharmacies routinely submit, the commenter 
requests that CMS clarify its authority for doing this.
    Response: Although we have the authority to review information 
generated in connection with the downstream or related entity's 
contract with an MAO or Part D sponsor, including information related 
to compliance with privacy and security requirements, it has never been 
our intent to review documents or information unrelated to a pharmacy's 
or other downstream or related entity's Part C or Part D contract.
3. Requirement for Sponsoring Organizations Under Parts C and D to 
Report Other Payer Information to the Coordination of Benefits 
Contractor (Sec.  422.108, Sec.  423.462, and Sec.  423.464)
    In the October 22, 2009 proposed rule, under the authority of 
sections 1852(a)(4) and 1860D-2(a)(4) of the Act, we proposed to 
require the reporting of other coverage information in Sec.  422.108 
for MA organizations and Sec.  423.462 and Sec.  423.464 for PDP 
sponsors. Our rationale for proposing these changes was the importance 
of the other payer information for Medicare Seconday Payer (MSP) 
procedures and for prescription drug program coordination of benefits. 
We proposed to limit required reporting to that information

[[Page 19771]]

which is reported to the sponsor as being inconsistent with existing 
information on the COB file.
    As we noted in the October 22, 2009 proposed rule, MA organizations 
are responsible for identifying payers that are primary to Part C of 
Medicare, determining the amounts payable by those payers, and for 
coordinating the benefits the plan offers with the benefits of such 
payers. Additionally, MA organizations must take into account Part C 
costs that could have been recovered or avoided due to MSP when 
determining costs in the base period for purposes of their MA plan 
bids. MA organizations must account for Part C MSP amounts in one of 
three ways. MA organizations must--
     Recover from liable third parties;
     Avoid Part C costs by directing providers to bill liable 
third parties directly; or
     Account for Part C costs that could have been recovered or 
avoided, but that were actually not recovered or avoided, by not 
including them in Part C base period costs.
    MA organizations and PDPs are required to follow the same rules 
regarding--
     Their responsibilities under the MSP statutory and 
regulatory provisions;
     Collection of payment from insurers, group health plans 
and large group health plans, the enrollee, or other entities for 
covered Part D drugs; and
     The interaction of MSP rules with State laws.
    A Part D sponsor must also coordinate with SPAPs, as well as other 
drug plans, including Medicaid programs, group health plans, FEHBP, 
military coverage, and other plans or programs providing prescription 
drug coverage. To support the required benefit coordination, section 
1860D-2(b)(4)(D)(ii) of the Act permits Part D sponsors to request 
information on third party insurance from beneficiaries. In addition, 
we noted that the growing number of CMS data sharing agreements with 
other payers has improved the volume and quality of other payer 
information available to MA organizations and prescription drug 
sponsors on the COB data file provided by CMS. New mandatory insurer 
reporting of MSP group health plan coverage, liability insurance, no-
fault insurance, and workers' compensation, required by section 111 of 
the Medicare, Medicaid, and State Children's Health Insurance Program 
(SCHIP) Extension Act of 2007 (P.L. 110-173) (MMSEA), further expands 
the other payer information available for MA organization and PDP MSP 
procedures and for Part D sponsor COB (see 42 U.S.C. 1395y(b)(7) and 
(8)). Most insurers will need to report their own coverage already. It 
is only when an MA organization becomes aware of coverage that is 
primary to Medicare offered by another insurer that it will need to 
report under this rule.
    Accordingly, given the importance of the other payer information to 
MA organization and PDP MSP procedures and for prescription drug 
program coordination of benefits, we proposed to include in regulatory 
text the requirement that MA organizations and Part D sponsors, upon 
being notified of credible new information regarding other payers, or 
changes to existing other payer information, report this information to 
the CMS COB Contractor (COBC) in accordance with the processes and 
timeframes established by us. The proposed changes would change the 
requirement on MA organizations, but would not change current MSP and 
coordination of benefits policy for the prescription drug program.
    We noted that by ``credible'' we mean information that is 
consistent with conventions for how group health insurance coverage is 
identified, for instance, information that includes the name and 
address of the insurance company and the policy identification number. 
We also proposed to extend the reporting requirements to MA 
organizations as they relate to other primary payers. We noted that 
original Medicare, MA organizations, or Part D sponsors should never be 
reported to CMS as a ``primary'' payer. In the absence of another (that 
is, non-Medicare) primary payer, original Medicare, an MA organization, 
or a Part D plan are always primary. This is not to say that if an 
enrollee has primary individual or employer group coverage with the 
same insurer or organization through which they also have MA or Part D 
coverage, such primary coverage should not be reported. In fact, such 
coverage must be reported. However, reporting original Medicare, an MA 
or Part D plan themselves as primary serves no purpose and merely 
causes confusion.
    After reviewing the comments received in response to the proposed 
rule, we are adopting Sec.  422.108(b)(3) and Sec.  423.462(b) as 
proposed.
    Comment: A commenter supported CMS' proposed Part C reporting 
requirement. Another commenter requested that we revise the new 
regulatory language to reference the fact that we will only require 
MAOs and PDPs to report ``credible'' new information and that CMS 
either revise the regulatory language or mention in the preamble 
discussion to the final rule that we will only require reporting on 
information that is inconsistent with that in the COB data file.
    Response: In this final rule, we are reiterating that the portion 
of the preamble discussion in the proposed rule related to the 
requirement to report only MSP and COB information that is inconsistent 
with existing information on the COB data file. We have also repeated 
the preamble discussion of what we mean by ``credible'' new information 
and confirmed that we only expect MAOs and PDPs to report such 
``credible'' new information to the COBC. We have not modified the 
regulatory language since we believe it is unnecessary to do so. 
However, we have added Sec.  423.464(h), which we inadvertently omitted 
from the proposed rule. Operational guidance, in the form of our 
implementing instructions, will be consistent with preamble language in 
both the proposed rule and this final rule.
    Comment: One commenter pointed out the apparent discrepancy between 
the 30-day timeframe for reporting credible MSP/COB information to the 
COBC we mentioned in the preamble of the October 2009 proposed rule, 
and the 45-day timeframe for correcting discrepancies in MSP status 
(with an additional 10 days to submit corrections) discussed in Chapter 
5 of the MSP Manual. The commenter requested that CMS retain the 
existing 45-day timeframe, with an additional 10 days for submission to 
the COBC.
    Response: As noted in the preamble of the proposed rule, section 
50.2 of the Coordination of Benefits chapter of the Medicare 
Prescription Drug Benefits Manual (CMS Publication  100-18, 
Chapter 14, last updated in September 2008) provides for reporting 
within 30 days of receipt and can be accessed on the Internet at: 
http://www.cms.hhs.gov/prescriptiondrugcovcontra/12_PartDManuals.asp.
    We will consider this comment as we develop operational guidance 
related to the reporting of MSP information related to Part C by MAOs. 
However, we note that the timeframe for reporting MSP status in section 
10.1 of Chapter 5 of the MSP manual is actually the lesser of 10 
calendar days from completion of the evaluation or 45 calendar days 
from receipt.
    Comment: A commenter asked if the requirements in Sec.  422.108 and 
Sec.  423.462 apply to only MA plans, or if these requirements also 
apply to Group Health Plans.
    Response: The regulations at Sec.  422.108 apply to MA 
organizations, while the regulations at Sec.  423.462 apply

[[Page 19772]]

to both MA organizations offering Part D benefits as MA-PDs and free 
standing PDPs. Information on the rules related to Group Health Plan 
reporting of insurance coverage required by section 111 of MMSEA can be 
found on the following Internet Web site: http://www.cms.hhs.gov/mandatoryinsrep/.
    Comment: A commenter noted an inconsistency between the preamble 
and the regulation language. The commenter stated that CMS seems to 
have failed to include regulation language at Sec.  423.464 requiring 
Part D sponsors to report new or changed supplemental prescription drug 
coverage information.
    Response: In the preamble of the proposed rule, we indicated our 
intention to revise Sec.  423.464 to include a new requirement for Part 
D sponsors to report new or changed other prescription drug coverage 
information to the CMS COB Contractor. However, due to an oversight, 
the regulatory language for this requirement was not included in the 
proposed rule. However, the preamble discussion of this proposed 
requirement put interested parties on notice that we were considering 
imposing a new requirement on Part D sponsors to report new or changed 
prescription drug coverage information to the CMS COB contractor. 
Furthermore, we continue to believe that this reporting requirement is 
necessary to support the effective coordination of prescription drug 
benefits. Accordingly, we are including this new requirement at Sec.  
423.464(h) in this final rule.
4. Visitor/Traveler Benefit Under Part C for the Purpose of Extending 
Enrollment Up to 12 Months (Sec.  422.74)
    In the October 2009 proposed rule, we proposed to revise our 
requirements for MA visitor/traveler benefits under Part C. Section 
422.74(d)(iii) currently provides that an MA plan can offer a 
``visitor'' or ``traveler'' (V/T) type program which would allow its 
enrollees to remain enrolled in the MA plan while out of the plan's 
service area for up to 12 months. Although we stated in the preamble of 
the final rule in which Sec.  422.74(d)(iii) was promulgated (August 
22, 2003 (68 FR 50848)) that the visitor or traveler program must cover 
the ``the full range of services available to other members,'' we did 
not specify in regulation text what we intended by ``full range of 
services.''
    In order to clarify an MA organization's obligation to cover 
services out of the service area, we proposed to amend Sec.  
422.74(d)(4)(iii) to specify that an MA organization may offer an 
extended enrollment V/T benefit option under an MA plan if that plan 
furnishes all plan covered services, that is, Medicare Parts A and B 
services and all mandatory and optional supplemental benefits at in-
network cost-sharing levels consistent with Medicare access and 
availability requirements at Sec.  422.112. Under this proposed 
clarification, MAOs that offer a V/T benefit under an MA plan would be 
required to make the option available to all plan enrollees. We 
proposed that the V/T benefit must be available to all plan enrollees 
who are temporarily in the areas where the V/T benefit is offered for 
the 6 to 12 months the member may remain in the area and stay enrolled 
in the MA plan. We are adopting our proposed revision to Sec.  
422.74(d) (4) (iii) without further modification in this final rule.
    Comment: A few commenters supported our proposed revisions to the 
V/T benefit requirements. They indicated that currently there is 
confusion surrounding the V/T benefit, and many beneficiaries have 
found the benefit does not provide them with access to Medicare-covered 
services they expected to have when outside their plan's network.
    One commenter supported providing Medicare-covered services under 
the V/T benefit, but opposed our proposed requirement to also include 
optional supplemental benefits. The commenter believed that this change 
would require organizations to adjust plan premiums and could 
ultimately impact an organization's decision to offer optional 
supplemental benefits if a plan is not able to develop and meet network 
access requirements in the areas in which it intended to offer the V/T 
benefit.
    Another commenter objected to the fact that the proposed revisions 
are less flexible than the existing rules governing V/T benefits and 
opposed the proposed requirement to provide supplemental benefits under 
the V/T benefit. The commenter indicated that it may be more feasible 
for MA organizations to enter into arrangements with providers in other 
areas of the country to provide access to Medicare-covered benefits 
than supplemental benefits. The commenter recommended that CMS defer 
incorporating the proposed changes into the MA regulations and instead 
issue draft sub-regulatory guidance for public comment.
    Response: We agree with the commenters supporting our proposal to 
require MA organizations that offer a V/T benefit under an MA plan to 
furnish all plan-covered services (Medicare Parts A and B services and 
all mandatory and optional supplemental benefits) at in-network cost 
sharing in the areas where the V/T benefit is offered. We note that it 
is optional for MA organizations to offer a V/T benefit and that a V/T 
benefit gives MA organizations the flexibility to retain their members 
when they are outside the service area for extended periods of time 
when they might otherwise be required to disenroll them for residing 
outside the service areas for more than 6 months. We do not agree that 
supplemental benefits should be excluded from a V/T benefit. Since MA 
organizations will receive full capitation payments for enrollees that 
reside outside the plan's service areas for more than 6 months, we 
believe that requiring the plan to cover all plan-covered benefits will 
allow the enrollees to continue to realize the complete benefit package 
for which they enrolled in the plan. An MA organization that is not 
able to form a network of direct contracted providers to furnish 
supplemental benefits may, with CMS approval, allow its enrollees to 
obtain these services from non-contracted providers in the areas in 
which it offers the V/T benefit. We are therefore retaining our 
proposed changes to Sec.  422.74(d)(4)(iii) in this final rule.
5. Medication Therapy Management Program Requirements (Sec.  423.153)
    In the October 22, 2009 proposed rule, we proposed to codify our 
policy guidance regarding medication therapy management programs 
(MTMPs) in the Part D regulations at Sec.  423.153. As we noted in the 
preamble to the proposed rule, based on the experience garnered from 
the first few years of the Part D program, and as we await further 
development of MTMP outcomes measures that can serve the Part D 
program, we have determined that it is necessary to have more specific 
Part D MTMP requirements for enrollment methods, targeting procedures, 
and MTM services. The 2010 Call Letter included policy guidance 
regarding the implementation of MTMPs that reflected common practices 
among Part D MTMPs that were derived from extensive review of MTMP 
applications, plan-reported data, exploratory research on MTM, 
informational interviews with Part D sponsors, and other relevant 
literature and data. In the proposed rule, we indicated that codifying 
this MTM guidance in the Part D regulations would promote greater 
consistency across the Part D program, and allow for better evaluation 
and comparison of MTMPs when outcomes measures become available.

[[Page 19773]]

    Specifically, in accordance with sections 1860D-4(c)(1)(C) and 
1860D-4(c)(2) of the Act, we proposed to add the following regulatory 
requirements regarding MTMPs--
     Section 423.153(d)(1)(v) to require Part D sponsors to 
enroll beneficiaries in their MTMPs using only an opt-out method of 
enrollment. The opt-out method of enrollment is currently the preferred 
method of enrollment among Part D sponsors, used by approximately 85 
percent of current MTMPs, and has increased enrollment of targeted 
beneficiaries into MTMPs;
     Section 423.153(d)(1)(vi) to require Part D sponsors to 
target beneficiaries for enrollment in the MTMP at least quarterly 
during each plan year. Currently, more than 95 percent of Part D 
sponsors target beneficiaries for enrollment in their MTMPs on a daily, 
weekly, monthly, or quarterly basis; and
     Section 423.153(d)(1)(vii) to require Part D sponsors to 
offer a minimum level of MTM services for each beneficiary enrolled in 
the MTMP that includes interventions for both beneficiaries and 
prescribers; annual comprehensive medication reviews; and quarterly 
targeted medication reviews.
    In addition, we proposed to revise Sec.  423.153(d) to clarify 
which beneficiaries should be targeted for MTMP services.
    In this final rule, based on the public comments we received in 
response to the proposed rule, we adopt these provisions with some 
modification, as explained below. Specifically, at Sec.  
423.153(d)(2)(iii), we adopt a specific dollar threshold of $3,000 in 
incurred annual costs for covered Part D drugs, instead of, as 
proposed, relying on the Initial Coverage Limit (ICL) as the threshold 
at which plans must target beneficiaries for MTM services. The $3,000 
cost threshold will be indexed using the annual percentage increase in 
average per capita aggregate expenditures for Part D drugs, which is 
found in Sec.  423.104(d)(5)(iv). We note that these provisions are 
consistent with the changes made in PPACA.
    Comment: One commenter is concerned that the proposed rule does not 
ensure adequate payment to pharmacies for MTM services. The commenter 
believes plan sponsors may shift costs associated with MTMPs to 
providers (specifically pharmacies) through lowered payments. The 
commenter urges CMS to require quarterly reporting of payment to 
pharmacies for MTM services and should ensure that pharmacies are paid 
adequately for furnishing these services.
    Response: We disagree with the commenter's recommendation that CMS 
require reporting of MTM payment data to ensure payment adequacy. The 
non-interference provision at section 1860D-11(i) of the Act explicitly 
provides that the Secretary may not interfere with the negotiations 
between pharmacies and PDP sponsors, which would include payment 
negotiations between the Part D sponsors and pharmacies for MTM 
services.
    Comment: One commenter encouraged CMS to require Part D sponsors to 
disclose to CMS their criteria for determining whether a comprehensive 
medical review (CMR) will be performed face-to-face or by phone.
    Response: We appreciate this comment, but believe that as long as 
the CMR is interactive and person-to-person, plans continue to have the 
discretion to determine whether it can be achieved through a phone or 
other alternative real-time method. We will monitor MTM program 
outcomes and performance to ensure best practices are adopted. In the 
event we receive data revealing weaknesses in this approach to CMR, we 
may consider revising the CMR minimum requirements in future 
rulemaking.
    Comment: One commenter suggests that when enrollees are provided 
with a written summary of the interactive consultation, such summary be 
provided promptly to all prescribers involved in an enrollee's care.
    Response: We agree with the commenter and believe such written 
summaries should be provided promptly to the provider. However, we 
believe the timeframe for the release of such summaries to providers is 
better addressed in the agreements between the MTM providers and the 
plans. The written summaries from the CMR will vary in complexity, 
depending upon an individual's diagnoses and medication usage; 
therefore, the time needed for preparation of such summaries will vary.
    Comment: A few commenters indicated that the outcomes of MTMPs 
would be enhanced by requiring at least one initial face-to-face 
consultation with a pharmacist to review the patient's drug regimen and 
by offering another face-to-face consultation at least quarterly. 
Another commenter indicated that the quarterly reviews should be done 
person-to-person as this interaction permits evaluation of cues that 
may otherwise be missed if performed through lower touch interventions. 
Furthermore, periodic re-evaluations must be conducted and MTMPs should 
initiate programs to detect proactively, on a monthly-basis, under-
utilization of prescribed medicines for all chronic therapies. MTMPs 
should also be required to initiate interventions to address 
underutilization on at least a quarterly basis.
    Response: We appreciate these comments, but not all beneficiaries 
can access the MTM services face-to-face or at the provider's location. 
Furthermore, we believe permitting alternative interactive methods (for 
example, by telephone or Web cam) will allow the sponsors to try 
innovative techniques that may better serve the beneficiary, especially 
when the beneficiary resides in a remote location or cannot travel to 
the provider's location. We emphasize, however, that when using 
alternative interactive methods, the CMR interaction must remain a 
real-time interaction.
    We do not require the quarterly assessment to be interactive 
because we believe lower touch interventions, coupled with the annual 
comprehensive medication review will allow the patient to be adequately 
served. However, we encourage plans, to follow up with a person-to-
person interaction if the quarterly review reveals that the patient is 
facing medication related problems.
    Comment: One commenter indicated that CMS should clarify what it 
means by interactive, person-to-person consultation. For some hearing 
impaired or technically savvy beneficiaries the Internet is a valuable 
communication tool. CMS should allow the use of emerging technologies 
to conduct the CMR.
    Response: As indicated in an earlier response, we agree that the 
use of alternative interactive methods be used by Part D sponsors, as 
long as the CMR is conducted in real-time.
    Comment: One commenter recommends sponsors have the flexibility to 
determine if an MTMP intervention should be for member, prescriber or 
both. Another commenter indicated that additional clarification is 
needed about any and all prescriber interventions to ensure that MTM 
services are coordinated with and do not adversely impact on, or 
interfere with, the relationship between the enrollee and his/her 
prescriber.
    Response: Section 423.153(d)(1)(vii), would require Part D sponsors 
to offer interventions to the enrolled beneficiary and his/her 
prescriber. As indicated in the preamble to the proposed rule, this 
does not mean that all interventions must be targeted to both the 
beneficiary and prescriber. Instead, sponsors must determine, based 
upon the specific nature of the intervention, whether it should be 
targeted to the beneficiary,

[[Page 19774]]

the prescriber, or both, in order to promote coordinated care.
    Comment: One commenter indicated that it is important that CMS 
clarify how the MTM requirements will be applied, if at all, in the 
long-term care setting. Furthermore, this commenter asked how Part D 
sponsors will coordinate their efforts with the consultant pharmacists 
who conduct monthly drug regimen reviews for all residents in Medicare/
Medicaid certified facilities.
    Response: The same MTM program requirements apply to long-term care 
residents as apply in the outpatient setting, except that Part D 
sponsors are not required to offer an interactive CMR to targeted 
beneficiaries in an LTC setting. The Part D sponsor will still be 
required to do the quarterly medication reviews and offer interventions 
targeted to the individual's prescribers. Part D sponsors are not 
required to coordinate their MTM services with the monthly drug regimen 
reviews of the facilities' consultant pharmacists at this time.
    Comment: We received several comments regarding performance 
measures for pharmacists. Commenters made the following 
recommendations:
     CMS should continue to use validated performance-based 
measures for pharmacy providers, such as the Pharmacy Quality Alliance 
(PQA) measures. These measures will give further definition to MTMPs, 
distinguish among different pharmacy providers and the types of MTMPs 
provided and appropriately compensate pharmacists that are able to 
improve quality of care.
     CMS should consider additional performance measures, in 
conjunction with participating pharmacists, and the performance 
measures should be made available publicly, on a yearly basis. The 
commenter suggested that CMS adopt only performance measures 
established by national voluntary consensus building.
     CMS should continue to allow as much flexibility as 
possible until evidence can demonstrate what aspects of an MTMP bring 
desired results.
     CMS should expand upon existing data collection and 
reporting requirements. At a minimum, reported data should include--
    ++ Number of adverse drug events avoided, categorized by reason;
    ++ Data on adherence and persistence by enrollees to their 
prescribed drug therapies;
    ++ Information on the form, frequency, and types of interventions; 
and
    ++ Data on the per capita administrative and drug costs under each 
program.
    Response: We appreciate the commenters' interest in this issue. We 
will continue to utilize valid performance measures such as the 
measures developed by the PQA. In addition, we will evaluate MTM 
outcome data that we receive under the Part D reporting requirements to 
ensure that Medicare beneficiaries are receiving effective and 
appropriate MTM services. We will also continue to evaluate MTMPs to 
ensure consistent guidelines are applied, and issue best practices when 
necessary. We note that an MTM contract was awarded through 2010 to 
assist CMS in monitoring and evaluating sponsor's MTM programs.
    Comment: Two commenters indicated that MTM services should be 
included as part of access standards for retail pharmacies. Another 
commenter requested that CMS ensure that pharmacists working in 
community pharmacy practice settings (network pharmacies), and 
pharmacists unaffiliated with network pharmacies, have the opportunity 
to contract with Part D plans to provide MTM services.
    Response: These comments are outside the scope of this rulemaking 
and therefore we will not be addressing them in this rule.
    Comment: A few commenters recommend that CMS consider requiring, or 
signaling a preference for, pharmacists to provide MTM services. 
Another commenter requested clarification regarding the characteristics 
of an ``other qualified provider'' in the regulation and at a minimum, 
a requirement that the provider have demonstrated expertise in 
medication use management.
    Response: At present, 99 percent of the MTMPs are utilizing the 
services of pharmacists. While CMS believes pharmacists will continue 
to be the main provider of MTM services, the statute at 1860D-4(c)(2) 
of the Act permits plans the flexibility to use other qualified 
providers to perform the MTM. At this time, CMS does not believe it is 
necessary to issue regulations to govern the qualifications for 
providers of MTM services, but may consider rulemaking in the future, 
if further data reporting and experience reveal that additional 
refinement of the policy is needed.
    Comment: Several commenters recommend that CMS not set specific 
program requirements in regulatory language, but continue to use the 
subregulatory mechanism offered by the annual industry call letter. 
They believe there is insufficient experience to include MTM policies 
in regulation, and the implications of the more detailed criteria for 
targeting beneficiaries for MTMPs are not yet clear.
    Response: We disagree with these commenters regarding placing the 
requirements in regulation. This rulemaking process has afforded both 
Part D plans and the public the opportunity to comment on the MTMP 
requirements prior to any changes being made to the existing 
requirements. Furthermore, because the MTMP requirements are being 
incorporated in our regulations, in the event a Part D sponsor fails to 
meet its MTMP services requirements, our ability to enforce those 
requirements has been enhanced. Accordingly, we believe that including 
these MTMP requirements in our regulations will help to ensure that 
targeted beneficiaries receive appropriate MTM services.
    Comment: One commenter recommends that CMS develop standardized 
billing and documentation data sets to eliminate the need for 
pharmacists to utilize specific platforms to obtain payment from 
different plans. A standardized data set should include a measure of a 
patient's clinical outcomes as well as the rates at which the patient's 
providers accept the pharmacist's recommendations.
    Response: We agree that the adoption of standardized documentation 
for MTM could be helpful in measuring the outcome of MTM. However, we 
believe any such standard documentation or billing be developed via an 
industry standard-setting group, and not by CMS.
    Comment: Several comments were received regarding the MTM targeting 
criteria. Specifically, commenters suggested that CMS--
     Decrease the maximum number of medications that a plan 
could require for a targeted beneficiary to be eligible for MTM 
services; currently that number is eight. One commenter recommended 
decreasing the number to six, to prevent patients taking combination 
drug products from being unintentionally excluded from the program 
because a single medication has replaced two separate drug products;
     Allow Medicare beneficiaries who do not qualify for MTM 
services to receive MTM services through a referral or prior 
authorization process initiated by their prescriber or pharmacist. Some 
patients with only one chronic disease or less than 8 medications may 
still have medication use issues that would benefit from participation 
in their plan's MTM program; and,
     Require MTM services upon discharge from the hospital or 
anytime a beneficiary undergoes a transition of care. In both 
situations beneficiaries

[[Page 19775]]

would benefit from receiving MTM services because MTM has the potential 
to reduce costly hospital readmissions due to medication misuse or non-
adherence.
    Response: The regulation governing the number of prescriptions an 
individual must take before he or she is targeted for MTM services sets 
both a ceiling and a floor on the number of prescriptions that may be 
required. Therefore, a plan sponsor has the discretion to determine 
whether to target beneficiaries taking anywhere from two to eight 
medications. Our data indicate that 85 percent of the plans reviewed 
targeted beneficiaries in a range of two to eight medications.
    As for targeting certain other beneficiaries for MTMP services, our 
regulations provide that sponsors must provide a minimum level of MTM 
services to targeted beneficiaries. To the extent a Part D plan wants 
to offer additional MTM services, or provide MTM services to 
individuals who do not meet the targeting criteria, including those 
individuals who have undergone a transition in their level of care, 
they may do so. However, additional administrative reimbursement will 
not be available for the provision of these additional services.
    Comment: We received some comments regarding MTM targeting 
frequency. One commenter indicated that CMS should consider increasing 
the minimum requirements regarding the frequency with which plans 
conduct outreach to eligible beneficiaries for enrollment in MTM 
programs, and specifically recommended that beneficiaries be targeted 
for enrollment at least monthly.
    Response: The requirement of quarterly targeting that was included 
in the proposed rule, and that is being adopted into this final rule, 
is a floor that Part D sponsors may build upon. Sponsors may adopt more 
frequent targeting than the minimum quarterly outreach threshold 
required under the regulation. We will also continue to monitor and 
evaluate MTM programs to determine if there is any significant 
difference in MTM outcomes when beneficiaries are targeted more 
frequently and will consider making further changes to our requirements 
if warranted.
    Comment: One commenter believed a better method for targeting 
beneficiaries would be to examine an individual's historical and 
expected aggregate health care spending using a cost threshold for 
eligibility that is based on total projected Medicare spending, rather 
than just Part D spending.
    Response: We do not agree with this approach. Pursuant to section 
1860D-4(c)(2)(A)(ii)(III) of the Act, targeted beneficiaries are 
defined as Part D eligible individuals who ``are identified as likely 
to incur annual costs for covered Part D drugs that exceed a specified 
level by the Secretary.'' Accordingly, the statute does not afford CMS 
the flexibility to permit plans to target individuals for MTM services 
based upon their expected aggregate health care spending. Furthermore, 
given the complexity of this suggested alternative, we believe the 
collection and review of health care spending data prior to determining 
whether an individual will be targeted for MTM services would only 
delay access to MTM services.
    Comment: One commenter indicated that a Part D sponsor's use of an 
opt-out only enrollment process for placing beneficiaries in its MTM 
programs must be carried out thoughtfully and carefully. CMS should 
require MTM program policies that promote patient collaboration with 
their physicians, provide adequate enrollment notification and include 
clear instructions on opt-out. CMS should also undertake an outreach 
initiative to physicians.
    Response: We appreciate the commenter's concerns regarding the 
application of the opt-out method to enroll beneficiaries into MTMPs. 
However, we believe the opt-out approach is critical for the health and 
well-being of the Medicare population. The elderly and disabled 
populations are most at risk of polypharmacy consequences. Therefore, 
an opt-out enrollment policy that requires no further action by the 
enrollee helps to ensure that vulnerable individuals will be enrolled 
in MTMPs, which we believe will reduce adverse drug reactions and 
ensure safe prescription drug practices, before their health is at 
risk. In addition, CMS has found that the opt-out enrollment method is 
the preferred method among Part D sponsors to increase the number of 
beneficiaries participating in MTMPs. In 2008, fewer than 15 percent of 
MTMPs utilized an opt-in method. We will continue to monitor Part D 
plans to ensure they engage in best practices when applying the opt-out 
enrollment method to their plan members.
    Comment: One commenter was concerned that the use of the initial 
coverage limit (ICL) as a targeting benchmark for Part D MTM may 
elevate cost considerations over clinical considerations in targeting 
beneficiaries for the Part D MTM program.
    Response: To the extent that the commenter appears to be stating 
that it is improper to consider cost considerations in targeting 
beneficiaries for the MTM program, we disagree. As discussed above, 
section 1860D-2(c)(2)(A)(ii)(III) of the Act expressly instructs CMS to 
consider costs for Part D drugs when targeting beneficiaries for MTM. 
However, following further consideration of this issue, reliance on the 
ICL, which is specifically tied to the cost structure of the Part D 
benefit to target beneficiaries for MTM may be problematic. There have 
been further legislative proposals to restructure the Part D benefit, 
including revising the ICL, that may have unintended consequences for 
basing the MTM targeting criteria on the ICL. Accordingly, we believe 
the establishment of a specific dollar threshold is more appropriate 
and are reverting back to the $3000 limit, which we previously 
established in the 2010 call letter. Consistent with statutory 
requirement that drug costs be considered in targeting beneficiaries 
for MTM, we will apply an index that is equal to the annual percentage 
increase in average per capita aggregate expenditures for Part D drugs. 
Specifically, we will adjust the $3000 threshold by the index used to 
increase the ICL, as originally proposed, which is currently found at 
Sec.  423.104(d)(5)(iv).
    The decision to apply a $3000 threshold is based upon program 
experience and our analysis of PDE data. We originally established the 
initial $4000 cost threshold at the inception of the Part D program. At 
that time, it was estimated that approximately 25 percent of the Part D 
eligible population would meet the three criteria and be targeted for 
MTM services. After two years of experience and analysis of plan 
reported data, we found that only 10.0 percent of beneficiaries 
enrolled in a Part D plan with an approved MTMP were eligible for MTMP 
in 2006 (13.1 percent were eligible for MTMP in 2007). In 2008, we 
conducted an analysis using PDE data from contract years 2006 and 2007 
obtained from the Integrated Data Repository (IDR) system. The total 
gross drug cost and number of beneficiaries that incurred annual drug 
costs (below) or (greater or equal) to the $4000 cost threshold was 
determined. The average number of PDE fills and average cost per 
beneficiary was also calculated. Further analysis examined cost 
breakouts in $500 increments to determine the distribution of 
beneficiaries, as well as the number of fills, and gross drug cost for 
beneficiaries with annual drug costs

[[Page 19776]]

within these breakouts. It was determined that close to 25 percent of 
Part D enrolled beneficiaries with drug utilization (beneficiaries with 
at least one PDE during the study period) during 2006 and 2007 had 
annual gross drug costs of at least $3000. Therefore, CMS lowered the 
cost threshold to $3000 in the 2010 Call letter. Based upon our 
analysis of the most recent data, it appears that this threshold will 
continue to ensure that approximately 25 percent of these beneficiaries 
utilizing the Part D benefit receive MTM services. Accordingly, we are 
adopting the $3000 cost threshold in this final rule.
6. Formulary Requirements--Development and Revision by a Pharmacy and 
Therapeutics Committee (Sec.  423.120)
    In the October 22, 2009 proposed rule, we offered further 
clarifications surrounding our formulary requirements associated with 
pharmacy & therapeutics (P&T) committees. As we explained in the 
preamble to the proposed rule, section 1860D-4(b)(3)(A) of the Act 
requires Part D sponsors to use a P&T committee to develop and review 
the formulary if the Part D sponsor uses a formulary. In developing and 
reviewing the formulary, section 1860D-4(b)(3)(B) of the Act requires 
the P&T committee to base clinical decisions on the strength of 
scientific evidence and standards of practice, including accessing 
peer-reviewed medical literature, such as randomized clinical trials, 
pharmacoeconomic studies, outcomes research data, and on such other 
information as the committee determines to be appropriate. The P&T 
committee must also consider whether the inclusion of a particular Part 
D drug in a formulary or formulary tier has any therapeutic advantages 
in terms of safety and efficacy.
    Based upon our experience with the formulary development process 
since the beginning of the Part D program, we have come to recognize 
that the application of prior authorization (PA) criteria, step 
therapy, and quantity limits are as important to the clinical soundness 
of a formulary as the drugs that are included. Access to Part D drugs 
may be influenced as much by the application of PA criteria, step 
therapy requirements, or quantity limit restrictions as it can be by 
exclusion of a Part D drug from a Part D formulary. Therefore, in 
accordance with section 1860D-4(b)(3)(A) and (b)(3)(B) of the Act, we 
proposed adding new paragraph Sec.  423.120(b)(1)(ix) to require P&T 
committees to review and approve all clinical PA criteria, step therapy 
protocols, and quantity limit restrictions applied to each covered Part 
D drug.
    In this final rule, we adopt these provisions as proposed.
    Comment: One commenter is concerned that utilization management 
(UM) requirements have become barriers to timely access, especially for 
the low-income population for whom the exceptions, reconsideration, and 
appeals processes are difficult to navigate. While UM tools may be used 
appropriately by a Part D plan, they may also result in impeding 
appropriate and timely access to prescribed medications and in 
themselves, can be discriminatory in beneficiary selection of the Part 
D plans to the extent that beneficiaries are even aware of the 
restrictions.
    Response: It is our intention that the changes adopted specifying 
the responsibilities of the P&T committee in this final regulation will 
address this commenter's concern regarding potentially discriminatory 
practices that may affect beneficiary protections. We believe P&T 
committees are in the best position to ascertain whether certain UM 
tools, when applied to covered Part D drugs, will inappropriately 
impede access to these drugs, since the committee's membership includes 
independent practicing pharmacists and physicians with the clinical 
knowledge necessary to provide an unbiased review of the impact of UM 
tools on the Part D sponsor's formulary.
    Comment: One commenter indicates that it supports CMS' improvement 
of the rigor of evidence supporting decisions of P&T committees, but 
encourages CMS to strengthen its evidence requirements even further. 
This commenter is concerned that the widely used treatment guidelines 
or clinical literature standard may not be specific enough and 
recommends that CMS amend Sec.  423.120 to provide that a Part D 
sponsor may require that beneficiaries try drugs supported solely by 
off-label indications only if the sponsor demonstrates that there are 
generally accepted, widely used and evidence-based treatment guidelines 
or substantial and credible clinical literature that recommend patients 
use an off-label indication.
    Response: The policy regarding a plan member's use of drugs for 
off-label indications is out of the scope of this final rule. However, 
we have recently adopted in our guidance (see the 2010 Call Letter 
released on March 30, 2009) that as part of our assessment of a 
formulary's appropriateness, Part D sponsors will not be permitted to 
require an enrollee to try and fail drugs supported only by an off-
label indication (an indication only supported in the statutory 
compendia) before providing access to a drug supported by an FDA 
approved indication (on-label indication) unless the off-label 
indication is supported by widely used treatment guidelines or clinical 
literature that we consider to represent best practices. Generally, we 
require such authoritative guidelines to be endorsed or recognized by 
Federal government entities or medical specialty organizations.
    Comment: One commenter indicated that they agree, theoretically, 
that the P&T committee should not have to approve administrative PA 
criteria, such as Part B versus Part D coverage, but their experience 
has been that plans utilize administrative criteria as excuses not to 
cover drugs. Therefore, they believe P&T committees should review the 
administrative criteria to make sure they are being applied properly. 
Another commenter indicated that CMS allow plan sponsors to implement 
non-clinical UM criteria without the input and prior approval of their 
P&T committees.
    Response: Consistent with the operational guidance in Chapters 6 
and 7 of the Medicare Prescription Drug Benefit Program Manual, we 
continue to require Part D sponsors to submit utilization management 
requirements, such as prior authorization, step therapy and quantity 
limits not based upon the FDA's maximum daily dose limits, as part of 
their Health Plan Management System (HPMS) formulary submission. We 
believe these UM tools should be reviewed by Part D sponsor P&T 
committees for the reasons stated above.
    However, we continue to believe that the administrative criteria a 
plan uses should not be subject to the P&T committee review because 
they do not require clinical information or justification. Moreover, we 
believe that when a beneficiary is subject to an administrative UM tool 
(that is, one that is not a coverage determination) that the 
beneficiary believes unfairly denies access to his/her prescription 
drugs, such cases can be addressed through the plan's grievance 
process. In accordance with Sec.  423.564, Part D sponsors must provide 
meaningful procedures for timely hearing and resolving enrollee 
grievances. Chapter 18 of the Medicare Prescription Drug Benefit Manual 
defines a grievance as any complaint or dispute other than one that 
involves a coverage determination or a low-income subsidy or late 
enrollment penalty determination, expressing dissatisfaction with any 
aspect of the operations, activities, or behavior of a Part D sponsor, 
regardless of whether

[[Page 19777]]

remedial action is requested. Because another avenue exists for redress 
of a beneficiary's concern about administrative criteria such as ``B 
versus D'' determination, we decline to adopt the commenter's 
suggestion.
    Comment: One commenter questioned the value of committing the 
resources of a P&T committee to review and approve quantity limits.
    Response: We believe there is value to P&T committees reviewing 
quantity limits since the imposition of quantity limits can affect 
clinical outcomes. As we previously stated in the preamble to the 
proposed rule, quantity limits are as important to the clinical 
soundness of a plan's formulary as the drugs that are included on the 
formulary. The P&T committee, as a body of clinicians, should review 
the quantity limits to ensure restrictions do not affect a plan 
member's access to covered Part D drugs that could lead to health or 
life-threatening outcomes, especially when quantity limits are not 
based upon the FDA's maximum daily dose limits.
    Comment: One commenter indicated that CMS provide Part D sponsors 
with minimum standards for P&T committees' clinical review and make 
those standards publicly available to further strengthen the clinical 
appropriateness of formularies.
    Response: We disagree with the commenter's suggestion that we 
dictate minimum standards for P&T committees' clinical review. Section 
1860D-4(b)(3)(B) of the Act requires the P&T committee base clinical 
decisions on the strength of scientific evidence and standards of 
practice, including accessing peer-reviewed medical literature, such as 
randomized clinical trials, pharmacoeconomic studies, outcomes research 
data, and on such other information as the P&T committee determines to 
be appropriate. Since the statute specifically directs P&T committees 
to make these clinical decisions, we believe it does not have the 
authority, or the capability, to establish clinical review criteria for 
the P&T committees.
    Comment: One commenter urged CMS to continue to engage in robust 
formulary review to ensure that a plan formulary appropriately reflects 
the clinical needs of Medicare beneficiaries.
    Response: We appreciate the comment, but changes to CMS' formulary 
review are outside the scope of this final rule. We are not making any 
further changes to our current formulary review process at this time 
because we believe we already conduct a robust formulary review 
consistent with the statutory and existing regulatory parameters, and 
current guidance.
    Comment: One commenter indicated that plans inform beneficiaries of 
utilization management criteria prior to selecting their plans.
    Response: As provided in Sec.  423.128(c) (2), a Part D plan, upon 
the request of a Part D eligible individual, must provide the 
procedures the Part D plan uses to control utilization of services and 
expenditures. CMS guidelines for marketing materials spell out that as 
part of a plan's formulary, Part D plans must indicate any applicable 
utilization management tools (such as, prior authorization, step 
therapy, and quantity limit restrictions) for the drug. Also, formulary 
and utilization management criteria must be appropriately displayed on 
the plan's Web site.
    Comment: One commenter requested that CMS require that P&T 
committee decisions be in writing, including the rationale behind 
formulary and utilization management policies, and that the committee's 
decisions be made public.
    Response: As stated in response to the previous comment, 
utilization criteria are made available to the public prior to 
enrollment, and to enrollees of the plan. Additionally, Sec.  
423.120(b)(1)(viii) requires the Part D sponsor's P&T committee 
decisions regarding formulary development or revision, as well as 
utilization management activities, be documented in writing. However, 
the Part D sponsors may consider decision by their P&T Committees to be 
proprietary and for this reason, we decline to require plans to make 
them public.
7. Generic Equivalent Disclosure Under Part D (Sec.  423.132)
    In the October 22, 2009 proposed rule, we proposed revisions to 
part D requirements related to the disclosure to Part D enrollees who 
are residents of long term care institutions of any differential in 
pricing of drugs dispensed compared to generic equivalents. As we 
explained in the preamble to the proposed rule, section 1860D-4(k)(1) 
of the Act requires a Part D sponsor to have each of their network 
pharmacies inform enrollees of any difference between the price of the 
drug(s) they are purchasing via the plan and the price of the lowest 
priced therapeutically equivalent generic product available to the 
pharmacy. Section 1860D-4(k)(2)(A) of the Act requires that this 
information be provided at the time of purchase except for purchases 
delivered by mail when it must be provided at the time of delivery. 
Under section 1860D-4(k)(2)(B) of the Act the Secretary has the 
authority to waive this requirement for certain entities in certain 
cases as specified in Sec.  423.132(c).
    When we issued the January 28, 2005 (70 FR 4273) Part D final rule, 
we specified that for enrollees in long-term care pharmacy settings, 
the timing portion of the disclosure requirement (that is, the 
requirement that the enrollee be informed at time of purchase) may be 
waived. Accordingly, sponsors were required to disclose the 
differential (if any) in pricing for long-term care network pharmacies 
by requiring that this information be provided in the explanation of 
benefits (EOB). However, over time, we have heard from sponsors, as 
well as pharmaceutical benefit managers on behalf of sponsors, that 
providing this information in the EOB is unworkable from a plan 
operational standpoint.
    We also came to realize that the generic equivalent information 
provided on the EOB is of no value to the long-term care beneficiary. 
Unlike the enrollee standing at the retail pharmacy counter at time of 
service, enrollees in long-term care institutions have limited 
opportunities to effect a switch to a lower-priced generic substitute 
before dispensing.
    For the aforementioned reasons, we proposed revising Sec.  
423.132(c) by adding long-term care network pharmacies to the list of 
entities for which from the public disclosure requirement is waived, 
and revise Sec.  423.132(d) to remove the requirement that long-term 
care network pharmacies provide the pricing differential information in 
enrollees' EOBs. In this final rule, we adopt these provisions as 
proposed.
    Comment: A number of commenters supported this change. One 
commenter wanted to go even further and eliminate this requirement for 
all areas of pharmacy practice because it imposes an unreasonable 
administrative burden.
    Response: We disagree that elimination of this requirement should 
be extended to all areas of pharmacy practice. Providing this 
information to the beneficiary at the time of purchase enables the 
beneficiary to choose the lowest priced product available at the 
pharmacy. The pharmacy can avoid the administrative burden by 
dispensing the lowest priced product.
    Comment: Only one commenter did not support this change and thought 
that providing this information in the EOB would help identify fraud, 
waste, and abuse and enable the beneficiary to change at a later date.
    Response: Although we agree that this information may have some 
value to a beneficiary in the long-term care setting,

[[Page 19778]]

the primary reason for removing this requirement is that it is 
unworkable from a plan operational standpoint considering the variable 
nature of generic pricing and the programming maintenance effort 
required, and we continue to believe that the value to the beneficiary, 
given the circumstances, does not justify the burden of maintaining the 
requirement.
8. Access to Covered Part D Drugs (Sec.  423.120)
    In the October 22, 2009 proposed rule, we made corrections to 
current regulatory requirements that would align the regulations with 
the intent of the statute with regard to the level of analysis that 
should be conducted for access to Part D drugs, namely at the Part D 
sponsor level, rather than at the plan level. As we noted in the 
preamble to the proposed rule, the statute at sections 1860D-4(b)(1)(C) 
and 1860D-21(c)(1) of the Act establishes the standards for convenient 
access for network pharmacies for PDP sponsors and other Part D 
sponsors. This section of the statute requires that the sponsor of a 
PDP shall secure the participation in its network of a sufficient 
number of pharmacies that dispense (other than by mail order) drugs 
directly to patients to ensure convenient access consistent with the 
rules established by the Secretary, and as long as they are no less 
favorable than the TRICARE pharmacy access standards. These standards 
are--
     Urban--a pharmacy within 2 miles of 90 percent of the 
beneficiaries;
     Suburban--a pharmacy within 5 miles of 90 percent of the 
beneficiaries; and
     Rural--a pharmacy within 15 miles of 70 percent of the 
beneficiaries.
    We adopted into regulation the TRICARE standards, but instead of 
specifying them at the contract or PDP sponsor level, erroneously 
established them at the plan level. Specifically, in Sec.  423.120(a) 
of the regulation, which describes the requirements to assure pharmacy 
access, we inadvertently used the term ``plans'' instead of the correct 
terminology of PDP sponsor or other Part D sponsors. This error is 
problematic when considering the definitions outlined in Sec.  422.2 
(for MA) and Sec.  423.4 (for Part D) because the term ``plan'' is 
intended to mean a specific benefit package offered to beneficiaries 
living in a geographic area. For any given service area, Part D 
sponsors frequently offer multiple plans under one contract with CMS, 
and any given plan may be offered within a subset of the Part D 
sponsor's total service area. For example, a Part D sponsor may offer a 
high and low option at one price in part of the contract's service 
area, and also offer a high and low option at a different price in the 
remaining portion of the contract's service area.
    We noted that our intention has always been to ensure adequate 
access to Part D covered drugs at sponsor level, not at the plan level. 
For one, the statute explicitly states that access should be ensured at 
the PDP sponsor level. Further, assessing adequacy of pharmacy access 
is one of the most critical steps in the Part D application review 
process and determining access to Part D covered drugs at the plan 
level is not possible during application review. This is because plan 
service areas (potentially subsets of Part D sponsor or organization 
service areas) are not determined until the time of the bid submission, 
which occurs after applications are reviewed. However, sponsor service 
areas are known at the time of application submission.
    Our correction would align our regulations with the intent of the 
statute with regard to the level of analysis that should be conducted 
for access to Part D drugs, namely at the Part D sponsor level, rather 
than at the plan level. We also noted in the preamble that as a 
practical matter and consistent with the current drafting of the 
regulation, if the Part D sponsor's entire service area is larger than 
one State, we will continue to ensure access at no greater than the 
State level for multistate regions. We noted that this approach is 
necessary to ensure that pharmacies are not unduly clustered in one 
part of the region.
    Therefore, based on the preceding, we proposed to revise the text 
of the regulation that discusses pharmacy access in Sec.  423.120(a)(1) 
through (a)(7) to refer to PDP sponsors, MA organizations offering 
local and regional MA-PD plans, and cost contracts rather than plans. 
Additionally, since Sec.  423.120(a) (defining access requirements for 
Part D drugs) references a definition provided in Sec.  423.112(a) 
(establishment of PDP service areas), it was necessary to correct the 
terminology in that location as well. Therefore, we proposed revising 
Sec.  423.112(a) to specify the establishment of service areas for PDP 
sponsors. We are adopting the above changes without further 
modification into this final rule.
    Comment: One commenter fully supported the proposed revision to the 
regulation clarifying access to Part D drugs be measured at the sponsor 
level, rather than at the plan level.
    Response: We appreciate the support.
    Comment: One commenter asked CMS to exercise its statutory 
authority to adopt regulations that would apply access standards more 
favorable to beneficiaries to Part D sponsors by increasing the urban 
and suburban percentages to 95 percent, and increasing the rural 
standard to 10 miles and 85 percent. This commenter believes that the 
current access standards are too lax, especially in rural areas. 
Additionally, this commenter noted that measuring distance ``as the 
crow flies'' when evaluating pharmacy access may not be representative 
of true driving distance in certain locations.
    Response: Our proposed regulatory change addressed only the 
organizational level at which the pharmacy access standards would be 
applied, not whether a change in those standards is warranted. While we 
appreciate the comment, we will not address it at this time as it is 
outside the scope of our proposal.
    However, we wish to allay the commenter's concern that measuring 
distance ``as the crow flies'' may actually underrepresent true driving 
distance. Presently, the software used by Part D sponsors to 
demonstrate they meet our retail pharmacy access standards has a 
feature that allows distance to be measured as estimated driving 
distance, and sponsors are instructed to use this feature.
    Comment: One commenter suggested that CMS move toward a more 
automated and streamlined process for conducting the initial review and 
ongoing monitoring of Part D sponsor's retail pharmacy networks. The 
commenter suggests CMS consider establishing a certification process 
whereby a first tier entity, such as a PBM, may submit one set of 
access reports in support of its certification. If found acceptable by 
CMS, all Part D sponsors using that PBM could demonstrate their 
compliance with the pharmacy access standards by submitting an 
attestation that the network they are using is already CMS-approved.
    Response: We appreciate the comment and note that we are working on 
developing a more automated system for the submission of pharmacy 
network information. That said, the issue of our review of network 
adequacy and the processes we use is outside the scope of our proposal, 
and we therefore decline to address it in this rule.
    Comment: One commenter urged CMS to create retail pharmacy access 
standards to ensure that beneficiaries have the choice of obtaining 
medication therapy management (MTM) services from their retail 
community pharmacies.
    Response: This comment concerns the administration of MTM programs, 
not the methodology for the calculation of retail pharmacy access 
standards.

[[Page 19779]]

Therefore, we will not address this comment as it concerns an issue 
outside the scope of our proposed regulatory change.
9. Standard Timeframe and Notice Requirements for Coverage 
Determinations Under Part D (Sec.  423.568)
    In the October 22, 2009 proposed rule, we proposed to make several 
changes to Sec.  423.568 related to the standard timeframes and notice 
requirements for coverage determinations under Part D. The first change 
we proposed was a technical change that would require Part D plan 
sponsors to accept standard coverage determination requests orally and 
in writing. This change would not apply to standard requests for 
payment, which must be submitted in writing unless the plan sponsor 
adopts a policy for accepting those requests orally. As we explained in 
the preamble to the proposed rule, we proposed this change to Sec.  
423.568 because section 1860D-4(g) of the Act requires Part D sponsors 
to follow the same procedures as MA organizations with respect to 
organization determinations and reconsiderations, and we were proposing 
to make an identical revision to Sec.  422.568 of the MA appeals 
regulations.
    We also proposed to revise the timeframe for a Part D plan sponsor 
to notify an enrollee of a payment determination in Sec.  423.568(b), 
and proposed to establish a regulatory timeframe for making payment to 
an enrollee when a decision is partially or fully favorable. The 
regulation currently requires a plan sponsor to notify an enrollee of 
its payment determination no later than 72 hours after receipt of a 
request, and manual guidance requires plan sponsors to make payment for 
fully or partially favorable decisions within 30 days of the request. 
The proposed revisions to Sec.  423.568(b) would require a Part D plan 
sponsor to notify an enrollee of a payment decision no later than 14 
calendar days after receiving a reimbursement request. If the decision 
is partially or fully favorable, the plan sponsor must also make 
payment within the same 14-day timeframe. For example, for partially 
and fully favorable decisions, a plan sponsor must both notify the 
enrollee of the decision and make payment no later than 14 calendar 
days after receiving the request). As noted in the preamble, we 
proposed to revise the reimbursement timeframes because we believe the 
existing 72-hour requirement is virtually impossible for plan sponsors 
to meet, and as a result, plan sponsors are issuing perfunctory 
denials. This outcome is not in the best interest of Medicare's Part D 
enrollees. We were also concerned that the existing requirement would 
in effect force enrollees into the Part D appeals process despite the 
fact that the majority of these claims could have been paid within the 
30-day reimbursement timeframe. Based on our experience and previous 
discussions with Part D plan sponsors, we determined Part D plan 
sponsors generally are capable of making reimbursement decisions and 
payment within a 14-day period following receipt of reimbursement 
requests. We believe the proposed revision to the timeframes for 
notifying enrollees of payment determinations will significantly 
increase the number of timely payment-related decisions by plan 
sponsors, and the revised timeframes for making payment will be more 
meaningful for the typical Medicare beneficiary who often cannot afford 
to wait 30 days to be reimbursed.
    Finally, we proposed to add new paragraphs (d) and (e) to Sec.  
423.568, to explain the form and content of favorable coverage 
determination decisions. In Sec.  423.568(d), we proposed requiring 
plan sponsors to send written notice of fully favorable decisions to 
enrollees. We also proposed to allow plan sponsors the option of 
providing the initial notice orally so long as a written follow-up 
notice is sent to the enrollee within three calendar days of the oral 
notification. In Sec.  423.568(e), we proposed to require notice of 
fully favorable decisions to include the conditions of the approval in 
a readable and understandable manner. We noted these changes were 
necessary because prescription drugs are often provided to 
beneficiaries on a recurring basis (unlike most MA services which are 
generally provided to beneficiaries only once), and requiring plans to 
provide the terms of an approval in writing helps ensure continuity of 
care for Medicare beneficiaries who receive prescription drugs under 
Part D.
    After reviewing the comments received in response to these 
proposals, in this final rule, we adopt the proposed changes without 
modification. In addition, as explained below, we are adding paragraph 
(a)(3) to Sec.  423.568, which will require plan sponsors to establish 
and maintain a method of documenting all oral requests and retaining 
the documentation in the case file.
    Comment: Several commenters supported the proposed technical change 
that would require Part D plan sponsors to accept standard coverage 
determination requests orally and in writing, except for standard 
requests for payment which must be submitted in writing. A commenter 
asked CMS to clearly articulate how plans are to record, track, and 
report oral requests. Another commenter suggested allowing plan 
sponsors to require the use of plan-specific forms for payment 
requests.
    Response: We appreciate the comments we received in support of this 
proposal, and the commenter's concern about the processes plan sponsors 
should have in place to record, track, and report oral requests. We 
agree that it is important for plan sponsors to document and track 
requests that are submitted orally in order to determine if plan 
sponsors are processing requests in a timely manner. Therefore, in this 
final rule, we are adding a new paragraph (a)(3) to Sec.  423.568, 
which will require plan sponsors to establish and maintain a method of 
documenting all oral requests and to retain that documentation in the 
case file. We do not agree with the suggestion to require the use of 
plan-specific forms for payment requests. We have, since the inception 
of the Part D program, required plan sponsors to accept any written 
request submitted by enrollees and prohibited plan sponsors from 
requiring the use of plan-specific request forms. We do not believe 
there is a compelling reason to depart from this standard. During this 
time, we have also received numerous requests to standardize the Part D 
coverage determination and appeals processes in order to create 
consistency and predictability for Part D enrollees, and we are 
continuously looking to improve the coverage determination and appeals 
processes. Allowing each plan to require the use of different forms for 
different requests moves us further away from creating a process that 
is easier for enrollees to navigate. Although we understand plan 
sponsors often need enrollees to submit specific information with 
reimbursement requests, requiring the use of a specific form does not 
guarantee that an enrollee will provide all information a plan sponsor 
needs to process the request (for example, an enrollee may not complete 
part of the form). When a reimbursement request is not complete, plan 
sponsors must either obtain the missing information or deny the request 
within the applicable decision making timeframe. Because we are 
extending the timeframe for resolving payment requests in this final 
rule, plan sponsors have more time to evaluate payment requests and 
obtain missing information when necessary.
    Comment: We received many comments in response to the proposed 
revisions to Sec.  423.568(b), which would require a Part D plan 
sponsor to notify an enrollee of a payment decision and,

[[Page 19780]]

if appropriate, make payment no later than 14 calendar days after 
receiving a reimbursement request. Some commenters that supported the 
14-day timeframe for making a decision opposed the requirement to make 
payment within the same 14-day timeframe. The commenters objected 
because a 14-day payment cycle is not consistent with current industry 
standards, and moving the payment cycle to 14 days would require great 
expense to update current processes and systems, and would not offer 
any real benefit to enrollees who already have the prescription drugs 
in dispute. For these reasons, the commenters suggested maintaining the 
current 30-day payment timeframe. As an alternative, some of the 
commenters suggested allowing plan sponsors an additional 14 calendar 
days to make payment after a decision has been made. Other commenters 
suggested that CMS defer implementation of the 14-day timeframe until 
2011.
    We also received support for the proposed 14-day timeframe from a 
number of commenters, but the commenters also opposed extending the 72 
hour decision-making timeframe. The commenters objected because 
extending the timeframe would cause an additional financial hardship 
for enrollees who pay out-of-pocket for prescriptions. The commenters 
argued the proposal would extend the appeals process by up to eleven 
days for enrollees who receive denials, and would prevent those 
enrollees from obtaining a decision by the Part D Independent Review 
Entity before a 30-day prescription runs out. For that reason, most of 
the commenters suggested retaining the 72-hour decision-making 
timeframe for reimbursement requests. As an alternative, a few of the 
commenters suggested that CMS maintain a 72-hour decision-making 
timeframe for payment requests that involve exceptions, and a 14-day 
decision-making timeframe for all other payment requests. Finally, one 
commenter believed that a 7-day timeframe would be acceptable for 
making payment-related decisions.
    Response: After careful review and consideration of the numerous 
comments and suggestions we received about this provision, we continue 
to believe that the timeframes established in proposed Sec.  423.568(b) 
strike the right balance between ensuring plan sponsors have enough 
time to properly adjudicate reimbursement requests, and creating a 
reimbursement timeframe that does not impose an undue hardship on 
Medicare beneficiaries who often cannot afford to wait 30 days before 
being reimbursed.
    Some commenters raised concerns about plan sponsors not being able 
to make payment within 14 calendar days after receiving a reimbursement 
request in large part because most Part D plan sponsors process 
reimbursement requests under a 30-day billing cycle, which is the 
industry standard. However, we note that plan sponsors already have 
prior experience processing some reimbursement requests in less than 30 
days. Pursuant to section 171 of MIPPA and the PDP Sponsor Application, 
Part D plan sponsors are required to make payment for certain 
reimbursement requests from out-of-network pharmacies within 14 
calendar days. Although the 14 calendar day MIPPA requirement applies 
to reimbursement requests that are submitted electronically, we note 
the MIPPA requirement to illustrate that a 14-day timeframe for 
processing reimbursement requests is not unprecedented under the Part D 
program, and that plan sponsors currently have systems in place to 
accommodate billing cycles that are less than 30 calendar days. As 
noted in the preamble to the proposed rule, our experience and previous 
discussions with Part D plan sponsors on this issue led us to conclude 
that plan sponsors are capable of processing reimbursement requests and 
sending payment, when required, to enrollees within 14 calendar days 
after receiving a reimbursement request. In the 2009 Call Letter, we 
indicated that we would exercise our enforcement discretion to decline 
to bring an enforcement action for non-compliance with the 72-hour 
timeframe in Sec.  423.568 if the plan sponsor processes a 
reimbursement request and submits reimbursement (when appropriate) 
within 14 calendar days after receipt of the request. As a result, plan 
sponsors have been permitted the option of either notifying enrollees 
of their reimbursement decisions within 72 hours and making payment 
within 30 days, or, providing notice of a reimbursement decision and 
sending payment (when a decision is partially or fully favorable) to 
the enrollee within 14 calendar days after receiving a reimbursement 
request.
    We also understand the concerns about enrollees receiving decisions 
as quickly as possible. In particular, some commenters indicated the 
need for shorter timeframes when a request involves an exception. We 
agree, but note that the reimbursement process was intended primarily 
for use in resolving out-of-network issues. Consequently, we do not 
believe that it is the most efficient way to obtain coverage decisions 
for non-formulary drugs or drugs subject to a utilization management 
requirement. Furthermore, using the reimbursement process to obtain 
coverage decisions for non-formulary drugs or drugs subject to a 
utilization management requirement does not obviate the need to provide 
medical documentation either demonstrating that an exception is needed 
or that a utilization management requirement has been met. In the 
former case, if the reimbursement request is submitted without a 
prescriber's supporting statement, the plan sponsor's decision making 
timeframe is tolled until the statement is received. Thus, we believe 
enrollees who need prescription drugs that either are non-formulary, or 
are subject to utilization management requirements that they cannot 
meet, would be better served by using the exceptions process. Under 
Sec.  423.568(a), a plan sponsor must respond to a standard exception 
request within 72 hours of receiving the request and the prescriber's 
supporting statement, and consistent with Sec.  423.572(a), a plan must 
respond to an expedited request within 24 hours of receiving the 
request and the prescriber's supporting statement.
    Finally, we appreciate some commenters' concerns that the 14-day 
timeframe may result in enrollees receiving unfavorable payment 
determinations beyond the current 72-hour timeframe. Thus, in order to 
ensure that enrollees are able to access the appeals process as quickly 
as possible, we encourage plan sponsors to issue unfavorable 
determinations sooner than 14 days.
    Therefore, we are finalizing the proposed revisions at Sec.  
423.568(b) to require Part D plan sponsors to notify an enrollee of a 
payment decision no later than 14 calendar days after receiving a 
reimbursement request. If the decision is partially or fully favorable, 
the plan sponsor must also make payment within the same 14 calendar-day 
timeframe.
    Comment: We received a number of comments supporting the proposal 
to allow Part D plan sponsors to make the initial notice of favorable 
standard coverage determination decisions orally, so long as a written 
confirmation of the decision is mailed to the enrollee within three 
calendar days of the oral notice. However, one commenter suggested 
revising the three calendar day requirement to three business days.
    Response: For the reasons noted in our response to a similar 
comment about the timeframe for providing written follow-up of notice 
of a fully favorable expedited redetermination decision, we do not 
agree that it is

[[Page 19781]]

necessary to revise ``calendar days'' to ``business days.''
    Comment: We received numerous comments supporting the proposal to 
require plan sponsors to include specific information (such as, the 
conditions of approval) in favorable coverage determination notices. 
However, one commenter opposed the proposed requirement and suggested 
allowing plan sponsors to provide the approval conditions on request.
    Response: As noted above in our response to a similar comment 
relating to favorable redetermination decisions, we believe requiring 
plan sponsors to provide the condition(s) of approval in writing is an 
important enrollee protection that helps ensure continuity of care for 
Medicare beneficiaries who receive prescription drugs under Part D, and 
the commenter's suggested approach would diminish that important 
protection.
    Comment: We received several comments asking us to develop a model 
letter for fully favorable coverage determination decisions under Sec.  
423.568.
    Response: As noted in our response to a similar comment regarding 
fully favorable redetermination decisions, we will explore developing 
either a model or standard notice for favorable decisions, and will 
publish any such notice in Chapter 18 of the Medicare Prescription Drug 
Benefit Manual.
10. Expediting Certain Coverage Determinations (Sec.  423.570)
    In the October 22, 2009 proposed rule, we proposed to make a 
technical change to Sec.  423.570 by removing the cross reference to 
Sec.  423.568(a) and inserting a cross-reference to Sec.  423.568(b). 
This change is necessary to be consistent with the proposed revisions 
to Sec.  423.568. We did not receive any comments with regard to our 
proposed revision. Therefore, this final rule adopts this revision 
without change.
11. Timeframes and Notice Requirements for Expedited Coverage 
Determinations (Sec.  423.572)
    The October 22, 2009 proposed rule includes a proposed revision to 
Sec.  423.572(b) that would require plan sponsors to send written 
notice of fully favorable expedited coverage decisions to enrollees, 
and allow plan sponsors the option of providing the initial notice 
orally so long as a written follow-up notice is sent to the enrollee 
within three calendar days of the oral notification. We also proposed 
to add paragraph (c)(2), which would require notice of a fully 
favorable expedited coverage determinations to provide the conditions 
of the approval in a readable and understandable manner. As noted in 
the proposed rule, the rationale for adding these requirements is 
consistent with our rationale for adding form and content requirements 
for favorable standard coverage determination decisions, and in so 
doing, ensures enrollees are able to maintain continuity in their 
prescription drug treatment.
    Finally, we proposed to revise Sec.  423.572(c)(2)(i) by requiring 
plan sponsors to issue adverse expedited coverage determination 
decisions using CMS approved language in readable and understandable 
form. As noted in the preamble to the proposed rule, this proposed 
change would reconcile a discrepancy in the regulations by requiring 
plan sponsors to use the standardized denial notice (Form CMS-10146) 
for both standard and expedited adverse coverage determinations. 
Currently, the regulations require the use of the standardized denial 
notice only for standard adverse coverage determinations. The only 
comment we received on this provision was supportive of the change. 
Accordingly, we are adopting the proposed revision to Sec.  
423.572(c)(2)(i) as set forth in the proposed rule without change.
    Comment: We received a number of comments supporting the proposal 
to allow Part D plan sponsors to make the initial notice of favorable 
expedited coverage determination decisions orally, so long as a written 
confirmation of the decision is mailed to the enrollee within three 
calendar days of the oral notice. However, one commenter suggested 
revising the three calendar day requirement to three business days, and 
another commenter recommended allowing plan sponsors to send the first 
notice in writing, but not requiring plan sponsors to send additional 
written notices when any related refills are approved.
    Response: For the reasons noted in our response to a similar 
comment about the timeframe for providing written follow-up of notice 
of a fully favorable expedited redetermination decision, we do not 
agree that it is necessary to revise ``calendar days'' to ``business 
days.'' Also, as previously noted, we believe a written notice should 
follow every favorable decision, including favorable decisions to 
approve refills. This policy will help to ensure continuity of care for 
Medicare beneficiaries who are obtaining refills of prescription drugs 
under Part D. We note that additional favorable decisions for refills 
are not necessary if the coverage determination or appeal decision 
specifically authorizes refills for the remainder of the plan year.
    Comment: We received numerous comments supporting the proposal to 
require plan sponsors to include the conditions of approval in 
favorable decision notices. However, one commenter opposed the proposal 
and suggested allowing plan sponsors to provide the approval conditions 
on request. A different commenter asked CMS to exempt Special Needs 
Plans (SNPs) from the written-notice requirement for favorable 
decisions because SNPs hire nurse case managers to make sure an 
enrollee's medication supply is not interrupted. Thus, enrollees 
receiving medications from SNPs do not need to know the conditions of 
an approval.
    Response: As noted in our responses to similar comments, requiring 
plan sponsors to provide the conditions of approval in writing is an 
important enrollee protection that helps ensure uninterrupted drug 
coverage for Medicare beneficiaries who receive prescription drugs 
under the Part D program. We believe implementing the commenters' 
suggestions would diminish this important protection because without 
this requirement, enrollees would likely not receive timely notice of 
the coverage limits for approvals. Without this information, enrollees 
may experience interruptions in coverage. Thus, the best way to ensure 
that enrollees receive timely notice and understand the conditions that 
apply to their approvals is to require plan sponsors to consistently 
provide this information, in writing, to all enrollees.
    Comment: We received several comments asking us to develop a model 
letter for fully favorable decisions issued under Sec.  423.572.
    Response: As noted in our response to an earlier comment, we will 
explore developing either a model or standardized notice for use in 
issuing favorable notices and will publish any such notice in Chapter 
18 of the Medicare Prescription Drug Benefit Manual.
12. Clarify Novation Agreements Under Part D (Sec.  423.551)
    In the October 22, 2009 proposed rule, we proposed revisions 
toSec.  423.551 and proposed adding a new paragraph Sec.  423.551(g) to 
restrict the situations in which we will approve the novation of a PDP 
sponsor's contract. A change in ownership of an existing sponsor's PDP 
contract(s) can promote the efficient and effective administration of 
the Part D program. However, over the past few years several PDP 
sponsors have requested CMS approval of transactions that involve the 
sale of a piece of the

[[Page 19782]]

sponsor's contract with CMS or less than all of the PDP contracts held 
by that PDP sponsor. Therefore we have proposed these revisions in 
order to restrict a novation to those transfers involving the selling 
of the sponsor's entire line of PDP business, which would include all 
PDP sponsor contracts held by the legal entity. We believe that 
allowing the spin-off of just one contract (when the PDP sponsor has 
more than one PDP contract) or pieces of a single contract can have a 
negative impact on beneficiary election rights.
    We recommended becoming more prescriptive in this area because our 
experience gained over the first 4 years of the program indicates this 
is necessary. As we noted in the preamble to the proposed rule, our 
policy goals are not served when a sponsor uses the novation process to 
purchase a piece of another sponsor's contract with CMS for less than 
the full line of PDP business. We do not agree that picking and 
choosing which markets a sponsor wishes to serve at any given time and 
to profit from its exit from a given PDP region is most efficient when 
a simple nonrenewal for that region is an option available to the 
sponsor. Moreover, this process should not be used as an instrument for 
moving LIS beneficiaries when a particular sponsor has missed the 
benchmark.
    We believe that the change we proposed creates consistency between 
the Part C program and the Part D program, because the Part C 
regulations only permit novations that include the entire MA line of 
business (that is, all MA contracts held by a single legal entity).
    We adopt these provisions as proposed. As noted below, we amend 
Sec.  423.551 to clarify that these provisions do not apply to changes 
of ownership between subsidiaries of the same parent organization.
    Comment: Several commenters expressed concern that the proposed 
policy could cause greater disruption for beneficiaries by limiting 
sponsors' ability to divest and acquire certain Part D contracts in 
situations where those transactions would have few effects on 
beneficiaries. The commenters believe that the proposed change may 
result in Part D sponsors withdrawing plan benefit packages and bid 
submissions, prevent acquisitions and mergers, or cause mid-year 
terminations, if the novation option no longer is available in many 
situations. The commenters also believed that this change could impact 
CMS efforts to consolidate PBPs and service areas under one contract 
number.
    Response: We believe that there are adequate PDP choices for 
beneficiaries, and that restricting novations as proposed is in the 
best interest of the Part D program. We do not believe that the 
proposed change would negatively impact a sponsor's ability to 
consolidate PBPs even if the plans are located in different 
geographical areas. To the extent that this comment concerns the 
application of this policy to novations among subsidiaries of the same 
parent organization, CMS agrees that those types of transactions should 
be permitted and would not require the transfer of an entire line of 
Medicare business. Novations between the subsidiaries of the same 
parent organization do not involve the buying and selling of 
beneficiaries; rather, they are usually undertaken to accommodate an 
organization's change to its internal corporate structure. Therefore, 
we have modified our proposed regulatory language to clarify that the 
new policy does not apply to changes of ownership between subsidiaries 
of the same parent organization.
    Comment: One commenter stated that no change is needed in the 
current regulation to accomplish CMS' policy goal. The commenter, 
citing Sec.  423.552(a)(3)(ii), believed that CMS already has authority 
to determine whether a proposed novation is in the best interest of the 
Medicare program and that CMS did not need to change the regulation to 
keep this authority. The commenter expressed concern, however, that the 
proposed change would limit CMS's flexibility to approve a novation of 
some but not all of an entity's Part D contract(s), even if CMS 
determined that it was in the best interest of the program to approve 
the novation. The commenter added, that if CMS does not retain the 
authority to approve a novation representing less than an 
organization's entire line of PDP business, the acquiring company would 
have to terminate the contract, causing substantial member disruption.
    Response: We believe that a change to the regulation is necessary 
to provide clarity to sponsors regarding the circumstances under which 
a PDP novation would be approved by CMS. Additionally, we believe that 
beneficiary disruption in situations where a sponsor nonrenews a 
contract because it is not eligible to be novated, is minimized by 
comprehensive nonrenewal beneficiary rights and required notifications, 
and that beneficiary election rights trump any member disruption that 
occurs due to a nonrenewal.
    Comment: One commenter stated that it agreed with CMS that the 
novation process should not be used, either in Part C or Part D, to 
pick and choose profitable markets, but it did not interpret the 
current Part C regulation related to the novation process to only allow 
novations that include the entire MA line of business (that is, all MA 
contracts held by a single legal entity). The commenter stated that 
there are unique circumstances where a change of ownership may be 
specific to Special Needs Plans (SNPs) that may be better served under 
new ownership that has a specialized model. The commenter suggested 
that the proposed provision be modified (and our Part C regulations 
modified as well) to allow for exceptions, especially with regard to 
SNPs.
    Response: We have consistently interpreted the Part C regulation to 
limit novations in situations involving the sale of less than an 
entity's entire MA line of business. Also, SNP plans do not present 
unique circumstances that would require an exception to our proposed 
policy change. If a SNP plan can no longer serve its enrollees, there 
is existing regulatory authority pursuant to which the failing SNP can 
non-renew or terminate its Medicare contract. CMS can then exercise its 
regulatory authority related to plan enrollment to ensure that affected 
beneficiaries either elect or are assigned to an appropriate new plan.
    Comment: Several commenters supported this change to the 
regulation, and agreed with the underlying reasoning used by CMS to 
make this change and become more prescriptive in this area.
    Response: We appreciate these comments.
    Comment: A few commenters stated that CMS should allow novations of 
one contract, where a selling sponsor holds multiple contracts, because 
otherwise PDP sponsors will have to resort to holding PDP contracts 
under different legal entity names in order to avoid having to novate 
all contracts as required under the proposed requirement, or 
terminating a contract, which would result in beneficiary disruption.
    Response: A sponsor is already afforded ample opportunity to leave 
a particular Medicare market through the contract non-renewal process. 
That process does not require that a sponsor non-renew all of its 
contracts, so there is no need for organizations to hold contracts 
through multiple legal entities. The beneficiary disruption in this 
instance would be no more than that already contemplated by the 
Congress and CMS when it adopted and implemented a program which 
featured

[[Page 19783]]

the right of beneficiaries to elect their own health and drug plan 
coverage. Therefore, we believe that limiting novation to the entire 
line of PDP business is the best interest of the Part D program.
    Comment: One commenter asked CMS to clarify that the proposed 
change would not prevent a sponsor from novating its Part D contract in 
connection with sale of an MA-PD Plan while retaining the entity's 
stand-alone Part D Plan contract or vice versa.
    Response: We agree that in the scenario described by the commenter, 
the organization would be permitted to retain a stand-alone PDP sponsor 
contract after it had transferred ownership of all of its Medicare 
Advantage contracts, including those through which it had been offering 
Part D benefits. We believe that the regulation makes this point clear 
on its face as the language specifically mentions only PDP contracts.
    Comment: One commenter encouraged CMS to reconsider its proposed 
position that a Part D contract can only be novated when the ``entire 
line of business'' is involved. The commenter stated that there are 
important differences between Part C and Part D contracting including 
the notion that Part D contracts are national in scope and Part C 
contracts generally conform to State boundaries. The commenter stated 
that the suggested alignment between Part C and Part D contract 
novation policy as discussed in the preamble is not true when the 
practical impact of that policy is considered.
    Response: The commenter has not made clear, and we are unable to 
determine on its own, how the stated difference between Part C and D 
service areas affects the novation policy we adopt in this regulation. 
Therefore, we retain our belief that a change to the regulation to 
limit PDP novations to the entire line of business is in the best 
interest of the Part D program.
13. Cost Contract Program Revisions: Appeals and Marketing Requirements 
(Sec.  417.428, Sec.  417.494, Sec.  417.500, and Sec.  417.640)
    Under the authority in section 1876(i)(3)(D) of the Act to impose 
``other terms and conditions'' under contracts authorized by the 
statute that the Secretary finds ``necessary and appropriate,'' and in 
implementation of the requirements in section 1876 of the Act set forth 
below, we proposed in our October 22, 2009 proposed rule to apply the 
following MA program requirements to cost contracts authorized under 
section 1876 of the Act:
     The MA program requirements on appeals processes for 
contract determinations and intermediate sanctions under the authority 
in section 1876(i)(1) of the Act to terminate or non-renew contracts, 
and the authority in section 1876(i)(6) of the Act to impose 
intermediate sanctions and CMPs (To the extent that the CMPs in section 
1876(i)(6)(B) and (C) of the Act differ from those under Part C, the 
penalty amounts under section 1876 of the Act would continue to 
control); and
     The MA program's marketing requirements under the 
authority in section 1876(c)(3)(C) of the Act to regulate marketing of 
plans authorized under section 1876 of the Act and ensure that 
marketing material is not misleading.
    The specific revisions we proposed are summarized below.
a. Cost Contract Determinations (Sec.  417.492 and 417.494), Civil 
Money Penalties (Sec.  417.500), and Intermediate Sanctions (Sec.  
417.500)
    We proposed requiring cost contracts to follow the contract 
determination appeal procedures under Subpart N of Part 422. We 
proposed codifying these requirements in Sec.  417.492(b)(2), 
concerning notice of appeal rights, and Sec.  417.494, concerning 
notice of termination.
    We proposed revising Sec.  417.500 to require cost contracts 
authorized under section 1876 of the Act to follow the MA programs 
requirements for appeals of CMPs at Subpart T of Part 422. The appeals 
process for CMPs specified at Subpart T allows for a hearing by an 
Administrative Law Judge (ALJ) and a review of the ALJ's decision by 
the Departmental Appeals Board. We proposed, in new paragraph (c), to 
specify that the amount of CMPs a cost contract may be assessed is 
governed by section 1876(i)(6)(B) of the Act, not by the provisions in 
part 422 of the MA program regulations.
    Our proposed revisions to the cost contracts regulations authorized 
under section 1876 of the Act would ensure that these contracts follow 
the same requirements for intermediate sanctions appeals specified in 
Sec.  422.750 through Sec.  422.764 of the MA program regulations 
(subpart O). These sections concern--
     Types of intermediate sanctions and CMPs (Sec.  422.750);
     Bases for intermediate sanctions and CMPs (Sec.  422.752);
     Procedures for imposing intermediate sanctions and CMPs 
(Sec.  422.656)
     Collection of CMPs (Sec.  422.758);
     Settlement of penalties (Sec.  422.762); and
     Other applicable provisions (Sec.  422.764).
    With respect to determinations of the amount of CMPs, the 
provisions in section 1876(i)(6)(B) and (C) of the Act would govern 
such amounts.
    We are adopting our proposed changes to Sec.  417.472, Sec.  
417.492, Sec.  417.494, Sec.  417.500, Sec.  417.640, Sec.  417.640, 
Sec.  417.642 through Sec.  417.694, and Sec.  417.840 without further 
modification in this final rule.
    Comment: Two organizations expressed concerns about extending the 
MA requirements for appeals of contract determinations to cost contract 
plans. Both commenters point to differences in cost contract plans and 
MA plans as their basis for seeking revisions to our proposals.
    One commenter suggested that CMS' approach of cross referencing the 
MA appeals provisions in the cost plan requirements is unworkable for 
three reasons: (1) There are provisions of Part 422, Subpart N, that 
would not apply to Medicare cost plans, for example, organizations may 
not submit an application to obtain a new section 1876 contract; (2) 
there are termination/non-renewal provisions under part 417 that are 
not addressed under Part 422, for example, the obligation to non-renew 
a portion or all of the service area under the so called two-plan 
competition test at Sec.  417.402(c); and (3) simply indicating that 
part 422 references should be read as Part 417 references does not 
provide the reader with guidance regarding the applicable provisions. 
This commenter asserts that, without specific cross references, the 
reader is left to guess which sections of part 417 would substitute for 
the sections of part 422 cited in part 422 subpart N and that, in some 
cases, there are no directly analogous provisions under part 417. Thus, 
it is unclear in this commenter's view whether CMS intended to create a 
new requirement for cost plans in a specific provision, or whether the 
provision does not apply. The commenter recommends that CMS not simply 
cross reference subpart N, part 422, in part 417 but revise the 
language in part 417 to incorporate structure that is similar to the 
part 422 rules for terminations, but includes relevant part 417 cross 
references and is modified to appropriately apply to Medicare cost 
plans.
    The second commenter also believed that CMS' proposed approach 
would not provide sufficient clarity to cost contracts regarding the 
requirements that apply to them. For example, there are provisions of 
part 422, subpart N

[[Page 19784]]

that would not apply to cost contracts, and there are termination/non-
renewal provisions under part 417 that are not addressed under part 
422. Accordingly, the commenter recommended that CMS revise the 
language in part 417 to incorporate a structure that is similar to the 
part 422 rules and is modified to appropriately apply to Medicare cost 
plans.
    Response: We agree with the commenters that there are differences 
between cost plan and MA plan procedures in this area but believe that 
the differences are minimal with respect to the application of the MA 
provisions concerning appeals of contract determinations. We stated 
clearly in the preamble of the proposed rule that the part 422 
regulations concerning appeals of non-renewals, terminations, and 
imposition of intermediate sanctions and CMPs would apply to cost 
contracts. Therefore, we believe there should be no ambiguity in this 
regard. In other words, if there is no ``analogous provision'' under 
part 417, as one of the commenters wrote, cost plans would follow the 
part 422 requirements. Concerning the possibility of confusion 
resulting from different CMPs for cost plans and MA plans, we did 
acknowledge in the proposed rule, in both the preamble and regulations 
text at Sec.  417.500(c), that CMPs for cost plans would be assessed 
according to the statutory requirements at section 1876(i)(6)(B) of the 
Act. We do not agree with the commenter that additional regulations for 
part 417 are necessary to capture this distinction.
    With respect to the other discrepancies that the commenter asserts 
make incorporation of the part 422 regulations ``unworkable,'' we do 
not believe that there should be any confusion about appeal of contract 
determinations as a result of cost plan competition requirements. The 
application of such requirements is statutory, and non-renewal of a 
cost plan based on the statutory requirement is not appealable. We note 
that the current regulations for Part 417 do not indicate that such a 
decision may be appealed. Concerning the commenter's other example of 
an allegedly unworkable discrepancy, the fact that there may be no new 
cost plans and thus no new applications, we note that the part 422 
contract determinations include not only decisions on new applications, 
but determinations concerning non-renewals and terminations, and thus 
have relevance to cost contracts. The part 417 regulations are clear 
that there may be no new cost plans, as is CMS guidance, and we do not 
believe that the part 422 contract determination provisions would lead 
anyone to believe otherwise.
    Finally, we believe it is most efficient to cross-reference the 
part 422 regulations as specified in the proposed rule and are, 
therefore, adopting the language in that rule.
b. Extending MA Marketing Requirements to Cost Program Plans (Sec.  
417.428)
    As noted above, based on the authority in section 1876(c)(i)(C) to 
regulate marketing and the authority in section 1876(i)(3)(D) to 
specify new section 1876 contract terms, we proposed to amend Sec.  
417.428, which governs 1876 cost contract program marketing 
requirements, to require cost contract plans to follow the MA marketing 
requirements in Sec.  422.2260 et seq. (Subpart V).
    We proposed that cost contracts authorized under section 1876 of 
the Act follow the same standards, with respect to definitions 
concerning marketing materials, as MAOs under Sec.  422.2260, including 
how marketing materials are defined. We also proposed that the part 417 
marketing regulations be revised to provide that, consistent with the 
requirements regarding review and distribution of marketing materials 
at Sec.  422.2262, cost contractors authorized under section 1876 of 
the Act submit all such marketing materials to CMS at least 45 days 
before the date planned for distribution (10 days if plans use CMS 
model language, without any modifications), and that file and use 
materials, as designated by CMS under the MA marketing regulations, may 
be released 5 days following their submission to CMS.
    We proposed to apply the same standards with regard to CMS review 
of marketing materials to cost contract plans as currently applied to 
MAOs at Sec.  422.2264. Cost contractors authorized under section 1876 
of the Act would be required to comply with MA regulations that specify 
the information that cost contract plans must include in marketing 
materials, and specify that the cost contract plan must notify the 
general public concerning the plan's enrollment period. Under section 
1876(i)(3)(D) of the Act, we also proposed that, in markets with a 
significant non-English speaking population, cost contract plans be 
required to provide materials in the language of these individuals.
    We proposed to specify that if we have not disapproved the 
distribution of marketing materials or forms submitted by a cost 
contract plan in an area, we are deemed not to have disapproved the 
distribution in all other areas covered by the cost contract plan and 
cost contract except with regard to any portion of the material or form 
that is specific to the particular area, as provided under Sec.  
422.2266.
    We proposed to extend to cost contract plans the following 
provisions at Sec.  422.2268--
     Plans may not offer gifts to potential enrollees, unless 
the gifts are of nominal value (as defined in the CMS Medicare 
Marketing Guidelines), are offered to all potential employees without 
regard to whether or not the beneficiary enrolls, and are not in the 
form of cash or other monetary rebates;
     Plans may not market any health care-related product 
during a marketing appointment beyond the scope agreed upon by the 
beneficiary, and documented by the plan, prior to the appointment;
     Plans may not market additional health-related lines of 
plan business not identified prior to an in-home appointment without a 
separate appointment that may not be scheduled until 48 hours after the 
initial appointment;
     Plans may not use a plan name that does not include the 
plan type. The plan type should be included at the end of the plan 
name;
    We proposed to extend to cost contract plans authorized under 
section 1876 of the Act the following requirements for MAOs under Sec.  
422.2272:
     Demonstrate to CMS' satisfaction that marketing resources 
are allocated to marketing to the disabled Medicare population as well 
as beneficiaries age 65 and over.
     Establish and maintain a system for confirming that 
enrolled beneficiaries have, in fact, enrolled in the plan, and 
understand the rules applicable under the plan.
     Employ as marketing representatives only individuals who 
are licensed by the State to conduct marketing activities (as defined 
in the CMS Medicare Marketing Guidelines) in that State, and whom the 
cost program has informed that State it has appointed, consistent with 
the appointment process provided for under State law.
    We proposed applying the MA limits on independent agent and broker 
compensation at Sec.  422.2274 to 1876 cost contract plans. As with MA 
plans, compensation would be based on a 6-year compensation cycle. 
Agents and brokers would receive initial compensation (first year of 
the cycle) with compensation over each of the successive 5 years to be 
no more and no less than 50 percent of the initial aggregate 
compensation paid for the

[[Page 19785]]

enrollment. If an enrollee moves to plan type distinct from the one in 
which he or she is currently enrolled, the agent/broker would receive 
an initial commission and the cycle would begin anew. Distinct plan 
types include MA, MA-PD, PDP, and cost contract plans authorized under 
section 1876 of the Act.
    We are adopting our proposed changes to Sec.  417.428 without 
further modification in this final rule.
    Comment: All commenters support applying the MA marketing 
requirements to cost contract plans. A few of these commenters note, 
however, that CMS is not applying one of the marketing sections (Sec.  
422.2276) which exempts from the prior review and approval requirements 
marketing materials designed for members of an employer group. While 
one of the commenters on the employer group requirement notes that cost 
contracts are not eligible to offer 800-series plans for their medical 
benefits, the commenter notes that cost contracts have always been 
permitted to negotiate with employers to offer additional benefits to 
their employer group members. The commenter believes there is no 
statutory or policy reason for treating cost contracts differently than 
MA plans with respect to marketing materials furnished for employer 
groups and asks that all MA marketing provisions, including Sec.  
422.2276, apply to cost plans. Another commenter believed that while it 
makes sense, in general, to apply the MA marketing requirements to cost 
contract plans, there are several differences between MA and cost 
contract plans, and that these should be reflected in updated Medicare 
Marketing Guidelines.
    Response: In order to permit employer group health plans to tailor 
plans best suited to their enrollees and to communicate such 
information to enrollees, we have permitted waivers of the requirement 
that MA-eligible individuals in an MA plan service area be eligible to 
enroll in the plan in order to permit an MA plan to be composed solely 
of members of an employer group plan (an ``800 series plan''). Because 
non-employer group members are not eligible to enroll in such plans, 
and the employer generally provides information to group members, we 
have waived certain requirements, such as the prior review and approval 
requirement for marketing standards for 800 series plans based on the 
statutory authority to permit such waivers at 1857(i)(1) of the Social 
Security Act. There is no such general waiver authority with respect to 
other MA plans or cost plans that would permit such plans to limit 
enrollment to a particular group, or to waive statutory marketing 
requirements, and CMS thus would not have the authority to exempt cost 
plans from such marketing requirements. We are, therefore, adopting the 
language from the proposed rule. Concerning the suggestion that CMS 
update the Medicare Marketing Guidelines to reflect any difference 
between cost plans and MA plans, we are unsure to which specific 
provisions, if any, the commenter is referring but in revising the 
guidelines, will point out any necessary distinctions between MA and 
cost plan procedures and policies.
    Comment: One commenter recommends that CMS amend the cost plan 
enrollment regulations to allow beneficiaries the option of electronic 
enrollment into cost plans in the same manner as MA organizations.
    Response: This comment is outside the scope of this rulemaking, and 
therefore, is not addressed in this final rule.
14. Out of Scope Comments
    Comment: A number of commenters asked CMS to revise Sec.  
423.562(a)(3) to eliminate the option of posting Form CMS-10147 
Medicare Prescription Drug Coverage and Your Rights, also known as the 
Pharmacy Notice, in network pharmacies. The notice instructs enrollees 
to contact their plan sponsors to request coverage determinations or 
exceptions when they disagree with the information provided at the 
pharmacy counter. The commenters recommended requiring plan sponsors to 
arrange with network pharmacies to give enrollees copies of the 
Pharmacy Notice whenever prescription drugs are not covered or are 
covered but subject to utilization requirements that cannot be resolved 
at the point-of-sale, or if an enrollee pays out-of-pocket for 
prescription drugs for either of these reasons.
    Response: The commenters' suggestion is outside the scope of the 
proposed rule. However, we agree that receiving a written copy of the 
Pharmacy Notice in any of the situations described by the commenters is 
more beneficial for an enrollee than being referred to a copy of the 
notice posted in the pharmacy. We will consider this suggestion for 
future rulemaking.
    Comment: A number of commenters asked CMS to allow an enrollee to 
send an appeal request to the Part D Independent Review Entity (IRE) 
when a coverage determination or redetermination decision is not 
received timely. The commenters also asked CMS to closely monitor plan 
compliance to determine if coverage determination and redetermination 
requests are timely forwarded when appropriate, and impose sanctions on 
plan sponsors that are not meeting these requirements.
    Response: The commenters' suggestion is outside the scope of the 
proposed rule. However, we want to note our disagreement with the 
commenter's proposal to allow enrollees to request appeals when plan 
sponsors fail to make timely decisions. We currently require plan 
sponsors to automatically forward redetermination requests that are not 
timely decided to the Part D Independent Review Entity for review once 
the decision-making timeframe has expired, and we have processes in 
place to monitor and plan performance in this area and impose sanctions 
when necessary. Furthermore, the Part D IRE currently tracks the volume 
of cases that are automatically forwarded from plan sponsors. The 
current auto-forwarding rate of 30 percent is not insignificant, so it 
appears that plans are appropriately auto-forwarding cases when they 
miss the decision-making timeframes.
    Comment: Numerous commenters asked CMS to allow public access to 
the prescription drug compendia used to determine if a drug may be 
approved under the Part D exceptions process.
    Response: The commenters' suggestion is outside the scope of the 
proposed rule. We note that any private or public entity may obtain 
access to the prescription drug compendia by contracting with the 
publishers.
    Comment: A commenter, in response to the revisions proposed to 
Sec.  423.590, requested clarification that the Part D Independent 
Review Entity is responsible for completing expedited reconsideration 
reviews.
    Response: We did not propose to revise any of the regulatory 
provisions pertaining to the Part D reconsideration process, which is 
conducted by the Part D Independent Review Entity for both expedited 
and standard appeals. However, we did propose to revise the Part D 
expedited redetermination process conducted by the Part D plan sponsor. 
In the related preamble discussion, we referenced the expedited 
reconsideration process conducted by MA organizations under Sec.  
422.590 to illustrate a discrepancy between that process and the 
expedited redetermination process conducted by Part D plan sponsors 
under Sec.  423.590. We believe the reference to the MA expedited 
reconsideration process may have confused the commenter, and given the 
impression that we were proposing changes to the Part D

[[Page 19786]]

reconsideration process when we were not.

H. Changes To Implement Corrections and Other Technical Changes

    In this section, we address six technical changes to the 
regulations proposed in our October 22, 2009 proposed rule outlined in 
the Table below.

                      TABLE 8--Changes to Implement Corrections and Other Technical Changes
----------------------------------------------------------------------------------------------------------------
                                                 Part 422                                Part 423
            Provision            -------------------------------------------------------------------------------
                                        Subpart             Section             Subpart             Section
----------------------------------------------------------------------------------------------------------------
Applications of Subpart M to      Subpart M.........  Sec.   417.840....  N/A...............  N/A.
 Health Care Prepayment Plans.
Generic Notice Requirements.....  Subpart M.........  Sec.   422.622....  N/A...............  N/A.
                                                      Sec.   422.626....
Revision to Definition of Gross   N/A...............  N/A...............  Subpart G.........  Sec.   423.308.
 Covered Prescription Drug Costs.
Application Evaluation            Subpart K.........  Sec.   422.502(c)   Subpart K.........  Sec.   423.503(c)
 Procedures.                                           through (d).                            through (d)).
Intermediate Sanctions..........  Subpart O.........  Sec.   422.750(a).  Subpart O.........  Sec.   423.750(a).
Basis for Imposing Intermediate   Subpart O.........  Sec.   422.752....  Subpart O.........  Sec.   423.752.
 Sanctions and Civil Money
 Penalties.
----------------------------------------------------------------------------------------------------------------

1. Application of Subpart M to Health Care Prepayment Plans (Sec.  
417.840)
    In the October 22, 2009 proposed rule, we proposed a technical 
correction to the regulations governing Health Care Prepayment Plans 
(HCPP) intended to ensure that HCPP enrollees have access to fast-track 
appeals for comprehensive outpatient rehabilitation facility (CORF) 
services furnished by an HCPP. As we explained in the preamble to the 
October 22, 2009 proposed rule and in the January 28, 2005 MA final 
rule, we required cost plans (HMOs), including HCPPs, that are 
established under section 1876 of the Act (Part E) and regulated under 
part 417, to follow the MA appeals requirements in subpart M of part 
422. In applying the MA appeals procedures to HCPPs by regulation, we 
adapted and implemented the section 1869 appeal rights that apply to 
Original Medicare beneficiaries to the circumstances of beneficiaries 
enrolled in an HCPP. Because HCPPs only provide Part B services, in our 
January 28, 2005 final rule (70 FR 4194), we explicitly limited the 
application of subpart M, for the HCPPs, to those provisions affecting 
Part B services delivered to HCPP enrollees, and intended to encompass 
all Part B services. However, in doing so, we inadvertently failed to 
include the fast-track appeal rights regarding Part B services provided 
by a CORF. In a proposed revision to Sec.  417.840, we proposed to 
correct this oversight, and ensure that HCPP enrollees have access to 
fast-track appeals for CORF services furnished by an HCPP. This 
revision would also ensure that HCPP enrollees received the fast track 
appeal rights provided for under section 1869 of the Act with respect 
to such services (which parallel those available to section 1876 cost 
enrollees and Part C enrollees).
    We received only one comment on this clarification, and the 
commenter supported our proposed technical revision. Accordingly, we 
are revising Sec.  417.840 as set forth in the proposed rule without 
change.
2. Generic Notice Delivery Requirements (Sec.  422.622 and Sec.  
422.626)
    In the October 22, 2009 proposed rule (74 FR 54700), we proposed to 
make technical revisions to Sec.  422.622 and Sec.  422.626 to ensure 
that the MA regulations accurately state when plans and providers are 
responsible for delivering certain notices to enrollees. Section 
422.622 currently states that when a QIO determines that an enrollee 
may remain in an inpatient setting, the MA organization must again 
provide the enrollee with a copy of the Important Message from Medicare 
(IM) when the enrollee no longer requires inpatient hospital care. 
However, our intent was to make delivery of the IM the hospital's 
responsibility, and the form instructions for the IM state this. 
Similarly, Sec.  422.626 of subpart M inadvertently states that 
delivery of the Notice of Medicare Non-Coverage (NOMNC) is the MA 
organization's responsibility. Again, consistent with the form 
instructions for the NOMNC, our intent was to make delivery of the 
notice the provider's responsibility. To address these technical 
errors, we proposed replacing ``MA organization'' with ``hospital'' in 
Sec.  422.622, and ``provider'' in Sec.  422.626.
    The only comment we received regarding these provisions was 
supportive of the proposed technical revisions. Thus, we are making 
these revisions as set forth in the proposed rule without change.
3. Revision to Definition of Gross Covered Prescription Drug Costs 
(Sec.  423.308)
    In the October 22, 2009 proposed rule, we proposed to revise the 
definition of ``gross covered prescription drug costs'' in Sec.  
423.308 to correctly reference both ``negotiated prices'' paid to 
network pharmacies and ``usual and customary prices'' paid to out-of-
network pharmacies. Specifically, we proposed to replace the term 
``negotiated price'' with the term ``actual cost,'' which is defined at 
Sec.  423.100 as ``the negotiated price for a covered Part D drug when 
the drug is purchased at a network pharmacy, and the usual and 
customary price when a beneficiary purchases the drug at an out of 
network pharmacy consistent with Sec.  423.124(a).'' With this 
correction, the definition of ``gross covered prescription drug costs'' 
would include ``the share of actual costs (as defined by Sec.  423.100 
of this part) actually paid by the Part D plan that is received as 
reimbursement by the pharmacy or other dispensing entity.''
    As we noted in the preamble to the October 22, 2009 proposed rule,, 
the January 12, 2009 final rule (74 FR 1494) included revisions to the 
definition of ``gross covered prescription drug costs'' in the Part D 
regulations at Sec.  423.308. In amending Sec.  423.308 in that final 
rule, we made a technical error in the definition of ``gross covered 
prescription drug costs'' (74 FR 1545) by referencing ``negotiated 
price'' as the prices made available to Part D beneficiaries at network 
pharmacies, and not also referencing ``usual and customary prices,'' 
the prices for drugs purchased at out-of-network pharmacies. When we 
revised the definition of ``gross covered prescription drug costs'' in 
that final

[[Page 19787]]

rule, our intent was to clarify that Part D sponsors must use the 
amount received by the dispensing pharmacy or other dispensing provider 
as the basis for determining the drug costs that must be reported to 
us. The use of the term ``negotiated prices'' as defined at Sec.  
423.100 (74 FR 1544) in the definition of ``gross covered prescription 
drug costs'' clarifies this requirement with regards to covered Part D 
drugs purchased at network pharmacies. However, by not also referencing 
``usual and customary prices'' for covered Part D drugs purchased at 
out-of-network pharmacies, we inadvertently omitted from the definition 
of ``gross covered prescription drug costs'' the share of drug costs 
actually paid by Part D sponsors to out-of-network pharmacies. Since 
section 1860D-15(b)(3) of the Act defines ``gross covered prescription 
drug costs'' as ``the costs incurred under the [Part D] plan, not 
including administrative costs, but including costs directly related to 
the dispensing of covered part D drugs * * *,'' these costs must 
include costs incurred for covered Part D drugs at out-of-network 
pharmacies, as well as costs incurred at network pharmacies. Therefore, 
we needed to revise the definition of ``gross covered prescription drug 
costs'' to correctly reference both ``negotiated prices'' paid to 
network pharmacies and ``usual and customary prices'' paid to out-of-
network pharmacies. We received two comments, both of which supported 
the proposed revision to the definition of ``gross covered prescription 
drug costs.'' The commenters agreed with our proposed correction to add 
a reference to ``usual and customary prices'' paid to out-of-network 
pharmacies in the definition of ``gross covered prescription drug 
costs.'' Therefore, we are adopting this revision to the definition of 
``gross covered prescription drug costs'' in Sec.  423.308 as proposed.
4. Application Evaluation Procedures (Sec.  422.502(c) and (d) and 
Sec.  423.503(c) and (d))
    In the October 22, 2009 proposed rule, we proposed two amendments 
to regulations governing the application evaluation procedures at Sec.  
422.502(c) and (d), and Sec.  423.503(c) and (d). In addition, at Sec.  
422.502(c)(3)(iii) and Sec.  423.503(c)(3)(iii) we proposed to make a 
technical correction and delete the language ``right to 
reconsideration'' and replace it with ``right to request a hearing''.
    As we noted in the preamble to the proposed rule, currently, Sec.  
422.502(c)(3)(iii) and Sec.  423.503(c)(3)(iii) state that if we deny 
the application, CMS gives written notice to the contract applicant 
indicating the applicant's right to request reconsideration. In our 
December 5, 2007 final rule, we modified the appeal rights for initial 
applications and eliminated the reconsideration process. However, in 
the final regulations we did not update Sec.  422.502(c)(3)(iii) and 
Sec.  423.503(c)(3)(iii) to state that the applicant has a right to 
request a hearing and as a result the existing regulations incorrectly 
provide for a right to reconsideration.
    In the October 22, 2009 proposed rule, we also proposed to delete 
Sec.  422.502(d) and Sec.  423.503(d). Sections 422.502(d) and 
423.503(d) currently provide that we have the ability to oversee the 
sponsoring organization's continued compliance with our requirements 
and that if the sponsoring organization no longer meets those 
requirements, we will terminate the contract in accordance with Sec.  
422.510 and Sec.  423.509. We noted that this regulation is not an 
appropriate regulation for a section dedicated to the evaluation and 
determination procedures for approving or denying a contract 
application.
    We received no comments on these provisions. Accordingly, we are 
adopting these provisions as proposed.
5. Intermediate Sanctions (Sec.  422.750(a) and Sec.  423.750(a))
    In the October 2009 proposed rule (74 FR 203), we made three 
technical changes to each intermediate sanction regulation at Sec.  
422.750 (a) and Sec.  423.750(a) to more accurately reflect the 
statute. First, we changed Sec.  422.750(a)(1) and Sec.  423.750(a)(1), 
which stated that we may impose a suspension of enrollment of Medicare 
beneficiaries. This regulation did not adequately reflect the statutory 
language which specifies that the enrollment suspension applies to the 
``sponsoring organization's enrollment of Medicare beneficiaries.
    We also changed the language of Sec.  422.750(a)(2) and Sec.  
423.750(a)(2), which stated that we may impose a suspension of payment 
to the sponsoring organization for Medicare beneficiaries who are 
enrolled in the MA plan. This language does not conform to the 
statutory language, which states that suspension of payment may be 
imposed for Medicare beneficiaries enrolled after the date we notify 
the organization of the imposition of an intermediate sanction.
    We also proposed to change Sec.  422.750(a)(3) and Sec.  
423.750(a)(3), which stated we may suspend all marketing activities to 
Medicare beneficiaries by a sponsoring organization for specified MA or 
Part D ``plans.'' We deleted the words ``for specified'' MA or Part D 
``plans'' because those did not conform to the statutory language that 
applies intermediate sanctions at the organization level.
    We received no comments on these provisions. Accordingly, we are 
adopting these provisions as proposed.
6. Basis for Imposing Intermediate Sanctions and Civil Money Penalties 
(Sec.  422.752 and Sec.  423.752)
    In the October 22, 2009 proposed rule, we proposed conforming 
changes to our regulation at Sec.  422.752(a)(1), (3), and (4) and 
Sec.  423.752(a)(1), (3), and (4) to more accurately reflect statutory 
language and to ensure accuracy, consistency, and uniformity. 
Specifically, we proposed to amend Sec.  422.752(a)(1) and Sec.  
423.752(a)(1) to conform with statutory language and state that we may 
impose an intermediate sanction if the sponsoring organization fails 
substantially to provide medically necessary items and services that 
are required (under law or under the contract) to be provided to an 
individual covered under the contract, if the failure has adversely 
affected (or has substantial likelihood of adversely affecting) the 
individual.
    We also proposed to amend Sec.  422.752(a)(3) and Sec.  
423.752(a)(3) to conform with statutory language and stated that we may 
impose an intermediate sanction if the sponsoring organization ``acts'' 
to expel or refuses to re-enroll a beneficiary in violation of the 
provisions of this part.
    Additionally, we proposed to amend Sec.  422.752(a)(4) and Sec.  
423.752(a)(4) to conform with the statutory language and state that we 
may impose an intermediate sanction if the sponsoring organization 
engages in any practice that would reasonably be expected to have the 
effect of denying or discouraging enrollment (except as permitted by 
this part) by eligible individuals with the organization whose medical 
condition or history indicates a need for substantial future medical 
services.
    As we noted in the proposed rule, sections 1857(g) and 1860D-12 of 
the Act provide a list of the bases for intermediate sanctions and 
civil money penalties. Existing regulations at Sec.  422.752(a) and 
Sec.  423.752(a) provide a similar list of bases for intermediate 
sanctions and civil money penalties. However, the language provided in 
Sec.  422.752(a)(1), (3), and (4) and Sec.  423.752(a)(1), (3), and (4) 
does not adequately conform to the statutory language in section 
1857(g)(1)(A), (C), and (D) of the Act, respectively.

[[Page 19788]]

    First, Sec.  422.752(a)(1) states that we may impose an 
intermediate sanction if the sponsoring organization fails 
substantially to provide, to a sponsoring organization enrollee, 
medically necessary services that the organization is required to 
provide (under law or under the contract) to a sponsoring organization 
enrollee, and that failure adversely affects (or is substantially 
likely to adversely affect) the enrollee. This language is slightly 
different than the language provided in the statute at section 
1857(g)(1)(A) of the Act.
    Second, Sec.  422.752(a)(3) and Sec.  423.752(a)(3) states that we 
may impose an intermediate sanction if the sponsoring organization 
expels or refuses to reenroll a beneficiary in violation of the 
provisions of this part. This language does not include the word 
``acts'' to expel which is mentioned in the statute at section 
1857(g)(1)(C) of the Act.
    Third, Sec.  422.752(a)(4) and Sec.  423.752(a)(4) states that we 
may impose an intermediate sanction if the sponsoring organization 
engages in any practice that could reasonably be expected to have the 
effect of denying or discouraging enrollment of individuals whose 
medical condition or history indicates a need for substantial future 
medical services. This language does not match the exact language 
contained in section 1857(g)(1)(D) of the Act.
    Finally, we made conforming changes to Sec.  422.752(c) and Sec.  
423.752(c). Currently Sec.  422.752(c)(1) and Sec.  423.752(c)(1) state 
that we may impose civil money penalties for any of the determinations 
at Sec.  422.510(a) and Sec.  423.509(a), except Sec.  422.510(a)(4) 
and Sec.  423.509(a)(4). Also, Sec.  422.752(c)(2)(ii) and Sec.  
423.752(c)(2)(ii) state that OIG may impose civil money penalties for a 
determination made pursuant to Sec.  422.510(a)(4) and Sec.  
423.509(a)(4). Since we are proposing elsewhere in these proposed 
regulations to redesignate Sec.  422.510(a)(4) and Sec.  423.509(a)(4) 
to Sec.  422.510(a)(2)(iii) and Sec.  423.509(a)(2)(iii), we need to 
conform Sec.  422.752 and Sec.  423.752 to these changes. Therefore, 
for regulations Sec.  422.752(c)(1), Sec.  422.752(c)(2)(ii), Sec.  
423.752(c)(1), and Sec.  423.752(c)(2)(ii) we are deleting the 
reference to Sec.  422.510(a)(4) and Sec.  422.509(a)(4) and replace 
with a reference to Sec.  422.510(a)(2)(iii) and Sec.  
423.509(a)(2)(iii).
    We received no comments on these provisions. Accordingly, we are 
adopting these provisions as proposed.

III. Provisions of the Final Rule

    Except as otherwise noted below, this final rule adopts the 
provisions of the proposed rule. The provisions of this final rule that 
differ from the proposed rule are as follows:
     Changes to Strengthen Our Ability to Distinguish for 
Approval Stronger Applicants for Part C and D Program Participation and 
to Remove Consistently Poor Performers.
     Notice of Intent to Apply. We modified Sec.  422.503(b)(2) 
and Sec.  423.502(b)(2) to clearly indicate that the decision not to 
submit an application after submission of a notice of intent will not 
result in any compliance consequences.
     Compliance Programs under Parts C and D--
    ++ We made changes made to Sec.  422.502(b)(4)(vi)(B) and Sec.  
423.504(b)(4)(vi)(B) to provide that the compliance officer must be an 
employee of the sponsoring organization, parent organization or 
corporate affiliate and clarify that they may not be an employee of a 
first tier, downstream or related entity of the sponsoring organization 
and must be accountable to the governing board of the sponsoring 
organization.
    ++ At Sec.  423.504(b)(4)(vi)(C)(3), we adopt a new regulation for 
the Part D program to specify that first tier, downstream, and related 
entities have met the fraud, waste, and abuse certification 
requirements through enrollment into the Medicare program and 
accreditation as a Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (DMEPOS) supplier are deemed to have met the training and 
educational requirements for fraud, waste, and abuse.
     Termination of Contracts under Parts C and D. We did not 
finalize the modifications to Sec.  422.510(a)(2)(i), Sec.  
423.509(a)(2)(i) (failure to comply with regulatory requirements), 
Sec.  422.510(a)(2)(ii) and Sec.  423.509(a)(2)(ii) (failure to comply 
with performance standards).
     Maximum Allowable Out-of-Pocket Cost Amount for Medicare 
Parts A and B Services. At Sec.  422.100(f)(4) with one modification 
regarding its applicability to all MA plans.
     Transition Process Under Part D (Sec.  423.120(b)(3)). At 
Sec.  423.120(b)(3), we are modifying proposed paragraph (iii) to 
clarify that transition notices must be sent to beneficiaries within 3 
business days of adjudication of a temporary fill.
     Beneficiary Communications Materials Under Parts C and D
    ++ Revised paragraph Sec.  422.2260(5)(vii) to retain materials 
about membership activities (for example, materials on rules involving 
non-payment of premiums, confirmation of enrollment or disenrollment, 
or annual notification materials) in the definition of marketing 
materials.
    ++ Added a new paragraph Sec.  422.2260(6) to specifically exclude 
from the definition of marketing ad hoc customized or situational 
enrollee communications from the definition of marketing materials.
     Use of Standardized Technology under Part D. At Sec.  
423.120, we clarify that the effective date for the requirement for a 
unique RxBIN or RxBIN/RxPCN combination and a unique Part D Rx 
identifier for each individual Part D member will be January 1, 2012.
     Notice of Alternative Medicare Plans Available to Replace 
Nonrenewing Plans Under Parts C and D.
     Revised Sec.  422.506 and Sec.  423.507 to require that 
both Part C and Part D organizations inform beneficiaries of both MA 
and PDP available options.
     Made minor technical changes to Sec.  422.254(a)(4), Sec.  
423.265(b)(2), Sec.  422.256(b)(4)(i) and Sec.  423(b)(3)(i).
     RADV Appeals Processes.
    ++ In Sec.  422.2 we are--
    -- Removing the definition of documentation dispute process; and
    -- Adding the definition of initial validation contractor (IVC).
    ++ In Sec.  422.311 we are revising the audit dispute and appeals 
processes.
     Changes to Improve Data Collection for Oversight and 
Quality Assessment
    ++ At Sec.  480.140(g), we clarify that QIOs must disclose quality 
review study information collected by the QIOs as part of the RHQDAPU 
program, as defined in section 1886(b)(3)(B) of the Act, to CMS.
    ++ We also modify Sec.  422.153 to indicate that we will acquire 
quality review study information from QIOs as defined in part 475.
     CAHPS Survey Administration Under Parts C and D. At Sec.  
417.492 and Sec.  422.152, we clarify that all cost contracts under 
section 1876 of the Act with 600 or more enrollees in July of the prior 
year, must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Medicare plan enrollees in 
accordance with CMS specifications and submit the survey data to CMS.
     Protected Classes of Concern under Part D. We are not 
finalizing our proposed revisions to Sec.  423.120(b)(2)(v).
     Pro-rating the Plan Deductible for Part C MSA Enrollments 
Occurring

[[Page 19789]]

During an Initial Coverage Election Period. We are modifying Sec.  
422.103(d) in this final rule to allow beneficiaries who enroll in a 
MSA plan mid-year to also pay a pro-rated deductible. Medication 
Therapy Management Programs Under Part D--At Sec.  423.153(d)(2)(iii), 
we adopt the establishment of a specific threshold of $3,000 for MTM 
eligibility, instead of relying on the ICL as the proposed target for 
MTM eligibility.
     Standard Timeframe and Notice Requirements for Coverage 
Determinations Under Part D. We add paragraph (a)(3) to Sec.  423.568, 
which will require plan sponsors to establish and maintain a method of 
documenting all oral requests and maintaining the documentation in the 
case file.
     Novations. We amended Sec.  423.551 to provide clarity to 
sponsors regarding the circumstances under which a PDP novation would 
be approved by CMS, noting that they do not apply to changes of 
ownership between subsidiaries of the same parent organization.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, 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 Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    The following sections of this document contain paperwork burden 
but not all of them are subject to the information collection 
requirements (ICRs) under the PRA for reasons noted.

A. ICRs Regarding Basic Contract Requirements (Sec.  417.472)

    Proposed Sec.  417.472(i) states that HMO or CMP must comply with 
the requirements at Sec.  422.152(b)(5). Proposed Sec.  417.472 states 
that all coordinated care contracts (including local and regional PPOs 
and contracts with exclusively SNP benefit packages, cost contracts 
under section 1876 of the Act, private fee-for-service contracts, and 
MSA contracts with 600 or more enrollees in July of the prior year) 
must contract with approved Medicare Consumer Assessment of Healthcare 
Providers and Systems (CAHPS) survey vendors to conduct the Medicare 
CAHPS satisfaction survey of MA plan enrollees in accordance with CMS 
specifications and submit the survey data to CMS. The burden associated 
with the requirement in Sec.  417.472(i) and (j) is detailed in our 
discussion of Sec.  422.152.

B. ICRs Regarding Apportionment and Allocation of Administrative and 
General Costs (Sec.  417.564)

    We are not imposing any new reporting requirements. We are simply 
clarifying what costs an HCPP may report in its cost report as 
administrative costs for reimbursement from the government. We do not 
believe that our proposal will result in additional burden on cost 
plans; therefore, we have not incorporated a burden increase in the PRA 
section.

C. ICRs Regarding Medicare Secondary Payer (MSP) Procedure (Sec.  
422.108 and Sec.  423.462)

    Section 422.108(b)(3) proposes that MA organizations must 
coordinate benefits to Medicare enrollees with the benefits of the 
primary payers, including reporting, on an ongoing basis, information 
obtained in accordance with requirements in paragraphs (b)(1) and 
(b)(2) of this section in accordance with CMS instructions. Similarly, 
Sec.  423.462 proposed that Part D plan sponsors must report creditable 
new or changed primary payer information to the CMS COB Contractor in 
accordance with the processes and timeframes specified by CMS. In the 
proposed rule, we estimated the burden associated with this requirement 
to be the time and effort necessary to report the specified information 
to CMS on an ongoing basis. We estimated that 624 MA organizations and 
456 Part D plan sponsors would need to comply with these requirements, 
a total of 1,080 entities. We also estimated that, on average, each 
entity would produce one report thereby yielding a total of 1,080 
reports annually for involved entities. We estimated that it would take 
each entity an average of 2,885 hours to report the required 
information to CMS. The estimated annual burden associated with these 
requirements was 3,115,800 hours, and the cost associated with meeting 
these requirements was $77.9 million.
    We have now determined that the information collection burden 
imposed by Sec.  422.108 and Sec.  423.462 is generally part of the 
information being captured in CMS-10265--Mandatory Insurer Reporting 
information collection request (ICR). The OMB control number (OCN) is 
0938-1074. Therefore, no new ICR is required.
    The collection approved under OCN 0938-1074 takes care of virtually 
all of an MAO's MSP reporting responsibilities; the MAO is now 
reporting on their own primary, commercial insurance coverage. The 
small number of cases where an MAO will need to report either a new 
primary carrier or the termination of such coverage, that is not 
captured by OCN 0938-1074 is covered by existing authority under OCN 
0938-0753. Under our previous Part C coordination of benefits policy, 
we required MAOs to survey members annually and to report results to 
CMS.
    The reporting burden under our previous Part C coordination of 
benefits policy was to report both survey non-responders (approximately 
10 percent of enrollees) and those who reported that they had other 
third party health insurance coverage (less than 2 percent). MAOs were 
not required to report to us on members that responded to the survey 
and said that they did not have other third party health insurance 
coverage--over 85 percent. Under the new system MAOs will only have to 
report to CMS those for whom MSP status changes from what is showing on 
the current COB file. We estimate this will be less than 1 percent. The 
burden of reporting is less now than it was before the change, but the 
actual reporting process is new. The new reporting process is slightly 
more burdensome than the old process and we believe the overall burden 
will be similar to what it was before this change.

D. ICRs Regarding Disclosure Requirements (Sec.  422.111)

    Proposed Sec.  422.111 states that we may require an MA 
organization to disclose to its enrollees or potential enrollees, the 
MA organization's performance and contract compliance deficiencies in a 
manner specified by CMS.
    Our intent is to invoke this disclosure authority when we become 
aware that an MA organization has serious compliance and performance 
deficiencies such as those that may lead to an intermediate sanction or 
require immediate correction and where we believe beneficiaries should 
be specifically notified. The primary purpose of this requirement is to

[[Page 19790]]

promote transparency and informed choice especially in those situations 
where we believe beneficiaries need or should have access to this 
information. The burden associated with this requirement would be the 
time and effort necessary for the MA organization to make the 
aforementioned disclosures. We have not developed a burden estimate for 
this requirement because we do not believe that we will exceed the PRA 
threshold of 10 organizations per any 12 month period. We have based 
this assumption on past experience. For example, while this requirement 
does not just apply to those organizations who have been sanctioned, in 
2009, CMS imposed intermediate sanctions on a total of 4 sponsoring 
organizations (which is the highest number of intermediate sanctions 
imposed in any year or 12 month period from 2006 through 2009) and, it 
is important to note, that not all of the organizations sanctioned in 
2009 were required to make such a disclosure. Additional organizations 
(not under sanction) experience compliance deficiencies, however we 
intend to utilize this disclosure requirement in instances where we 
become aware of serious deficiencies which may lead to the imposition 
of intermediate sanctions and/or require immediate correction. For any 
of these instances, we will then evaluate and determine whether it is 
appropriate that beneficiaries be specifically notified of the 
underlying deficiencies to achieve our stated goals of promoting 
transparency and/or informed choice. Therefore, we do not believe that 
we will impose the disclosure requirement on 10 or more sponsoring 
organizations within any 12-month period which would not require the 
development of a burden estimate.

E. ICRs Regarding Quality Improvement Program (Sec.  422.152)

    Section 422.152(b)(3)(ii) states that MA coordinated care plans 
must collect, analyze and report quality performance data indentified 
by CMS that are of the same type as those specified under paragraph 
(b)(3)(i) of this section. Section 422.152(e)(2)(ii) states that MA 
organizations offering an MA regional plan or local PPO plan must 
collect, analyze and report quality performance data identified by CMS 
that are of the same type as those described under Sec.  
422.152(e)(2)(i). The burden associated with these requirements is the 
time and effort necessary for an MA coordinated care plan to collect, 
analyze and report quality performance data to CMS. In the proposed 
rule, we estimated that it would require 1,000 hours per MA coordinated 
care plan to comply with these requirements. There are 624 MA 
coordinated care plans. The estimated annual burden associated with 
these requirements was 624,000 hours. The estimated annual cost 
associated with these requirements was $36.9 million. The new quality 
measures will be identified during CY 2011 at which time it will go 
through the PRA review and approval process. CMS has begun drafting the 
PRA package for the new quality measures. However, the PRA package 
cannot be completed until the measures have been developed.
    Section 422.152(b)(5) requires that all coordinated care contracts 
(including local and regional PPOs and contracts with exclusively SNP 
benefit packages, cost contracts under section 1876 of the Act in 
Section 417.472, private fee-for-service contracts, and PDPs under 
Section 423.156 with 600 or more enrollees in July of the prior year) 
must contract with approved Medicare CAHPS survey vendors to conduct 
the Medicare CAHPS satisfaction survey of MA plan enrollees in 
accordance with CMS specifications, and submit the survey data to CMS. 
The burden associated with this requirement is the time and effort 
necessary to conduct the CAHPS survey and submit the corresponding data 
to CMS. The associated burden is currently approved under OMB control 
number 0938-0732. For the CAHPS requirements, the requirement will go 
into effect in 2011 when the contracts select approved vendors to 
collect and submit CAHPS data on their behalf. The data collection 
begins in February 2011. We have revised the currently approved ICR to 
include the requirements contained in this section. The burden 
associated with these requirements is the time and effort necessary for 
an MA organization, Section 1876 Cost Plan, or PDP sponsor to collect, 
analyze and report quality performance data to CMS. We estimate that it 
will require 54 hours per MA organization or per PDP, to comply with 
these requirements. The 54 hours includes the time to select a CAHPS 
survey vendor and the survey administration time of the CAHPS survey 
vendor for which the MA or PDP contract pays. There are 624 contracts 
(both MA and PDPs). The estimated annual burden associated with these 
requirements is 54 x 624 = 33,696 hours for the affected contracts.

F. ICRs Regarding Risk Adjustment Data Validation (RADV) Appeals (Sec.  
422.311)

    We received comments from an MA organization disputing CMS's burden 
estimate associated with RADV audit appeals. This organization contends 
that CMS has underestimated the amount of time, effort, and cost 
associated with complying with CMS's RADV appeals processes, as 
proposed.
    While we acknowledge that there can be differences regarding the 
exact burden estimate CMS developed for RADV appeals, we continue to 
believe that the overall impact analysis we provided regarding RADV 
appeals-related procedures is reasonable. To date MA organizations have 
not been afforded appeal rights under RADV audits and CMS has no 
historical data to verify what we believe is an inherently reasonable 
level of effort and associated burden-estimate. Also, since invoking an 
MA organization's appeal rights is entirely voluntary on the part of MA 
organizations, we likewise have no altogether accurate way to estimate 
the level of activity that MA organizations will undertake in appealing 
eligible RADV-related audit provisions. Indeed, we think it is entirely 
possible that various MA organizations could take altogether different 
approaches in requesting an RADV appeal. For example--some 
organizations might employ internal resources to process an appeal 
request (for example, employ in-house medical record and legal staff) 
while other organizations could hire external medical record 
consultants and/or law firms to process their appeals requests. Given 
this uncertainty, CMS must rely upon what we believe are reasonable 
level of effort and burden-estimates, as described in our proposed 
rules and finalized here.
    In section Sec.  422.311 of the proposed rules, CMS proposed a 
multi-step Risk Adjustment Data Validation (RADV) dispute and appeals 
process. One important change to the RADV dispute and appeal process 
that we have implemented pursuant to public comment is removal of the 
documentation dispute process described at Sec.  422.311(c)(2)(ii) and 
development of a process that would allow MA organizations to appeal 
medical record review determinations that occur at the IVC level of 
medical record review. We describe this new process that we are 
implementing at Sec.  422.311(c) (2). In effect, the new medical record 
review appeal procedures provides MA organizations with two 
opportunities to appeal--first, to appeal RADV medical record review 
determinations and second, to appeal the RADV payment error 
calculations. It's our belief that the level of effort necessary to 
process a request for documentation dispute will be roughly the same 
level of effort necessary to request Medical record review appeal

[[Page 19791]]

since both processes involve sending CMS medical record documentation 
to support identified RADV errors identified pursuant to CMS's initial 
level of medical record review. However, the scope of the eligibility 
criteria for what CMS will allow MAOs to appeal under medical record 
review appeal could be broader when compared with what CMS would have 
allowed under the now removed documentation dispute process. We 
therefore have calculated a new burden estimate for medical record 
review appeal.
    Whereas under documentation dispute, RADV contract-level audit 
statistics indicated that approximately 55 percent of RADV audit errors 
would have been of the type that could be eligible for documentation 
dispute, we estimate that fully 100 percent of RADV audit errors will 
be eligible for medical record review appeal. The historical contract-
level RADV audit error rate to date is approximately 15 percent. 
Utilizing the statistics regarding the number of organizations that we 
expect to undergo RADV audit (70) annually, we estimate that 100 
percent of these organizations will invoke their medical record review 
appeal rights and appeal their medical record review errors. On 
average, CMS audits approximately 200 beneficiaries per contract; and 
each beneficiary selected for testing has approximately 2.5 
Hierarchical Condition Categories (or HCCs, which are the base-level 
unit of analysis under RADV audits) equating to roughly 500 HCCs tested 
per annual RADV contract-level audit. Applying the 15 percent contract-
level RADV audit error rate to the 500 tested HCCs renders an estimate 
of 75 HCCs (500 x .15) eligible for medical record review appeal per 
audit. This equates to approximately 5,250 HCCs (70 audits x 75 HCCs/
audit) that could be appealed annually under medical record review 
appeal. Each HCC that is appealed will require production of one 
medical record to overturn the RADV testing error. We continue to 
estimate that it will take approximately 1 hour to prepare the 
necessary documentation to dispute one HCC via medical record review 
appeal. This equates to 5,250 burden hours at approximately $59.20/hour 
(based on U.S. Dept. of Labor statistics for hourly wages for 
management analysts)--or, an annual dollar burden on the MA industry of 
$310,800.
    CMS also estimates that beyond product of medical records, MAOs 
pursuing medical record review appeal would incur legal costs in the 
preparation of the formal request for appeal. Again, we assume all MAOs 
will appeal their medical record review determinations found to be in 
error (70 MAOs). We estimate 40 hours by an attorney costing $60 per 
hour (Bureau of Labor Statistics, 1/28/2010), and 20 hours by a health 
care administrator costing $30 per hour (Bureau of Labor Statistics, 1/
28/2010); for a total cost of $3,000 in labor costs per MAO per appeal. 
This equates to an additional aggregate annual dollar burden of 
$210,000 ($3000 x 70 audits).Total estimated aggregate annual dollar 
burden to the MA industry annually equals $520,800 ($310,800 for 
medical record preparation + $210,000 for legal preparation of appeal 
case). The total aggregated burden is 9,450 hours.

G. ICRs Regarding Application Requirements (Sec.  422.501 and Sec.  
423.502)

    Section 422.501(b) and Sec.  423.502(b) require that an 
organization submitting an application under this section for a 
particular contract year must first submit a completed Notice of Intent 
to Apply by the date established by CMS. We will not accept 
applications from organizations that do not submit a timely Notice of 
Intent to Apply. The purpose of these requirements is to facilitate CMS 
systems access earlier so that the contract number may be given out and 
applications may be submitted electronically. While the burden 
associated with the requirements contained in Sec.  422.501(b) and 
Sec.  423.502(b), the Notice of Intent to Apply, are subject to the 
PRA, the burden associated with these requirements is already approved 
under the OMB control numbers for the Part C and Part D applications, 
0938-0935 and 0938-0936, respectively.
    Section 422.501(c) and Sec.  423.502(c) propose to revise the 
current regulation, making clear the application standards for becoming 
an MA organization or Part D plan sponsor. Specifically, Sec.  
422.501(c) and Sec.  423.502(c) require that applicants complete all 
parts of a certified application. The burden associated with the 
aforementioned requirements is the time and effort necessary for an 
application to complete all parts of a certified Part C or Part D 
application. While the burden associated with the requirements 
contained in Sec.  422.501(c) and Sec.  423.502(c) are subject to the 
PRA, the burden associated with these requirements is already approved 
under OMB control numbers for the Part C and Part D applications, 0938-
0935 and 0938-0936, respectively.

H. ICRs Regarding General Provisions (Sec.  422.503 and Sec.  423.504)

    Section 422.503(b)(4)(vi) and Sec.  423.504(b)(4)(vi) propose to 
expand on the existing requirements by providing clarification and 
additional guidance with respect to the requirements for developing, 
implementing and maintaining effective compliance programs. The burden 
associated with this requirement is the time and effort put forth by 
the sponsoring organization to prepare a compliance plan that meets the 
requirements of this section. While these requirements are subject to 
the PRA, it is currently approved under OCN 0938-1000.

I. ICRs Regarding Contract Provisions (Sec.  422.504 and 423.505)

    Section 422.504 and Sec.  423.505 explicitly state our existing 
authority to find sponsors out of compliance with either MA 
requirements, Part D requirements, or both when the sponsor's 
performance represents an outlier relative to the performance of other 
sponsors. Specifically, Sec.  422.504(e)(2) and Sec.  423.505(e)(2) 
state that HHS, the Comptroller General or their designees have the 
right to audit, evaluate, and inspect any books, contracts, computer or 
other electronic systems, including medical records and documentation 
of the first tier, downstream, and related to our contract with the MA 
organization. These sections contain recordkeeping requirements. The 
burden associated with Sec.  422.504(e)(2) and Sec.  423.505(e)(2) is 
the time and effort necessary for MA organizations or Part D sponsors 
to maintain the information on file and make it available to CMS upon 
request. While these requirements are subject to the PRA, we believe 
the associated burden is exempt under 5 CFR 1320.3(b)(2).

J. ICRs Regarding Nonrenewal of Contract (Sec.  422.506 and Sec.  
423.507)

    Section 422.506 and Sec.  423.507 contain notification requirements 
for MA organizations and Part D plan sponsors. Section 422.506(a)(2) 
and Sec.  423.507(a)(2) require that when an organization does not 
intend to renew its contract, it must notify each Medicare enrollee by 
mail at least 90 calendar days before the date on which the nonrenewal 
is effective. An organization will also have to provide information 
about alternative enrollment options by complying with at least one of 
the requirements specified in Sec.  422.506(a)(2)(ii) or Sec.  
423.507(a)(2)(ii). In addition, Sec.  422.506(b)(2) and Sec.  
423.507(b)(2) state

[[Page 19792]]

that an organization must notify each Medicare enrollee by mail at 
least 90 calendar days before the date on which the nonrenewal is 
effective, or at the conclusion of the appeals process. We believe that 
fewer than 10 contracts will be terminated on an annual basis, and 
therefore, these requirements are exempt from the PRA process.

K. ICRs Regarding Request for Hearing (Sec.  422.662 and Sec.  423.651)

    With respect to Medicare contract determinations and appeals, Sec.  
422.662 and Sec.  423.651 provide the methods and time period for when 
an MA organization or Part D plan sponsor may request a hearing after a 
contract determination or intermediate sanction has been imposed. The 
request for hearing must be submitted in writing and must be filed 
within 15 calendar days after the receipt of the notice of the contract 
determination or intermediate sanction. This is an existing regulation 
and in this rule we are only modifying the language ``after receipt of 
the hearing decision'' to conform to other regulations. Furthermore, we 
believe the associated burden is exempt from PRA under 5 CFR 1320.4. 
Information collected during the conduct of an administrative action or 
audit is not subject to the PRA.

L. ICRs Regarding Time and Place of Hearing (Sec.  422.670 and Sec.  
423.655)

    Section 422.670 and Sec.  423.655 state that CMS, an MA 
organization or a Part D plan sponsor may request an extension by 
filing a written request no later than 10 calendar days prior to the 
scheduled hearing. The burden associated with these requirements is the 
time and effort necessary for an MA organization or a Part D plan 
sponsor to submit a written extension request to the presiding hearing 
officer. Furthermore, we believe the associated burden is exempt from 
the PRA under 5 CFR 1320.4. Information collected during the conduct of 
an administrative action is not subject to the PRA.

M. ICRs Regarding Review by the Administrator (Sec.  422.692 and Sec.  
423.666)

    Section 422.692 and Sec.  423.666 state that CMS, an MA 
organization or a PDP plan sponsor that has received a hearing decision 
may request a review by the Administrator within 15 calendar days after 
receipt of the hearing decision. The burden associated with these 
requirements is the time and effort necessary to submit a request for 
the Administrator to review a hearing decision. This is an existing 
regulation and in this rule we are only modifying the language ``after 
receipt of the hearing decision'' to conform to other regulations. 
Furthermore, we believe the associated burden is exempt from PRA under 
5 CFR 1320.4. Information collected during the conduct of an 
administrative action or audit is not subject to the PRA.

N. ICRs Regarding Procedures for Imposing Intermediate Sanctions and 
Civil Monetary Penalties (Sec.  422.756 and Sec.  423.756)

    Section 422.756 and Sec.  423.756 state before CMS imposes 
intermediate sanctions, MA organizations and Part D plan sponsors may 
request a hearing before a CMS hearing officer. A written request must 
be received by the designated CMS office within 15 calendar days after 
the receipt of the notice of sanction. The burden associated with these 
requirements is the time and effort necessary to draft and submit a 
hearing request to the designated CMS office. This is an existing 
regulation and we are only modifying the language ``after receipt of 
the hearing decision'' to conform to other regulations. Furthermore, we 
believe the associated burden is exempt from PRA under 5 CFR 1320.4. 
Information collected during the conduct of an administrative action or 
audit is not subject to the PRA.

O. ICRs Regarding Disclosure Requirements (Sec.  423.128)

    Proposed Sec.  423.128 states that we may require a Part D Plan 
Sponsor to disclose to its enrollees or potential enrollees, the Part D 
Plan Sponsor's performance and contract compliance deficiencies in a 
manner specified by CMS.
    Our intent is to invoke this disclosure authority when we become 
aware that a Part D sponsor has serious compliance and performance 
deficiencies such as those that may lead to an intermediate sanction or 
require immediate correction and where we believe beneficiaries should 
be specifically notified. The primary purpose of this requirement is to 
promote transparency and informed choice especially in those situations 
where we believe beneficiaries need or should have access to this 
information. The burden associated with this requirement would be the 
time and effort necessary for the Part D sponsor to make the 
aforementioned disclosures. We have not developed a burden estimate for 
this requirement because we do not believe that we will exceed the PRA 
threshold of 10 organizations per any 12 month period. We have based 
this assumption on past experience. For example, while this requirement 
does not just apply to those organizations who have been sanctioned, in 
2009, CMS imposed intermediate sanctions on a total of 4 sponsoring 
organizations (which is the highest number of intermediate sanctions 
imposed in any year or 12 month period from 2006 through 2009) and, it 
is important to note, that not all of the organizations sanctioned in 
2009 were required to make such a disclosure. Additional organizations 
(not under sanction) experience compliance deficiencies, however we 
intend to utilize this disclosure requirement in instances where we 
become aware of serious deficiencies which may lead to the imposition 
of intermediate sanctions and require immediate correction. For any of 
these instances, we will then evaluate and determine whether it is 
appropriate that beneficiaries be specifically notified of the 
underlying deficiencies to achieve our stated goals of promoting 
transparency and informed choice. Therefore, we do not believe that we 
will impose the disclosure requirement on 10 or more sponsoring 
organizations within any 12-month period which would not require the 
development of a burden estimate.

P. ICRs Regarding Validation of Part C and Part D Reporting 
Requirements (Sec.  422.516 and Sec.  423.514)

    In this final rule, we are amending Sec.  422.516 and Sec.  423.514 
to state that each Part C and Part D sponsor will be subject to an 
independent yearly audit of Part C and Part D measures (collected 
pursuant to our reporting requirements) to determine their reliability, 
validity, completeness, and comparability in accordance with 
specifications developed by CMS. The burden associated with this 
provision is the time and effort of the MA organizations and Part D 
sponsors in procuring an auditor and in supporting the auditor as well 
as the time and effort of the auditor in conducting the yearly audit.
    In the proposed rule, we estimated the total burden hours related 
to the time and effort for all auditing organizations to perform the 
annual audit for both Part C and Part D data validation to be 215,840. 
In addition, we estimated the total yearly burden for procuring and 
supporting the auditor would be 85,200 hours (120 hours per sponsor x 
710 sponsors). Therefore, the total estimated burden was 301,040 hours. 
At that time, we assumed that the auditing organizations would audit 
all thirteen measures that comprised the Part C reporting requirements 
and all 21 sections that comprised the Part D reporting requirements. 
For Part C, two of the original thirteen reporting

[[Page 19793]]

requirements were suspended--agent compensation structure and agent 
training and testing. Additionally, two of the remaining eleven Part C 
measures will not undergo the data validation--PFFS Plan enrollment 
Verification Calls and PFF Provider Payment Dispute Resolution Process. 
We estimate that Part C reductions alone will reduce the annual hourly 
burden for all auditing organizations to perform the annual audit by 
66,412 hours (215,840 x 4/13). This reduction leads to an estimate of 
149,428 hours to perform the annual audit for Part C measures. The 
CY2010 Part D Reporting Requirements PRA package approved by OMB in 
October 2009 included burden estimates for data validation and auditing 
activities. The PRA package included the burden for plans to audit 17 
of the 21 Part D reporting sections. This number has now been decreased 
because only 8 reporting sections will be audited. The elimination of 9 
reporting sections from the requirements for data validation and 
auditing for Part D will result in the following reduction in labor 
hours: 0.5 hours x 9 sections x 715 plans = 3,218 hours.
    The combined Part C and Part D reductions in data validation 
requirements from those in the proposed rule will result in 69,630 
fewer labor hours. The total estimated labor hours is therefore 301,040 
- 69630 = 231,410.

Q. ICRs Regarding Drug Utilization Management, Quality Assurance, and 
Medication Therapy Management Programs (MTMPs) (Sec.  423.153)

    The revisions to Sec.  423.153 state that Part D plans must offer a 
minimum level of medication therapy management services for each 
beneficiary enrolled in the MTMP that includes, but is not limited to, 
annual comprehensive medication reviews with written summaries. The 
comprehensive medical review must include an interactive, person-to-
person consultation performed by a pharmacist or other qualified 
provider unless the beneficiary is in a long-term care setting. 
Additionally, there must by quarterly targeted medication reviews with 
follow-up interventions when necessary.
    The burden associated with these requirements is the time and 
effort necessary for Part D sponsors (both MA-PDs and PDPs) to conduct 
the medical reviews with written summaries. We estimate that each 
medical review will take an average of 30 minutes to conduct. 
Similarly, we estimate that there will be 1,875,000 reviews conducted 
by 456 Part D sponsors on an annual basis. The total annual burden 
associated with this requirement is 937,500 hours.

R. ICRs Regarding Timeframes and Notice Requirements for Standard 
Coverage Determinations (Sec.  423.568)

    The Part D plan sponsor must, under paragraph (a)(3), establish and 
maintain a method of documenting all oral requests for standard 
coverage determinations and retain the documentation in the case file.
    The burden associated with this requirement is the time and effort 
necessary for Part D plan sponsors to maintain the required 
documentation outlined in this section. We estimate that, on an annual 
basis, 90 percent of all coverage determination requests will be 
standard requests, and three percent of those requests will not involve 
reimbursement issues. Of the estimated 1,013,881 requests received 
annually, we estimate that approximately 90 percent (912,493) will be 
made orally. We estimate that it will take a Part D plan sponsor 3 
minutes to document and retain the required documentation in the case 
file. Thus, it will take each of the 456 Part D plan sponsors 100 hours 
to maintain the required documentation on an annual basis, for a total 
annual burden of 45,625 hours.
    If a Part D plan sponsor makes a completely favorable standard 
decision under paragraph (d) of this section, it must give the enrollee 
written notice of the determination. Pursuant to paragraph (d) of this 
section, the initial notice of a favorable decision may be provided 
orally, so long as a written follow-up notice is sent within 3 calendar 
days of the oral notification.
    The burden associated with the requirement in paragraph (d) is the 
time and effort necessary for a Part D plan sponsor to notify an 
enrollee (and the prescribing physician or other prescriber involved, 
as appropriate) in writing of a completely favorable standard decision 
for benefits. We estimate that each year, the 456 Part D plan sponsors 
will issue a total of approximately 760,411 written favorable standard 
notifications for benefits. We further estimate that it will take a 
Part D plan sponsor 30 minutes to distribute a single notice. The 
estimated annual burden associated with the requirement in Sec.  
423.568(d) is 380,206 hours. For Sec.  423.568, we will update 0938-
0964 to include the burden estimates associated with this requirement.

S. ICRs Regarding Timeframes and Notice Requirements for Expedited 
Coverage Determinations (Sec.  423.572)

    If a Part D plan sponsor makes a completely favorable expedited 
decision under paragraph (b) of this section, it must give the enrollee 
written notice of the determination. The initial notice may be provided 
orally, so long as a written follow-up notice is sent within 3 calendar 
days of the oral notification. The burden associated with the 
requirements listed in Sec.  423.572(b) is the time and effort 
necessary for a Part D plan sponsor to notify an enrollee (and the 
prescribing physician or other prescriber involved, as appropriate) in 
writing of completely favorable expedited decision. We estimate that 
the 456 Part D plan sponsors will issue a combined 87,103 written 
favorable expedited notifications per year. We further estimate that it 
will take a Part D plan sponsor 30 minutes to distribute a single 
notice. The estimated annual burden associated with the requirement in 
Sec.  423.572(b) is 43,552 hours.

T. ICRs Regarding Access To Covered Part D Drugs (Sec.  423.120)

    Section 423.120(b)(3)(iv) requires sponsors to provide enrollees 
with appropriate notice regarding their transition process within three 
business days after providing a temporary supply of non-formulary Part 
D drugs (including Part D drugs that are on a sponsor's formulary but 
require prior authorization or step therapy under a sponsor's 
utilization management rules). The burden associated with this 
requirement is the time and effort necessary for a Part D plan sponsor 
to provide a notice to beneficiaries regarding the transition process. 
We estimate this will result in 1.35 million notices that would take an 
average of 15 minutes to prepare. We then estimate the total burden to 
be 337,500 hours.
    Section 423.120(c)(4) requires Part D sponsors to contractually 
mandate that their network pharmacies submit claims electronically to 
the Part D sponsor or its intermediary on behalf of the beneficiary 
whenever feasible unless the enrollee expressly requests that a 
particular claim not be submitted to the Part D sponsor or its 
intermediary. Section 423.120(c)(4) requires the approximately 28 
pharmacy claims processors currently responsible for the electronic 
adjudication of pharmacy benefits to change their RxBIN or RxBIN and 
RxPCN combination if such identifiers are not already unique to its 
Medicare line of business, and the Part D cardholder identification 
number if it is not already unique to each Medicare

[[Page 19794]]

Part D enrollee. We estimate the annual hourly burden to be 1,380 hours 
per processor to make the coding changes necessary to implement this 
requirement. We estimate the yearly burden to be 38,640 hours for CY 
2010. This is a one time only burden for programming. The collection 
burden for these provisions will be reflected in a revised submission 
of the ICR approved under OMB control number 0938-0964.

U. ICRs Regarding Timeframes and Responsibility for Making 
Redeterminations (Sec.  423.590)

    Section 423.590(d)(2) states that if a Part D plan sponsor first 
notifies an enrollee of an adverse or favorable expedited determination 
orally, it must mail written confirmation to the enrollee within 3 
calendar days of the oral notification. The burden associated with this 
requirement is the time and effort necessary for a Part D plan sponsor 
to follow up an initial oral notification to an enrollee with a written 
notification. In the proposed rule, we estimated a burden. We 
subsequently discovered that appeals notices, including those for Part 
D, are exempt from PRA under 5 CFR 1320.4. We will update 0938-0964 to 
include the Sec.  423.590 exclusion language.
    Comment: A commenter questioned our evidence of costs or time that 
support CMS' burden estimates and questioned the basis of the 
estimates.
    Response: We believe that we provided evidence for both the cost 
and time estimates in the COI and regulatory impact analysis sections 
of the October 2009 proposed rule. The commenter did not provide any 
cost estimates that would call into question the validity of these 
estimates.

V. Annual Information Collection Burden

    Table X shows our estimates of the annual reporting and 
recordkeeping burden based on the discussion detailed in sections 
III.A. through III.V. of this final rule.

[[Page 19795]]



                                                                  Table 9--Estimated Annual Reporting and Recordkeeping Burdens
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                    Total labor   Total capital/
                                                                                                    Burden per     Total annual    Hourly labor       cost of       maintenance    Total cost ($
         Regulation section(s)               OMB Control No.        Respondents      Responses       response         burden          cost of      reporting  ($     costs  ($       millions)
                                                                                                      (hours)         (hours)     reporting  ($)     millions)       millions)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   422.108 and Sec.   423.462......  0938-1074..............           1,080           1,080        2,885          3,115,800           25.00            77.9             0.0            77.9
Sec.   422.152(b)(3)(ii) and Sec.        0938-New...............            *624             624        1,000            624,000           59.13            36.9             0.0            36.9
 422.152(e)(2)(ii).
Sec.   422.152(b)(5) and Sec.   423.156  0938-0732..............             624             624           54             33,969           91.26             3.1             0.0             3.1
Sec.   422.311(c)(2)...................  0938-New...............           9,450           9,450            1              9,450           52.91              .5             0.0              .5
Sec.   422.516(g) and Sec.   423.514(g)  0938-New...............            *710             710          327.1          231,410          138.71            32.1              .1            32.2
Sec.   423.120(b)(iv)..................  0938-0964..............             710       1,350,000            0.25         337,500           21.93             7.4             0.0             7.4
Sec.   423.120(c)(3)...................  0938-0964..............              28              28        1,380             38,640           25.88             1.0             4.8             5.8
Sec.   423.153.........................  0938-0964..............            *456       1,875,000            0.5          937,500          120.00           112.5             0.0           112.5
Sec.   423.568(a)(3)...................  0938-0964..............             456         912,493            0.05          45,625           39.45             1.8             0.0             1.8
Sec.   423.568(b)......................  0938-0964..............             456         760,411            0.5          380,206           41.03            15.6             0.0            15.6
Sec.   423.572(b)......................  0938-0964..............             456          87,103            0.5           43,550           41.33             1.8             0.0             1.8
                                        --------------------------------------------------------------------------------------------------------------------------------------------------------
    Total..............................  .......................          12,348       4,997,523  ..............       5,797,650  ..............           290.6             4.9           295.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Provisions regarding Sec.   422.152(b)(5) and Sec.   423.156 and Sec.   422.516(g) and Sec.   423.514(g) will not go into effect until contract year 2011. They are included here because
  they will be in effect for the period of 2010-2015. Therefore, the totals in this table will not agree with the totals for CY 2010 in the RIA Table of costs (Table 10) in the section V.C of
  this final rule.


[[Page 19796]]

V. Regulatory Impact Analysis (RIA)

A. Need for Regulatory Action

    This final rule makes revisions to the regulations governing the 
Medicare Advantage (MA) program (Part C) and prescription drug benefit 
program (Part D) based on our continued experience in the 
administration of the Part C and D programs. The revisions strengthen 
various program participation and exit requirements; strengthen 
beneficiary protections; ensure that plan offerings to beneficiaries 
include meaningful differences; improve plan payment rules and 
processes; improve data collection for oversight and quality 
assessment, implement new policy such as a Part D formulary policy, and 
clarify program policy.

B. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 
804(2)).
    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).
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. 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 $7.0 million to $34.5 million in any 1 year. Individuals 
and States are not included in the definition of a small entity. MA 
organizations and Part D sponsors, the only entities that will be 
affected by the provisions of this rule, are not generally considered 
small business entities. They must follow minimum enrollment 
requirements (5,000 in urban areas and 1,500 in non-urban areas) and 
because of the revenue from such enrollments, these entities are 
generally above the revenue threshold required for analysis under the 
RFA. While a very small rural plan could fall below the threshold, we 
do not believe that there are more than a handful of such plans. A 
fraction of MA organizations and sponsors are considered small 
businesses because of their non-profit status. HHS uses as its measure 
of significant economic impact on a substantial number of small 
entities, a change in revenue of more than 3 to 5 percent. We do not 
believe that this threshold would be reached by the requirements in 
this final rule because this rule will have minimal impact on small 
entities. Therefore, an analysis for the RFA will not be prepared 
because the Secretary has determined that this final rule will not have 
a significant impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis, if a 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 believe and the 
Secretary has 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 by 
State, local or tribal governments, in the aggregate, or by the private 
sector of $100 million in 1995 dollars, updated annually for inflation. 
That threshold level is currently $135 million. This final rule is 
expected to reach this spending threshold.
    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. We do not believe that this final rule imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications.
    We estimate this rule is ``economically significant'' as measured 
by the $100 million threshold, and hence a major rule under the 
Congressional Review Act. Accordingly, we have prepared a Regulatory 
Impact Analysis.
    Because there are costs to plans and sponsors associated with 
several provisions of this rule, we indicate general areas affected and 
specify the associated costs. For specific burden associated with the 
requirements and the bases for our estimates, see section IV. of this 
final rule.

C. Increase in Costs to MA Organizations and Part D Sponsors

    The provisions of this final rule would require MA organizations 
and Part D sponsors an estimated cost of approximately $260.3 million 
for CY 2010.
    We believe the following requirements will result in costs to MA 
organizations and Part D sponsors between 2010 and 2015: Medicare 
Secondary Payer Procedures (Sec.  422.108), CAHPS Survey Costs for MAs 
and PDPs (Sec.  422.152(b)(5) and Sec.  423.156), Quality Improvement 
program (Sec.  422.152(b)(3)(ii), Sec.  422.152(e)(2)(ii)), and Sec.  
423.156,Validation of Reporting Requirements (Sec.  422.516 and Sec.  
423.514), Access to Covered Part D Drugs (Sec.  423.120(b)(iv)), 
Pharmacy Use of Standard Technology under Part D (Sec.  423.120(c)(3)), 
Drug Utilization Management, Quality Assurance, and Medication Therapy 
Management (Sec.  423.153), Documenting Oral Requests for Standard 
Coverage Determinations (Sec.  423.568(a)(3)), Timeframe and Notice 
Requirements for Standard Coverage Determinations (Sec.  423.568), and 
Timeframes and Notice Requirements for Expedited Coverage 
Determinations (Sec.  423.572(b)). It is true that all of the costs, 
besides those associated with MIPPA 176, are labor or capital, 
primarily labor. We expect that these costs will all be reflected in 
higher bid prices that will be federally-funded. Therefore, all the 
requirements, except MIPPA 176, will result in costs to MA 
organizations and Part D sponsors between CY 2010 and CY 2015.
    We believe that the regulatory provisions implementing the MIPPA 
176 provision will result in savings to the Medicare Program.

[[Page 19797]]



                                          Table 10--Estimated Costs and Savings by Provision for CYs 2010-2015
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Calendar year
             Provision(s)                 Regulation section(s)  ------------------------------------------------------------------------  Total (2010-
                                                                     2010        2011        2012        2013        2014        2015          2015)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare Secondary Payer Procedures...  Sec.   422.108 and Sec.         77.9        77.9        77.9        77.9        77.9        77.9           467.4
                                          423.462.
Quality Improvement...................  Sec.   422.152(b)(3)(ii)        36.9        36.9        36.9        36.9        36.9        36.9           221.4
                                         and Sec.
                                         422.152(e)(2)(ii).
CAHPS Survey Costs for MAs and PDPs...  Sec.   422.152(b)(5) and           0         3.1         3.1         3.1         3.1         3.1            15.5
                                         Sec.   423.156.
RADV..................................  Sec.   422.311..........         0.5         0.5         0.5         0.5         0.5         0.5             3.0
Data Validation.......................  Sec.   422.516 and Sec.          0.1        32.1        32.1        32.1        32.1        32.1           160.6
                                          423.514.
Transition Notification...............  Sec.   423.120(b)(iv)...         7.4         7.4         7.4         7.4         7.4         7.4            44.4
Pharmacy Use of Standard Technology...  Sec.   423.120(c)(3)....         5.8           0           0           0           0           0             5.8
Drug Utilization Management...........  Sec.   423.153..........       112.5       112.5       112.5       112.5       112.5       112.5           675.0
Documenting Oral Requests for Standard  Sec.   423.568(a)(3)....         1.8         1.8         1.8         1.8         1.8         1.8            10.8
 Coverage Determinations.
Standard Coverage Determinations        Sec.   423.568(b).......        15.6        15.6        15.6        15.6        15.6        15.6            93.6
 Notification.
Expedited Coverage Determinations       Sec.   423.572..........         1.8         1.8         1.8         1.8         1.8         1.8            10.8
 Notification.
MIPPA 176.............................  ........................           0        -160        -340        -460        -520        -570          -2,050
                                                                 ---------------------------------------------------------------------------------------
    Total.............................  ........................      260.30      129.60      -50.40     -170.40     -230.40     -280.40         -341.70
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Expected Benefits

    Beginning in CY 2013, we expect net savings due to the combined 
impact of these new final provisions. We expect that the net impact 
across the 6-year period from CY 2010 through CY 2015 will be a cost of 
$308.3 million.
    Many of the new requirements involve clarifications of existing 
regulations and policies. As such, they should help plans to improve 
their administrative operational functions which will streamline the 
Medicare Advantage and Medicare Prescription Drug programs and 
strengthen beneficiary protections within these programs. Specifically, 
we believe that the requirements in this final rule will improve 
coordination of care, increase quality of data reporting, increase 
ability to comply with existing regulations and policies, enhance 
appeal and grievance procedures, and curtail illegal marketing 
practices. Additional benefits include clarification of timeframes and 
notification requirements. Some of the new requirements may lead to 
changes in health plan service areas.
    We anticipate that several of the requirements in this final rule 
will be beneficial to PBMs in administering the Part D benefit for Part 
D sponsors. Proposed codification of the transition process 
requirements and establishment of the protected classes will assist 
PBMs in applying the Part D requirements consistently across Part D 
plans and managing the Part D sponsor's benefit packages more 
efficiently. Establishing cut-off limits for COB and requiring Part D 
sponsors to report other payer information in a timely fashion to CMS' 
COB contractors will improve the administrative burden of the payment 
reconciliation process. The technical correction to the definition of 
``gross covered prescription drug costs'' will also help PBMs calculate 
a beneficiary's gross covered prescription drug costs.
    The original Medicare savings in 2007, resulting from the Medicare 
Secondary Payer (MSP) Procedures were estimated at $6.5 billion. This 
included $2.9 billion recovered or avoided for working-aged 
individuals, $1.9 billion for working-disabled individuals, $877 
million for workers' compensation, $278 million for ESRD beneficiaries, 
and another $485 million recovered or avoided for liability and other 
insurers. In 2007, there were approximately 8.5 million MA enrollees 
and 44 million total Medicare enrollees (an MA penetration rate of 
approximately 19 percent). The $6.5 billion in MSP savings can be 
attributed to the 35.5 million original Medicare enrollees and thus 
equates to approximately $183 per original Medicare enrollee. In 2009, 
MA penetration was higher consisting of 11 million MA enrollees out of 
approximately 45 million total Medicare enrollees. This translates to 
an estimated 24 percent MA penetration. We assume a similar MSP take up 
rate for MA enrollees as that obtained in the original 2007 Medicare 
savings and therefore project a total MSP savings of approximately $2 
billion by 2010.
    The estimated impact of MSP on 624 MA organizations and 456 PDPs 
based on 3.1158 million burden hours at approximately $25 per hour 
(based on U.S. Department of Labor (DOL) statistics for the hourly 
wages of claims analysts of $22.20 per hour and for management analysts 
of $59.20/hour), is approximately $77.9 million. All labor rate 
calculations in the RIA are derived from the May 2008 wage statistics 
supplied by the Department of Labor (DOL), Bureau of Labor Statistics 
and include fringe benefits and overhead costs. We expect an MA 
organization to use approximately 1.5 FTEs to implement Part C MSP 
procedures related to avoiding costs, reporting data, and collecting 
from liable third parties related to MSP. We estimate the work mix to 
be completed to be 90 percent by the claims analyst and 10 percent by 
the management analyst.
    We note that MAOs expenses for processing claims related to MSP 
recoveries are considered part of their administrative overhead costs. 
MA organizations that faithfully pursue and recover from liable third 
parties will have lower medical expenses. Lower medical expenses make 
such plans more attractive to enrollees. The lower the medical expenses 
in an MA plan, the higher the potential rebate. The rebate is 
calculated as the difference between the cost of Medicare benefits and 
the benchmark for that plan. The benchmark is a fixed amount. 
Therefore, as the cost of Medicare benefits decreases with the 
benchmark remaining constant, the rebate amount increases. That is, as 
more MSP dollars are collected or avoided, medical expenses go down and 
rebates go up, allowing the sponsoring MA organization to offer 
potential enrollees additional non-Medicare benefits funded by rebate 
dollars. Such non-Medicare benefits include reductions in cost sharing. 
Since cost sharing is

[[Page 19798]]

generally expressed as a percentage of medical costs, it will be 
proportionally lower as overall medical costs go down, providing MA 
organizations offering such plans with an additional competitive edge.
    In sections 422.152(b)(3)(ii) and 422.152(e)(2)(ii), we require MA 
organizations to collect, analyze, and report quality performance data 
identified by CMS that are of the same type of data that MA 
organizations are currently required to collect and report to CMS. The 
mean estimated burden per MA contract as indicated in section IV. E of 
this final rule is 1,000 hours. The estimated mean cost per hour for 
these MA contracts is $59.20. The mean cost per MA contract is $59,200. 
Since the number of MA contracts is estimated to be 624, the overall 
estimated cost across all contracts is $36.9 million (624 x $59,200).
    In Sec.  422.311 we describe the Risk Adjustment Data Validation 
(RADV) dispute and appeals process that audited MAOs can voluntarily 
choose to participate in. In our proposed rule, we estimated that 
upwards of 100 MAOs would be selected for contract-level RADV audits 
annually. We now believe that a more accurate estimate of the number of 
MAOs that will be selected for contract-level RADV audits is between 60 
and 80 MAOs. Here, we will assume that CMS selects 70 MAOs for 
contract-level RADV audit. On average, CMS audits approximately 200 
beneficiaries per contract; and each beneficiary selected for testing 
has approximately 2.5 Hierarchical Condition Categories (or HCCs, which 
are the base-level unit of analysis under RADV audits) equating to 
roughly 500 HCCs tested per audit. To date, the average contract-level 
RADV error rate has been approximately 15 percent. Thus, we assume a 
total burden to audited MAOs of approximately 5,250 HCCs ((500 x .15) 
70) that will require validation medical records (each HCC is typically 
associated with one medical record.)
    We continue to estimate that it will take approximately 1 hour to 
prepare the necessary documentation to dispute one HCC via medical 
record review appeal. At a per plan-level estimate, this equates to 
$4,440 per medical record review appeal. Annualized across all audited 
MAOs, this in turn equates to 5,250 burden hours at approximately 
$59.20/hour (based on U.S. Dept. of Labor statistics for hourly wages 
for management analysts)--or, an annual dollar burden on the MA 
industry of $310,800.
    We also estimate that beyond production of medical records, MAOs 
pursuing medical record review appeal would incur legal costs in the 
preparation of the formal request for appeal. Again, we assume that all 
MAO will appeal their medical record error determinations (70 
organizations.) We estimate 40 hours by an attorney costing $60 per 
hour (Bureau of Labor Statistics, 1/28/2010), and 20 hours by a health 
care administrator costing $30 per hour (Bureau of Labor Statistics, 
January 28, 2010); for a total cost of $3,000 in labor costs per MAO 
per appeal. When annualized across all contract-specific RADV audits, 
this in turn equates to an additional aggregate annual dollar burden of 
$210,000 ($3000 x 70 audits). Total estimated aggregate annual dollar 
burden to the MA industry annually equals $520,800 ($310,00 for medical 
record preparation + $210,000 for legal preparation of appeal case).
    The validation of reporting requirements (Sec.  422.516 and Sec.  
423.514) focuses on how the sponsor collects, stores, and reports the 
new Part C and Part D data requirements. Standards and procedures will 
also focus on how sponsors compile data, and verify calculations, 
computer code, and algorithms. The estimated mean hourly burden per 
affected Part C and Part D sponsor to procure an auditing organization 
and to support the auditing organization in its data collection efforts 
including staff interviews is 120 hours, as indicated in section IV.O. 
of this final rule. We believe the auditor, who is hired by the plan, 
will typically have a team consisting of a management analyst, two 
senior auditors, a senior claims analyst, a senior statistician, an IT 
systems analyst, a computer programmer, and a word processor. We used 
May 2008 wage statistics supplied by the DOL, Bureau of Labor 
Statistics to develop estimates of direct wages. We also added fringe 
benefits, overhead costs, and general and administrative expenses using 
percentages that are consistent with CMS contracts. Based on our 
experience and discussions with program experts, we developed an 
estimate of the blended hourly burden. The estimated mean cost per hour 
for these sponsors is $43.14 (wages, fringe benefits, and overhead). 
The estimated mean number of hours per sponsor is 120. Thus, the mean 
cost per sponsor to procure and support the auditor is $5,177 (1200 x 
$43.14). Furthermore, with the 710 estimated number of sponsors, the 
overall cost across all sponsors to complete the work involved in 
procuring and supporting the auditing contractors is $3.7 million (710 
x $5,177). The number of hours is 85,200.
    The total estimated burden hours related to the time and effort for 
all auditing organizations to perform the annual audit for both Part C 
and Part D data validation is estimated to be 146,210 hours. The mean 
cost per hour is estimated to be $194.21. Therefore, the estimated 
annual cost for auditing contracts involving all 710 sponsors is $28.4 
million. The estimated total annual cost for auditing contracts and for 
the procurement and audit support time and effort of the sponsors is 
$32.1 million ($28.4 million + $3.7 million). The total estimated 
burden hours, including the hours for sponsors to procure contractors, 
is 231,410. Lastly, there is a one-time cost to develop the software 
that will allow data entry into HPMS. This is a Federal cost estimated 
at $100,000 or $0.1 million for CY 2010.
    Beginning in 2011 MA organizations under Sec.  422.152(b)(5), 
section 1876 Cost plans under Sec.  417.472, and Part D sponsors under 
Sec.  423.156 will begin paying for the data collection costs of the 
CAHPS annual survey. Data collection is to be performed by a contractor 
hired by the MAO, section 1876 Cost plan or Part D sponsor. The mean 
estimated burden per contract, as indicated in section IV. of this 
final rule, is 54 hours. The 54 hours includes the time to select a 
vendor and the survey administration time of the survey vendor that the 
contract pays. The estimated cost per contract is $5,023. Beginning in 
2011, the overall estimated annual cost across the 624 contracts is 
$3.1 million.
    Section 423.120(b)(iv) requires sponsors to provide enrollees with 
appropriate notice regarding their transition process within a 
reasonable amount of time after providing a temporary supply of non-
formulary Part D drugs (including Part D drugs that are on a sponsor's 
formulary but require prior authorization or step therapy under a 
sponsor's utilization management rules). In section IV.S. of this final 
rule, we estimated that 1.35 million notices would be required with an 
average preparation time of 15 minutes. As a result, the estimated 
total burden is calculated at 337,500 hours. At an estimated $20.15 in 
hourly labor cost of reporting, the total cost is $6.8 million (337,500 
x $20.15). In addition, we estimated an additional cost of printing, 
supplies, and postage of $0.475 per notice. This yields a cost of 
$641,250 for the 1.35 million notices. Therefore, the total cost for 
sponsors to provide enrollees with appropriate notice regarding their 
transition process within a reasonable amount of time after providing a 
temporary supply of

[[Page 19799]]

nonformulary Part D drugs is estimated at $7.4 million.
    As indicated in section IV.R of this final rule, developing 760,411 
written notices outlining favorable standard coverage determinations 
(Sec.  423.568(d)) is estimated to result in an annual burden of 
380,206 hours. At an estimated cost of $40.00 per hour, the total 
annual cost of this change is $15.2 million. In addition, the aggregate 
cost of printing, supplies and postage associated for all the notices 
is $361,195. Therefore, the overall total cost for providing written 
notices of a favorable standard coverage determination (Sec.  
423.568(d)) is estimated to be $15.56 million.
    Section Sec.  423.120(c)(3) requires the approximately 28 pharmacy 
claims processors currently responsible for the electronic adjudication 
of pharmacy benefits to change their RxBIN or RxBIN and RxPCN 
combination if such identifiers are not already unique to its Medicare 
line of business, and the Part D cardholder identification number if it 
is not already unique to each Medicare Part D enrollee. We estimate the 
annual hourly burden to be 1,380 hours per processor to make the coding 
changes necessary to implement this requirement. The yearly burden is 
therefore estimated to be 38,640 hours for CY 2010 (1,380 x 28). This 
is a one-time burden for programming. At an average labor cost of 
$150.00 per hour, we estimate the overall cost in CY2010 to be $5.8 
million.
    The revisions to Sec.  423.153 state that Part D plans must offer a 
minimum level of medication therapy management services for each 
beneficiary enrolled in the MTMP that includes but is not limited to 
annual comprehensive medication reviews with written summaries. The 
burden associated with this requirement was estimated at 937,500 hours, 
as reflected in section IV.P of this final rule. At an estimated 
average hourly labor cost of $120.00, the total cost is $112.5 million 
for 2010 (937,500 x $120.00).
    Establishing and maintaining a method of documenting all oral 
requests for standard coverage determinations and retaining the 
documentation in the case file (Sec.  423.568(a)(3)), are estimated to 
result in an annual burden of 45,625 hours. At an estimated cost of 
$40.00 per hour, the estimated total annual cost of this change is $1.8 
million.
    As indicated in section IV.S of this final rule, developing 87,103 
written notices for favorable expedited coverage determination (Sec.  
423.572(b)) is estimated to result in an annual burden of 43,552 hours. 
At an estimated cost of $40.00 per hour, the total annual cost of this 
change is $1.74 million. In addition, the aggregate cost of printing, 
supplies and postage associated for all the notices is $41,374. 
Therefore, the overall total cost for providing written notices of an 
expedited coverage determination (Sec.  423.572(b)) is estimated to be 
$1.78 million.
    Since issuance of the October 22, 2009 proposed rule, PPACA was 
enacted. Accordingly, new section 1860D-4(b)(3)(G) of the Act replaces 
section 176 of MIPPA. Section 1860D-4(b)(3)(G) of the Act requires a 
PDP sponsor to include ``all'' covered part D drugs--in the categories 
and classes identified by the Secretary as classes and categories of 
``clinical concern.'' It requires the Secretary to establish criteria 
to determine, as appropriate, categories and classes of drugs of 
``clinical concern.'' It provides for an exceptions authority similar 
to the one included in section 176 of MIPPA. Section 3307 of PPACA 
further requires that until the Secretary establishes criteria to 
determine classes of ``clinical concern,'' the following categories and 
classes of drugs shall be identified and protected as classes of 
``clinical concern'': anticonvulsants, antidepressants, 
antineoplastics, antipsychotics, antiretrovirals, and 
immunosuppressants for the treatment of transplant rejection. 
Consistent with this approach, we are removing from the regulatory text 
the criteria specified by section 176 of MIPPA for identifying classes 
and categories of drugs of ``clinical concern,'' as well as the 
definitions used to interpret the MIPPA criteria. We are retaining the 
exceptions process in the regulatory text, as new section 1860D-
4(b)(3)(G) of the Act retains the exceptions process established under 
section 176 of MIPPA.
    The estimated cost of implementing section 176 of MIPPA for FY 2010 
budget baseline projections was $4.9 billion for FY 2010 through 2019. 
The removal of the section 176 MIPPA criteria eliminates the cost 
included in the baseline generating savings of $4.9 billion for FYs 
2010 through 2019.

E. Anticipated Effects--Effects of Maximum Out-of-Pocket Cost (MOOP) 
Limit and Cost Sharing Thresholds

    We are finalizing our proposal to establish and require local MA 
plans to have a maximum out-of-pocket (MOOP) limit on members' out-of-
pocket cost sharing, the amount of which will be established annually 
by CMS. In addition, we are finalizing our proposal to require cost 
sharing thresholds for Parts A and B services, the amounts of which 
will be determined annually by CMS. These changes provide significant 
protection for MA enrollees from out of pocket costs and will lend 
greater predictability and transparency to benefit packages, so that 
beneficiaries will better understand and anticipate their out-of-pocket 
expenditures. However, we do not believe these changes will, by 
themselves, have a significant impact on plan participation or 
significantly increase plan premiums.
    We believe the impact on enrollee premiums will be limited for 
several reasons. First, we have made a voluntary MOOP available for the 
past years (2008, 2009, and 2010). For CY 2010, the voluntary MOOP for 
all Parts and B services was set at $3,400. About 40 percent of current 
MA plans have adopted the voluntary MOOP while remaining competitive 
(and enrolling approximately one-third of all MA enrollees), and they 
do not appear to have incurred significant costs in administering a 
MOOP limit.
    Second, as we described elsewhere in this preamble, it is our 
intention to set both the MOOP and Parts A and B cost sharing 
thresholds at levels that, while affording reasonable financial 
protection for those beneficiaries with high health care needs, do not 
result in significant new operating costs for MA plans or increased 
out-of-pocket costs for beneficiaries to the extent that MA plans pass 
along any increased costs to their enrollees in the form of premium 
increases. We will develop the MOOP and Parts A and B cost sharing 
thresholds using data provided by our Office of the Actuary (OACT) to 
ensure this result. In addition, given a competitive marketplace and 
Medicare beneficiaries' sensitivity to premium amounts, we believe that 
MA plans may choose instead to modify their benefit packages to reduce 
costs elsewhere. Furthermore, we estimate that beneficiaries in plans 
that currently offer the CY 2010 voluntary MOOP limit of $3,400 (about 
40 percent of MA plans) will experience no cost increases as a result 
of these provisions. In fact, to the extent they instead choose the 
higher, mandatory MOOP limit, we would expect a net decrease in costs. 
We estimate that the maximum impact of these requirements on 
beneficiary premiums for those plans that currently have no MOOP limit 
of any kind (31 percent of all CY 2010 MA plans) would average $5. The 
average impact on premiums would be lower for plans that currently have 
a nonqualified MOOP--one with an amount higher than the voluntary MOOP 
limit of $3400 established for CY 2010 and/or that does not include all 
Parts A and B services. Approximately 29 percent of all CY 2010 plans 
had such a MOOP. However,

[[Page 19800]]

given competitive market pressures, we believe MA plans may instead 
choose to modify their benefit packages rather than increase premiums.
    Finally, we believe that the many advantages for beneficiaries as a 
result of the new MOOP and cost-sharing threshold requirements will 
outweigh any small premium increases that may result. All MA plan 
enrollees will be protected against high out of pocket costs, and will 
be better able to compare plans by focusing on differences in premium 
and plan quality. Furthermore, enrollee cost-sharing will be more 
predictable and transparent. As we have explained in the preamble of 
the final rule, our goal is to set cost-sharing limits at a level that 
should not result in significant new costs for MA plans or 
beneficiaries.

F. Alternatives Considered

1. Strengthening CMS' Ability To Take Timely, Effective Contract 
Determinations or Intermediate Sanctions (Part C and D)
    We are finalizing our modifications to the regulations which more 
clearly and accurately reflect our existing statutory authority to 
terminate a contract. The existing enumerated list of determinations 
that are the basis to terminate a contract are not all inclusive. 
Initially it was our belief that continuing to add to the existing list 
may fail to stress to sponsoring organizations that failure to comply 
with all of our regulations and contract and performance requirements 
may be used to support a termination decision. After receiving numerous 
comments concerning this provision we have decided, however, not to 
remove the enumerated list and instead to add language to provide 
additional examples of determinations that could support a decision to 
terminate a contract. Also, we have revised the proposed regulatory 
language to clarify that the failure to comply with the regulatory 
requirements contained in parts 422 and 423 or failure to meet our 
performance requirements, may constitute a basis for CMS to determine 
that the MA Organization or Part D sponsor meets the requirements for 
contract termination in accordance with the statutory standard.
2. Changing the Standards of Review, Clarifying the Standard of Proof 
and Burden of Proof for Appeals, and Modifying the Conduct of Hearing 
for Contract Decisions (Including Denials of Initial Applications to 
Contract, Service Area Expansions for Existing Contracts, Contract Non-
Renewals and Terminations, and Intermediate Sanctions)
    We are finalizing our change to the standards of review and 
clarification of the standard of proof when an appeal of a contract 
determination or intermediate sanction is requested and an evidentiary 
hearing is conducted. The existing standards of review require the 
Hearing Officer to determine whether the sponsoring organization can 
demonstrate ``substantial compliance'' with Part C and/or Part D 
requirements on the ``earliest of'' the following three dates: the date 
the organization received written notice of contract determination or 
intermediate sanction, the date of the most recent onsite audit, or the 
date of the alleged breach of current contract or past substantial 
noncompliance. In practice, these standards of review (``substantial 
compliance'' and ``earliest of test'') have led to confusion among 
parties to the hearing and have been difficult for the hearing officer 
to apply. Additionally, though the existing regulations explicitly 
state that the sponsoring organization bears the burden of proof, it 
does not provide the standard of proof that is to be applied by the 
Hearing Officer. Therefore, we have deleted the ``substantial 
compliance'' and ``earliest of'' test and revise the regulations to 
explicitly state the standard of proof and provide clear standards of 
review for each type of contract determination or intermediate 
sanction.
    First, we have explicitly stated that the hearing officer must 
apply the ``preponderance of the evidence'' standard of proof when 
weighing the evidence at all hearings for contract determinations or 
intermediate sanctions. Second, we have clarified the standards of 
review, which vary according to the type of contract determination or 
intermediate sanction. In particular, the change makes the distinction 
between how the evidentiary standard of review is to be applied to 
appeals of CMS determinations involving Part C or D contract 
qualification applications, those involving the termination or non-
renewal of a Part C or D sponsor contract, and those involving the 
imposition of intermediate sanctions. Finally, we have clarified that 
because the sponsoring organization bears the burden of proof, under 
any briefing schedule determined by the hearing officer, it must first 
present evidence and argument to the hearing officer before we present 
our evidence and argument. We considered leaving the existing 
regulations unchanged, but ultimately rejected that option.
3. Clarify That CMS May Require a ``Test Period'' During an Enrollment/
Marketing Sanction
    We are finalizing our proposal that in instances where an 
enrollment and/or marketing suspension has been imposed, we may 
determine that it is appropriate to subject the MA organization or Part 
D sponsor to a ``test period'' whereby the organization or sponsor 
will, for a limited time, engage in marketing activities and/or accept 
enrollments in order to assist us in making a determination as to 
whether the bases for the sanctions have been corrected and are not 
likely to recur.
    We considered leaving the existing regulations unchanged. However, 
we believe the requirements in this final rule will strengthen our 
ability to adequately assess compliance with our requirements. Also, it 
will help us avoid situations where we may lift a sanction based on 
inadequate testing of an organization's systems/processes, only to find 
that the deficiencies have not been corrected, thereby requiring us to 
reinstate the sanction.
4. Right for CMS To Require an Independent Audit of Sponsoring 
Organizations Under Intermediate Sanction
    We are finalizing language in the October 2009 proposed rule which 
states that CMS may require sponsoring organizations that are under 
intermediate sanctions to hire an independent auditor to evaluate 
whether the bases for a sanction have been corrected and are not likely 
to recur in order to assist CMS in its determination whether to lift 
the sanction. The purpose of this provision is to provide us with 
additional assurances, through a neutral third party evaluation, 
whether the sponsoring organization is in compliance with CMS 
requirements and the bases for the sanction have been corrected and are 
not likely to recur.
    Another option we considered was to not require sanctioned 
sponsoring organizations to hire an independent auditor but rather to 
allow sponsoring organizations the discretion to hire an independent 
auditor. We believe that this alternative proposal is not necessary to 
promulgate in regulation as sanctioned sponsoring organizations

[[Page 19801]]

already have the discretion to hire an independent auditor.
    We also considered leaving the regulations unchanged. However, 
given our experience with the nature and extent of some compliance 
deficiencies (for example, those caused by information technology 
issues or lack of adequate internal controls) and the need to obtain 
the level of skill and experience necessary to conduct an exhaustive 
evaluation of the correction of these deficiencies, we believe this 
additional assurance and access to expertise (such as a qualified 
independent auditor) is appropriate and will benefit both plan sponsors 
and CMS.
5. The Ability for CMS To Require Sponsors To Disclose to Current and 
Potential Enrollees Compliance and Performance Deficiencies
    We are finalizing our proposal that we may require certain 
sponsoring organizations to disclose their current compliance and/or 
performance deficiencies to existing and potential enrollees. Our 
intent is to invoke this disclosure authority when we become aware that 
an MA organization has serious compliance and/or performance 
deficiencies such as those that may lead to an intermediate sanction or 
require immediate correction and where we believe beneficiaries should 
be specifically notified. The primary purpose of this requirement is to 
promote transparency and informed choice especially in those situations 
where we believe beneficiaries need or should have access to this 
information. An additional purpose is to provide appropriate incentives 
for sponsoring organizations to make improvements to their operations 
and also provide relevant information to beneficiaries and the public 
concerning plan choices.
    We considered not adding this disclosure authority to the existing 
regulations. However, we believe this change is necessary to provide us 
with another tool to strengthen our compliance and oversight authority 
and provide appropriate transparency concerning compliance and/or 
performance deficiencies to beneficiaries and the public.
6. Reducing Duplicative and Low Enrollment Plans (Parts C and D)
    We are implementing regulations to reduce duplicative benefit 
packages based upon our authority to add such additional terms to our 
contracts with Medicare Advantage organizations or Part D plan sponsors 
as we ``may find necessary and appropriate'' as specified in section 
1857(e)(1) of the Act (see also section 1860D-12(b)(3)(D) of the Act 
(incorporating section 1857(e)(1) of the Act by reference for Part D.)) 
In addition, we are using our authority under section 1860D-11(d)(2)(B) 
of the Act as further support to propose regulations imposing 
``reasonable minimum standards'' on Part D sponsors.
    One alternative would be to make no changes to our current 
regulations regarding bid submission and review and to continue our 
current efforts to eliminate duplicative or low enrollment plan 
options. However, since our current regulations do not explicitly 
address the issue of eliminating duplicative or low enrollment plans, 
we believe that codifying our authority to do so will provide us with 
more leverage over plans during the bid submission, review, 
negotiation, and approval processes.
    Another alternative would be to provide more detail in regulation 
text regarding the specific criteria we would use to eliminate 
duplicative or low enrollment plan options. We believe by addressing 
the issue generally in regulations text, we maintain our flexibility to 
adjust our review processes and criteria consistent with current market 
trends.
7. Validation of Part C and Part D Reporting Requirements and CAHPS 
Survey Administration
    Several of the required changes involve costs to MAOs and Part D 
sponsors. One such regulatory change was the audit requirement of Part 
C and Part D measures. We considered not requiring an audit. However, 
because we believe that an audit is necessary to ensure that the Part C 
and Part D measures are consistent with our specifications, are 
reliable, valid, and comparable, and are credible to stakeholders, this 
alternative was rejected. A second such regulatory change was requiring 
MAOs and Part C sponsors to assume a portion of the cost of the annual 
CAHPs survey as a result of hiring contractors to conduct the data 
collection. We considered not requiring MAOs and Part C sponsors to 
hire contractors to perform the CAHPs data collection. However, we 
rejected this alternative because we believe that the benefits obtained 
through this regulatory change outweigh the costs incurred by the MAOs 
and Part C sponsors. We believe these changes actually benefit the 
plans by informing them of the issues that, from the beneficiaries' 
perspectives, needs attention.

G. Accounting Statement

    As required by OMB Circular A-4 (available at  http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 11, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this final rule. The 
accounting statement is based on estimates in Table 10 (our best 
estimate of the costs and savings as a result of the changes) 
discounted at the 7 percent and 3 percent for the time period of CY 
2010 through CY 2015.

[[Page 19802]]



        Table 11--Accounting Statement: Classification of Estimated Expenditures, From CY 2010 to CY 2015
                                                 [$ in millions]
----------------------------------------------------------------------------------------------------------------
                                                                 TRANSFERS (MIPPA 176)
                                     ---------------------------------------------------------------------------
              Category                                  Units discount rate
                                       Year dollar ----------------------------          Period covered
                                                         7%            3%
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers......          2009      -$318.64      -$331.65  CYs 2010-2015
                                     ---------------------------------------------------------------------------
From Whom To Whom?..................                 Federal Government to MAO and Part D Sponsors
                                     ---------------------------------------------------------------------------



        Table 11--Accounting Statement: Classification of Estimated Expenditures, From CY 2010 to CY 2015
                                                 [$ in millions]
----------------------------------------------------------------------------------------------------------------
                                                             COSTS (All other provisions)
                                     ---------------------------------------------------------------------------
                                                        Units discount rate
                                       Year dollar ----------------------------          Period covered
                                                         7%            3%
----------------------------------------------------------------------------------------------------------------
Annualized Costs to MAOs and Part D           2009       $283.86       $284.35  CYs 2010-2015
 Sponsors.
----------------------------------------------------------------------------------------------------------------

    Compared to the proposed rule, the annualized costs to MAOs and 
Part D sponsors have decreased from $319.51 million and $319.46 
million, at the 7 and 3 percent annualized discount rates, to $283.86 
million and $2284.35 million at the 7 and 3 percent discount rates for 
the final rule.

H. Conclusion

    We estimate that the cost of implementing these provisions will be 
$260.3 million in CY 2010. This is $61.4 million less than the 
estimated cost in the proposed rule ($321.7 million). Sponsors will 
experience additional costs which they are likely to pass on to CMS 
through direct subsidy payments and to beneficiaries through increases 
in premiums as reflected in their bids. Beginning in CY 2012, we expect 
that these provisions will generate a net savings to the Medicare 
program on an annual basis. For the entire estimated time period, CYs 
2010 through 2015, we estimate the overall impact to be a savings of 
$341.70 million (undiscounted).
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 417

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

42 CFR Part 422

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

42 CFR Part 423

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

42 CFR Part 480

    Health care, Health professions, Health records, Peer Review 
Organizations (PRO), Penalties, Privacy, and Reporting and 
recordkeeping requirements.

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

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL 
PLANS, AND HEALTH CARE PREPAYMENT PLANS

0
1. The authority citation for part 417 continues to read as follows:

    Authority: Sec. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public 
Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9), and 31 
U.S.C. 9701.

Subpart K--Enrollment, Entitlement, and Disenrollment Under 
Medicare Contract

0
2. Section 417.428 is revised to read as follows:


Sec.  417.428  Marketing activities.

    (a) With the exception of Sec.  422.2276 of this chapter, the 
procedures and requirements relating to marketing requirements set 
forth in subpart V of part 422 of this chapter also apply to Medicare 
contracts with HMOs and CMPs under section 1876 of the Act.
    (b) In applying those provisions, references to part 422 of this 
chapter must be read as references to this part, and references to MA 
organizations as references to HMOs and CMPs.

Subpart L--Medicare Contract Requirements

0
3. Section 417.472 is amended by adding paragraphs (i) and (j) to read 
as follows:


Sec.  417.472  Basic contract requirements.

* * * * *
    (i) The HMO or CMP must comply with the requirements at Sec.  
422.152(b)(5).
    (j) All coordinated care contracts (including local and regional 
PPOs, contracts with exclusively SNP benefit packages, private fee-for-
service contracts, and MSA contracts), and all cost contracts under 
section 1876 of the Act, with 600 or more enrollees in July of the 
prior year, must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Medicare plan enrollees in 
accordance with CMS

[[Page 19803]]

specifications and submit the survey data to CMS.

0
4. Section 417.492 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  417.492  Nonrenewal of contract.

* * * * *
    (b) * * *
    (2) Notice of appeal rights. CMS gives the HMO or CMP written 
notice of its right to appeal the nonrenewal decision, in accordance 
with part 422 subpart N of this chapter, if CMS's decision was based on 
any of the reasons specified in Sec.  417.494(b).

0
5. Section 417.494 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  417.494  Modification or termination of contract.

* * * * *
    (b) * * *
    (2) If CMS decides to terminate a contract, it sends a written 
notice informing the HMO or CMP of its right to appeal the termination 
in accordance with part 422 subpart N of this chapter.
* * * * *

0
6. Section 417.500 is revised to read as follows:


Sec.  417.500  Intermediate sanctions for and civil monetary penalties 
against HMOs and CMPs.

    (a) Except as provided in paragraph (c) of this section, the 
rights, procedures, and requirements related to intermediate sanctions 
and civil money penalties set forth in part 422 subparts O and T of 
this chapter also apply to Medicare contracts with HMOs or CMPs under 
sections 1876 of the Act.
    (b) In applying paragraph (a) of this section, references to part 
422 of this chapter must be read as references to this part and 
references to MA organizations must be read as references to HMOs or 
CMPs.
    (c) In applying paragraph (a) of this section, the amounts of civil 
money penalties that can be imposed are governed by section 
1876(i)(6)(B) and (C) of the Act, not by the provisions in part 422 of 
this chapter.

Subpart O--Medicare Payment: Cost Basis

0
7. Section 417.564 is amended by adding new paragraphs (b)(2)(iii) and 
(c) to read as follows:


Sec.  417.564  Apportionment and allocation of administrative and 
general costs.

* * * * *
    (b) * * *
    (2) * * *
    (iii) For the costs incurred under paragraphs (b)(1)(i) through 
(iv) of this section that include personnel costs, the organization 
must be able to identify the person hours expended for each 
administrative task and the rate of pay for those persons performing 
the tasks. Administrative tasks performed and rate of pay for the 
persons performing those tasks must match in terms of the skill level 
needed to accomplish those tasks. This information must be made 
available to CMS upon request.
    (c) Costs excluded from administrative costs. In accordance with 
section 1861(v) of the Act, the following costs must be excluded from 
administrative costs:
    (1) Donations.
    (2) Fines and penalties.
    (3) Political and lobbying activities.
    (4) Charity or courtesy allowances.
    (5) Spousal education.
    (6) Entertainment.
    (7) Return on equity.

Subpart R--Medicare Contract Appeals

0
8. Section Sec.  417.640 is revised to read as follows:


Sec.  417.640  Applicability.

    (a) The rights, procedures, and requirements relating to contract 
determinations and appeals set forth in part 422 subpart N of this 
chapter also apply to Medicare contracts with HMOs or CMPs under 
section 1876 of the Act.
    (b) In applying paragraph (a) of this section, references to part 
422 of this chapter must be read as references to this part and 
references to MA organizations must be read as references to HMOs or 
CMPs.


Sec.  417.642  through Sec.  417.694 [Removed]

0
9. Remove Sec.  417.642 through Sec.  417.694.

Subpart U-Health Care Prepayment Plans

0
10. Section 417.840 is revised to read as follows:


Sec.  417.840  Administrative review procedures.

    The HCPP must apply Sec.  422.568 through Sec.  422.626 of this 
chapter to--
    (a) Organization determinations and fast-track appeals that affect 
its Medicare enrollees; and
    (b) Reconsiderations, hearings, Medicare Appeals Council review, 
and judicial review of the organization determinations and fast-track 
appeals specified in paragraph (a) of this section.

PART 422--MEDICARE ADVANTAGE PROGRAM

0
11. 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
12. Section 422.2 is amended by--
0
A. Adding the definitions of ``Attestation process,'' ``Hierarchical 
condition categories,'' and ``Initial Validation Contractor.''
0
B. Revising the definition of ``Point of service.''
0
C. Adding the definitions of ``RADV payment error calculation appeal 
process'' and ``Risk adjustment data validation (RADV) audit.
0
D. Revising the introductory text of the definition of ``Service 
area''.
0
E. Adding the definition of ``The one best medical record''.
    The additions and revisions read as follows:


Sec.  422.2  Definitions.

* * * * *
    Attestation process means a CMS-developed RADV audit-related 
dispute process that enables MA organizations undergoing RADV audit to 
submit CMS-generated and physician practitioner signed attestations for 
medical records with missing or illegible signatures or credentials. 
Physicians/practitioners who documented health care services in the 
specific medical record under RADV review will be allowed to attest 
that they provided and documented the health care services evidenced in 
the specific medical record.
* * * * *
    Hierarchical condition categories (HCC) means disease groupings 
consisting of disease codes (currently ICD-9-CM codes) that predict 
average healthcare spending. HCCs represent the disease component of 
the enrollee risk score that are applied to MA payments.
* * * * *
    Initial Validation Contractor (IVC) means the first level of 
medical record review under the RADV audit process.
* * * * *
    Point of service (POS) means a benefit option that an MA HMO plan 
can offer to its Medicare enrollees as a mandatory supplemental, or 
optional supplemental benefit. Under the POS benefit option, the HMO 
plan allows members the option of receiving specified services outside 
of the HMO plan's provider network. In return for this flexibility, 
members typically have higher cost-sharing requirements for services

[[Page 19804]]

received and, when offered as a mandatory or optional supplemental 
benefit, may also be charged a premium for the POS benefit option.
* * * * *
    RADV payment error calculation appeal process means an 
administrative process that enables MA organizations that have 
undergone RADV audit to appeal the CMS calculation of an MA 
organization's RADV payment error.
    Risk adjustment data validation (RADV) audit means a CMS-
administered payment audit of a Medicare Advantage (MA) organization 
that ensures the integrity and accuracy of risk adjustment payment 
data.
* * * * *
    Service area means a geographic area that for local MA plans is a 
county or multiple counties, and for MA regional plans is a region 
approved by CMS within which an MA-eligible individual may enroll in a 
particular MA plan offered by an MA organization. Facilities in which 
individuals are incarcerated are not included in the service area of an 
MA plan. Each MA plan must be available to all MA-eligible individuals 
within the plan's service area. In deciding whether to approve an MA 
plan's proposed service area, CMS considers the following criteria:
* * * * *
    The one best medical record for the purposes of Medicare Advantage 
Risk Adjustment Validation (RADV) means the clinical documentation for 
a single encounter for care (that is, a physician office visit, an 
inpatient hospital stay, or an outpatient hospital visit) that occurred 
for one patient during the data collection period. The single encounter 
for care must be based on a face-to-face encounter with a provider 
deemed acceptable for risk adjustment and documentation of this 
encounter must be reflected in the medical record.

0
13. Amend Sec.  422.4 by--
0
A. Revising paragraphs (a)(1)(v)and (a)(2)(i)(A).
0
B. Redesignating paragraph (a)(2)(i)(B) as paragraph (a)(2)(i)(C).
0
C. Adding new paragraphs (a)(2)(i)(B) and (a)(3)(iv).
    The revisions and additions read as follows:


Sec.  422.4  Types of MA plans.

    (a) * * *
    (1) * * *
    (v) A PPO plan is a plan that--
    (A) Has a network of providers that have agreed to a contractually 
specified reimbursement for covered benefits with the organization 
offering the plan;
    (B) Provides for reimbursement for all covered benefits regardless 
of whether the benefits are provided within the network of providers;
    (C) Only for purposes of quality assurance requirements in Sec.  
422.152(e), is offered by an organization that is not licensed or 
organized under State law as an HMO; and
    (D) Does not permit prior notification for out-of-network 
services--that is, a reduction in the plan's standard cost-sharing 
levels when the out-of-network provider from whom an enrollee is 
receiving plan-covered services voluntarily notifies the plan prior to 
furnishing those services, or the enrollee voluntarily notifies the PPO 
plan prior to receiving plan-covered services from an out-of-network 
provider.
    (2) * * *
    (i) * * *
    (A) Pays at least for the services described in Sec.  422.101, 
after the enrollee has incurred countable expenses (as specified in the 
plan) equal in amount to the annual deductible specified in Sec.  
422.103(d);
    (B) Does not permit prior notification--that is, a reduction in the 
plan's standard cost-sharing levels when the provider from whom an 
enrollee is receiving plan-covered services voluntarily notifies the 
plan prior to furnishing those services, or the enrollee voluntarily 
notifies the MSA plan prior to receiving plan-covered services from a 
provider; and
* * * * *
    (3) * * *
    (iv) Does not permit prior notification--that is, a reduction in 
the plan's standard cost-sharing levels when the provider from whom an 
enrollee is receiving plan-covered services voluntarily notifies the 
plan prior to furnishing those services, or the enrollee voluntarily 
notifies the PFFS plan prior to receiving plan-covered services from a 
provider.
* * * * *

Subpart B--Eligibility, Election, and Enrollment

0
14. Section 422.74 is amended by revising paragraphs (d)(1)(i)(B) and 
(d)(4)(iii) to read as follows:


Sec.  422.74  Disenrollment by the MA organization.

* * * * *
    (d) * * *
    (1) * * *
    (i) * * *
    (B) Providing the individual with a grace period, that is, an 
opportunity to pay past due premiums in full. The length of the grace 
period must--
    (1) Be at least 2 months; and
    (2) Begin on the first day of the month for which the premium is 
unpaid or the first day of the month following the date on which 
premium payment is requested, whichever is later.
* * * * *
    (4) * * *
    (iii) Exception. If the MA plan offers a visitor/traveler benefit 
when the individual is out of the service area but within the United 
States (as defined in Sec.  400.200 of this chapter) for a period of 
consecutive days longer than 6 months but less than 12 months, the MA 
organization may elect to offer to the individual the option of 
remaining enrolled in the MA plan if--
    (A) The individual is disenrolled on the first day of the 13th 
month after the individual left the service area (or residence, if 
paragraph (d)(4)(i)(B) of this section applies);
    (B) The individual understands and accepts any restrictions imposed 
by the MA plan on obtaining these services while absent from the MA 
plan's service area for the extended period, consistent with paragraph 
(d)(4)(i)(C) of the section;
    (C) The MA organization makes this visitor/traveler option 
available to all Medicare enrollees who are absent for an extended 
period from the MA plan's service area. MA organizations may limit this 
visitor/traveler option to enrollees who travel to certain areas, as 
defined by the MA organization, and who receive services from qualified 
providers who directly provide, arrange for, or pay for health care; 
and
    (D) The MA organization furnishes all Medicare Parts A and B 
services and all mandatory and optional supplemental benefits at the 
same cost sharing levels as apply within the plan's service area; and
    (E) The MA organization furnishes the services in paragraph 
(d)(4)(iii)(D) of this section consistent with Medicare access and 
availability requirements at Sec.  422.112 of this part.
* * * * *

Subpart C--Benefits and Beneficiary Protections

0
15. Section 422.100 is amended by--
0
A. Revising the introductory text for paragraph (f).
0
B. In paragraphs (f)(1) and (f)(2) removing the ``;'' and adding a 
``.'' in its place.
0
C. Adding new paragraphs (f)(4) through (f)(6).
    The revisions and additions read as follows:


Sec.  422.100  General requirements.

* * * * *
    (f) CMS review and approval of MA benefits and associated cost 
sharing.

[[Page 19805]]

CMS reviews and approves MA benefits and associated cost sharing using 
written policy guidelines and requirements in this part and other CMS 
instructions to ensure all of the following:
* * * * *
    (4) Except as provided in paragraph (f)(5), MA local plans (as 
defined in Sec.  422.2) must have an out-of pocket maximum for Medicare 
Parts A and B services that is no greater than the annual limit set by 
CMS.
    (5) With respect to a local PPO plan, the limit specified under 
paragraph (f)(4) applies only to use of network providers. Such local 
PPO plans must include a total catastrophic limit on beneficiary out-
of-pocket expenditures for both in-network and out-of-network Parts A 
and B services that is--
    (i) Consistent with the requirements applicable to MA regional 
plans at Sec.  422.101(d)(3) of this part; and
    (ii) Not greater than the annual limit set by CMS.
    (6) Cost sharing for Medicare Part A and B services specified by 
CMS does not exceed levels annually determined by CMS to be 
discriminatory for such services.
* * * * *

0
16. Section 422.103 is amended by adding a new paragraph (d)(3) to read 
as follows:


Sec.  422.103  Benefits under an MA MSA plan.

* * * * *
    (d) * * *
    (3) Is pro-rated for enrollments occurring during a beneficiary's 
initial coverage election period as described at Sec.  422.62(a)(1) of 
this part or during any other enrollments occurring after January 1.
* * * * *

0
17. Section 422.105 is amended by revising paragraphs (b), (c), and (f) 
to read as follows:


Sec.  422.105  Special rules for self-referral and point of service 
option.

* * * * *
    (b) Point of service option. As a general rule, a POS benefit is an 
option that an MA organization may offer in an HMO plan to provide 
enrollees with additional choice in obtaining specified health care 
services. The organization may offer a POS option--
    (1) Before January 1, 2006, under a coordinated care plan as an 
additional benefit as described in section 1854(f)(1)(A) of the Act;
    (2) Under an HMO plan as a mandatory supplemental benefit as 
described in Sec.  422.102(a); or
    (3) Under an HMO plan as an optional supplemental benefit as 
described in Sec.  422.102(b).
    (c) Ensuring availability and continuity of care. An MA HMO plan 
that includes a POS benefit must continue to provide all benefits and 
ensure access as required under this subpart.
* * * * *
    (f) POS-related data. An MA organization that offers a POS benefit 
through an HMO plan must report enrollee utilization data at the plan 
level by both plan contracting providers (in-network) and by non-
contracting providers (out-of-network) including enrollee use of the 
POS benefit, in the form and manner prescribed by CMS.

0
18. Section 422.108 is amended by revising paragraph (b)(3) to read as 
follows:


Sec.  422.108  Medicare secondary payer (MSP) procedures.

* * * * *
    (b) * * *
    (3) Coordinate its benefits to Medicare enrollees with the benefits 
of the primary payers, including reporting, on an ongoing basis, 
information obtained related to requirements in paragraphs (b)(1) and 
(b)(2) of this section in accordance with CMS instructions.
* * * * *

0
19. Section 422.111 is amended by adding a new paragraph (g) to read as 
follows:


Sec.  422.111  Disclosure requirements.

* * * * *
    (g) CMS may require an MA organization to disclose to its enrollees 
or potential enrollees, the MA organization's performance and contract 
compliance deficiencies in a manner specified by CMS.

0
20. Section 422.112 is amended by adding a new paragraph (a)(10) to 
read as follows:


Sec.  422.112  Access to services.

    (a) * * *
    (10) Prevailing patterns of community health care delivery. 
Coordinated care and PFFS MA plans that meet Medicare access and 
availability requirements through direct contracting network providers 
must do so consistent with the prevailing community pattern of health 
care delivery in the areas where the network is being offered. Factors 
making up community patterns of health care delivery that CMS will use 
as a benchmark in evaluating a proposed MA plan health care delivery 
network include, but are not limited to the following:
    (i) The number and geographical distribution of eligible health 
care providers available to potentially contract with an MAO to furnish 
plan covered services within the proposed service area of the MA plans.
    (ii) The prevailing market conditions in the service area of the MA 
plan. Specifically, the number and distribution of health care 
providers contracting with other health care plans (both commercial and 
Medicare) operating in the service area of the plan.
    (iii) Whether the service area is comprised of rural or urban areas 
or some combination of the two.
    (iv) Whether the MA plan's proposed provider network meet Medicare 
time and distance standards for member access to health care providers 
including specialties.
    (v) Other factors that CMS determines are relevant in setting a 
standard for an acceptable health care delivery network in a particular 
service area.
* * * * *

Subpart D--Quality Improvement

0
21. Section 422.152 is amended by--
0
A. Revising paragraphs (a)(1) and (a)(2).
0
B. Redesignating paragraph (b)(3)(ii) as paragraph (b)(3)(iii).
0
C. Adding new paragraph (b)(3)(ii).
0
D. Adding new paragraph (b)(5).
0
F. Redesignating paragraphs (e)(2)(ii) and (e)(2)(iii) as paragraphs 
(e)(2)(iii) and (e)(2)(iv), respectively.
0
H. Adding a new paragraph (e)(2)(ii).
    The revisions and additions read as follows:


Sec.  422.152  Quality improvement program.

    (a) * * *
    (1) Have a chronic care improvement program that meets the 
requirements of paragraph (c) of this section concerning elements of a 
chronic care program and addresses populations identified by CMS based 
on a review of current quality performance;
    (2) Conduct quality improvement projects that can be expected to 
have a favorable effect on health outcomes and enrollee satisfaction, 
meet the requirements of paragraph (d) of this section, and address 
areas identified by CMS; and
* * * * *
    (b) * * *
    (3) * * *
    (ii) Collect, analyze, and report quality performance data 
identified by CMS that are of the same type as those under paragraph 
(b)(3)(i) of this section.
* * * * *
    (5) All coordinated care contracts (including local and regional 
PPOs,

[[Page 19806]]

contracts with exclusively SNP benefit packages, private fee-for-
service contracts, and MSA contracts), and all cost contracts under 
section 1876 of the Act, with 600 or more enrollees in July of the 
prior year, must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Medicare plan enrollees in 
accordance with CMS specifications and submit the survey data to CMS.
* * * * *
    (e) * * *
    (2) * * *
    (ii) Collect, analyze, and report quality performance data 
identified by CMS that are of the same type as those described under 
paragraph (e)(2)(i) of this section.
* * * * *

0
22. Section 422.153 is added to reads as follows:


Sec.  422.153  Use of quality improvement organization review 
information.

    CMS will acquire from quality improvement organizations (QIOs) as 
defined in part 475 of this chapter only data collected under section 
1886(b)(3)(B)(viii) of the Act and subject to the requirements in Sec.  
480.140(g). CMS will acquire this information, as needed, and may use 
it for the following limited functions:
    (a) Enable beneficiaries to compare health coverage options and 
select among them.
    (b) Evaluate plan performance.
    (c) Ensure compliance with plan requirements under this part.
    (d) Develop payment models.
    (e) Other purposes related to MA plans as specified by CMS.

0
23. Section 422.156 is amended by revising paragraphs (b)(7) and (f) to 
read as follows:


Sec.  422.156  Compliance deemed on the basis of accreditation.

* * * * *
    (b) * * *
    (7) The requirements listed in Sec.  423.165 (b)(1) through (3) of 
this chapter for MA organizations that offer prescription drug benefit 
programs.
* * * * *
    (f) Authority. Nothing in this subpart limits CMS' authority under 
subparts K and O of this part, including but not limited to, the 
ability to impose intermediate sanctions, civil money penalties, and 
terminate a contract with an MA organization.

Subpart F--Submission of Bids, Premiums, and Related Information 
and Plan Approval

0
24. Section 422.254 is amended by adding new paragraphs (a)(4) and 
(b)(5) to read as follows:


Sec.  422.254  Submission of bids.

    (a) * * *
    (4) Substantial differences between bids. An MA organization's bid 
submissions must reflect differences in benefit packages or plan costs 
that CMS determines to represent substantial differences relative to a 
sponsor's other bid submissions.
    (b) * * *
    (5) Actuarial valuation. The bid must be prepared in accordance 
with CMS actuarial guidelines based on generally accepted actuarial 
principles.
    (i) A qualified actuary must certify the plan's actuarial valuation 
(which may be prepared by others under his or her direction or review).
    (ii) To be deemed a qualified actuary, the actuary must be a member 
of the American Academy of Actuaries.
    (iii) Applicants may use qualified outside actuaries to prepare 
their bids.
* * * * *

0
25. Section 422.256 is amended by adding a new paragraph (b)(4) to read 
as follows:


Sec.  422.256  Review, negotiation, and approval of bids.

* * * * *
    (b) * * *
    (4) Substantial differences between bids--(i) General. CMS approves 
a bid only if it finds that the benefit package and plan costs 
represented by that bid are substantially different from the MA 
organization's other bid submissions. In order to be considered 
``substantially different,'' as provided under Sec.  422.254(a)(4) of 
this subpart, each bid must be significantly different from other plans 
of its plan type with respect to premiums, benefits, or cost-sharing 
structure.
    (ii) Transition period for MA organizations with new acquisitions. 
After a 2-year transition period, CMS approves a bid offered by an MA 
organization (or by a parent organization to that MA organization) that 
recently purchased (or otherwise acquired or merged with) another MA 
organization only if it finds that the benefit package or plan costs 
represented by that bid are substantially different, as provided under 
paragraph (b)(4)(i) of this section, from any benefit package and plan 
costs represented by another bid submitted by the same MA organization 
(or parent organization to that MA organization).
* * * * *

Subpart G--Payments to Medicare Advantage Organizations

0
26. Section 422.306 is amended by revising paragraph (a) to read as 
follows:


Sec.  422.306  Annual MA capitation rates.

* * * * *
    (a) Minimum percentage increase rate. The annual capitation rate 
for each MA local area is equal to the minimum percentage increase 
rate, which is the annual capitation rate for the area for the 
preceding year increased by the national per capita MA growth 
percentage (defined at Sec.  422.308(a)) for the year, but not taking 
into account any adjustment under Sec.  422.308(b) for a year before 
2004.
* * * * *

0
27. A new section 422.311 is added to read as follows:


Sec.  422.311  RADV audit dispute and appeal processes.

    (a) Risk adjustment data validation (RADV) audits. In accordance 
with Sec.  422.2 and Sec.  422.310(e), CMS annually conducts RADV 
audits to ensure risk adjusted payment integrity and accuracy.
    (b) RADV audit results. (1) MA organizations that undergo RADV 
audits will be issued an audit report post medical record review that 
describes the results of the RADV audit as follows:
    (i) Detailed enrollee-level information relating to confirmed 
enrollee HCC discrepancies.
    (ii) The contract-level RADV payment error estimate in dollars.
    (iii) The contract-level payment adjustment amount to be made in 
dollars.
    (iv) An approximate timeframe for the payment adjustment.
    (v) A description of the MA organization's RADV audit appeal 
rights.
    (2) Compliance date. The compliance date for meeting RADV medical 
record submission requirements for the validation of risk adjustment 
data is the due date when MA organizations selected for RADV audit must 
submit medical records to CMS or its contractors.
    (3) Medical record review appeal. MA organizations that do not 
agree with the medical record review determinations for audited HCCs 
may appeal the medical record review determinations of the initial 
validation contractor to CMS in accordance with paragraph (c)(2) of 
this section.

[[Page 19807]]

    (c) RADV audit dispute and appeal processes--(1) Attestation 
process--(i) Submission requirements for attestations. MA 
organizations--
    (A) May submit CMS-generated attestations from physician/
practitioner(s) in order to dispute signature-related or credential-
related RADV errors in accordance with the attestations provisions of 
this section.
    (B) Are not obligated to submit attestations to CMS.
    (ii) RADV audit-related errors eligible for attestation process. 
CMS will only accept an attestation to support a physician or 
outpatient medical record with a missing signature or missing 
credential or both.
    (iii) RADV audit-related errors and documentation ineligible for 
attestation process.
    (A) Attestations from providers for anything other than signature-
related and credential-related errors will not be permitted.
    (B) Inpatient provider-type medical records are not eligible for 
attestation.
    (iv) Manner and timing of a request for attestation. (A) CMS will 
provide MA organizations selected for RADV audits with attestations and 
accompanying instructions at the time the organization receives its 
audit instructions.
    (B) If an organization decides to submit attestations completed by 
physicians or other practitioners, the MA organization must submit the 
attestations to CMS at the same time that the MA organization is 
required to submit related medical records for RADV audit.
    (v) Attestation content. An attestation must accompany and 
correspond to the medical record submitted for RADV audit and must meet 
the following requirements:
    (A) Contain only CMS-generated attestations.
    (B) The CMS attestation form may not be altered unless otherwise 
instructed and agreed-upon in writing by CMS.
    (C) Attestations must be completed and be signed and dated by the 
eligible risk adjustment physician/practitioner whose medical record 
accompanies the attestation.
    (D) Attestations must be based upon medical records that document 
face-to-face encounters between beneficiaries and RADV-eligible 
physicians/practitioners.
    (vi) Attestation review and determination procedures. CMS--(A) 
Reviews each submitted attestation to determine if it meets CMS 
requirements and is acceptable for use during the medical record 
review; and
    (B) Provides written notice of its determination(s) regarding 
submitted attestations to the MA organization at the time CMS issues 
its RADV audit report.
    (vii) Effect of CMS's attestation determination. (A) CMS' 
attestation determination is final.
    (B) An MA organization may choose to appeal its medical record 
review determinations for audited HCCs following initial validation 
contractor review using a CMS-administered medical record review 
determination appeal process.
    (2) RADV-related medical record review errors and documentation 
eligible for medical record review determination appeal process: (i) 
General rules. (A) In order to be eligible for medical record review 
determination appeal, MA organizations must adhere to established RADV 
audit procedures and RADV appeals requirements. Failure to follow CMS 
rules regarding the RADV medical record review audit procedures and 
RADV appeals requirements may render the MA organization's request for 
appeal invalid.
    (B) The medical record review determination appeal process applies 
only to error determinations from review of the one best medical record 
submitted by the MA organization and audited by the RADV initial 
validation contractor (IVC).
    (C) MA organizations that choose to appeal the IVC's medical record 
review determination(s) may only submit the IVC-audited one best 
medical record and IVC-reviewed attestation, previously submitted in 
accordance with paragraph (c)(1) of this section, to CMS for re-review.
    (D) MA organizations' request for medical record review 
determination appeal may not include additional documentary evidence 
beyond the IVC-audited one best medical record and IVC-reviewed 
attestation.
    (ii) RADV-related audit errors and documentation ineligible for 
medical record review appeal process. (A) MA organizations may not 
appeal errors that resulted because MA organizations failed to adhere 
to established RADV audit procedures and RADV appeals requirements. 
This includes failure by the MA organization to meet the medical record 
submission deadline established by CMS.
    (B) Any other documentation submitted to CMS beyond the one best 
medical record and attestation submitted to and audited by the IVC will 
not be reviewed by CMS under the medical record review determination 
appeal process.
    (C) The MA organization's written request for medical record review 
determination appeal must specify the audited HCC(s) that CMS 
identified as being in error and eligible for medical record review 
determination appeal, and that the MA organization wishes to appeal.
    (iii) Manner and timing of a request for medical record review 
determination appeal. (A) At the time CMS issues its IVC RADV audit 
report to audited MA organizations, CMS notifies these MA organizations 
of any RADV HCC errors that are eligible for medical record review 
determination appeal.
    (B) MA organizations have 30 calendar days from date of issuance of 
the RADV audit report to file a written request with CMS for medical 
record review determination appeal.
    (C) A request for medical record review determination appeal must 
specify the determinations with which the MA organization disagrees and 
the reasons for the request for appeal.
    (iv) Medical record review determination appeal review and 
notification procedures. (A) Designation of a hearing officer. CMS 
designates a hearing officer to conduct the medical record review 
determination appeal. The hearing officer need not be an ALJ.
    (B) Disqualification of hearing officer. (1) A hearing officer may 
not conduct a hearing in a case in which he or she is prejudiced or 
partial to any party or has any interest in the matter pending for 
decision.
    (2) A party to the hearing who objects to the designated hearing 
officer must notify that officer in writing at the earliest 
opportunity.
    (3) The hearing officer must consider the objections, and may, at 
his or her discretion, either proceed with the hearing or withdraw.
    (i) If the hearing officer withdraws, CMS designates another 
hearing officer to conduct the hearing.
    (ii) If the hearing officer does not withdraw, the objecting party 
may, after the hearing, present objections and request that the 
officer's decision be revised or a new hearing be held before another 
hearing officer. The objections must be submitted in writing to CMS.
    (v) Hearing officer's review. The hearing officer reviews the IVC-
audited one best medical record and the IVC-reviewed attestation 
submitted by the MA organization to determine whether it supports 
overturning medical record review determination errors listed in the MA 
organization's IVC-level RADV audit report.
    (vi) Hearing procedures. (A) CMS provides written notice of the 
time and

[[Page 19808]]

place of the hearing at least 30 calendar days before the scheduled 
date.
    (B) The hearing is conducted by a CMS hearing officer who neither 
receives testimony nor accepts any new evidence that was not presented 
to the IVC. The CMS hearing officer is limited to the review of the 
record that was before the IVC.
    (vii) Hearing officer's decision. As soon as practical after the 
hearing, the hearing officer issues a decision which provides written 
notice of the hearing officer's review of the appeal of medical record 
review determination(s) to the MA organization and to CMS.
    (viii) Computations based on hearing decision. In accordance with 
the hearing officer's decision, CMS recalculates the MA organization's 
RADV payment error and issues a new RADV audit report to the appellant 
MA organization.
    (ix) Effect of hearing decision. The hearing officer's decision is 
final and binding, unless the MA organization requests review of the 
hearings officer appeal determination by the CMS Administrator.
    (x) Review by the CMS Administrator. (A) A MA organization that has 
received a hearing officer decision may request review by the CMS 
Administrator within 30 calendar days of receipt of the hearing 
officer's determination. A request for CMS Administrator review must be 
made in writing and filed with CMS.
    (B) After receiving a request for review, the CMS Administrator has 
the discretion to elect to review the hearing officer's decision or to 
decline to review the hearing decision.
    (C) If the CMS Administrator elects to review the hearing decision, 
the CMS Administrator--
    (1) Acknowledges the decision to review the hearing decision in 
writing; and
    (2) Reviews the decision and determine based upon all of the 
following whether the determination should be upheld, reversed, or 
modified:
    (i) The hearing record.
    (ii) Written arguments submitted by the MA organization or CMS.
    (xi) Notification of Administrator determination. (A) The 
Administrator notifies both parties of his or her determination 
regarding review of the hearing decision within 30 calendar days of 
acknowledging his or her decision to review the hearing decision.
    (B) The decision of the hearing officer is final if the 
Administrator--
    (1) Declines to review the hearing decision; or
    (2) Does not make a determination regarding review within 30 
calendar days.
    (3) RADV payment error calculation appeal process. (i) MA 
organizations may appeal CMS' RADV payment error calculation.
    (ii) RADV payment error-related issues ineligible for appeal. MA 
organizations may not--
    (A) Appeal RADV medical record review-related errors as part of the 
RADV payment error calculation appeal process. In accordance with 
paragraph (c)(2) of this section, MA organizations that wish to appeal 
medical record review determinations may do so following issuance of 
the IVC RADV audit report of findings.
    (B) Introduce new HCCs to CMS for payment consideration in the 
context of their RADV payment error calculation appeal.
    (C) Appeal RADV errors that result from an MA organization's 
failure to submit a medical record.
    (D) Appeal CMS' RADV payment error calculation methodology.
    (iii) Manner and timing of a request for appeal. (A) MA 
organizations may not appeal their RADV error calculation until any 
appeals of RADV medical record review determinations filed by the MA 
organization have been completed and the decisions are final.
    (B) At the time CMS issues either its IVC or post-medical record 
review appeal RADV audit report, CMS notifies affected MA organizations 
in writing of their appeal rights around the RADV payment error 
calculation.
    (C) MA organizations have 30 calendar days from the date of this 
notice to submit a written request for reconsideration of its RADV 
payment error calculation.
    (iv) Burden of proof. The MA organization bears the burden of proof 
in demonstrating that CMS failed to follow its stated RADV payment 
error calculation methodology.
    (v) Content of request. The written request for reconsideration 
must specify the issues with which the MA organization disagrees and 
the reasons for the disagreements.
    (A) The written request for reconsideration may include additional 
documentary evidence the MA organization wishes CMS to consider.
    (B) CMS does not accept reconsiderations for issues with the 
methodology applied in any part of the RADV audit.
    (vi) Conduct of written reconsideration. (A) In conducting the 
written reconsideration, CMS reviews all of the following information:
    (1) The RADV payment error calculation.
    (2) The evidence and findings upon which they were based.
    (3) Any other written evidence submitted by the MA organization.
    (B) CMS ensures that a third party--either within CMS or a CMS 
contractor--not otherwise involved in the initial RADV payment error 
calculation reviews the written request for reconsideration.
    (C) The third party recalculates the payment error in accordance 
with CMS RADV payment calculation procedures described in CMS' RADV 
payment error calculation standard operating procedures.
    (D) The third party described in paragraph (c)(3)(vi)(B) of this 
section provides his or her determination to a CMS reconsideration 
official not otherwise involved in the RADV payment error calculation 
to review the reconsideration determination.
    (vi) Decision of the CMS reconsideration official. The CMS 
reconsideration official informs the MA organization and CMS in writing 
of the decision of the CMS reconsideration official.
    (vii) Effect of the CMS reconsideration official. The written 
reconsideration decision is final and binding unless a request for a 
hearing is filed by CMS or the appellant MA organization in accordance 
with paragraph (c) (4) of this section.
    (4) Right to a hearing. CMS or a MA organization dissatisfied with 
the written decision of the CMS reconsideration official is entitled to 
a hearing as provided in this section.
    (i) Manner and timing for request. A request for a hearing must be 
made in writing and filed with CMS within 30 calendar days of the date 
CMS and the MA organization receives the CMS reconsideration officer's 
written reconsideration decision.
    (ii) Content of request. The written request for hearing must 
include a copy of the written decision of the CMS reconsideration 
official and must specify the findings or issues in the reconsideration 
decision with which either CMS or the MA organization disagrees and the 
reasons for the disagreement.
    (iii) Hearing procedures. (A) CMS provides written notice of the 
time and place of the hearing at least 30 calendar days before the 
scheduled date.
    (B) The hearing will be held on the record, unless the parties 
request, subject to the hearing officer's discretion, a live or 
telephonic hearing. The hearing officer may schedule a live

[[Page 19809]]

or telephonic hearing on his/her own motion.
    (C) The hearing is conducted by the CMS hearing officer who neither 
receives testimony nor accepts any new evidence that was not presented 
with the request for reconsideration. The CMS hearing officer is 
limited to the review of the record that was before CMS when CMS made 
either its initial RADV payment error calculation determination or its 
post-medical record review appeal payment error calculation 
determination and when the CMS reconsideration official issued the 
written reconsideration decision.
    (C) The hearing officer has full power to make rules and establish 
procedures, consistent with the law, regulations, and CMS rulings. 
These powers include the authority to dismiss the appeal with prejudice 
or take any other action which the hearing officer considers 
appropriate for failure to comply with such rules and procedures.
    (iv) Decision of the CMS Hearing Officer. The CMS hearing officer 
decides whether the reconsideration official's decision was correct, 
and sends a written decision to CMS and the MA organization, explaining 
the basis for the decision.
    (v) Effect of the Hearing Officer's decision. The hearing officer's 
decision is final and binding, unless the decision is reversed or 
modified by the Administrator in accordance with paragraph (c)(5) of 
this section.
    (vi) Review by the CMS Administrator. (A) CMS or a MA organization 
that has received a hearing officer's decision upholding or overturning 
a CMS initial or reconsideration-level RADV payment error calculation 
determination may request review by the CMS Administrator within 30 
calendar days of receipt of the hearing officer's decision.
    (B) At his or her discretion, the CMS Administrator can choose to 
either review or not review a case.
    (C) If the CMS Administrator chooses to review the case, the CMS 
Administrator--
    (1) Acknowledges his or her decision to review the hearing 
officer's decision in writing; and
    (2) Determines whether to uphold, reverse, or modify the Hearing 
Officer's decision based on his or her review of the following:
    (i) The Hearing Officer's decision.
    (ii) Written documents submitted by CMS or the MA organization to 
the Hearing Officer.
    (iii) Any other any other information included in the record of the 
Hearing Officer's decision.
    (D) 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.
    (E) If the Administrator chooses to review, the Administrator's 
determination is final and binding.
    (F) The decision of the hearing officer is final if the 
Administrator--
    (1) Declines to review the hearing decision; or
    (2) Does not make a determination regarding review within 30 
calendar days.

Subpart K--Contracts With Medicare Advantage Organizations

0
28. Section 422.501 is amended by--
0
A. Redesignating paragraphs (b) through (e) as paragraphs (c) through 
(f), respectively.
0
B. Adding a new paragraph (b).
0
C. Revising newly redesignated paragraph (c)(1) introductory text and 
paragraph (c)(2).
    The addition and revisions read as follows:


Sec.  422.501  Application requirements.

* * * * *
    (b) Completion of a notice of intent to apply. (1) An organization 
submitting an application under this section for a particular contract 
year must first submit a completed Notice of Intent to Apply by the 
date established by CMS. CMS will not accept applications from 
organizations that do not first submit a timely Notice of Intent to 
Apply.
    (2) Submitting a Notice of Intent to Apply does not bind that 
organization to submit an application for the applicable contract year.
    (3) An organization's decision not to submit an application after 
submitting a Notice of Intent To Apply will not form the basis of any 
action taken against the organization by CMS.
    (c) * * *
    (1) In order to obtain a determination on whether it meets the 
requirements to become an MA organization and is qualified to provide a 
particular type of MA plan, an entity, or an individual authorized to 
act for the entity (the applicant) must fully complete all parts of a 
certified application, in the form and manner required by CMS, 
including the following:
* * * * *
    (2) The authorized individual must thoroughly describe how the 
entity and MA plan meet, or will meet, all the requirements described 
in this part.
* * * * *

0
29. Section 422.502 is amended by--
0
A. Revising paragraphs (a)(1), (a)(2), and (b).
0
B. Adding a new paragraph (c)(2)(iii).
0
C. Revising paragraph (c)(3)(iii).
0
D. Removing paragraph (d).
    The revisions and addition read as follows:


Sec.  422.502  Evaluation and determination procedures.

    (a) * * *
    (1) With the exception of evaluations conducted under paragraph (b) 
of this section, CMS evaluates an application for an MA contract solely 
on the basis of information contained in the application itself and any 
additional information that CMS obtains through other means such as on-
site visits.
    (2) After evaluating all relevant information, CMS determines 
whether the applicant's application meets all the requirements 
described in this part.
    (b) Use of information from a current or prior contract. If an MA 
organization fails during the 14 months preceding the deadline 
established by CMS for the submission of contract qualification 
applications to comply with the requirements of the Part C program 
under any current or prior contract with CMS under title XVIII of the 
Act or fails to complete a corrective action plan during the 14 months 
preceding the deadline established by CMS for the submission of 
contract qualification applications, CMS may deny an application based 
on the applicant's failure to comply with the requirements of the Part 
C program under any current or prior contract with CMS even if the 
applicant currently meets all of the requirements of this part.
    (c) * * *
    (2) * * *
    (iii) If CMS does not receive a revised application within 10 days 
from the date of the notice, or if after timely submission of a revised 
application, CMS still finds the applicant does not appear qualified to 
contract as an MA organization or has not provided enough information 
to allow CMS to evaluate the application, CMS will deny the 
application.
    (3) * * *
    (iii) The applicant's right to request a hearing in accordance with 
the procedures specified in subpart N of this part.

0
30. Section 422.503 is amended by--
0
A. Revising paragraphs (b)(4)(vi).
0
B. Adding new paragraph (b)(7).
    The revisions and addition read as follows:


Sec.  422.503  General provisions.

* * * * *
    (b) * * *
    (4) * * *
    (vi) Adopt and implement an effective compliance program, which 
must

[[Page 19810]]

include measures that prevent, detect, and correct non-compliance with 
CMS' program requirements as well as measures that prevent, detect, and 
correct fraud, waste, and abuse. The compliance program must, at a 
minimum, include the following core requirements:
    (A) Written policies, procedures, and standards of conduct that--
    (1) Articulate the organization's commitment to comply with all 
applicable Federal and State standards;
    (2) Describe compliance expectations as embodied in the standards 
of conduct;
    (3) Implement the operation of the compliance program;
    (4) Provide guidance to employees and others on dealing with 
potential compliance issues;
    (5) Identify how to communicate compliance issues to appropriate 
compliance personnel;
    (6) Describe how potential compliance issues are investigated and 
resolved by the organization; and
    (7) Include a policy of non-intimidation and non-retaliation for 
good faith participation in the compliance program, including but not 
limited to reporting potential issues, investigating issues, conducting 
self-evaluations, audits and remedial actions, and reporting to 
appropriate officials.
    (B) The designation of a compliance officer and a compliance 
committee who report directly and are accountable to the organization's 
chief executive or other senior management.
    (1) The compliance officer, vested with the day-to-day operations 
of the compliance program, must be an employee of the MA organization, 
parent organization or corporate affiliate. The compliance officer may 
not be an employee of the MA organization's first tier, downstream or 
related entity.
    (2) The compliance officer and the compliance committee must 
periodically report directly to the governing body of the MA 
organization on the activities and status of the compliance program, 
including issues identified, investigated, and resolved by the 
compliance program.
    (3) The governing body of the MA organization must be knowledgeable 
about the content and operation of the compliance program and must 
exercise reasonable oversight with respect to the implementation and 
effectiveness of the compliance programs.
    (C)(1) Each MA organization must establish and implement effective 
training and education between the compliance officer and organization 
employees, the MA organization's chief executive or other senior 
administrator, managers and governing body members, and the MA 
organization's first tier, downstream, and related entities. Such 
training and education must occur at a minimum annually and must be 
made a part of the orientation for a new employee, new first tier, 
downstream and related entities, and new appointment to a chief 
executive, manager, or governing body member.
    (2) First tier, downstream, and related entities who have met the 
fraud, waste, and abuse certification requirements through enrollment 
into the Medicare program are deemed to have met the training and 
educational requirements for fraud, waste, and abuse.
    (D) Establishment and implementation of effective lines of 
communication, ensuring confidentiality, between the compliance 
officer, members of the compliance committee, the MA organization's 
employees, managers and governing body, and the MA organization's first 
tier, downstream, and related entities. Such lines of communication 
must be accessible to all and allow compliance issues to be reported 
including a method for anonymous and confidential good faith reporting 
of potential compliance issues as they are identified.
    (E) Well-publicized disciplinary standards through the 
implementation of procedures which encourage good faith participation 
in the compliance program by all affected individuals. These standards 
must include policies that--
    (1) Articulate expectations for reporting compliance issues and 
assist in their resolution,
    (2) Identify noncompliance or unethical behavior; and
    (3) Provide for timely, consistent, and effective enforcement of 
the standards when noncompliance or unethical behavior is determined.
    (F) Establishment and implementation of an effective system for 
routine monitoring and identification of compliance risks. The system 
should include internal monitoring and audits and, as appropriate, 
external audits, to evaluate the MA organization, including first tier 
entities', compliance with CMS requirements and the overall 
effectiveness of the compliance program.
    (G) Establishment and implementation of procedures and a system for 
promptly responding to compliance issues as they are raised, 
investigating potential compliance problems as identified in the course 
of self-evaluations and audits, correcting such problems promptly and 
thoroughly to reduce the potential for recurrence, and ensure ongoing 
compliance with CMS requirements.
    (1) If the MA organization discovers evidence of misconduct related 
to payment or delivery of items or services under the contract, it must 
conduct a timely, reasonable inquiry into that conduct.
    (2) The MA organization must conduct appropriate corrective actions 
(for example, repayment of overpayments, disciplinary actions against 
responsible employees) in response to the potential violation 
referenced in paragraph (b)(4)(vi)(G)(1) of this section.
    (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.
* * * * *
    (7) Not have terminated a contract by mutual consent under which, 
as a condition of the consent, the MA organization agreed that it was 
not eligible to apply for new contracts or service area expansions for 
a period of 2 years per Sec.  422.508(c) of this subpart.
* * * * *

0
31. Section 422.504 is amended by--
0
A. Redesignating paragraph (e)(1(ii) and (e)(1)(iii) as paragraph 
(e)(1)(iii) and (e)(1)(iv), respectively.
0
B. Adding a new paragraph (e)(1)(ii).
0
C. Revising newly redesignated paragraph (e)(1)(iii).
0
D. Revising paragraph (i)(2)(i).
0
E. Add a new paragraph (m).
    The additions and revisions read as follows:


Sec.  422.504  Contract provisions.

* * * * *
    (e) * * *
    (1) * * *
    (ii) Compliance with CMS requirements for maintaining the privacy 
and security of protected health information and other personally 
identifiable information of Medicare enrollees;
    (iii) The facilities of the MA organization to include computer and 
other electronic systems; and
* * * * *
    (i) * * *
    (2) * * *
    (i) HHS, the Comptroller General, or their designees have the right 
to audit, evaluate, and inspect any books, contracts, computer or other 
electronic systems, including medical records and documentation of the 
first tier, downstream, and entities related to CMS' contract with the 
MA organization.
* * * * *

[[Page 19811]]

    (m)(1) CMS may determine that an MA organization is out of 
compliance with a Part C requirement when the organization fails to 
meet performance standards articulated in the Part C statutes, 
regulations, or guidance.
    (2) If CMS has not already articulated a measure for determining 
noncompliance, CMS may determine that a MA organization is out of 
compliance when its performance in fulfilling Part C requirements 
represents an outlier relative to the performance of other MA 
organizations.

0
32. Section 422.506 is amended by--
0
A. Revising paragraph (a)(2)(ii).
0
B. Removing paragraph (a)(2)(iii).
0
C. Revising paragraph (a)(3)(i).
0
D. Adding a new paragraph (b)(1)(iv).
0
E. Revising paragraph (b)(2)(ii).
0
F. Removing paragraph (b)(2)(iii).
0
G. Revising paragraph (b)(3).
    The revisions and addition read as follows:


Sec.  422.506  Nonrenewal of contract.

    (a) * * *
    (2) * * *
    (ii) Each Medicare enrollee by mail at least 90 calendar days 
before the date on which the nonrenewal is effective. The MA 
organization must also provide information about alternative enrollment 
options by doing one or more of the following:
    (A) Provide a CMS approved written description of alternative MA 
plan, MA-PD plan, and PDP options available for obtaining qualified 
Medicare services within the beneficiaries' region.
    (B) Place outbound calls to all affected enrollees to ensure 
beneficiaries know who to contact to learn about their enrollment 
options.
    (3) * * *
    (i) The MA organization notifies its Medicare enrollees in 
accordance with paragraph (a)(2)(ii) of this section; and
* * * * *
    (b) * * *
    (1) * * *
    (iv) The contract must be nonrenewed as to an individual MA plan if 
that plan does not have a sufficient number of enrollees to establish 
that it is a viable independent plan option.
    (2) * * *
    (ii) To each of the MA organization's Medicare enrollees by mail at 
least 90 calendar days before the date on which the nonrenewal is 
effective, or at the conclusion of the appeals process if applicable.
    (b) * * *
    (3) Opportunity to develop and implement a corrective action plan.
    (i) Before providing a notice of intent of nonrenewal of the 
contract, CMS will provide the MA organization with notice specifying 
the MA organization's deficiencies and a reasonable opportunity of at 
least 30 calendar days to develop and implement a corrective action 
plan to correct the deficiencies.
    (ii) The MA organization is solely responsible for the 
identification, development, and implementation of its corrective 
action plan and for demonstrating to CMS that the underlying 
deficiencies have been corrected within the time period specified by 
CMS in the notice requesting corrective action.
* * * * *

0
33. Section 422.508 is amended by adding paragraph (c) to read as 
follows:


Sec.  422.508  Modification or termination of contract by mutual 
consent.

* * * * *
    (c) Agreement to limit new MA applications. As a condition of the 
consent to a mutual termination CMS will require, as a provision of the 
termination agreement language prohibiting the MA organization from 
applying for new contracts or service area expansions for a period of 2 
years, absent circumstances warranting special consideration.

0
34. Section 422.510 is amended by--
0
A. Revising paragraphs (a), (b) introductory text, and (b)(2)(i).
0
B. Redesignating paragraphs (b)(2)(ii) and (b)(2)(iii) as (b)(2)(iii) 
and (b)(2)(iv), respectively.
0
C. Adding a new paragraph (b)(2)(ii).
0
D. Revising paragraph (c).
    The revisions and addition read as follows:


Sec.  422.510  Termination of contract by CMS.

    (a) Termination by CMS. CMS may at any time terminate a contract if 
CMS determines that the MA organization meets any of the following:
    (1) Has failed substantially to carry out the contract.
    (2) Is carrying out the contract in a manner that is inconsistent 
with the efficient and effective administration of this part.
    (3) No longer substantially meets the applicable conditions of this 
part.
    (4) Based on creditable evidence, has committed or participated in 
false, fraudulent or abusive activities affecting the Medicare, 
Medicaid or other State or Federal health care programs, including 
submission of false or fraudulent data.
    (5) Substantially fails to comply with the requirements in subpart 
M of this part relating to grievances and appeals.
    (6) Fails to provide CMS with valid data as required under Sec.  
422.310.
    (7) Fails to implement an acceptable quality assessment and 
performance improvement program as required under subpart D of this 
part.
    (8) Substantially fails to comply with the prompt payment 
requirements in Sec.  422.520.
    (9) Substantially fails to comply with the service access 
requirements in Sec.  422.112 or Sec.  422.114.
    (10) Fails to comply with the requirements of Sec.  422.208 
regarding physician incentive plans.
    (11) Substantially fails to comply with the marketing requirements 
in subpart V of this part.
    (12) Fails to comply with the regulatory requirements contained in 
this part or part 423 of this chapter or both.
    (13) Fails to meet CMS performance requirements in carrying out the 
regulatory requirements contained in this part or part 423 of this 
chapter or both.
    (b) Notice. If CMS decides to terminate a contract it gives notice 
of the termination as follows:
* * * * *
    (2) Expedited termination of contract by CMS. (i) The procedures 
specified in paragraph (b)(1) of this section do not apply if--
    (A) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the MA organization; or
    (B) The MA organization experiences financial difficulties so 
severe that its ability to make necessary health services available is 
impaired to the point of posing an imminent and serious risk to the 
health of its enrollees, or otherwise fails to make services available 
to the extent that such a risk to health exists; or
    (C) The contract is being terminated based on the grounds specified 
in paragraph (a)(4) of this section.
    (ii) CMS notifies the MA organization in writing that its contract 
will be terminated on a date specified by CMS. If a 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) Opportunity to develop and implement a corrective action plan--
(1) General. (i) Before providing a notice of intent to terminate the 
contract, CMS will provide the MA organization with notice specifying 
the MA organization's deficiencies and a reasonable

[[Page 19812]]

opportunity of at least 30 calendar days to develop and implement a 
corrective action plan to correct the deficiencies.
    (ii) The MA organization is solely responsible for the 
identification, development, and implementation of its corrective 
action plan and for demonstrating to CMS that the underlying 
deficiencies have been corrected within the time period specified by 
CMS in the notice requesting corrective action.
    (2) Exceptions. The MA organization will not be provided with an 
opportunity to develop and implement a corrective action plan prior to 
termination if--
    (i) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the MA organization;
    (ii) The MA organization experiences financial difficulties so 
severe that its ability to make necessary health services available is 
impaired to the point of posing an imminent and serious risk to the 
health of its enrollees, or otherwise fails to make services available 
to the extent that such a risk to health exists; or
    (iii) The contract is being terminated based on the violation 
specified in (a)(4) of this section.
* * * * *

0
35. Section 422.516 is amended by--
0
A. Revising the section heading.
0
B. Adding a new paragraph (g).
    The revision and addition to read as follows:


Sec.  422.516  Validation of Part C reporting requirements.

* * * * *
    (g) Data validation. Each Part C sponsor must subject information 
collected under paragraph (a) of this section to a yearly independent 
audit to determine their reliability, validity, completeness, and 
comparability in accordance with specifications developed by CMS.

Subpart M--Grievances, Organization Determinations, and Appeals

0
36. Section 422.561 is amended by revising the definition of 
``Representative'' to read as follows:


Sec.  422.561  Definitions.

* * * * *
    Representative means an individual appointed by an enrollee or 
other party, or authorized under State or other applicable law, to act 
on behalf of an enrollee or other party involved in the grievance or 
appeal. Unless otherwise stated in this subpart, the representative 
will have all the rights and responsibilities of an enrollee or party 
in filing a grievance, and in obtaining an organization determination 
or in dealing with any of the levels of the appeals process, subject to 
the applicable rules described in part 405 of this chapter.


Sec.  422.566  [Amended]

0
37. Section 422.566 is amended by--
0
A. Republishing paragraph (b) introductory text.
0
B. Revising paragraph (b)(4).
0
C. Redesignating paragraph (b)(5) as (b)(6).
0
D. Adding a new paragraph (b)(5).
0
E. In paragraphs (c)(1)(i), and (c)(2)(i) removing the parenthetical 
phrase ``(including his or her authorized representative)'' is removed 
and ``(including his or her representative)'' is added in its place.
    The revision and addition to read as follows:


Sec.  422.566  Organization determinations.

* * * * *
    (b) Actions that are organization determinations. An organization 
determination is any determination made by an MA organization with 
respect to any of the following:
* * * * *
    (4) Reduction, or premature discontinuation, of a previously 
authorized ongoing course of treatment.
    (5) Reduction of a previously authorized course of treatment if the 
enrollee believes that continuation of the course of treatment is 
medically necessary.
* * * * *

0
38. Section 422.568 is amended by --
0
A. Redesignating paragraphs (a) through (f) as paragraphs (b) through 
(g), respectively.
0
B. Adding a new paragraph (a).
0
C. Revising newly designated paragraph (d).
    The addition and revision read as follows:


Sec.  422.568  Standard timeframes and notice requirements for 
organization determinations.

    (a) Method and place for filing a request. An enrollee must ask for 
a standard organization determination by making a request with the MA 
organization or, if applicable, to the entity responsible for making 
the determination (as directed by the MA organization), in accordance 
with the following:
    (1) The request may be made orally or in writing, except as 
provided in paragraph (a)(2) of this section.
    (2) Requests for payment must be made in writing (unless the MA 
organization or entity responsible for making the determination has 
implemented a voluntary policy of accepting verbal payment requests).
* * * * *
    (d) Written notice for MA organization denials. The MA organization 
must give the enrollee a written notice if--
    (1) An MA organization decides to deny service or payment in whole 
or in part, or reduce or prematurely discontinue the level of care for 
a previously authorized ongoing course of treatment.
    (2) An enrollee requests an MA organization to provide an 
explanation of a practitioner's denial of an item or service, in whole 
or in part.
* * * * *

0
39. Section 422.574 is amended by revising paragraph (a) to read as 
follows:


Sec.  422.574  Parties to the organization determination.

* * * * *
    (a) The enrollee (including his or her representative);
* * * * *

0
40. Section 422.622 is amended by revising paragraph (f)(3) to read as 
follows:


Sec.  422.622  Requesting immediate QIO review of the decision to 
discharge from the inpatient hospital.

* * * * *
    (f) * * *
    (3) If the QIO determines that the enrollee still requires 
inpatient hospital care, the hospital must provide the enrollee with a 
notice consistent with Sec.  422.620(c) of this subpart when the 
hospital or MA organization once again determines that the enrollee no 
longer requires inpatient hospital care.
* * * * *

0
41. Section 422.624 is amended by revising paragraph (c)(1) to read as 
follows:


Sec.  422.624  Notifying enrollees of termination of provider services.

* * * * *
    (c) * * *
    (1) The enrollee (or the enrollee's representative) has signed and 
dated the notice to indicate that he or she has received the notice and 
can comprehend its contents; and
* * * * *

0
42. Section 422.626 is amended by--
0
A. Redesignating paragraph (f) as paragraph (g).
0
B. Redesignating paragraph (e)(5) as paragraph (f) and revising the 
newly redesignated paragraph (f).

[[Page 19813]]

    The revisions read as follows:


Sec.  422.626  Fast-track appeals of service terminations to 
independent review entities (IREs).

* * * * *
    (f) Responsibilities of the provider. If an IRE reverses an MA 
organization's termination decision, the provider must provide the 
enrollee with a new notice consistent with Sec.  422.624(b) of this 
subpart.
* * * * *

Subpart N--Medicare Contract Determinations and Appeals

0
43. Section 422.644 is amended by revising paragraph (c) to read as 
follows:


Sec.  422.644  Notice of contract determination.

* * * * *
    (c) CMS-initiated terminations--(1) General rule. Except as 
provided in (c)(2) of this section, CMS mails notice to the MA 
organization 90 calendar days before the anticipated effective date of 
the termination.
    (2) Exception. If a contract is terminated in accordance with Sec.  
422.510(b)(2)(i) of this part, CMS notifies the MA organization of the 
date that it will terminate the MA organization's contract.
* * * * *

0
44. Section Sec.  422.660 is revised to read as follows:


Sec.  422.660  Right to a hearing, burden of proof, standard of proof, 
and standards of review.

    (a) Right to a hearing. 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 in accordance with Sec.  422.501 and Sec.  422.502.
    (2) An MA organization whose contract has been terminated under 
Sec.  422.510 of this part.
    (3) An MA organization whose contract has not been renewed under 
Sec.  422.506 of this part.
    (4) An MA organization who has had an intermediate sanction imposed 
in accordance with Sec.  422.752(a) through (b) of this part.
    (b) Burden of proof, standard of proof, and standards of review at 
a hearing. (1) During a hearing to review a contract determination as 
described at Sec.  422.641(a) of this subpart, the applicant has the 
burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  422.501 
and Sec.  422.502 of this part.
    (2) During a hearing to review a contract determination as 
described at Sec.  422.641(b) of this subpart, the MA organization has 
the burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  422.506 
of this part.
    (3) During a hearing to review a contract determination as 
described at Sec.  422.641(c) of this subpart, the MA organization has 
the burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  422.510 
of this part.
    (4) During a hearing to review the imposition of an intermediate 
sanction as described at Sec.  422.750 of this part, the MA 
organization has the burden of proving by a preponderance of the 
evidence that CMS' determination was inconsistent with the requirements 
of Sec.  422.752 of this part.
    (c) Timing of favorable decisions. 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 September 
1 for the contract in question to be effective on January 1 of the 
following year.

0
45. Section 422.662 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec.  422.662  Request for hearing.

    (a) Method and place for filing a request. (1) A request for a 
hearing must be made in writing and filed by an authorized official of 
the contract applicant or MA organization that was the party to the 
determination under the appeal.
    (2) The request for the hearing must be filed in accordance with 
the requirements specified in the notice.
    (b) Time for filing a request. A request for a hearing must be 
filed within 15 calendar days after the receipt of the notice of the 
contract determination or intermediate sanction.
* * * * *

0
46. Section 422.664 is amended by revising paragraph (b)(2) to read as 
follows:


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

* * * * *
    (b) * * *
    (2) A contract terminated in accordance with Sec.  422.510(b)(2)(i) 
of this part will be terminated on the date specified by CMS and will 
not be postponed if a hearing is requested.

0
47. Section 422.670 is revised to read as follows:


Sec.  422.670  Time and place of hearing.

    (a) The hearing officer--
    (1) Fixes a time and place for the hearing, which is not to exceed 
30 calendar days after the receipt of the request for the hearing; and
    (2) Sends written notice to the parties that informs the parties of 
the general and specific issues to be resolved, the burden of proof, 
and information about the hearing procedure.
    (b)(1) The hearing officer may, on his or her own motion, change 
the time and place of the hearing.
    (2) The hearing officer may adjourn or postpone the hearing.
    (c)(1) The MA organization or CMS may request an extension by 
filing a written request no later than 10 calendar days prior to the 
scheduled hearing.
    (2) When either the MA organization or CMS requests an extension, 
the hearing officer will provide a one-time 15 calendar day extension.
    (3) Additional extensions may be granted at the discretion of the 
hearing officer.

0
48. Section 422.676 is amended by revising paragraph (d) to read as 
follows:


Sec.  422.676  Conduct of hearing.

* * * * *
    (d) The MA organization bears the burden of going forward and must 
first present evidence and argument before CMS presents its evidence 
and argument.

0
49. Section 422.682 is revised to read as follows:


Sec.  422.682  Witness lists and documents.

    Witness lists and documents must be identified and exchanged at 
least 5 calendar days before the scheduled hearing.

0
50. Section 422.692 is amended by revising paragraphs (a) and (c) to 
read as follows:


Sec.  422.692  Review by the Administrator.

    (a) Request for review by Administrator. CMS or an MA organization 
that has received a hearing decision may request a review by the 
Administrator within 15 calendar days after receipt of 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.
* * * * *
    (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 after receipt of request 
for review.

[[Page 19814]]

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.
* * * * *

0
51. Section 422.696 is amended by revising the section heading and 
paragraph heading for paragraph (a) to read as follows:


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

    (a) Contract determination.* * *
* * * * *

Subpart O--Intermediate Sanctions

0
52. Section 422.750 is amended by revising paragraph (a) 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 deficiencies that 
are the basis for the sanction determination have been corrected and 
are not likely to recur:
    (1) Suspension of the MA organization's enrollment of Medicare 
beneficiaries.
    (2) Suspension of payment to the MA organization for Medicare 
beneficiaries enrolled after the date CMS notifies the organization of 
the intermediate sanction.
    (3) Suspension of all marketing activities to Medicare 
beneficiaries by an MA organization.
* * * * *

0
53. Section 422.752 is amended by revising paragraphs (a) introductory 
text, (a)(1), (a)(3), and (a)(4) to 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 specified in 
Sec.  422.750(a) of this subpart on any MA organization with a 
contract. The MA organization may also be subject to other remedies 
authorized under law.
    (1) Fails substantially to provide medically necessary items and 
services that are required (under law or under the contract) to be 
provided to an individual covered under the contract, if the failure 
has adversely affected (or has the substantial likelihood of adversely 
affecting) the individual.
* * * * *
    (3) Acts to expel or refuses to re-enroll a beneficiary in 
violation of the provisions of this part.
    (4) Engages in any practice that would reasonably be expected to 
have the effect of denying or discouraging enrollment (except as 
permitted by this part) by eligible individuals with the organization 
whose medical condition or history indicates a need for substantial 
future medical services.
* * * * *

0
54. Section 422.756 amended by--
0
A. Revising paragraph (b).
0
B. Removing paragraph (c).
0
C. Redesignating paragraphs (d) through (f) as paragraphs (c) through 
(e), respectively.
0
D. Revising the newly redesignated paragraphs (c)(1) and (c)(3).
    The revisions read as follows:


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

* * * * *
    (b) Hearing. (1) The MA organization may request a hearing before a 
CMS hearing officer.
    (2) A written request must be received by the designated CMS office 
within 15 calendar days after the receipt of the notice.
    (3) A request for a hearing under Sec.  422.660 does not delay the 
date specified by CMS when the sanction becomes effective.
    (4) The MA organization must follow the right to a hearing 
procedure as specified at Sec.  422.660 through Sec.  422.684.
    (c) Effective date and duration of sanction--(1) Effective date. 
The effective date of the sanction is the date specified by CMS in the 
notice.
* * * * *
    (3) Duration of sanction. The sanction remains in effect until CMS 
is satisfied that the deficiencies that are the basis for the sanction 
determination have been corrected and are not likely to recur.
    (i) CMS may require that the MA organization hire an independent 
auditor to provide CMS with additional information to determine if the 
deficiencies that are the basis for the sanction determination have 
been corrected and are not likely to recur. The independent auditor 
must work in accordance with CMS specifications and must be willing to 
attest that a complete and full independent review has been performed.
    (ii) In instances where marketing or enrollment or both 
intermediate sanctions have been imposed, CMS may require an MA 
organization to market or to accept enrollments or both for a limited 
period of time in order to assist CMS in making a determination as to 
whether the deficiencies that are the bases for the intermediate 
sanctions have been corrected and are not likely to recur.
    (A) If, following this time period, CMS determines the deficiencies 
have not been corrected or are likely to recur, the intermediate 
sanctions will remain in effect until such time that CMS is assured the 
deficiencies have been corrected and are not likely to recur.
    (B) The MA organization does not have a right to a hearing under 
Sec.  422.660(a)(4) of this part to challenge CMS' determination to 
keep the intermediate sanctions in effect.
* * * * *

Subpart V--Medicare Advantage Marketing Requirements

0
55. Section 422.2260 is amended by revising paragraph (5)(vii) of the 
definition of ``marketing materials'' and adding a new paragraph (6) to 
read as follows:


Sec.  422.2260  Definitions concerning marketing materials.

* * * * *
    Marketing materials.* * *
    (5) * * *
    (vii) Membership activities (for example, materials on rules 
involving non-payment of premiums, confirmation of enrollment or 
disenrollment, or nonclaim specific notification information).--
    (6) Marketing materials exclude ad hoc enrollee communications 
materials, meaning informational materials that--
    (i) Are targeted to current enrollees;
    (ii) Are customized or limited to a subset of enrollees or apply to 
a specific situation;
    (iii) Do not include information about the plan's benefit 
structure; and
    (iv) Apply to a specific situation or cover claims processing or 
other operational issues.

0
56. Section 422.2262 is amended by--
0
A. Revising the section heading.
0
B. Revising paragraphs (a)(1) and (b).
0
C. Adding new paragraphs (c) and (d).
    The revisions and additions read as follows:


Sec.  422.2262  Review and distribution of marketing materials.

    (a) * * *
    (1) Except as provided in paragraph (b) of this section, an MA 
organization may not distribute any marketing materials (as defined in 
Sec.  422.2260 of this subpart), or election forms, or make such 
materials or forms available to individuals eligible to elect an MA 
organization unless--

[[Page 19815]]

    (i) At least 45 days (or 10 days if using certain types of 
marketing materials that use, without modification, proposed model 
language and format, including standardized language and formatting, as 
specified by CMS) before the date of distribution the MA organization 
has submitted the material or form to CMS for review under the 
guidelines in Sec.  422.2264 of this subpart; and
    (ii) CMS does not disapprove the distribution of new material or 
form.
* * * * *
    (b) File and use. The MA organization may distribute certain types 
of marketing material, designated by CMS, 5 days following their 
submission to CMS if the MA organization certifies that in the case of 
these marketing materials, it followed all applicable marketing 
guidelines and, when applicable, used model language specified by CMS 
without modification.
    (c) Standardized model marketing materials. When specified by CMS, 
organizations must use standardized formats and language in model 
materials.
    (d) Ad hoc enrollee communication materials. Ad hoc enrollee 
communication materials may be reviewed by CMS, which may upon review 
determine that such materials must be modified, or may no longer be 
used.

PART 423--MEDICARE PROGRAM; MEDICARE PRESCRIPTION DRUG PROGRAM

0
57. 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 B--Eligibility and Enrollment

0
58. Section 423.34 is revised to read as follows:


Sec.  423.34  Enrollment of low-income subsidy eligible individuals.

    (a) General rule. CMS must ensure the enrollment into Part D plans 
of low-income subsidy eligible individuals who fail to enroll in a Part 
D plan.
    (b) Definitions--Full-benefit dual-eligible individual. For 
purposes of this section, a full-benefit dual eligible individual means 
an individual who is--
    (1) Determined eligible by the State for--
    (i) Medical assistance for full-benefits under Title XIX of the Act 
for the month under any eligibility category covered under the State 
plan or comprehensive benefits under a demonstration under section 1115 
of the Act; or
    (ii) Medical assistance under section 1902(a)(10(C) of the Act 
(medically needy) or section 1902(f) of the Act (States that use more 
restrictive eligibility criteria than are used by the SSI program) for 
any month if the individual was eligible for medical assistance in any 
part of the month.
    (2) Eligible for Part D in accordance with Sec.  423.30(a) of this 
subpart.
    Low-income subsidy-eligible individual. For purposes of this 
section, a low-income subsidy eligible individual means an individual 
who meets the definition of full subsidy eligible (including full 
benefit dual eligible individuals as set forth in this section) or 
other subsidy eligible in Sec.  423.772 of this part.
    (c) Reassigning low-income subsidy-eligible individuals. 
Notwithstanding Sec.  423.32(e) of this subpart, during the annual 
coordinated election period, CMS may reassign certain low-income 
subsidy-eligible individuals in another PDP if CMS determines that the 
further enrollment is warranted.
    (d) Enrollment rules--(1) General rule. Except for low-income 
subsidy eligible individuals who are qualifying covered retirees with a 
group health plan sponsor as specified in paragraph (d)(3) of this 
section, CMS enrolls those individuals who fail to enroll in a Part D 
plan into a PDP offering basic prescription drug coverage in the area 
where the beneficiary resides that has a monthly beneficiary premium 
amount that does not exceed the low-income subsidy amount (as defined 
in Sec.  423.780(b) of this part). In the event that there is more than 
one PDP in an area with a monthly beneficiary premium at or below the 
low-income premium subsidy amount, individuals are enrolled in such 
PDPs on a random basis.
    (2) Individuals enrolled in an MSA plan or one of the following 
that does not offer a Part D benefit. Low-income subsidy eligible 
individuals enrolled in an MA private fee-for-service plan or cost-
based HMO or CMP that does not offer qualified prescription drug 
coverage or an MSA plan and who fail to enroll in a Part D plan must be 
enrolled into a PDP plan as described in paragraph (d)(1) of this 
section.
    (3) Exception for individuals who are qualifying covered retirees. 
(i) Full benefit dual eligible individuals who are qualifying covered 
retirees as defined in Sec.  423.882 of this part, and for whom CMS has 
approved the group health plan sponsor to receive the retirement drug 
subsidy described in subpart R of this part, also are automatically 
enrolled in a Part D plan, consistent with this paragraph, unless they 
elect to decline that enrollment.
    (ii) Before effectuating such an enrollment, CMS provides notice to 
such individuals of their choices and advises them to discuss the 
potential impact of Medicare Part D coverage on their group health plan 
coverage. The notice informs individuals that they will be deemed to 
have declined to enroll in Part D unless they affirmatively enroll in a 
Part D plan or contact CMS and confirm that they wish to be auto-
enrolled in a PDP. Individuals who elect not to be auto-enrolled, may 
enroll in Medicare Part D at a later time if they choose to do so.
    (iii) All other low income subsidy eligible beneficiaries who are 
qualified covered retirees are not enrolled by CMS into PDPs.
    (e) Declining enrollment and disenrollment. Nothing in this section 
prevents a low income subsidy eligible individual from--
    (1) Affirmatively declining enrollment in Part D; or
    (2) Disenrolling from the Part D plan in which the individual is 
enrolled and electing to enroll in another Part D plan during the 
special enrollment period provided under Sec.  423.38.
    (f) Effective date of enrollment for full-benefit dual eligible 
individuals. Enrollment of full-benefit dual eligible individuals under 
this section must be effective as follows:
    (1) January 1, 2006 for individuals who are full-benefit dual-
eligible individuals as of December 31, 2005.
    (2) The first day of the month the individual is eligible for Part 
D under Sec.  423.30(a)(1) for individuals who are Medicaid eligible 
and subsequently become newly eligible for Part D under Sec.  
423.30(a)(1) on or after January 1, 2006.
    (3) For individuals who are eligible for Part D under Sec.  
423.30(a)(1) of this subpart and subsequently become newly eligible for 
Medicaid on or after January 1, 2006, enrollment is effective with the 
first day of the month when the individuals become eligible for both 
Medicaid and Part D.
    (g) Effective date of enrollment for non-full-benefit dual-eligible 
individuals who are low-income subsidy-eligible individuals. The 
effective date for non-full-benefit dual-eligible individuals who are 
low-income subsidy-eligible individuals is no later than the first day 
of the second month after CMS determines that they meet the criteria 
for enrollment under this section.

[[Page 19816]]


0
59. Section 423.38 is amended by revising paragraph (c)(4) to read as 
follows:


Sec.  423.38  Enrollment periods.

* * * * *
    (c) * * *
    (4) The individual is a full-subsidy eligible individual or other 
subsidy-eligible individual as defined in Sec.  423.772 of this part.
* * * * *

0
60. Section 423.44 is amended by--
0
A. Redesignating paragraphs (d)(1)(iii) and (d)(1)(iv) as paragraphs 
(d)(1)(iv) and (d)(1)(v), respectively.
0
B. Adding a new paragraph (d)(1)(iii).
0
C. Redesignating the introductory text of paragraph (d)(5) as paragraph 
(d)(5)(i).
0
D. Adding new paragraph (d)(5)(ii).
    The revisions and additions read as follows:


Sec.  423.44  Involuntary disenrollment by the PDP.

* * * * *
    (d) * * *
    (1) * * *
    (iii) The PDP sponsor provides the individual with a grace period, 
that is, an opportunity to pay past due premiums in full. The grace 
period must--
    (A) Be at least 2 months; and
    (B) Begin on the first day of the month for which the premium is 
unpaid or the first day of the month following the date on which 
premium payment is requested, whichever is later.
* * * * *
    (5) * * *
    (ii) Special rule. If the individual has not moved from the PDP 
service area, but has been absent from the service area for more than 
12 consecutive months, the PDP sponsor must disenroll the individual 
from the plan effective on the first day of the 13th month after the 
individual left the service area.
* * * * *

Subpart C--Benefits and Beneficiary Protections

0
61. Section 423.100 is amended by adding the definitions of ``Drug 
category or class,'' ``Major or life threatening clinical 
consequences,'' ``Multiple drugs,'' ``Restricted access,'' and 
``Significant need for access to multiple drugs'' to read as follows:


Sec.  423.100  Definitions.

* * * * *
    Drug category or class means, for the purpose of Sec.  
423.120(b)(2)(v) of the subpart, the identification of a drug grouping 
that is reasonable to identify the applicable drug products.
* * * * *
    Major or life threatening clinical consequences means consequences 
in which serious clinical events may arise as a result of not taking a 
drug that can lead to patient hospitalization, or a persistent or 
significant disability or incapacity, or that can result in death.
    Multiple drugs mean two or more Part D drugs.
* * * * *
    Restricted access means, for the purposes of Sec.  
423.120(b)(2)(v)(A) of this subpart, an enrollee who but for Sec.  
423.120(b0(2)(v) of this subpart urgently requires a Part D drug but is 
waiting for an expedited redetermination by a Part D plan or an CMS 
independent review entity with respect to coverage of that drug.
* * * * *
    Significant need for access to multiple drugs means instances in 
which --
    (1) There is a need for simultaneous use of drugs within a drug 
grouping because such drugs work in combination with each other; or
    (2) There is a strong likelihood of sequential use of drugs within 
a class or category within a short period of time due to the unique 
effects the drugs have on various individuals.
* * * * *

0
62. Section 423.104 by--
0
A. Revising paragraph (b).
0
B. Adding a new paragraph (d)(2)(iii).
    The revision and addition read as follows:


Sec.  423.104  Requirements related to qualified prescription drug 
coverage.

* * * * *
    (b) Availability of prescription drug plan. A PDP sponsor offering 
a prescription drug plan must offer the plan--
    (1) To all Part D eligible beneficiaries residing in the plan's 
service area; and
    (2) At a uniform premium, with uniform benefits and level of cost-
sharing throughout the plan's service area.
* * * * *
    (d) * * *
    (2) * * *
    (iii) Tiered cost sharing under paragraph (d)(2)(ii) of this 
paragraph may not exceed levels annually determined by CMS to be 
discriminatory.
* * * * *

0
63. Section 423.112 is amended by revising paragraph (a) to read as 
follows:


Sec.  423.112  Establishment of prescription drug plan sponsor service 
areas.

    (a) Service area for prescription drug plan sponsors. The service 
area for a prescription drug plan sponsor other than a fallback 
prescription drug plan sponsor consists of one or more PDP regions as 
established under paragraphs (b) and (c) of this section.
* * * * *

0
64. Section 423.120 is amended by--
0
A. Revising paragraph (a).
0
B. Redesignating paragraphs (b)(1)(ix) as paragraph (b)(1)(x).
0
C. Adding a new paragraph (b)(1)(ix).
0
E. Revising paragraph (b)(3).
0
F. Redesignating paragraph (c) as paragraph (c)(1).
0
G. Adding new paragraphs (c)(2) through (c)(4).
    The revisions and additions read as follows:


Sec.  423.120  Access to covered Part D drugs.

    (a) Assuring pharmacy access--(1) Standards for convenient access 
to network pharmacies. Except as provided in paragraph (a)(7) of this 
section, a Part D sponsor (as defined in Sec.  423.4 of this part) must 
have a contracted pharmacy network consisting of retail pharmacies 
sufficient to ensure that, for beneficiaries residing in each State in 
a PDP sponsor's service area (as defined in Sec.  423.112(a) of this 
part), each State in a regional MA-organization's service area (as 
defined in Sec.  422.2 of this part), the entire service area of a 
local MA organization (as defined in Sec.  422.2 of this chapter) or 
the entire geographic area of a cost contract (as defined in Sec.  
417.401 of this chapter) all of the following requirements are 
satisfied:
    (i) At least 90 percent of Medicare beneficiaries, on average, in 
urban areas served by the Part D sponsor live within 2 miles of a 
network pharmacy that is a retail pharmacy or a pharmacy described 
under paragraph (a)(2) of this section.
    (ii) At least 90 percent of Medicare beneficiaries, on average, in 
suburban areas served by the Part D sponsor live within 5 miles of a 
network pharmacy that is a retail pharmacy or a pharmacy described 
under paragraph (a)(2) of this section.
    (iii) At least 70 percent of Medicare beneficiaries, on average, in 
rural areas served by the Part D sponsor live within 15 miles of a 
network pharmacy that is a retail pharmacy or a pharmacy described 
under paragraph (a)(2) of this section.
    (2) Applicability of some non-retail pharmacies to standards for 
convenient access. Part D sponsors may count I/T/U pharmacies and 
pharmacies operated

[[Page 19817]]

by Federally Qualified Health Centers and Rural Health Centers toward 
the standards for convenient access to network pharmacies in paragraph 
(a)(1) of this section.
    (3) Access to non-retail pharmacies. A Part D sponsor's contracted 
pharmacy network may be supplemented by non-retail pharmacies, 
including pharmacies offering home delivery via mail-order and 
institutional pharmacies, provided the requirements of paragraph (a)(1) 
of this section are met.
    (4) Access to home infusion pharmacies. A Part D sponsor's 
contracted pharmacy network must provide adequate access to home 
infusion pharmacies consistent with written policy guidelines and other 
CMS instructions. A Part D plan must ensure that such network 
pharmacies, at a minimum meet all the following requirements:
    (i) Are capable of delivering home-infused drugs in a form that can 
be administered in a clinically appropriate fashion.
    (ii) Are capable of providing infusible Part D drugs for both 
short-term acute care and long-term chronic care therapies.
    (iii) Ensure that the professional services and ancillary supplies 
necessary for home infusion therapy are in place before dispensing Part 
D home infusion drugs.
    (iv) Provide delivery of home infusion drugs within 24 hours of 
discharge from an acute care setting, or later if so prescribed.
    (5) Access to long-term care pharmacies. A Part D sponsor must 
offer standard contracting terms and conditions, including performance 
and service criteria for long-term care pharmacies that CMS specifies, 
to all long-term care pharmacies in its service area. The sponsor must 
provide convenient access to long-term care pharmacies consistent with 
written policy guidelines and other CMS instructions.
    (6) Access to I/T/U pharmacies. A Part D sponsor must offer 
standard contracting terms and conditions conforming to the model 
addendum that CMS develops, to all I/T/U pharmacies in its service 
area. The sponsor must provide convenient access to I/T/U pharmacies 
consistent with written policy guidelines and other CMS instructions.
    (7) Waiver of pharmacy access requirements. CMS waives the 
requirements under paragraph (a)(1) of this section in the case of 
either of the following:
    (i) An MA organization or cost contract (as described in section 
1876(h) of the Act) that provides its enrollees with access to covered 
Part D drugs through pharmacies owned and operated by the MA 
organization or cost contract, provided the organization's or plan's 
pharmacy network meets the access standard set forth--
    (A) At Sec.  422.112 of this chapter for an MA organization; or
    (B) At Sec.  417.416(e) of this chapter for a cost contract.
    (ii) An MA organization offering a private fee-for-service plan 
described in Sec.  422.4 of this chapter that--
    (A) Offers qualified prescription drug coverage; and
    (B) Provides plan enrollees with access to covered Part D drugs 
dispensed at all pharmacies, without regard to whether they are 
contracted network pharmacies and without charging cost-sharing in 
excess of that described in Sec.  423.104(d)(2) and (d)(5).
    (8) Pharmacy network contracting requirements. In establishing its 
contracted pharmacy network, a Part D sponsor offering qualified 
prescription drug coverage--
    (i) Must contract with any pharmacy that meets the Part D sponsor's 
standard terms and conditions; and
    (ii) May not require a pharmacy to accept insurance risk as a 
condition of participation in the Part D sponsor's contracted pharmacy 
network.
    (9) Differential cost-sharing for preferred pharmacies. A Part D 
sponsor offering a Part D plan that provides coverage other than 
defined standard coverage may reduce copayments or coinsurance for 
covered Part D drugs obtained through a preferred pharmacy relative to 
the copayments or coinsurance applicable for such drugs when obtained 
through a non-preferred pharmacy. Such differentials are taken into 
account in determining whether the requirements under Sec.  
423.104(d)(2) and (d)(5) and Sec.  423.104(e) are met. Any cost-sharing 
reduction under this section must not increase CMS payments to the Part 
D plan under Sec.  423.329.
    (10) Level playing field between mail-order and network pharmacies. 
A Part D sponsor must permit its Part D plan enrollees to receive 
benefits, which may include a 90-day supply of covered Part D drugs, at 
any of its network pharmacies that are retail pharmacies. A Part D 
sponsor may require an enrollee obtaining a covered Part D drug at a 
network pharmacy that is a retail pharmacy to pay any higher cost-
sharing applicable to that covered Part D drug at the network pharmacy 
that is a retail pharmacy instead of the cost-sharing applicable to 
that covered Part D drug at the network pharmacy that is a mail-order 
pharmacy.
    (b) * * *
    (1) * * *
    (ix) Reviews and approves all clinical prior authorization 
criteria, step therapy protocols, and quantity limit restrictions 
applied to each covered Part D drug.
* * * * *
    (3) Transition process. A Part D sponsor must provide for an 
appropriate transition process for enrollees prescribed Part D drugs 
that are not on its Part D plan's formulary (including Part D drugs 
that are on a sponsor's formulary but require prior authorization or 
step therapy under a plan's utilization management rules). The 
transition process must:
    (i) Be applicable to all of the following:
    (A) New enrollees into Part D plans following the annual 
coordinated election period.
    (B) Newly eligible Medicare enrollees from other coverage.
    (C) Individuals who switch from one plan to another after the start 
of the contract year.
    (D) Current enrollees remaining in the plan affected by formulary 
changes.
    (ii) Ensure access to a temporary supply of drugs within the first 
90 days of coverage under a new plan. This 90 day timeframe applies to 
retail, home infusion, long-term care and mail-order pharmacies,
    (iii) Ensure the provision of a temporary fill when an enrollee 
requests a fill of a non-formulary drug during the time period 
specified in paragraph (b)(3)(ii) of this section (including Part D 
drugs that are on a plan's formulary but require prior authorization or 
step therapy under a plan's utilization management rules).
    (A) In the outpatient setting, the one-time, temporary supply of 
non-formulary Part D drugs (including Part D drugs that are on a 
sponsor's formulary but require prior authorization or step therapy 
under a sponsor's utilization management rules) must be for at least 30 
days of medication, unless the prescription is written by a prescriber 
for less than 30 days and requires the Part D sponsor to allow multiple 
fills to provide up to a total of 30 days of medication.
    (B) In the long-term care setting, the temporary supply of non-
formulary Part D drugs (including Part D drugs that are on a sponsor's 
formulary but require prior authorization or step therapy under a 
sponsor's utilization management rules) must be for up to 93 days in 31 
day supply increments, with refills provided, if needed, unless a

[[Page 19818]]

lesser amount is actually prescribed by the prescriber.
    (iv) Ensure written notice is provided to each affected enrollee 
within 3 business days after adjudication of the temporary fill.
    (v) Ensure that reasonable efforts are made to notify prescribers 
of affected enrollees who receive a transition notice under paragraph 
(b)(3)(iv) of this section.
    (c) * * *
    (2) When processing Part D claims, a Part D sponsor or its 
intermediary must comply with the electronic transaction standards 
established by 45 CFR 162.1102. CMS will issue guidance on the use of 
conditional fields within such standards.
    (3) A Part D sponsor must require its network pharmacies to submit 
claims to the Part D sponsor or its intermediary whenever the card 
described in paragraph (c)(1) of this section is presented or on file 
at the pharmacy unless the enrollee expressly requests that a 
particular claim not be submitted to the Part D sponsor or its 
intermediary.
    (4) Beginning January 1, 2012, a part D sponsor must assign and 
exclusively use a unique--
    (i) Part D BIN or RxBIN and Part D processor control number (RxPCN) 
combination in its Medicare line of business; and
    (ii) Part D cardholder identification number (RxID) to each 
Medicare Part D enrollee to clearly identify Medicare Part D 
beneficiaries.

0
65. Section 423.128 is amended by adding a new paragraph (f) to read as 
follows:


Sec.  423.128  Dissemination of Part D plan information.

* * * * *
    (f) Disclosure requirements. CMS may require a Part D plan sponsor 
to disclose to its enrollees or potential enrollees, the Part D plan 
sponsor's performance and contract compliance deficiencies in a manner 
specified by CMS.

0
66. Section 423.132 is amended by--
0
A. Revising the introductory text of paragraph c.
0
B. In paragraphs (c)(2) and (c)(3), removing the ``;'' and adding a 
``.'' in its place.
0
C. In paragraph (c)(4), removing ``; and'' and adding a ``.'' in its 
place.
0
D. Redesignating paragraph (c)(5) as (c)(6).
0
E. Adding a new paragraph (c)(5).
0
F. Revising paragraph (d).
    The revisions and additions read as follows:


Sec.  423.132  Public disclosure of pharmaceutical prices for 
equivalent drugs.

* * * * *
    (c) Waiver of public disclosure requirement. CMS waives the 
requirement under paragraph (a) of this section in any of the following 
cases:
* * * * *
    (5) A long-term care network pharmacy.
* * * * *
    (d) Modification of timing requirement. CMS modifies the 
requirement under paragraph (b) of this section under circumstances 
where CMS deems compliance with this requirement to be impossible or 
impracticable.

Subpart D--Cost Control and Quality Improvement Requirements

0
67. Section 423.153 is amended by--
0
A. Adding paragraphs (d)(1)(v) through (vii).
0
B. Revising paragraph (d)(2).
    The additions and revisions read as follows:


Sec.  423.153  Drug utilization management, quality assurance, and 
medication therapy management programs (MTMPs).

* * * * *
    (d) * * *
    (1) * * *
    (v) Must enroll targeted beneficiaries using an opt-out method of 
enrollment only.
    (vi) Must target beneficiaries for enrollment in the MTMP at least 
quarterly during each plan year.
    (vii) Must offer a minimum level of medication therapy management 
services for each beneficiary enrolled in the MTMP that includes all of 
the following:
    (A) Interventions for both beneficiaries and prescribers.
    (B) Annual comprehensive medication reviews with written summaries. 
The comprehensive medical review must include an interactive, person-
to-person consultation performed by a pharmacist or other qualified 
provider unless the beneficiary is in a long-term care setting.
    (C) Quarterly targeted medication reviews with follow-up 
interventions when necessary.
    (2) Targeted beneficiaries. Targeted beneficiaries for the MTMP 
described in paragraph (d)(1) of this section are enrollees in the 
sponsor's Part D plan who meet all of the following:
    (i) Have multiple chronic diseases, with three chronic diseases 
being the maximum number a Part D plan sponsor may require for targeted 
enrollment.
    (ii) Are taking multiple Part D drugs, with eight Part D drugs 
being the maximum number of drugs a Part D plan sponsor may require for 
targeted enrollment.
    (iii) Are likely to incur the following annual Part D drug costs:
    (A) For 2011, costs for covered Part D drugs greater than or equal 
to $3,000.
    (B) For 2012 and subsequent years, costs for covered Part D drugs 
in an amount greater than or equal to $3000 increased by the annual 
percentage specified in Sec.  423.104(d)(5)(iv) of this part.
* * * * *

0
68. Section 423.156 is revised to read as follows:


Sec.  423.156  Consumer satisfaction surveys.

    Part D contracts with 600 or more enrollees as of July of the prior 
year must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Part D plan enrollees in 
accordance with CMS specifications and submit the survey data to CMS.

0
69. Section 423.165 is amended by--
0
A. Removing paragraph (b)(4).
0
B. Revising paragraph (f).
    The revision reads as follows:


Sec.  423.165  Compliance deemed on the basis of accreditation.

* * * * *
    (f) Authority. Nothing in this section limits CMS' authority under 
subparts K and O of this part, including, but not limited to the 
ability to impose intermediate sanctions, civil money penalties, and 
terminate a contract with a Part D plan sponsor.

Subpart F--Submission of Bids and Monthly Beneficiary Premiums: 
Plan Approval

0
70. Section 423.265 is amended by revising paragraph (b) to read as 
follows:


Sec.  423.265  Submission of bids and related information.

* * * * *
    (b) Bid submission--(1) General. Not later than the first Monday in 
June, each potential Part D sponsor must submit bids and supplemental 
information described in this section for each Part D plan it intends 
to offer in the subsequent calendar year.
    (2) Substantial differences between bids. Potential Part D 
sponsors' bid submissions must reflect differences in benefit packages 
or plan costs that CMS determines to represent substantial differences 
relative to a sponsor's other bid submissions. In order to be

[[Page 19819]]

considered ``substantially different,'' each bid must be significantly 
different from the sponsor's other bids with respect to beneficiary 
out-of-pocket costs or formulary structures.
* * * * *

0
71. Section 423.272 is amended by adding a new paragraph (b)(3) to read 
as follows:


Sec.  423.272  Review and negotiation of bid and approval of plans 
submitted by potential Part D sponsors.

* * * * *
    (b) * * *
    (3) Substantial differences between bids--(i) General. CMS approves 
a bid only if it finds that the benefit package or plan costs 
represented by that bid are substantially different as provided under 
Sec.  423.265(b)(2) of this subpart from the benefit package or plan 
costs represented by another bid submitted by the same Part D sponsor.
    (ii) Transition period for PDP sponsors with new acquisitions. 
After a 2-year transition period, as determined by CMS, CMS approves a 
bid offered by a PDP sponsor (or by a parent organization to that PDP 
sponsor) that recently purchased (or otherwise acquired or merged with) 
another Part D sponsor if it finds that the benefit package or plan 
costs represented by that bid are substantially different from any 
benefit package or plan costs represented by another bid submitted by 
the same Part D sponsor (or parent organization to that Part D sponsor.
* * * * *

Subpart G--Payments to Part D Plan Sponsors for Qualified 
Prescription Drug Coverage


Sec.  423.308  [Amended]

0
72. Section 423.308 is amended in paragraph (1) of the definition of 
``gross covered prescription drug costs'' by removing the phrase ``The 
share of negotiated prices'' and adding in its place ``The share of 
actual costs''.

Subpart J--Coordination Under Part D Plans With Other Prescription 
Drug Coverage

0
73. Section 423.462 is amended by--
0
A. Redesignating the existing text as paragraph (a).
0
B. Adding a paragraph heading for paragraph (a) and new paragraph (b).
    The additions read as follows:


Sec.  423.462  Medicare secondary payer procedures.

    (a) General rule. * * *
    (b) Reporting requirements. A Part D sponsor must report credible 
new or changed primary payer information to the CMS Coordination of 
Benefits Contractor in accordance with the processes and timeframes 
specified by CMS.

0
74. Section 423.464 is amended by adding new paragraphs (a)(3), 
(e)(1)(vi), (g), and (h) to read as follows:


Sec.  423.464  Coordination of benefits with other providers of 
prescription drug coverage.

    (a) * * *
    (3) Retroactive claims adjustments, underpayment reimbursements, 
and overpayment recoveries as described in paragraph (g) of this 
section and Sec.  423.466(a) of this subpart.
* * * * *
    (e) * * *
    (1) * * *
    (vi) Does not engage in midyear plan or noncalendar year plan 
enrollment changes on behalf of a substantial number of its members 
when authorized to do so on the beneficiary's behalf.
* * * * *
    (g) Responsibility to account for other providers of prescription 
drug coverage when a retroactive claims adjustment creates an 
overpayment or underpayment. When a Part D sponsor makes a retroactive 
claims adjustment, the sponsor has the responsibility to account for 
SPAPs and other entities providing prescription drug coverage in 
reconciling the claims adjustments that create overpayments or 
underpayments. In carrying out these reimbursements and recoveries, 
Part D sponsors must also account for payments made and for amounts 
being held for payment by other individuals or entities. Part D 
sponsors must have systems to track and report adjustment transactions 
and to support all of the following:
    (1) Adjustments involving payments by other plans and programs 
providing prescription drug coverage have been made.
    (2) Reimbursements for excess cost-sharing and premiums for low-
income subsidy eligible individuals have been processed in accordance 
with the requirements in Sec.  423.800(c).
    (3) Recoveries of erroneous payments for enrollees as specified in 
Sec.  423.464(f)(4) have been sought.
    (h) Reporting requirements. A Part D sponsor must report credible 
new or changed supplemental prescription drug coverage information to 
the CMS Coordination of Benefits Contractor in accordance with the 
processes and timeframes specified by CMS.

0
75. A new Sec.  423.466 is added to subpart J to read as follows:


Sec.  423.466  Timeframes for coordination of benefits.

    (a) Retroactive claims adjustments, underpayment refunds, and 
overpayment recoveries. Whenever a sponsor receives information that 
necessitates a retroactive claims adjustment, the sponsor must process 
the adjustment and issue refunds or recovery notices within 45 days of 
the sponsor's receipt of complete information regarding claims 
adjustment.
    (b) Coordination of benefits. Part D sponsors must coordinate 
benefits with SPAPs, other entities providing prescription drug 
coverage, beneficiaries, and others paying on the beneficiaries' behalf 
for a period not to exceed 3 years from the date on which the 
prescription for a covered Part D drug was filled.

Subpart K--Application Procedures and Contracts With PDP Sponsors

0
76. Section 423.502 is amended by--
0
A. Redesignating paragraphs (b) through (d) as (c) through (e), 
respectively
0
B. Adding a new paragraph (b).
0
C. Revising newly redesignated paragraph (c)(1) introductory text and 
paragraph (c)(2).
    The addition and revisions reads as follows:


Sec.  423.502  Application requirements.

* * * * *
    (b) Completion of a notice of intent to apply. (1) An organization 
submitting an application under this section for a particular contract 
year must first submit a completed Notice of Intent to Apply by the 
date established by CMS. CMS will not accept applications from 
organizations that do not submit a timely Notice of Intent to Apply.
    (2) Submitting a Notice of Intent to Apply does not bind that 
organization to submit an application for the applicable contract year.
    (3) An organization's decision not to submit an application after 
submitting an Notice of Intent to Apply will not form the basis of any 
action taken against the organization by CMS.
    (c) * * *
    (1) In order to obtain a determination on whether it meets the 
requirements to become a Part D plan sponsor, an entity, or an 
individual authorized to act for the entity (the applicant), must fully 
complete all parts of a certified application in the form and manner 
required by CMS, including the following:
* * * * *
    (2) The authorized individual must describe thoroughly how the 
entity is

[[Page 19820]]

qualified to meet the all requirements described in this part.
* * * * *

0
77. Section 423.503 is amended by--
0
A. Revising paragraphs (a)(1), (a)(2), and (b).
0
B. Adding a new paragraph (c)(2)(iii).
0
C. Revising paragraph(c)(3)(iii).
0
D. Removing paragraph (d).
    The revisions and addition read as follows:


Sec.  423.503  Evaluation and determination procedures for applications 
to be determined qualified to act as a sponsor.

    (a) * * *
    (1) With the exception of evaluations conducted under paragraph (b) 
of this section, CMS evaluates an entity's application solely on the 
basis of information contained in the application itself and any 
additional information that CMS obtains through on-site visits.
    (2) After evaluating all relevant information, CMS determines 
whether the application meets all the requirements described in this 
part.
    (b) Use of information from a current or prior contract. If a Part 
D plan sponsor fails during the 14 months preceding the deadline 
established by CMS for the submission of contract qualification 
applications (or in the case of a fallback entity, the previous 3-year 
contract) to comply with the requirements of the Part D program under 
any current or prior contract with CMS under title XVIII of the Act or 
fails to complete a corrective action plan during the 14 months 
preceding the deadline established by CMS for the submission of 
contract qualification applications, CMS may deny an application based 
on the applicant's failure to comply with the requirements of the Part 
D program under any current or prior contract with CMS even if the 
applicant currently meets all of the requirements of this part.
    (c) * * *
    (2) * * *
    (iii) If CMS does not receive a revised application within 10 days 
from the date of the notice, or if after timely submission of a revised 
application, CMS still finds the applicant does not appear qualified to 
contract as a Part D plan sponsor or has not provided enough 
information to allow CMS to evaluate the application, CMS denies the 
application.
    (3) * * *
    (iii) The applicant's right to request a hearing in accordance with 
the procedures specified in subpart N of this part.

0
78. Section 423.504 is amended by--
0
A. Revising paragraph (b)(4)(vi)
0
B. Redesignating paragraph (b)(6) as paragraph (b)(7).
0
C. Adding a new paragraph (b)(6).
    The revision and addition read as follows:


Sec.  423.504  General provisions.

* * * * *
    (b) * * *
    (4) * * *
    (vi) Adopt and implement an effective compliance program, which 
must include measures that prevent, detect, and correct noncompliance 
with CMS' program requirements as well as measures that prevent, 
detect, and correct fraud, waste, and abuse. The compliance program 
must, at a minimum, include the following core requirements:
    (A) Written policies, procedures, and standards of conduct that--
    (1) Articulate the Part D plan sponsor's commitment to comply with 
all applicable Federal and State standards;
    (2) Describe compliance expectations as embodied in the standards 
of conduct;
    (3) Implement the operation of the compliance program;
    (4) Provide guidance to employees and others on dealing with 
potential compliance issues;
    (5) Identify how to communicate compliance issues to appropriate 
compliance personnel;
    (6) Describe how potential compliance issues are investigated and 
resolved by the Part D plan sponsor; and
    (7) Include a policy of non-intimidation and non-retaliation for 
good faith participation in the compliance program, including but not 
limited to reporting potential issues, investigating issues, conducting 
self-evaluations, audits and remedial actions, and reporting to 
appropriate officials.
    (B) The designation of a compliance officer and a compliance 
committee who report directly and are accountable to the Part D plan 
sponsor's chief executive or other senior management.
    (1) The compliance officer, vested with the day-to-day operations 
of the compliance program, must be an employee of the Part D plan 
sponsor, parent organization or corporate affiliate. The compliance 
officer may not be an employee of the Part D plan sponsor's first tier, 
downstream or related entity.
    (2) The compliance officer and the compliance committee must 
periodically report directly to the governing body of the Part D plan 
sponsor on the activities and status of the compliance program, 
including issues identified, investigated, and resolved by the 
compliance program.
    (3) The governing body of the Part D plan sponsor must be 
knowledgeable about the content and operation of the compliance program 
and must exercise reasonable oversight with respect to the 
implementation and effectiveness of the compliance programs.
    (C)(1) Each Part D plan sponsor must establish, implement and 
provide effective training and education for its employees including, 
the chief executive and senior administrators or managers; governing 
body members; and first tier, downstream, and related entities.
    (2) The training and education must occur at a least annually and 
be a part of the orientation for new employees including, the chief 
executive and senior administrators or managers; governing body 
members; and first tier, downstream, and related entities.
    (3) First tier, downstream, and related entities who have met the 
fraud, waste, and abuse certification requirements through enrollment 
into the Medicare program or accreditation as a Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) are deemed to 
have met the training and educational requirements for fraud, waste, 
and abuse.
    (D) Establishment and implementation of effective lines of 
communication, ensuring confidentiality, between the compliance 
officer, members of the compliance committee, the Part D plan sponsor's 
employees, managers and governing body, and the Part D plan sponsor's 
first tier, downstream, and related entities. Such lines of 
communication must be accessible to all and allow compliance issues to 
be reported including a method for anonymous and confidential good 
faith reporting of potential compliance issues as they are identified.
    (E) Well-publicized disciplinary standards through the 
implementation of procedures which encourage good faith participation 
in the compliance program by all affected individuals. These standards 
must include policies that--
    (1) Articulate expectations for reporting compliance issues and 
assist in their resolution;
    (2) Identify non-compliance or unethical behavior; and
    (3) Provide for timely, consistent, and effective enforcement of 
the standards when non-compliance or unethical behavior is determined.
    (F) Establishment and implementation of an effective system for 
routine monitoring and identification of

[[Page 19821]]

compliance risks. The system should include internal monitoring and 
audits and, as appropriate, external audits, to evaluate the Part D 
plan sponsors, including first tier entities', compliance with CMS 
requirements and the overall effectiveness of the compliance program.
    (G) Establishment and implementation of procedures and a system for 
promptly responding to compliance issues as they are raised, 
investigating potential compliance problems as identified in the course 
of self-evaluations and audits, correcting such problems promptly and 
thoroughly to reduce the potential for recurrence, and ensure ongoing 
compliance with CMS requirements.
    (1) If the Part D sponsor discovers evidence of misconduct related 
to payment or delivery of prescription drug items or services under the 
contract, it must conduct a timely, reasonable inquiry into that 
conduct;
    (2) The Part D sponsor must conduct appropriate corrective actions 
(for example, repayment of overpayments and disciplinary actions 
against responsible individuals) in response to the potential violation 
referenced above.
    (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.
* * * * *
    (6) Not have terminated a contract by mutual consent under which, 
as a condition of the consent, the Part D plan sponsor agreed that it 
was not eligible to apply for new contracts or service area expansions 
for a period up to 2 years per Sec.  423.508(e) of this subpart.
* * * * *

0
79. Section 423.505 is amended by--
0
A. Redesignating paragraph (e)(1)(ii) and (e)(1)(iii) as paragraph 
(e)(1)(iii) and (e)(1)(iv), respectively.
0
B. Adding a new paragraph (e)(1)(ii).
0
C. Revising newly redesignated paragraph (e)(1)(iii).
0
D. Revising paragraph (f)(3) introductory text.
0
E. Revising paragraphs (i)(2)(i) and (m)(1)(iii)(C).
0
F. Add a new paragraph (n).
    The additions and revisions read as follows:


Sec.  423.505  Contract provisions.

* * * * *
    (e) * * *
    (1) * * *
    (ii) Compliance with CMS requirements for maintaining the privacy 
and security of protected health information and other personally 
identifiable information of Medicare enrollees;
    (iii) The facilities of the Part D sponsor to include computer and 
other electronic systems; and
* * * * *
    (f) * * *
    (3) All data elements included in all its drug claims for purposes 
deemed necessary and appropriate by the Secretary, including, but not 
limited to the following:
* * * * *
    (i) * * *
    (2) * * *
    (i) HHS, the Comptroller General, or their designees have the right 
to audit, evaluate, and inspect any books, contracts, computer or other 
electronic systems, including medical records and documentation of the 
first tier, downstream, and related entities related to CMS' contract 
with the Part D sponsor.
* * * * *
    (m)(1) * * *
    (iii) * * *
    (C) Plan identifier elements on the claim are encrypted or 
unavailable for release to external entities with the exception of HHS 
grantees that CMS determines meet all of the following criteria:
    (1) The plan identifier is essential to the study.
    (2) The study is key to the mission of the sponsoring agency.
    (3) The study provides significant benefit to the Medicare program.
    (4) The requestor attests that any public findings or publications 
will not identify plans.
* * * * *
    (n)(1) CMS may determine that a Part D plan sponsor is out of 
compliance with a Part D requirement when the sponsor fails to meet 
performance standards articulated in the Part D statutes, regulations, 
or guidance.
    (2) If CMS has not already articulated a measure for determining 
noncompliance, CMS may determine that a Part D sponsor is out of 
compliance when its performance in fulfilling Part D requirements 
represents an outlier relative to the performance of other Part D 
sponsors.

0
80. Section 423.507 is amended by--
0
A. Revising paragraph (a)(2)(ii)
0
B. Removing paragraph (a)(2)(iii).
0
C. Adding a new paragraph (b)(1)(iii).
0
D. Revising paragraph (b)(2)(ii).
0
E. Removing (b)(2)(iii).
0
F. Redesignating paragraph (b)(2)(iv) as (b)(2)(iii).
0
G. In newly redesignated paragraph (b)(2)(iii), removing the reference 
``paragraphs (b)(2)(ii) and (iii) of this section'' and add the 
reference ``paragraph (b)(2)(ii) of this section'' in its place.
0
H. Revising paragraph (b)(3).
    The revisions and addition read as follows:


Sec.  423.507  Nonrenewal of a contract.

    (a) * * *
    (2) * * *
    (ii) Each Medicare enrollee by mail at least 90 calendar days 
before the date on which the nonrenewal is effective. The sponsor must 
also provide information about alternative enrollment options by doing 
one or more of the following:
    (A) Provide a CMS approved written description of alternative MA 
plan and PDP options available for obtaining qualified prescription 
drug coverage within the beneficiaries' region.
    (B) Place outbound calls to all affected enrollees to ensure 
beneficiaries know who to contact to learn about their enrollment 
options.
* * * * *
    (b) * * *
    (1) * * *
    (iii) The contract must be nonrenewed as to an individual PDP if 
that plan does not have a sufficient number of enrollees to establish 
that it is a viable independent plan option.
    (2) * * *
    (ii) To each of the Part D plan sponsor's Medicare enrollees by 
mail at least 90 calendar days before the date on which the nonrenewal 
is effective, or at the conclusion of the appeals process if 
applicable.
* * * * *
    (3) Opportunity to develop and implement a corrective action plan. 
(i) Before providing a notice of intent of nonrenewal of the contract, 
CMS will provide the Part D plan sponsor with notice specifying the 
Part D sponsor's deficiencies and reasonable opportunity of at least 30 
calendar days to develop and implement a corrective action plan to 
correct the deficiencies.
    (ii) The Part D plan sponsor is solely responsible for the 
identification, development, and implementation of its corrective 
action plan and for demonstrating to CMS that the underlying 
deficiencies have been corrected within the time period specified by 
CMS in the notice requesting corrective action.
* * * * *

0
81. Section 423.508 is amended by adding a new paragraph (e) to read as 
follows:


Sec.  423.508  Modification or termination of contract by mutual 
consent.

* * * * *

[[Page 19822]]

    (e) Agreement to limit new Part D applications. As a condition of 
the consent to a mutual termination, CMS will require, as a provision 
of the termination agreement language prohibiting the Part D plan 
sponsor from applying for new contracts or service area expansions for 
a period up to 2 years, absent circumstances warranting special 
consideration.

0
82. Amend Sec.  423.509 by--
0
A. Revising paragraphs (a), paragraph (b) introductory text, and 
paragraph (b)(2)(i).
0
B. Redesignating paragraphs (b)(2)(ii) and (b)(2)(iii) as (b)(2)(iii) 
and (b)(2)(iv), respectively.
0
C. Adding a new paragraph (b)(2)(ii).
0
D. Revising paragraph (c).
    The revisions and addition read as follows:


Sec.  423.509  Termination of contract by CMS.

    (a) Termination by CMS. CMS may at any time terminate a contract if 
CMS determines that the Part D plan sponsor meets any of the following:
    (1) Has failed substantially to carry out the contract.
    (2) Is carrying out the contract in a manner that is inconsistent 
with the efficient and effective administration of this part.
    (3) No longer substantially meets the applicable conditions of this 
part.
    (4) Based on credible evidence, has committed or participated in 
false, fraudulent, or abusive activities affecting the Medicare, 
Medicaid, or other State or Federal health care programs, including 
submission of false or fraudulent data.
    (5) Substantially fails to comply with the requirements in subpart 
M of this part relating to grievances and appeals.
    (6) Fails to provide CMS with valid risk adjustment, reinsurance 
and risk corridor related data as required under Sec.  423.322 and 
Sec.  423.329 (or, for fallback entities, fails to provide the 
information in Sec.  423.871(f)).
    (7) Substantially fails to comply with the service access 
requirements in Sec.  423.120.
    (8) Substantially fails to comply with either of the following:
    (i) Marketing requirements in subpart V of this part.
    (ii) Information dissemination requirements of Sec.  423.128 of 
this part.
    (9) Substantially fails to comply with the coordination with plans 
and programs that provide prescription drug coverage as described in 
subpart J of this part.
    (10) Substantially fails to comply with the cost and utilization 
management, quality improvement, medication therapy management and 
fraud, abuse and waste program requirements as specified in subparts D 
and K of this part.
    (11) Fails to comply with the regulatory requirements contained in 
this part.
    (12) Fails to meet CMS performance requirements in carrying out the 
regulatory requirements contained in this part.
    (b) Notice. If CMS decides to terminate a contract it gives notice 
of the termination as follows:
* * * * *
    (2) Expedited termination of contract by CMS. (i) The procedures 
specified in (b)(1) of this section do not apply if--
    (A) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the Part D plan sponsor;
    (B) The Part D plan sponsor experiences financial difficulties so 
severe that its ability to make necessary health services available is 
impaired to the point of posing an imminent and serious risk to the 
health of its enrollees, or otherwise fails to make services available 
to the extent that such a risk to health exists; or
    (C) The contract is being terminated based on the violation 
specified in paragraph (a)(4) of this section.
    (ii) CMS notifies the MA organization in writing that its contract 
will be terminated on a date specified by CMS. If a termination in 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) Opportunity to develop and implement a corrective action plan--
(1) General. (i) Before providing a notice of intent to terminate the 
contract, CMS will provide the Part D plan sponsor with notice 
specifying the Part D plan sponsor's deficiencies and a reasonable 
opportunity of at least 30 calendar days to develop and implement a 
corrective action plan to correct the deficiencies.
    (ii) The Part D plan sponsor is solely responsible for the 
identification, development, and implementation of its corrective 
action plan and for demonstrating to CMS that the underlying 
deficiencies have been corrected within the time period specified by 
CMS in the notice requesting corrective action.
    (2) Exceptions. The Part D plan sponsor will not be provided with 
an opportunity to develop and implement a corrective action plan prior 
to termination if--
    (i) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the Part D plan sponsor;
    (ii) The Part D plan sponsor experiences financial difficulties so 
severe that its ability to make necessary health services available is 
impaired to the point of posing an imminent and serious risk to the 
health of its enrollees, or otherwise fails to make services available 
to the extent that such a risk to health exists; or
    (iii) The contract is being terminated based on the violation 
specified in (a)(4) of this section.
* * * * *

0
83. Section 423.514 is amended by--
0
A. Revising the section heading.
0
B. Adding a new paragraph (g).
    The revision and addition to read as follows:


Sec.  423.514  Validation of Part D reporting requirements.

* * * * *
    (g) Data validation. Each Part D sponsor must subject information 
collected under paragraph (a) of this section to a yearly independent 
audit to determine its reliability, validity, completeness, and 
comparability in accordance with specifications developed by CMS.

Subpart L--Effect of Change of Ownership or Leasing of Facilities 
During Term of Contract

0
84. Section 423.551 is amended by adding a new paragraph (g) to read as 
follows:


Sec.  423.551  General provisions.

* * * * *
    (g) Sale of beneficiaries not permitted. (1) CMS will only 
recognize the sale or transfer of an organization's entire PDP line of 
business, consisting of all PDP contracts held by the PDP sponsor with 
the exception of the sale or transfer of a full contract between wholly 
owned subsidiaries of the same parent organization which will be 
recognized and allowed by CMS.
    (2) CMS will not recognize or allow a sale or transfer that 
consists solely of the sale or transfer of individual beneficiaries, 
groups of beneficiaries enrolled in a pharmacy benefit package, or one 
contract if the sponsor holds more than one PDP contract.

[[Page 19823]]

Subpart M--Grievances, Coverage Determinations, and Appeals

0
85. Section 423.568 is revised to read as follows:


Sec.  423.568  Standard timeframe and notice requirements for coverage 
determinations.

    (a) Method and place for filing a request. An enrollee must ask for 
a standard coverage determination by making a request with the Part D 
plan sponsor in accordance with the following:
    (1) Except as specified in paragraph (a)(2) of this section, the 
request may be made orally or in writing.
    (2) Requests for payment must be made in writing (unless the Part D 
plan sponsor has implemented a voluntary policy of accepting oral 
payment requests).
    (3) The Part D plan sponsor must establish and maintain a method of 
documenting all oral requests and retain the documentation in the case 
file.
    (b) Timeframe for requests for drug benefits. When a party makes a 
request for a drug benefit, the Part D plan sponsor must notify the 
enrollee (and the prescribing physician or other prescriber involved, 
as appropriate) of its determination as expeditiously as the enrollee's 
health condition requires, but no later than 72 hours after receipt of 
the request, or, for an exceptions request, the physician's or other 
prescriber's supporting statement.
    (c) Timeframe for requests for payment. When a party makes a 
request for payment, the Part D plan sponsor must notify the enrollee 
of its determination and make payment (when applicable) no later than 
14 calendar days after receipt of the request.
    (d) Written notice for favorable decisions by a Part D plan 
sponsor. If a Part D plan sponsor makes a completely favorable decision 
under paragraph (b) of this section, it must give the enrollee written 
notice of the determination. The initial notice may be provided orally, 
so long as a written follow-up notice is sent within 3 calendar days of 
the oral notification.
    (e) Form and content of the approval notice. The notice of any 
approval under paragraph (d) of this section must explain the 
conditions of the approval in a readable and understandable form.
    (f) Written notice for denials by a Part D plan sponsor. If a Part 
D plan sponsor decides to deny a drug benefit, in whole or in part, it 
must give the enrollee written notice of the determination.
    (g) Form and content of the denial notice. The notice of any denial 
under paragraph (f) of this section must meet the following 
requirements:
    (1) Use approved notice language in a readable and understandable 
form.
    (2) State the specific reasons for the denial.
    (i) For drug coverage denials, describe both the standard and 
expedited redetermination processes, including the enrollee's right to, 
and conditions for, obtaining an expedited redetermination and the rest 
of the appeals process.
    (ii) For payment denials, describe the standard redetermination 
process and the rest of the appeals process.
    (3) Inform the enrollee of his or her right to a redetermination.
    (4) Comply with any other notice requirements specified by CMS.
    (h) Effect of failure to meet the adjudicatory timeframes. If the 
Part D plan sponsor fails to notify the enrollee of its determination 
in the appropriate timeframe under paragraphs (b) or (c) of this 
section, the failure constitutes an adverse coverage determination, and 
the plan sponsor must forward the enrollee's request to the IRE within 
24 hours of the expiration of the adjudication timeframe.

0
86. Section 423.570 is amended by revising paragraph (d)(1) to read as 
follows:


Sec.  423.570  Expediting certain coverage determinations.

* * * * *
    (d) * * *
    (1) Make the determination within the 72-hour timeframe established 
in Sec.  423.568(b) for a standard determination. The 72-hour period 
begins on the day the Part D plan sponsor receives the request for 
expedited determination, or, for an exceptions request, the physician's 
or other prescriber's supporting statement.
* * * * *

0
87. Section 423.572 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec.  423.572  Timeframes and notice requirements for expedited 
coverage determinations.

* * * * *
    (b) Confirmation of oral notice. If the Part D plan sponsor first 
notifies an enrollee of an adverse or favorable expedited determination 
orally, it must mail written confirmation to the enrollee within 3 
calendar days of the oral notification.
    (c) Content of the notice of expedited determination. (1) If the 
determination is completely favorable to the enrollee, the notice must 
explain the conditions of the approval in a readable and understandable 
form.
    (2) If the determination is not completely favorable to the 
enrollee, the notice must--
    (i) Use approved language in a readable and understandable form;
    (ii) State the specific reasons for the denial;
    (iii) Inform the enrollee of his or her right to a redetermination;
    (iv) Describe--
    (A) Both the standard and expedited redetermination processes, 
including the enrollee's right to request an expedited redetermination;
    (B) Conditions for obtaining an expedited redetermination; and
    (C) Other aspects of the appeal process.
* * * * *

0
88. Section 423.590 is amended by--
0
A. Redesignating paragraph (d)(2) as paragraph (d)(3).
0
B. Adding a new paragraph (d)(2).
0
C. Revising the introductory text of paragraph (g).
0
D. Adding a new paragraph (h).
    The revisions and additions read as follows:


Sec.  423.590  Timeframes and responsibility for making 
redeterminations.

* * * * *
    (d) * * *
    (2) Confirmation of oral notice. If the Part D plan sponsor first 
notifies an enrollee of an adverse or favorable expedited 
redetermination orally, it must mail written confirmation to the 
enrollee within 3 calendar days of the oral notification.
* * * * *
    (g) Form and content of an adverse redetermination notice. The 
notice of any adverse determination under paragraphs (a)(2), (b)(2), 
(d)(1) or (d)(2) of this section must--
* * * * *
    (h) Form and content of a completely favorable redetermination 
notice. The notice of any completely favorable determination under 
paragraphs (a)(1), (d)(1) or (d)(2) of this section must explain the 
conditions of the approval in a readable and understandable form.

Subpart N--Medicare Contract Determinations and Appeals

0
89. Section 423.642 is amended by revising paragraph (c) to read as 
follows:


Sec.  423.642  Notice of contract determination.

* * * * *
    (c) CMS-initiated terminations--(1) General rule. Except as 
provided in (c)(2) of this section, CMS mails notice to the Part D plan 
sponsor 90 calendar days before the anticipated effective date of the 
termination.

[[Page 19824]]

    (2) Exception. If a contract is terminated in accordance with Sec.  
423.509(b)(2)(i) of this part, CMS notifies the Part D plan sponsor of 
the date that it will terminate the Part D plan sponsor's contract.
* * * * *

0
90. Section 423.650 is revised to read as follows:


Sec.  423.650  Right to a hearing, burden of proof, standard of proof, 
and standards of review.

    (a) Right to a hearing. 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 D of Title XVIII of the 
Act in accordance with Sec.  423.502 and Sec.  423.503 of this part.
    (2) A Part D sponsor whose contract has been terminated under Sec.  
423.509 of this part.
    (3) A Part D sponsor whose contract has not been renewed in 
accordance with Sec.  423.507 of this part.
    (4) A Part D sponsor who has had an intermediate sanction imposed 
in accordance with Sec.  423.752(a) and (b) of this part.
    (b) Burden of proof, standard of proof, and standard of review at 
hearing. (1) During a hearing to review a contract determination as 
described at Sec.  423.641(a) of this subpart, the applicant has the 
burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  423.502 
and Sec.  423.503 of this part.
    (2) During a hearing to review a contract determination as 
described at Sec.  423.641(b) of this part, the Part D plan sponsor has 
the burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  423.507 
of this part.
    (3) During a hearing to review a contract determination as 
described at Sec.  423.641(c) of this subpart, the Part D plan sponsor 
has the burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  423.509 
of this part.
    (4) During a hearing to review the imposition of an intermediate 
sanction as described at Sec.  423.750 of this part, the Part D sponsor 
has the burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  423.752 
of this part.
    (c) Timing of favorable decision. 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 September 
1 for the contract in question to be effective on January 1 of the 
following year.

0
91. Section 423.651 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec.  423.651  Request for hearing.

    (a) Method and place for filing a request. (1) A request for a 
hearing must be made in writing and filed by an authorized official of 
the contract applicant or Part D plan sponsor that was the party to the 
determination under the appeal.
    (2) The request for the hearing must be filed in accordance with 
the requirements specified in the notice.
    (b) Time for filing a request. A request for a hearing must be 
filed within 15 calendar days after the receipt of the notice of the 
contract determination or intermediate sanction.
* * * * *

0
92. Section 423.652 is amended by revising paragraph (b)(2) to read as 
follows:


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

* * * * *
    (b) * * *
    (2) A contract terminated in accordance with Sec.  423.509(b)(2)(i) 
of this part will be terminated on the date specified by CMS and will 
not be postponed if a hearing is requested.
* * * * *

0
93. Section 423.655 is revised to read as follows:


Sec.  423.655  Time and place of hearing.

    (a) The hearing officer--
    (1) Fixes a time and place for the hearing, which is not to exceed 
30 calendar days after the receipt of request for the hearing;
    (2) Sends written notice to the parties that informs the parties of 
the general and specific issues to be resolved, the burden of proof, 
and information about the hearing procedure.
    (b)(1) The hearing officer may, on his or her own motion, change 
the time and place of the hearing.
    (2) The hearing officer may adjourn or postpone the hearing.
    (c)(1) The Part D plan sponsor or CMS may request an extension by 
filing a written request no later than 10 calendar days prior to the 
scheduled hearing.
    (2) When either the Part D plan sponsor or CMS requests an 
extension the hearing officer will provide a one-time 15-calendar day 
extension.
    (3) Additional extensions may be granted at the discretion of the 
hearing officer.

0
94. Section 423.658 is amended by revising paragraph (d) to read as 
follows:


Sec.  423.658  Conduct of hearing.

* * * * *
    (d) The Part D sponsor bears the burden of going forward and must 
first present evidence and argument before CMS presents its evidence 
and argument.


0
95. Section 423.661 is revised to read as follows:


Sec.  423.661  Witnesses lists and documents.

    Witness lists and documents must be identified and exchanged at 
least 5 calendar days prior to the scheduled hearing.


0
96. Section 423.666 is amended by revising paragraphs (a) and (c) to 
read as follows:


Sec.  423.666  Review by the Administrator.

    (a) Request for review by Administrator. CMS or a Part D plan 
sponsor that has received a hearing decision may request a review by 
the Administrator within 15 calendar days after receipt of the hearing 
decision as provided under Sec.  423.665(b) of this subpart. Both the 
Part D plan sponsor and CMS may provide written arguments to the 
Administrator for review.
* * * * *
    (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 after receipt of 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.
* * * * *

0
97. Section 423.668 is amended by revising the section heading and the 
paragraph heading for paragraph (a) to read as follows:


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

    (a) Contract determination. * * *
* * * * *

Subpart O--Intermediate Sanctions

0
98. Section 423.750 is amended by revising paragraph (a) to read as 
follows:

[[Page 19825]]

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 deficiencies that 
are the basis for the sanction determination have been corrected and 
are not likely to recur:
    (1) Suspension of the Part D plan sponsor's enrollment of Medicare 
beneficiaries.
    (2) Suspension of payment to the Part D plan sponsor for Medicare 
beneficiaries enrolled after the date CMS notifies the organization of 
the intermediate sanction.
    (3) Suspension of all marketing activities to Medicare 
beneficiaries by a Part D plan sponsor.
* * * * *

0
99. Section 423.752 is amended by revising the paragraphs (a) 
introductory text, (a)(1), (a)(3), and (a)(4) to read as follows:


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

    (a) All intermediate sanctions. For the violations listed in this 
paragraph (a), CMS may impose one or more of the sanctions specified in 
Sec.  423.750(a) of this subpart on any Part D plan sponsor with a 
contract. The Part D plan sponsor may also be subject to other remedies 
authorized under law.
    (1) Fails substantially to provide medically necessary items and 
services that are required (under law or under the contract) to be 
provided to an individual covered under the contract, if the failure 
has adversely affected (or has the substantial likelihood of adversely 
affecting) the individual.
* * * * *
    (3) Acts to expel or refuses to re-enroll a beneficiary in 
violation of the provisions of this part.
    (4) Engages in any practice that would reasonably be expected to 
have the effect of denying or discouraging enrollment (except as 
permitted by this part) by eligible individuals with the organization 
whose medical condition or history indicates a need for substantial 
future medical services.
* * * * *

0
100. Section 423.756 is amended by--
0
A. Revising paragraph (b).
0
B. Removing paragraph (c).
0
C. Redesignating paragraphs (d) through (f) as paragraphs (c) through 
(e), respectively.
0
D. Revising the newly redesignated paragraphs (c)(1) and (c)(3).
    The revisions read as follows:


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

* * * * *
    (b) Hearing. (1) The Part D plan sponsor may request a hearing 
before a CMS hearing officer.
    (2) A written request must be received by the designated CMS office 
within 15 calendar days after the receipt of the notice.
    (3) A request for a hearing under Sec.  423.650 of this part does 
not delay the date specified by CMS when the sanction becomes 
effective.
    (4) The Part D plan sponsor must follow the right to a hearing 
procedure as specified at Sec.  423.650 through Sec.  423.662 of this 
part.
    (c) * * *
    (1) Effective date. The effective date of the sanction is the date 
specified by CMS in the notice.
* * * * *
    (3) Duration of sanction. The sanction remains in effect until CMS 
is satisfied that the deficiencies that are the basis for the sanction 
determination have been corrected and are not likely to recur.
    (i) CMS may require that the Part D plan sponsor hire an 
independent auditor to provide CMS with additional information to 
determine if the deficiencies that are the basis for the sanction 
determination have been corrected and are not likely to recur. The 
independent auditor must work in accordance with CMS specifications and 
must be willing to attest that a complete and full independent review 
has been performed.
    (ii) In instances where marketing or enrollment or both 
intermediate sanctions have been imposed, CMS may require a Part D plan 
sponsor to market or to accept enrollments or both for a limited period 
of time in order to assist CMS in making a determination as to whether 
the deficiencies that are the bases for the intermediate sanctions have 
been corrected and are not likely to recur.
    (A) If, following this time period, CMS determines the deficiencies 
have not been corrected or are likely to recur, the intermediate 
sanctions will remain in effect until such time that CMS is assured the 
deficiencies have been corrected and are not likely to recur.
    (B) The Part D plan sponsor does not have a right to a hearing 
under Sec.  423.650(a)(4) of this subpart to challenge CMS' 
determination to keep the intermediate sanctions in effect.
* * * * *

Subpart P--Premium and Cost-Sharing Subsidies for Low-Income 
Individuals

0
101. Section 423.773 by revising paragraph (c)(2) to read as follows:


Sec.  423.773  Requirements for eligibility.

* * * * *
    (c) * * *
    (2) CMS notifies an individual treated as a full-subsidy eligible 
under this paragraph (c) that he or she does not need to apply for the 
subsidies under this subpart, and, at a minimum, is deemed eligible for 
a full subsidy as follows:
    (i) For an individual deemed eligible between January 1 and June 30 
of a calendar year, the individual is deemed eligible for a full 
subsidy for the remainder of the calendar year.
    (ii) For an individual deemed eligible between July 1 and December 
31 of a calendar year, the individual is deemed eligible for the 
remainder of the calendar year and the following calendar year.
* * * * *

0
102. Section 423.800 is amended by adding a new paragraph (e) to read 
as follows:


Sec.  423.800  Administration of subsidy program.

* * * * *
    (e) Timeframe for refunds and recoveries due to retroactive 
adjustments to cost sharing. Sponsors must process retroactive 
adjustments to cost-sharing for low-income subsidy eligible individuals 
and any resulting refunds and recoveries in accordance with the 
timeframe specified in Sec.  423.466(a) of this part.

Subpart V--Part D Marketing Requirements

0
103. Section 423.2260 is amended by revising paragraph (5)(vii) of the 
definition ``marketing materials'' and adding a new paragraph (6) to 
read as follows:


Sec.  423.2260  Definitions concerning marketing materials.

* * * * *
    Marketing materials. * * *
    (5) * * *
    (vii) Membership activities (for example, materials on rules 
involving non-payment of premiums, confirmation of enrollment or 
disenrollment, or nonclaim-specific notification information).
    (6) Marketing materials exclude ad hoc enrollee communications 
materials, meaning informational materials that--
    (i) Are targeted to current enrollees;

[[Page 19826]]

    (ii) Are customized or limited to a subset of enrollees or apply to 
a specific situation;
    (iii) Do not include information about the plan's benefit 
structure; and
    (iv) Apply to a specific situation or cover member-specific claims 
processing or other operational issues.


0
104. Section 423.2262 is amended by--
0
A. Revising paragraph (a)(1)(i).
0
B. Adding new paragraphs (c) and (d) to read as follows:


Sec.  423.2262  Review and distribution of marketing materials.

    (a) * * *
    (1) * * *
    (i) At least 45 days (or 10 days if using certain types of 
marketing materials that use, without modification, proposed model 
language and format, including standardized language and formatting, as 
specified by CMS) before the date of distribution, the Part D sponsor 
submits the material or form to CMS for review under the guidelines in 
Sec.  423.2264 of this subpart; and
* * * * *
    (c) Standardized model marketing materials. When specified by CMS, 
organizations must use standardized formats and language in model 
materials.
    (d) Ad hoc enrollee communication materials. Ad hoc enrollee 
communication materials may be reviewed by CMS, which may upon review 
determine that such materials must be modified, or may not longer be 
used.

PART 480--ACQUISITION, PROTECTION, AND DISCLOSURE QUALITY 
IMPROVEMENT ORGANIZATION REVIEW INFORMATION

0
105. The authority citation for part 480 continues to read as follows:

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


0
106. Section 480.140 is amended by adding a new paragraph (g) to read 
as follows:


Sec.  480.140  Disclosure of quality review study information.

* * * * *
    (g) The QIO must disclose to CMS quality review study information 
collected as part of the Reporting Hospital Quality Data for Annual 
Payment Update program, under section 1886(b)(3)(B)(viii) of the Act 
following hospital review of the data. The quality review study 
information must include identifiers of MA plan beneficiaries, 
hospitals, practitioners, and services when CMS requests this 
information for the sole purpose of conducting activities related to MA 
organizations as described in Sec.  422.153 of this chapter.

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

    Dated: March 11, 2010.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 2, 2010.
Kathleen Sebelius,
Secretary.
[FR Doc. 2010-7966 Filed 4-6-10; 4:15 pm]
BILLING CODE 4120-01-P