Federal Register, Volume 76 Issue 73 (Friday, April 15, 2011)

[Federal Register Volume 76, Number 73 (Friday, April 15, 2011)]
[Rules and Regulations]
[Pages 21432-21577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8274]

[[Page 21431]]

Vol. 76

Friday,

No. 73

April 15, 2011

Part II

Department of Health and Human Services

-----------------------------------------------------------------------

Centers for Medicare & Medicaid Services

-----------------------------------------------------------------------

42 CFR Parts 417, 422 and 423

Medicare Program; Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs for Contract Year 2012 and Other
Changes; Final Rule

Federal Register / Vol. 76 , No. 73 / Friday, April 15, 2011 / Rules
and Regulations

[[Page 21432]]

-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, and 423

[CMS-4144-F]
RIN 0938-AQ00

Medicare Program; Changes to the Medicare Advantage and the
Medicare Prescription Drug Benefit Programs for Contract Year 2012 and
Other Changes

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule makes revisions to the Medicare Advantage (MA)
program (Part C) and Prescription Drug Benefit Program (Part D) to
implement provisions specified in the Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act of 2010
(collectively referred to as the Affordable Care Act) (ACA) and make
other changes to the regulations based on our experience in the
administration of the Part C and Part D programs. These latter
revisions clarify various program participation requirements; make
changes to strengthen beneficiary protections; strengthen our ability
to identify strong applicants for Part C and Part D program
participation and remove consistently poor performers; and make other
clarifications and technical changes.

DATES: Effective Dates: These regulations are effective on June 6,
2011, unless otherwise specified in this final rule. Amendments to 42
CFR 422.564, 422.624, and 422.626 published April 4, 2003 at 68 FR
16652 are effective June 6, 2011.
Applicability Date: In section II.A. of the preamble of this final
rule, we provide a table (Table 1) which lists key changes in this
final rule that have an applicability date other than the effective 60
days after the date of display of this final rule.

FOR FURTHER INFORMATION CONTACT:
Vanessa Duran, (410) 786-8697, Christopher McClintick, (410) 786-
4682, and Sabrina Ahmed, (410) 786-7499, General information.
Heather Rudo, (410) 786-7627 and Christopher McClintick, (410) 786-
4682, Part C issues.
Deborah Larwood, (410) 786-9500, Part D issues.
Kristy Nishimoto, (410) 786-8517, Part C and Part D enrollment and
appeals issues.
Deondra Moseley, (410) 786-4577, Part C payment issues.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Provisions of the Final Regulations and Analysis of and
Responses to Public Comments
A. Overview of the Final Changes and Public Comments Received
1. Overview of the Final Changes
2. Public Comments Received on the Proposed Rule
B. Changes to Implement the Provisions of the Affordable Care
Act
1. Cost Sharing for Specified Services at Original Medicare
Levels (Sec. 417.454 and Sec. 422.100)
2. Simplification of Beneficiary Election Periods (Sec. 422.62,
Sec. 422.68, Sec. 423.38, and Sec. 423.40)
3. Special Needs Plan (SNP) Provisions (Sec. 422.2, Sec.
422.4, Sec. 422.101, Sec. 422.107, and Sec. 422.152)
a. Adding a Definition of Fully Integrated Dual Eligible SNP
(Sec. 422.2)
b. Extending SNP Authority
c. Dual-Eligible SNP Contracts With State Medicaid Agencies
(Sec. 422.107)
d. Approval of Special Needs Plans by the National Committee for
Quality Assurance (Sec. Sec. 422.4, 422.101, and 422.152)
4. Section 1876 Cost Contractor Competition Requirements (Sec.
417.402)
5. Making Senior Housing Facility Demonstration Plans Permanent
(Sec. 422.2 and Sec. 422.53)
6. Authority to Deny Bids (Sec. 422.254, Sec. 422.256, Sec.
423.265, and Sec. 423.272)
7. Determination of Part D Low-Income Benchmark Premium (Sec.
423.780)
8. Voluntary De Minimis Policy for Subsidy Eligible Individuals
(Sec. 423.34 and Sec. 423.780)
a. Reassigning LIS Individuals (Sec. 423.34)
b. Enrollment of LIS-Eligible Individuals (Sec. 423.34)
c. Premium Subsidy (Sec. 423.780)
9. Increase In Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D-IRMAA) (Sec. 423.44, Sec. 423.286, and Sec.
423.293)
a. Rules Regarding Premiums (Sec. 423.286)
b. Collection of Monthly Beneficiary Premium (Sec. 423.293)
c. Involuntary Disenrollment by CMS (Sec. 423.44)
10. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
11. Appropriate Dispensing of Prescription Drugs in Long-Term
Care Facilities Under PDPs and MA-PD Plans (Sec. 423.154)
12. Complaint System for Medicare Advantage Organizations and
PDPs (Sec. 422.504 and Sec. 423.505)
13. Uniform Exceptions and Appeals Process for Prescription Drug
Plans and MA-PD Plans (Sec. 423.128 and Sec. 423.562)
14. Including Costs Incurred by AIDS Drug Assistance Programs
and the Indian Health Service Toward the Annual Part D Out-of-Pocket
Threshold (Sec. 423.100 and Sec. 423.464)
15. Cost Sharing for Medicare-Covered Preventive Services (Sec.
417.454 and Sec. 422.100)
16. Elimination of the Stabilization Fund (Sec. 422.458)
17. Improvements to Medication Therapy Management Programs
(Sec. 423.153)
18. Changes to Close the Part D Coverage Gap (Sec. 423.104 and
Sec. 423.884)
19. Payments to Medicare Advantage Organizations (Sec. 422.308)
a. Authority to Apply Frailty Adjustment Under PACE Payment
Rules for Certain Specialized MA Plans for Special Needs Individuals
(Sec. 422.308)
b. Application of Coding Adjustment (Sec. 422.308)
c. Improvements to Risk Adjustment for Special Needs Individuals
With Chronic Health Conditions (Sec. 422.308)
20. Medicare Advantage Benchmark, Quality Bonus Payments, and
Rebate (Sec. 422.252, Sec. 422.258, and Sec. 422.266)
a. Terminology (Sec. 422.252)
b. Calculation of Benchmarks (Sec. 422.258)
c. Increases to the Applicable Percentage for Quality (Sec.
422.258(d))
d. Beneficiary Rebates (Sec. 422.266)
21. Quality Bonus Payment and Rebate Retention Appeals (Sec.
422.260)
C. Clarify Various Program Participation Requirements
1. Clarify Payment Rules for Non-Contract Providers (Sec.
422.214)
2. Pharmacist Definition (Sec. 423.4)
3. Prohibition on Part C and Part D Program Participation by
Organizations Whose Owners, Directors, or Management Employees
Served in a Similar Capacity With Another Organization That
Terminated its Medicare Contract Within the Previous 2 Years (Sec.
422.506, Sec. 422.508, Sec. 422.512, Sec. 423.507, Sec. 423.508,
and Sec. 423.510)
4. Timely Transfer of Data and Files When CMS Terminates a
Contract With a Part D Sponsor (Sec. 423.509)
5. Review of Medical Necessity Decisions by a Physician or Other
Health Care Professional and the Employment of a Medical Director
(Sec. 422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
6. Compliance Officer Training (Sec. 422.503 and Sec. 423.504)
7. Removing Quality Improvement Projects and Chronic Care
Improvement Programs from CMS Deeming Process (Sec. 422.156)
8. Definitions of Employment-Based Retiree Health Coverage and
Group Health Plan for MA Employer/Union-Only Group Waiver Plans
(Sec. 422.106)
D. Strengthening Beneficiary Protections
1. Agent and Broker Training Requirements (Sec. 422.2274 and
Sec. 423.2274)
a. CMS-Approved or Endorsed Agent and Broker Training and
Testing (Sec. 422.2274 and Sec. 423.2274)
b. Extending Annual Training Requirements to All Agents and
Brokers (Sec. 422.2274 and Sec. 423.2274)
2. Call Center and Internet Web site Requirements (Sec. 422.111
and Sec. 423.128)
a. Extension of Customer Call Center and Internet Web site
Requirements to MA Organizations (Sec. 422.111)
b. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)

[[Page 21433]]

3. Require Plan Sponsors to Contact Beneficiaries to Explain
Enrollment by an Unqualified Agent/Broker (Sec. 422.2272 and Sec.
423.2272)
4. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
5. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
6. Prohibition on Use of Tiered Cost Sharing by MA Organizations
(Sec. 422.262)
7. Delivery of Adverse Coverage Determinations (Sec. 423.568)
8. Extension of Grace Period for Good Cause and Reinstatement
(Sec. 422.74 and Sec. 423.44)
9. Translated Marketing Materials (Sec. 422.2264 and Sec.
423.2264)
E. Strengthening Our Ability to Distinguish for Approval
Stronger Applicants for Part C and Part D Program Participation and
to Remove Consistently Poor Performers
1. Expand Network Adequacy Requirements to All MA Plan Types
(Sec. 422.112)
2. Maintaining a Fiscally Sound Operation (Sec. 422.2, Sec.
422.504, Sec. 423.4, and Sec. 423.505)
3. Release of Part C and Part D Payment Data (Sec. 422.504,
Sec. 423.505, and Sec. 423.884)
4. Required Use of Electronic Transaction Standards for Multi-
Ingredient Drug Compounds; Payment for Multi-Ingredient Drug
Compounds (Sec. 423.120)
5. Denial of Applications Submitted by Part C and Part D
Sponsors With Less Than 14 Months Experience Operating Their
Medicare Contracts (Sec. 422.502 and Sec. 423.503)
F. Other Clarifications and Technical Changes
1. Clarification of the Expiration of the Authority To Waive the
State Licensure Requirement for Provider-Sponsored Organizations
(Sec. 422.4)
2. Cost Plan Enrollment Mechanisms (Sec. 417.430)
3. Fast-track Appeals of Service Terminations to Independent
Review Entities (IREs) (Sec. 422.626)
4. Part D Transition Requirements (Sec. 423.120)
5. Revision to Limitation on Charges to Enrollees for Emergency
Department Services (Sec. 422.113)
6. Clarify Language Related to Submission of a Valid Application
(Sec. 422.502 and Sec. 423.503)
7. Modifying the Definition of Dispensing Fees (Sec. 423.100)
III. Collection of Information Requirements
A. ICRs Regarding Cost Sharing for Specified Services at
Original Medicare Levels (Sec. 417.454 and Sec. 422.100)
B. ICRs Regarding SNP Provisions (Sec. 422.101, Sec. 422.107,
and Sec. 422.152)
1. Dual-Eligible SNP Contracts with State Medicaid Agencies
(Sec. 422.107)
2. ICRs Regarding NCQA Approval of SNPs (Sec. 422.101 and Sec.
422.152)
C. ICRs Regarding Voluntary De Minimis Policy for Subsidy
Eligible Individuals (Sec. 423.34 and Sec. 423.780)
D. ICRs Regarding Increase In Part D Premiums Due to the Income
Related Monthly Adjustment Amount (D-IRMAA) (Sec. 423.44)
E. ICRs Regarding Elimination of Medicare Part D Cost-Sharing
for Individuals Receiving Home and Community-Based Services (Sec.
423.772 and Sec. 423.782)
F. ICRs Regarding Appropriate Dispensing of Prescription Drugs
in Long-Term Care Facilities Under PDPs and MA-PD plans (Sec.
423.154) and Dispensing Fees (Sec. 423.100)
G. ICRs Regarding Complaint System for Medicare Advantage
Organizations and PDPs (Sec. 422.504 and Sec. 423.505)
H. ICRs Regarding Uniform Exceptions and Appeals Process for
Prescription Drug Plans and MA-PD Plans (Sec. 423.128 and Sec.
423.562)
I. ICRs Regarding Including Costs Incurred by AIDS Drug
Assistance Programs and the Indian Health Service Toward the Annual
Part D Out-of-Pocket Threshold (Sec. 423.100 and Sec. 423.464)
J. ICRs Regarding Improvements to Medication Therapy Management
Programs (Sec. 423.153)
K. ICRs Regarding Changes to Close the Part D Coverage Gap
(Sec. 423.104 and Sec. 423.884)
L. ICRs Regarding Medicare Advantage Benchmark, Quality Bonus
Payments, and Rebate (Sec. 422.252, Sec. 422.258 and Sec.
422.266)
M. ICRs Regarding Quality Bonus Appeals (Sec. 422.260)
N. ICRs Regarding Timely Transfer of Data and Files When CMS
Terminates a Contract With a Part D Sponsor (Sec. 423.509)
O. ICRs Regarding Agent and Broker Training Requirements (Sec.
422.2274 and Sec. 423.2274)
P. ICRs Regarding Call Center and Internet Web site Requirements
(Sec. 422.111 and Sec. 423.128)
Q. ICRs Regarding Requiring Plan Sponsors to Contact
Beneficiaries to Explain Enrollment by an Unqualified Agent/Broker
(Sec. 422.2272 and Sec. 423.2272)
R. ICRs Regarding Customized Enrollee Data (Sec. 422.111 and
Sec. 423.128)
S. ICRs Regarding Extending the Mandatory Maximum Out-of-Pocket
(MOOP) Amount Requirements to Regional PPOs (Sec. 422.100(f) and
Sec. 422.101(d))
T. ICRs Regarding Prohibition on Use of Tiered Cost Sharing by
MA Organizations (Sec. 422.100 and Sec. 422.262)
U. ICRs Regarding Translated Marketing Materials (Sec. 422.2264
and Sec. 423.2264)
V. ICRs Regarding Expanding Network Adequacy Requirements to
Additional MA Plan Types (Sec. 422.112)
W. ICRs Regarding Maintaining a Fiscally Sound Operation (Sec.
422.2, Sec. 422.504, Sec. 423.4, and Sec. 423.505)
X. ICRs Regarding Release of Part C and Part D Payment Data
(Parts 422 and 423, Subpart K)
Y. ICRs Regarding Revision to Limitation on Charges to Enrollees
for Emergency Department Services (Sec. 422.113)
IV. Regulatory Impact Analysis

Regulations Text

Acronyms

ACA The Affordable Care Act of 2010 (which is the collective term
for the Patient Protection and Affordable Care Act (Pub. L. 111-148)
and the Health Care and Education Reconciliation Act (Pub. L. 111-
152))
AO Accrediting Organization
ADS Automatic 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
ANOC Annual Notice of Change
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
CHIP Children's Health Insurance Programs
CMP Civil Money Penalties or Competitive Medical Plan
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)
DUM Drug Utilization Management
EGWP Employer Group/Union-Sponsored Waiver Plan
EOB Explanation of Benefits
EOC Evidence of Coverage
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 Government Accountability 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

[[Page 21434]]

ICD-9-CM Internal Classification of Disease, 9th, Clinical
Modification Guidelines
ICEP Initial Coverage Enrollment Period
ICL Initial Coverage Limit
ICR Information Collection Requirement
IRMAA Income-Related Monthly Adjustment Amount
IVC Initial Validation Contractor
LEP Late Enrollment Penalty
LIS Low Income Subsidy
LTC Long Term Care
MA Medicare Advantage
MAAA Member of the American Academy of Actuaries
MA-PD Medicare Advantage--Prescription Drug Plans
M+C Medicare +Choice program
MOC Medicare Options Compare
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 Program
NAIC National Association Insurance Commissioners
NCPDP National Council for Prescription Drug Programs
NCQA National Committee for Quality Assurance
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
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
SEP Special Enrollment Periods
SHIP State Health Insurance Assistance Programs
SNF Skilled Nursing Facility
SNP Special Needs Plan
SPAP State Pharmaceutical Assistance Programs
SSA Social Security Administration
SSI Supplemental Security Income
TMR Targeted Medication Review
TrOOP True Out-Of-Pocket
U&C Usual and Customary
USP U.S. Pharmacopoeia

I. Background

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 established the current MA
program (known as Medicare+Choice under the BBA). The Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
(Pub. L. 108-173) established the Part D program and made significant
revisions to Part C provisions governing the Medicare Advantage (MA)
program. The MMA directed that important aspects of the Part D program
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 implementing the MMA for the MA and Part D
prescription drug programs appeared in the Federal Register on January
28, 2005 (70 FR 4588 through 4741 and 70 FR 4194 through 4585,
respectively).
As we have gained experience with the MA program and the
prescription drug benefit program, we periodically have revised the
Part C and Part D regulations to continue to improve or clarify
existing policies and/or codify current guidance for both programs. 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
Medicare 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 affecting both the Medicare Part C and Part D
programs, and to make other policy changes and clarifications based on
experience with both programs (73 FR 54208, 73 FR 54226, and 74 FR
2881). We also clarified the MIPPA marketing provisions in a November
2008 interim final rule (73 FR 67407).
Proposed and final rules addressing additional policy
clarifications under the Part C and Part D programs appeared in the
October 22, 2009 (74 FR 54634) and April 15, 2010 Federal Register (75
FR 19678 through 19826), respectively. (These rules are hereinafter
referred to as the October 2009 proposed rule and the April 2010 final
rule, respectively.) As noted when issuing these rules, we believed
that additional programmatic and operational changes were needed in
order to further improve our oversight and management of the Part C and
Part D programs, and to further improve a beneficiary's experience
under MA or Part D plans.
Indeed, one of the primary reasons set forth in support of issuing
our April 2010 final rule was to address beneficiary concerns
associated with the annual task of selecting a Part C or Part D plan
from so many options. We noted that while it was clear that the
Medicare Part C and Part D programs have been successful in providing
additional health care options for beneficiaries, a significant number
of beneficiaries have been confused by the array of choices provided
and have found it difficult to make enrollment decisions that are best
for them. Moreover, experience had shown that organizations submitting
multiple bids under Part C and Part D had not consistently submitted
benefit designs significantly different from each other, which we
believed added to beneficiary confusion. For this reason, the April
2010 rule required that multiple plan submissions in the same area have
significant differences from each other. Other changes set forth in the
April 2010 final rule were 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.
On November 22, 2010, a proposed rule (hereinafter referred to as
the November 2010 proposed rule) appeared in the Federal Register (75
FR 224), in which we proposed to continue our process of implementing
improvements in policy consistent with those included in the April 2010
final rule, while also implementing changes to the Part C and Part D
programs made by recent legislative changes. The Patient Protection and
Affordable Care Act (Pub. L. 111-148) was enacted on March 23, 2010, as
passed by the Senate on December 24, 2009, and the House on March 21,
2010. The Health Care and Education Reconciliation Act (Pub. L. 111-
152), which was enacted on March 30, 2010, modified a number of
Medicare provisions in Pub. L. 111-148 and added several new
provisions. The Patient Protection and Affordable Care Act (Pub. L.
111-148) and the Health

[[Page 21435]]

Care and Education Reconciliation Act (Pub. L. 111-152) are
collectively referred to as the Affordable Care Act (ACA). The ACA
includes significant reforms to both the private health insurance
industry and the Medicare and Medicaid programs. Provisions in the ACA
concerning the Part C and Part D programs largely focus on beneficiary
protections, MA payments, and simplification of MA and Part D program
processes. These provisions affect the way we implement our policies
concerning beneficiary cost-sharing, assessing bids for meaningful
differences, and ensuring that cost-sharing structures in a plan are
transparent to beneficiaries and not excessive. Some of the other
provisions for which we proposed revisions to the MA and Part D
programs, based on the ACA and our experiences in administering the MA
and Part D programs, concern MA and Part D marketing, including agent/
broker training; payments to MA organizations based on quality ratings;
standards for determining if organizations are fiscally sound; low
income subsidy policy under the Part D program; payment rules for non-
contract health care providers; extending current network adequacy
standards to Medicare medical savings account (MSA) plans that employ a
network of providers; establishing limits on out-of-pocket expenses for
MA enrollees; and several revisions to the special needs plan
requirements, including changes concerning SNP approvals and deeming.
In general, the proposed rule was intended to strengthen the way we
administer the Part C and Part D programs, and to aid beneficiaries in
making the best plan choices for their health care needs.

II. Provisions of the Final Regulations and Analysis of and Responses
to Public Comments

A. Overview of the Final Changes and Public Comments Received

1. Overview of the Final Changes
In the sections that follow, we discuss the changes made in the
final rule to regulations in 42 CFR parts 417, 422, and 423 governing
the MA and prescription drug benefit programs. To better frame the
discussion of the specific regulatory provisions, we have structured
the preamble narrative by topic area rather than in subpart order.
Accordingly, we address the following five specific goals:
Implementing the provisions of the ACA.
Clarifying various program participation requirements.
Strengthening beneficiary protections.
Strengthening our ability to distinguish stronger
applicants for Part C and Part D program participation and to remove
consistently poor performers.
Implementing other clarifications and technical changes.
A number of the revisions and clarifications in this final rule
affect both the MA and prescription drug programs, and some affect
section 1876 cost contracts. Within each section, we have provided a
chart listing all subject areas containing provisions affecting the
Part C, Part D, and section 1876 cost contract programs, and the
associated regulatory citations that are being revised.
We note that these regulations are effective 60 days after the date
of display of the final rule. Table 1 lists key changes that have an
applicability date other than 60 days after the date of display of this
final rule. The applicability dates are discussed in the preamble for
each of these items.
We are implementing several changes to the regulations to reflect
provisions in the ACA which are already in effect. Table 2 lists the
key changes. While these ACA provisions became effective on the
statutory effective date, the regulations implementing these provisions
will be effective 60 days after the date of display of the final rule.
BILLING CODE 4120-01-P

[[Page 21436]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.000

[[Page 21437]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.001

[[Page 21438]]

2. Public Comments Received on the Proposed Rule
We received approximately 261 timely public comments on the
November 2010 proposed rule. These public comments addressed issues on
multiple topics. 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 comments and concerns on the
policies included in the proposed rule. We also reference comments that
were outside the scope of the proposals set forth in the proposed rule,
in the comment and response sections of this final rule.
We present a summary of the public comments and our responses to
them in the applicable subject-matter sections of this final rule.
Comment: A commenter stated that CMS revised the date for the
closing of the comment period from January 21, 2011 to January 11, 2011
and requested that CMS provide a rationale for shortening the comment
period for the proposed rule.
Response: Our proposed rule was placed on display at the Office of
the Federal Register and made available on the CMS Web site on November
10, 2010. Section 1871(b)(1) of the Act requires ``notice'' of the
proposed rule, and a period of 60 days for public comment thereon.
Because notice of the provisions of the proposed rule was provided on
November 10, 2010 the comment period closed on January 11, 2011, which
is 60 days after the date of display of the proposed rule at the Office
of the Federal Register and on the CMS Web site.

B. Changes To Implement the Provisions of the Affordable Care Act

The ACA includes significant reforms of both the private health
insurance industry and the Medicare and Medicaid programs. Provisions
in the ACA that concern the Part C and Part D programs largely focus on
beneficiary protections, MA payments, and simplification of MA and Part
D program processes. The changes based on provisions in the ACA are
detailed in Table 3.

[[Page 21439]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.002

[[Page 21440]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.003

BILLING CODE 4120-01-C
1. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.454 and Sec. 422.100)
Section 3202 of the ACA amended section 1852 of the Act to
establish new standards for MA plans' cost sharing. Specifically,
section 1852(a)(1)(B) of the Act was amended by the addition of a new
clause (iii) that limits cost sharing under MA plans so that it cannot
exceed the cost sharing imposed under Original Medicare for specific
services identified in a new clause (iv). New section 1852(a)(1)(B)(iv)
of the Act lists the three service categories for which cost sharing in
MA plans may not exceed that required in Original Medicare
(chemotherapy administration services, renal dialysis services, skilled
nursing care) and section 1852(a)(1)(B)(iv)(IV) of the Act specifies
that this limit on cost sharing also applies to such other services
that the Secretary determines appropriate, including services that the
Secretary determines require a high level of predictability and
transparency for beneficiaries. The limits on cost sharing in clause
(iii) are ``subject to'' an exception in clause (v) which provides
that, ``[i]n the case of services described in clause (iv) for which
there is no cost sharing required under Parts A and B, cost sharing may
be required for those services'' under the clause (i) standard in place
prior to the amendments made by section 3202 of the ACA. This section
requires that overall cost sharing for Medicare Part A and B services
be actuarially equivalent to that imposed under Original Medicare. As
noted in the April 2010 final rule (75 FR 19712) and clarified in our
April 16, 2010 policy guidance, the provisions of section 3202 of the
ACA apply to MA plans offered in CY 2011. To codify these provisions,
we proposed to amend Sec. 422.100 by adding new paragraph (j). In
addition, under our authority in section 1876(i)(3)(D) of the Act to
impose ``other terms and conditions'' deemed ``necessary and
appropriate,'' we proposed to add new paragraph (e) in Sec. 417.101 to
extend the requirements in section 3202 of the ACA to section 1876 cost
contracts. In this rule we explain that our proposed addition to Sec.
417.101 was technically incorrect and have corrected the regulation
citation so that our proposed addition is new paragraph (e) to Sec.
417.454 to extend the requirements in section 3202 of the ACA to
section 1876 cost contracts. We believe that this extension is
necessary in order to ensure that all Medicare beneficiaries have the
benefit of the cost sharing protections enacted in the ACA, regardless
of whether they receive their Part A and B benefits through Original
Medicare, an MA plan, or under a section 1876 cost contract.
In our April 16, 2010 guidance issued via the Health Plan
Management System (HPMS) (``Benefits Policy and Operations Guidance
Regarding Bid Submissions; Duplicative and Low

[[Page 21441]]

Enrollment Plans; Cost Sharing Standards; General Benefits Policy
Issues; and Plan Benefits Package (PBP) Reminders for Contract Year
(CY) 2011''), we included clarifying information related to
implementation of the required cost sharing for chemotherapy
administration services, renal dialysis services, and skilled nursing
care for CY 2011 and we defined chemotherapy administration services to
include chemotherapy drugs, radiation therapy services and other
related chemotherapeutic agents, as well as administration, and skilled
nursing care to mean skilled nursing facility services. We also
clarified that, since there is no cost sharing under Original Medicare
for the first 20 days of skilled nursing services, under section
1852(a)(1)(B)(v) of the Act, the new restrictions in section 3202 of
the ACA do not apply to such services during this period.
In our proposed additions to Sec. 417.454 and Sec. 422.100, we
proposed to incorporate these definitions for the two service
categories. We welcomed comments on these proposed cost sharing
standards.
We also proposed to limit cost sharing for home health services
under MA plans to that charged under Original Medicare and noted that,
although we can generally rely on our authority at
1852(a)(1)(B)(iv)(IV) of the Act to apply Original Medicare cost
sharing limits to other services that the Secretary determines
appropriate, because there is no cost sharing under Original Medicare
for home health services, as in the case of the first 20 days of
skilled nursing facility services, the exception in clause (v) of
section 1852(a)(1)(B) of the Act would apply, and the limit on cost
sharing under section 1852(a)(1)(B)(iii) of the Act would not apply.
Thus, in proposing to apply Original Medicare cost sharing amounts to
home health services or any other service with zero cost sharing, we
instead indicated that we would rely on our authority in section
1856(b)(1) of the Act to establish MA standards by regulation, and in
section 1857(e)(1) of the Act to impose additional ``terms and
conditions'' found ``necessary and appropriate'' to require that cost
sharing for these services under MA plans conform to that under
Original Medicare, meaning that no cost sharing could be imposed for
these services.
We solicited public comment on our proposal to limit cost sharing
for home health services to that charged for those services under
Original Medicare.
Comment: There were many commenters who opposed our proposal to
limit cost sharing for home health services under MA and cost plans at
Original Medicare levels. The commenters expressed concern that
limiting cost sharing for home health decreases their flexibility in
their plan design and limits the plans' tools to ensure appropriate
utilization of home health care.
MedPAC strongly opposed our proposal to limit home health cost
sharing to $0 for several reasons including: Home health is a less
well-defined benefit in Medicare and its appropriate use is more
difficult to monitor and the proposed prohibition on cost sharing for
home health is unduly restrictive. They also argued that CMS' proposal
is based on weak rationale. The comment included a statement of
MedPAC's belief that cost sharing should be one of the tools that plans
can use at their discretion as a means of ensuring appropriate
utilization. The comment informed us that MedPAC was currently
considering these kinds of issues as a part of their deliberations on
whether or not to recommend that traditional FFS Medicare should have
cost sharing for home health services, along with the level of such
cost sharing and the circumstances in which the cost sharing would
apply.
Response: We find MedPAC's concerns about our proposal, in addition
to those expressed by many other commenters to be persuasive and
believe we should not finalize, at this time, our proposal to prohibit
cost sharing for in-network home health services. MedPAC has
recommended to Congress that it should direct the Secretary to
establish a per episode copayment for home health episodes of care that
are not preceded by a hospitalization or post-acute care use. We
believe it is reasonable for us to take time to perform additional
analyses of home health service utilization by beneficiaries enrolled
in MA plans.
Comment: We received several comments that supported our proposal
to limit cost sharing for home health services at Original Medicare
levels. Those commenters believe that it will provide beneficiaries
with a benefit package that is transparent and easily predictable for
out-of-pocket expenses.
Response: We thank the commenters for their support but, as
previously discussed at length, we believe that it would be more
appropriate not to finalize our proposal. We will continue to evaluate
the effectiveness of our current policies to protect beneficiaries from
unfair or discriminatory cost sharing, confusing plan choices, and
unaffordable care before implementing any additional policy change.
Furthermore, under current policy only plans that provide extra
beneficiary protection from high cost sharing by adopting a voluntary
MOOP are permitted to charge cost sharing for home health services. We
will continue to find the most appropriate balance between protecting
beneficiaries from excessive out-of-pocket cost sharing and ensuring
the financial viability of the MA program.
Comment: One commenter stated that prohibiting cost sharing for
home health could lead to further pricing challenges and another stated
there are a number of provisions in the ACA that limit a plan's ability
to charge cost sharing for specified services and that these provisions
are being implemented at the same time that CMS is implementing payment
cuts and medical costs are continuing to increase. The commenter stated
all plans would be in jeopardy of financial insolvency if they are
prohibited from balancing costs, benefits, and payment cuts.
Response: As stated in our proposed rule, we estimated that the
cost to the Medicare program of our proposal would not be significant.
We also stated that we did not expect a significant financial impact on
the relatively few plans that charge cost sharing for home health
services. However, given our decision not to move forward with this
proposal for other reasons, this issue is moot.
Comment: We received one comment that expressed concern that our
proposed codification section 3202 of the ACA could be interpreted and
implemented in a manner so as to mandate the cost sharing obligation to
be charged, rather than permitting plans to set cost sharing levels at
or below that cost sharing limit amount.
Response: We thank the commenter for sharing this concern. We
thought we were clear in our proposal that plans would be able to set
cost sharing levels at or below those charged under Original Medicare
but will make every effort to be clear and consistent in our guidance
related to these limits.
Comment: We received two comments that requested that we add
Durable Medical Equipment (DME) to the list of service categories for
which cost sharing may not exceed the levels required under Original
Medicare.
Response: We thank the commenters for their suggestion and we will
consider proposing that addition in future rulemaking.
Comment: We received several comments that challenged CMS' decision
to allow plans to charge cost sharing during the first 20 days of
skilled nursing care. One commenter

[[Page 21442]]

stated that charging cost sharing in the first part of the SNF stay
makes sense for the plans but does not make sense for the
beneficiaries. They stated that they understand CMS' actuarial
equivalency rationale and that the law allows MA cost sharing for the
services, but believe CMS' policy is contrary to the intent of health
care reform. Another commenter stated that prohibiting cost sharing for
the first 20 days of skilled nursing care would increase transparency
for beneficiaries and could offer better opportunities for frail
beneficiaries.
Response: Prior to the ACA, we allowed plans to charge cost sharing
during the first 20 days of skilled nursing care so long as the plan's
SNF benefit satisfied the actuarial equivalence test. In subregulatory
guidance subsequent to enactment of the ACA, we clarified that because
there is not cost sharing under Original Medicare for the first 20 days
of SNF care, under section 1852(a)(1)(B)(v) of the Act, the new
restrictions in section 3202 of the ACA do not apply to such services
during this period and that we would continue our policy to allow cost
sharing during the first 20 days of SNF care. We do not believe that
enrolled beneficiaries are disadvantaged by this policy for at least
two reasons. First, plans' cost sharing for SNF care is transparent to
beneficiaries as it is reflected in the Summary of Benefits and the
Medicare Plan Finder and second, because of the beneficiary protections
from unexpected, unmanageable out-of-pocket costs that Medicare
requires all MA plans to provide.
CMS limits the cost sharing that may be charged for SNF care so
that it does not exceed what the beneficiary would pay under Original
Medicare, including the minimal cost sharing we allow during the first
20 days in a covered SNF stay. We believe that minimal cost sharing is
more than offset by other savings and protections offered under plans'
benefit packages. One very important protection that all plans are
required to offer is the maximum out-of-pocket (MOOP) limit on enrolled
beneficiaries' out-of-pocket costs for covered in-network services. The
maximum amount an enrolled beneficiary can be required to pay for those
services is $6,700. In addition, most plans that charge cost sharing in
the first 20 days of SNF care, waive the Original Medicare requirement
for a 3-day qualifying inpatient hospital stay which saves
beneficiaries enrolled in those plans from having to pay the costs for
an inpatient stay.
Comment: One commenter requested that CMS establish an employer
group waiver excepting MA plans offered through employer/union group
health plans from the proposed cost sharing standards.
Response: We thank the commenter for this suggestion but we believe
that employer group plans must be subject to the same cost sharing as
other MA plans in order to provide the beneficiaries enrolled in those
plans the same protections as beneficiaries enrolled in other MA and
cost plans.
Comment: Several commenters supported our proposed codification of
section 3202 of the ACA to limit cost sharing for chemotherapy
administration services, renal dialysis services, skilled nursing care,
and such other services as the Secretary determines appropriate to
levels not to exceed that charged under Original Medicare and stated
that it was welcome news for beneficiaries. One commenter specifically
expressed support for the extension of the cost sharing limits to
section 1876 cost contracts. Some of the commenters also requested that
CMS provide greater clarity that the limits on cost sharing apply only
to in-network services.
Response: We thank the commenters for their support and in response
to the these comments we will revise our proposed regulation text to
clarify in Sec. 422.100 that the cost sharing charged for chemotherapy
administration services, renal dialysis services and skilled nursing
care provided in-network may not exceed the amount of cost sharing
required for those services under Original Medicare. Thus, in part, the
final regulation text will be revised to read: ``On an annual basis,
CMS would evaluate whether there are service categories for which MA
plans' in-network cost sharing may not exceed that required under
Original Medicare and specify in regulation which services are subject
to that cost sharing limit.''
Comment: A few commenters objected to our codification in the
proposed rule of our proposal to extend the cost sharing limits of
section 3202 of the ACA to section 1876 cost plans because we proposed
to set forth this requirement in a new paragraph (g) to Sec. 417.101,
which otherwise does not govern cost plans. The commenters suggested
that we instead add a new paragraph to Sec. 417.454, Charges to
Medicare enrollees. One commenter also recommended that we change our
reference to ``MA plans'' in the proposed regulation language to
``HMO'' or ``CMP'' to be consistent with the standard terminology used
in the regulations to refer to the section 1876 contracting entity.
Response: We thank the commenters for their suggestions.
Accordingly, in this final rule, we will not include the cost-sharing
requirements in Sec. 417.101, but will instead add new paragraph (e)
to Sec. 417.454 to require cost sharing charged by section 1876 cost
plans for chemotherapy, renal dialysis and skilled nursing care to be
limited to that charged under Original Medicare. We also will remove
reference to ``MA plans'' in the new regulatory text language and
replace it with ``HMO or CMP.''
We have considered all of the comments on this proposal and will
finalize, as revised, the addition of a new paragraph and (j) to Sec.
422.100 to implement section 3202 of the ACA requiring that MA plans'
in-network cost sharing charges for chemotherapy, SNF care and dialysis
will be no greater than that charged under Original Medicare, and a new
paragraph (e) to Sec. 417.454 to extend these protections to section
1876 cost contracts. However, we will not finalize our proposal to add
new paragraph (4) to Sec. 417.454(e) or new paragraph (4) to Sec.
422.100(j) to prohibit plans from charging cost sharing for home health
services.
2. Simplification of Beneficiary Election Periods (Sec. 422.62, Sec.
422.68, Sec. 423.38, and Sec. 423.40)
Section 3204 of the ACA modified section 1851(e)(3)(B) of the Act
such that, beginning with plan year 2012, the annual coordinated
election period (AEP) under Parts C and D will be held from October 15
to December 7. We proposed to amend 0Sec. 422.62(a)(2) and Sec.
423.38(b) to codify this change.
Section 3204 of the ACA also revised section 1851(e)(2)(C) of the
Act to establish, beginning in 2011, a 45-day period at the beginning
of the year (January 1 through February 14) that allows beneficiaries
enrolled in MA plans the opportunity to disenroll and join Original
Medicare, with the option to enroll in a Medicare prescription drug
plan. This 45-day period, also referred to as the Medicare Advantage
Disenrollment Period (MADP), replaces the open enrollment period (OEP)
that previously occurred annually from January 1st through March 31st.
To codify this provision, we proposed the following changes:
Sec. 422.62(a) was amended to provide for this new
disenrollment opportunity and clarify that the OEP ended after 2010;
Sec. 422.68(f) was amended to specify the effective date
for disenrollment

[[Page 21443]]

requests submitted during the new 45-day disenrollment period;
Sec. 423.38(d) was amended to allow individuals who
disenrolled from an MA plan between January 1 through February 14th to
enroll in a standalone PDP; and
Sec. 423.40(d) was amended to specify the enrollment
effective dates for individuals who enroll in a standalone Medicare
prescription drug plan after disenrolling from MA during the 45-day
period.
Comment: Commenters requested that CMS conduct beneficiary
education on the new AEP timeframe.
Response: We are strongly committed to using all available means
for ensuring that beneficiaries are made aware of the new AEP
timeframes. Thus, we expect to conduct specific outreach and education
on this topic and highlight the change in Medicare & You 2012 which
will be mailed to all beneficiaries.
Comment: Commenters recommended that CMS adjust the timing of plan
bids and make other important information, such as model notices,
available earlier for plan preparation of the AEP. In addition,
commenters requested that plan marketing be allowed to start earlier
than October 1 for the AEP.
Response: We are considering the timing of our processes and will
be making appropriate adjustments as we prepare for a successful
implementation of the new AEP timeframe, but we do not plan to change
the bid submission or plan marketing dates. The plan bid submission
date is set by statute and remains the first week in June, leaving only
a narrow timeframe for review and approval of bids and benefits and to
ensure that marketing materials align with approved benefits. Accurate
marketing materials are key to enabling beneficiaries to make
appropriate determinations regarding their health care and prescription
drug coverage. Also, we do not believe it is appropriate or necessary
to allow plans to market earlier than October 1 given that a
beneficiary may not enroll in a plan until October 15th.
Comment: Commenters recommended that CMS create an open enrollment
period that would allow beneficiaries to enroll in Medigap products
without regard to health status or pre-existing conditions. Another
commenter recommended that CMS clarify that beneficiaries who disenroll
from an MA plan using the 45-day disenrollment period do not have
guaranteed issue rights to prevent underwriting the plan premium if
they choose to purchase a Medigap policy.
Response: Section 1882 of the Act does not provide for a Federal
annual open enrollment period for Medigap. Further the commenter is
correct that using the MADP does not give the beneficiary guaranteed
issue rights under Federal law to prevent health-based underwriting of
the Medigap policy premium. In some cases, State Medigap laws may offer
additional guaranteed issue rights to beneficiaries who are affected by
the MADP.
Comment: Some commenters recommended that CMS establish a special
election period (SEP) for the first year of the new AEP timeframe to
allow individuals to make plan elections through December 31.
Additionally, one commenter suggesting allowing plan sponsors to accept
and process enrollment requests received from December 8 through
December 31.
Response: Again, we will take a number of steps to ensure that
beneficiaries are made aware of the new AEP timeframes, and that they
have the tools they need to make informed decisions during the new AEP
timeframe. We believe that through planned outreach and education
efforts directly to beneficiaries and with stakeholders and plans,
beneficiaries will have sufficient notification to make their health
plan elections by December 7. We believe that the establishment of the
suggested SEP would directly conflict with the clear intent of the
statute.
Comment: A commenter recommended that individuals using the
opportunity afforded by the MADP be allowed to enroll in an MA plan
offered by the same parent organization instead of defaulting to
Original Medicare. Another commenter recommended CMS find a less
expensive alternative to the MADP such as reinstating the open
enrollment period or eliminating lock-in.
Response: Again, the new 45-day disenrollment period, as
established in the ACA, is clearly designed to permit only moves from
MA to Original Medicare. Eliminating or broadening the scope of this
election period would contradict the intent of the statute. Similarly,
``lock-in'' is mandated by the statute and cannot be eliminated by CMS.
Comment: A commenter addressed CMS' plans to establish an SEP to
allow beneficiaries in an MA plan with less than five stars to enroll
in a plan with five stars outside of the normal enrollment periods. The
commenter recommended that, in regions where there are no plans with
five stars, individuals be allowed to enroll in plans with 4.5 stars
outside of the normal enrollment periods.
Response: We appreciate the suggestion; however the SEP for
individuals to enroll in 5-star plans is outside the scope of this
regulation. We will consider this suggestion as we finalize guidance
concerning the scope of the SEP associated with Plan Ratings later this
year. We appreciate the comments that were submitted and will be
finalizing these proposals without modification.
3. Special Needs Plan (SNP) Provisions (Sec. 422.2, Sec. 422.4, Sec.
422.101, Sec. 422.107, and Sec. 422.152)
In our proposed rule, we defined a fully integrated dual eligible
special needs plan (SNP) as specified by the ACA, and set forth
proposed regulations implementing changes made by the ACA. These
changes would extend the authority to offer SNPs, extend provisions
permitting existing D-SNPs that are not expanding their service areas
to continue operating without contracts with State Medicaid agencies
through 2012, and establish a required NCQA quality approval process
for SNPs.
a. Adding a Definition of Fully Integrated Dual Eligible SNP (Sec.
422.2)
Section 3205 of the ACA revised section 1853(a)(1)(B) of the Act to
provide authority to apply a frailty payment under PACE payment rules
for certain individuals enrolled in fully integrated dual eligible
special needs plans described in section 3205(b) of the ACA. In order
to implement this provision, we proposed a definition of fully
integrated dual eligible special needs plan to Sec. 422.2 that will
apply for these purposes. Under our proposed definition, the D-SNP must
meet the following criteria in order to be considered a fully
integrated dual eligible special needs plan:
Enroll special needs individuals entitled to medical
assistance under a Medicaid State plan, as defined in section
1859(b)(6)(B)(ii) of the Act and Sec. 422.2.
Provide dual eligible beneficiaries access to Medicare and
Medicaid benefits under a single managed care organization (MCO).
Have a capitated contract with a State Medicaid agency
that includes coverage of specified primary, acute and long-term care
benefits and services, consistent with State policy.
Coordinate the delivery of covered Medicare and Medicaid
health and long-term care services, using aligned care management and
specialty care network methods for high-risk beneficiaries.

[[Page 21444]]

Employ policies and procedures approved by CMS and the
State to coordinate or integrate member materials, including
enrollment, communications, grievance and appeals, and quality
assurance.
In this final rule, we adopt our proposed definition of a fully
integrated dual eligible special needs plan with some modification. For
reasons discussed below, we have in this final rule revised the
definition by removing the word ``including'' and have replaced the
word ``assurance'' with ``improvement.''
Comment: The majority of commenters supported our proposed
definition of a fully integrated dual eligible special needs plan.
However, three commenters raised concerns about two potential
ambiguities in the part of the proposed definition which requires that
a fully integrated dual eligible special needs plan ``[e]mploy policies
and procedures approved by CMS and the State to coordinate or integrate
member materials, including enrollment, communications, grievance and
appeals, and quality assurance.'' Specifically, these commenters
recommended that we eliminate the word ``including'' after member
materials, because the functions that follow the word ``including'' in
the proposed definition are not all related to member materials.
Further, these same commenters suggested that we use the terms
``performance measurement'' in place of ``quality assurance'' in the
proposed definition, because, as suggested by the commenters, the term
``performance measurement'' is more consistent with current regulatory
language.
Response: We appreciate the commenters' support for the definition
we proposed for a fully integrated dual eligible special needs plan. We
agree with the commenters that, as written, the final prong of the
proposed definition is not sufficiently clear about what policies and
procedures must be approved by CMS and the State to ensure integration
and coordination. Accordingly, in response to these comments, we have
revised this part of the proposed definition in Sec. 422.2 of the MA
program regulations by eliminating the word ``including'' after member
materials because, as the commenters suggest, the functions that follow
the word ``including'' are not all related to member materials. We
believe this word deletion makes this prong of the definition more
clear, and also more accurately reflects our intention that a fully
integrated dual eligible special needs plan coordinate or integrate
Medicaid and Medicare member materials, enrollment, communications,
grievance and appeals, and quality improvement. In addition, we revised
this part of the proposed definition by substituting the terms
``quality improvement'' for ``quality assurance'' (or ``performance
measurement'' as suggested by three commenters). ``Quality
improvement'' is most consistent with existing MA terminology. We
believe the term ``performance measurement'' does not sufficiently
specify our intention to ensure that this portion of the definition
requires coordinated or integrated policies regarding quality. Further,
the use of the term ``quality improvement'' intentionally demonstrates
our intention that a fully integrated dual eligible special needs plan
integrate or coordinate the full spectrum of programs and tools
utilized to ensure quality.
Comment: Several commenters suggested that we broadly or flexibly
interpret the definition of a fully integrated dual eligible special
needs plan to allow for the broad variety of dual eligible special
needs plan contracting arrangements in place in different States.
Additionally, one commenter that submitted a comment with this
suggestion also requested that under the third prong of the definition,
we allow for some combination of specified primary, acute and long-term
care benefits and services because States need flexibility to design
the details of their programs in response to their stakeholders' needs
and concerns. In contrast, another commenter urged us to use caution
when approving plans as fully integrated dual eligible special needs
plans, and recommended that we specify that any fully integrated dual
eligible special needs plan purporting to offer long-term supports and
services must offer the full range available in a given State.
Response: We believe that there is a great deal of flexibility in
our proposed definition of a fully integrated dual eligible special
needs plan, as written in the proposed rule and this final rule, to
account for the variability in State integration efforts. For example,
the terms ``consistent with State policy'' in the definition recognizes
the variability in the degree and extent to which Medicaid services are
covered from one State to the next. Additionally, as highlighted by
another commenter, use of the word ``specified'' in the definition
(``coverage of specified primary, acute, and long term care benefits
and services, consistent with State policy'') also acknowledges that
States vary in the degree to which Medicaid services are covered by the
State by only requiring the plan to cover those services specified by
the State Medicaid Agency. Moreover, fully integrated dual eligible
special needs plans and States have the flexibility to choose to
contract to serve certain subsets of the sState's overall dual eligible
population, provided that the MIPPA compliant State contract between
the State and the fully integrated dual eligible special needs plan
supports this arrangement. Therefore, in order to meet this definition
a plan will be required to provide all covered Medicaid primary, acute
and long-term care services and benefits to beneficiaries, and not some
combination thereof.
Comment: One commenter recommended that we include in the
definition of a fully integrated dual eligible special needs plan the
reference to PACE frailty levels from the statutory definition of a
fully integrated dual eligible special needs plan found in section 3205
of the ACA. This commenter suggested that this reference to PACE
frailty levels should be included in the definition of a fully
integrated dual eligible special needs plan, as well as where it now
appears in Sec. 422.308.
Response: While section 3205 of the ACA provides us with the
authority to apply a frailty adjustment payment to a fully integrated
dual eligible special needs plan with a similar average level of
frailty as the PACE program, the statute does not limit our ability to
use the definition of a fully integrated dual eligible special needs
plan for only this purpose. Therefore, we will not include this
requested reference in the final definition so we are able use this
definition for other purposes in the future.
Comment: One commenter asked us to clarify what is meant by
``aligned care management and specialty care network methods for high-
risk beneficiaries,'' and also provided brief recommendations on how to
implement this requirement. Further, the commenter recommended that any
clarification on the ``aligned care management'' requirement specify
that a fully integrated dual eligible special needs plan is responsible
for managing care that is covered by Medicare or Medicaid in such a way
that the individual beneficiary gets full access to all services
covered by both programs.
Response: Section 164(d) of the Medicare Improvement for Patients
and Providers Act of 2008 (MIPPA) requires that special needs plans
``have in place an evidenced-based model of care with appropriate
networks of providers and specialists * * * and use[s] an
interdisciplinary team in the

[[Page 21445]]

management of care.'' The terms ``aligned care management and specialty
care network methods for high-risk beneficiaries'' derive from this
requirement in MIPPA. In the September 18, 2008 Federal Register, we
issued an interim final rule with comment on this MIPPA provision. We
have received several comments on this provision and will finalize the
provision later this year. As such, the final rule will provide
additional clarification on what is required to ``coordinates the
delivery of covered Medicare and Medicaid health and long-term care
services, using aligned care management and specialty care network
methods for high-risk beneficiaries'' as required by the definition for
a fully integrated dual eligible special needs plan.
Comment: One commenter asked us to clarify the requirement that a
plan designated as a fully integrated dual eligible special needs plan
must provide notices specific to the dual-eligible population it is
serving as opposed to generic notices designed for non-dual
beneficiaries that do not correctly identify their rights and
obligations.
Response: We appreciate this concern and currently require certain
communications be developed specific to a beneficiary's eligibility.
For example, we have created an Annual Notice of Change/Evidence of
Coverage standard template specifically for dual eligible special needs
plans for use starting with contract year 2012. The template was
developed through several rounds of consumer testing and listening
sessions with SNP representatives and consumer advocates. Other CMS
models may be customized to meet the needs of dual eligible members.
Furthermore, fully integrated and dual eligible special needs plans are
required to coordinate and integrate member materials to contain
information specific to both the Medicare and Medicaid benefits. We are
committed to ensuring beneficiaries receive appropriate and helpful
marketing materials and will continue to explore opportunities to
improve beneficiary experience in this regard.
Comment: One commenter recommends that we approve and allow both
fully integrated dual eligible special needs plans and non-fully
integrated dual eligible special needs plans to operate so that a
larger population of duals may be served by these plans.
Response: We agree with this commenter's recommendation. We will
continue to approve and allow both fully integrated dual eligible
special needs plans and non-fully integrated dual eligible special
needs plan to operate so a larger population of duals may be served by
these plans.
Comment: One commenter seeks clarification in the requirement that
a fully integrated dual eligible special needs plan have a
``capitated'' contract with the State Medicaid agency.
Response: In response to this comment to clarify the meaning of the
term ``capitated'' in the third prong of the definition, a capitated
contract is a contract that provides for a fixed payment from the State
Medicaid Agency to the fully integrated dual eligible special needs
plan that does not vary based on services provided in exchange for the
plan's provision of the covered Medicaid benefits to the beneficiaries.
b. Extending SNP Authority
Based on section 3205(a) of the ACA, which revised section
1859(f)(1) of the Act, we proposed in our November 2010 proposed rule
(75 FR 71198) to extend the authority for SNPs to restrict enrollment
to special needs individuals, thereby permitting SNPs to continue to
limit enrollment to special needs individuals through the 2013 contract
year. This extension applies to all SNP categories defined at Sec.
422.2, with the exception of dual eligible SNPs (D-SNPs) that do not
have a contract with the State in which they operate in contract year
2013, as described in section II.B.3.c of this final rule.
This provision was effective upon enactment of the ACA. However, we
proposed that the regulations implementing this provision would be
effective 60 days after the publication of this final rule.
After considering comments, we are finalizing this provision
without modification.
Comment: Several commenters believed that delaying the proposed
provision's effective date until 60 days after publication of the final
rule was unnecessary.
Response: We disagree with the commenters' claim that it is
unnecessary to delay implementation of this provision until 60-days
following publication of this final rule. While section 3205(a) of the
ACA was effective upon enactment, the regulations codifying this
provision can be effective no earlier than 60 days following
publication of this final rule, as provided under the Administrative
Procedure Act for economically significant regulations.
Comment: One commenter suggested that extending the SNP program for
longer than 1 year would provide SNPs with more operational certainty.
Response: Our proposed provision extended all SNPs, with the
exception of D-SNPs that do not have a State contract in the State in
which they operate, until contract year 2013, consistent with the
statutory language at section 1859(f)(1) of the Act. We do not have the
statutory authority to extend the SNP authority beyond the length of
time Congress specified in the ACA. Therefore, we are finalizing this
provision without modification.
c. Dual-Eligible SNP Contracts With State Medicaid Agencies (Sec.
422.107)
Section 164(c)(2) of MIPPA required all new D-SNPs and all existing
D-SNPs that are seeking to expand their service areas to have contracts
with the State Medicaid agencies in the States in which they operate.
The provision allowed existing D-SNPs that were not seeking to expand
their service areas to continue to operate without a State contract
through the 2010 contract year as long as they met all other statutory
requirements. Section 3205 of the ACA, which revised section 164(c)(2)
of MIPPA, extends the date that D-SNPs not seeking to expand their
service areas can continue to operate without a State contract to
December 31, 2012. In order to implement this provision, we proposed to
revise Sec. 422.107(d)(ii) to specify the new deadline.
This provision was effective upon enactment of the ACA. However, we
proposed that the regulations implementing this provision would be
effective 60 days after the publication of the final rule.
Comment: Many commenters supported this proposed provision.
However, the majority of the comments we received on this provision
centered on the operational issues related to the State contracting
requirement. Several commenters indicated that variation in State
contracting and procurement processes has caused some D-SNPs to
experience delays in obtaining contracts with State Medicaid agencies
and they requested that CMS give D-SNPs additional flexibility to meet
these contracting deadlines. A few commenters suggested that CMS
incentivize States to engage with D-SNPs that are seeking to contract
with the State(s) in their service areas, while another commenter
proposed that CMS hold plans harmless if States either refuse to
contract with them or require them to meet contract requirements that
are beyond the minimum CMS-required contract elements. Other commenters
recommended that CMS provide further regulatory and operational
guidance on the State contracting process. Several commenters expressed
concern that

[[Page 21446]]

States were receiving conflicting information from CMS central and
regional offices (ROs), and asked CMS to develop a model State contract
for dissemination to D-SNPs, States, and the CMS ROs. Some commenters
recommended that CMS establish a system of review and oversight of D-
SNP State contracts through rulemaking.
Response: The proposed rule neither codified the D-SNP State
contracting requirement nor specified specific contract requirements;
it only amended Sec. 422.107 to conform to the statutory extension of
the State contracting deadline for existing, non-expanding D-SNPs.
Comments about operationalizing the State contracting requirement were
not strictly within the scope of this rule. We note that, although we
are not addressing these specific operational concerns in this final
rule, we intend to provide additional operational guidance on the D-SNP
State contracting requirements in future operational guidance well in
advance of the State contracting deadline of December 31, 2012.
d. Approval of Special Needs Plans by the National Committee for
Quality Assurance (Sec. 422.4, Sec. 422.101, and Sec. 422.152)
The ACA amended section 1859(f) of the Act to require that all
SNPs, existing, new, and those wishing to expand their service areas,
be approved by the National Committee for Quality Assurance (NCQA)
effective January 1, 2012 and subsequent years. Section 1859(f) of the
Act further specified that the NCQA approval process shall be based on
the standards established by the Secretary.
In our November 2010 proposed rule (75 FR 71199), we stated that
both the quality improvement (QI) program plan description and the
model of care (MOC) are critical clinical elements that represent the
potential for the SNP to provide integrated care for Medicare
enrollees. We proposed that NCQA review both the QI program plan
description and the MOC submitted during the application process for
all SNPs using standards developed by CMS. Specifically, we proposed to
add a new paragraph (iv) to Sec. 422.4(a) to require MA plans wishing
to offer a SNP, whether new or current, to be approved by NCQA,
effective January 1, 2012, by submitting their quality QI program plan
and MOC to CMS for NCQA evaluation and approval, per CMS guidance. We
also proposed to codify the new requirement at Sec. 422.101(f), which
specifies MOC requirements, by adding a new paragraph (vi). Finally, we
proposed to codify the new requirement by revising Sec. 422.152(g),
which specifies QI program requirements.
In the proposed rule, we also clarified that CMS would not
participate in the scoring and review of the MOC and QI program plans.
We also stated in our proposed rule that we would release specific
instructions and guidance to organizations, including the specific
criteria that NCQA would use to evaluate the QI program plan
description and MOC, information about technical assistance training
that would be available to the SNPs as they prepared their QI program
plan and MOC submissions, as well as details on the frequency of the
SNP approval process. We also expressed concern that an annual approval
process could be burdensome for plans and solicited comments on how to
determine the appropriate frequency for the SNP approval process.
Based on the comments we received on the proposed rule, we are
modifying Sec. 422.4(a)(iv), Sec. 422.101(f), and Sec. 422.152(g),
as described below.
Comment: Several commenters expressed concern with our proposed SNP
approval process and the components that comprise that process.
Specifically, these commenters noted that both the 2012 application
cycle and the 2011 SNP structure and process measure submissions were
due in February 2011. The commenters requested that CMS clarify any
relationship between the two processes. Other commenters requested that
CMS link the SNP approval process to the work NCQA currently performs
around QI, MOC and HEDIS[reg] requirements.
Response: In our proposed rule, we proposed that NCQA would review
the QI program plan and MOC submitted by all SNPs during the
application cycle using standards developed by CMS. Our basis for this
proposal was that the description of the plan's QI program plan and the
MOC contained critical elements representing the potential for a SNP to
provide integrated care for Medicare enrollees. Some commenters appear
to have confused our proposed requirements for the SNP approval process
with other quality requirements, such as, the quality improvement
projects (QIPs), chronic care improvement programs (CCIPs) and the NCQA
structure and process measures. As a result of this confusion, the
majority of these comments did not support using evaluation of either
the QI program plan or MOC as part of this process. Other commenters
recommended that CMS ensure that there is consistency between the
requirements for the SNP approval process and those of the other,
unrelated NCQA quality assessment process.
Response: We agree with commenters that the QI program plan may not
be the most appropriate basis for approval of SNPs. Therefore, we have
modified our original proposal by removing evaluation of the QI program
plan from the NCQA SNP approval process described in Sec.
422.4(a)(iv), Sec. 422.101(f), and Sec. 422.152(g). As a result, the
SNP approval process will be based only on evaluation of the MOC, which
will allow the NCQA to focus purely on a component of quality that is
primarily clinical in nature and is also unique to SNPs. Removing
evaluation of the QI program plan from the SNP approval process may
also help reduce the confusion and concern plans expressed about
alignment of the SNP approval process with other QI assessment measures
and activities. All MA plans will still be required to submit their QI
program plan; however, we will retain responsibility for review and
assessment of this component as part of our larger QI efforts.
Comment: Several commenters urged CMS to ensure that there is
consistency between the QI program and MOC documents submitted during
the application process and NCQA structure and process measures
submissions.
Response: The submission of structure and process measures is an
ongoing annual QI assessment activity for all SNPs. The SNP approval
process is a separate process for ensuring that SNPs comprehend the
unique requirements of the SNP program and are capable of implementing
these requirements. We believe commenters may be confusing submission
of structure and process measures and the SNP approval process given
NCQA's involvement in both processes, even though there is no
relationship between the two. Therefore, we clarify that there is no
relationship between the documents required to be submitted during the
application process and the information required for the structure and
process measures submissions.
Comment: Two commenters requested that CMS address the relationship
between the requirements for D-SNPs to contract with States, the SNP
application, and the new SNP approval process. They further requested
that CMS clarify that if a D-SNP were approved by NCQA for longer than
one year but lost its State contract, CMS would not approve the D-SNP
and would terminate the plan.
Response: The D-SNP State contracting requirement is separate from
the SNP approval and SNP application

[[Page 21447]]

processes and is described elsewhere in this final rule.
Comment: Several commenters recommended that CMS consider
incorporating the SNP approval process into the existing NCQA
accreditation process. One of the commenters requested that CMS replace
specific Medicare requirements, such as QI program requirements that
may be part of the NCQA accreditation process, in lieu of more
appropriate and relevant MOC and SNP-specific measures.
Response: Section 1859(f) of the Act specifies that the SNP
approval process ``shall be based on the standards established by the
Secretary.'' While CMS has broad discretion regarding the development
of the SNP approval process, our goal is to develop a process that is
equitable for all SNPs. We do not believe that substituting NCQA
accreditation for explicit SNP approval is appropriate because
accreditation is voluntary, and not all plans are accredited, nor is
NCQA the only accreditation organization recognized by CMS. CMS also
has agreements with URAC (formerly the Utilization Review Accreditation
Committee) and the Accreditation Association for Ambulatory Healthcare
(AAAHC) to be deeming accreditation organizations. Each accreditation
organization defines its fully accredited status level differently.
Comment: Several commenters supported our proposal to consider
implementing a multi-year approval period for high scoring plans. These
commenters recommended a 3-to-5-year approval cycle to limit the
administrative burden on plans that demonstrate their ability to meet
the needs of special needs populations. These commenters stated that
implementing an extended approval cycle would also allow CMS the
opportunity to provide additional oversight of low performing plans.
Two commenters recommended that CMS structure the approval process in a
manner similar to that of the NCQA structure and process measures
review cycle.
Response: We agree with the commenters' position that a multi-year
approval period would limit MA organizations' administrative burden. To
that end, we intend to implement a multi-year approval process that
will allow plans that receive a higher score on NCQA's evaluation of
their MOC to be granted a longer approval period, meaning they would
not be required to be reapproved for 1 or more years, unlike plans that
score at the lower end of the scoring spectrum and which will be
granted a shorter approval period. Specific guidance regarding the
standards for multiyear approvals will be provided in separate guidance
such as HPMS memoranda and annual call letters.
Comment: One commenter supported a multi-year approval cycle but
recommended that, rather than develop new measures, CMS should use QI
measures that SNPs currently collect, such as annual QI audit results.
Response: We are conducting a review of the MOCs from a sample of
the SNPs. While data are not yet available from these audits, we expect
that the audits will be completed by the end of calendar year 2011. We
will use these data to revise and improve the MOC requirements in the
future, as well as to refine the required evaluation criteria for the
SNP approval process over time. We will also continue to research
additional and appropriate QI measures to use as part of this process.
Comment: To avoid introducing additional complexity into the
transition to NCQA approval of SNPs, one commenter recommended that CMS
not introduce new criteria for evaluation of SNPs at this time. This
commenter also recommended that, once our approval standards are
finalized, CMS leave them intact for several years in order to give
NCQA and plans time to assess operational impacts and to fine-tune
their systems.
Response: We intend to continue using criteria for evaluation of
SNPs that are familiar to plans. However, we will continue researching
the feasibility of revising the criteria for future approval cycles. We
will communicate changes to these criteria and provide opportunities
for public review and comment.
Comment: Several commenters expressed concern that CMS is proposing
to delegate full authority of the SNP approval process to NCQA. These
commenters did not favor giving so much authority to a private entity
whose processes and activities are not subject to public scrutiny.
These commenters recommended that CMS periodically audit NCQA's work to
ensure that the work it is tasked with performing is serving the best
interests of the beneficiaries.
Response: Section 1859(f) of the Act requires that NCQA approve
SNPs based on standards established by the Secretary. We will maintain
oversight of this process via its contract with NCQA, as well as by
establishing appropriate standards for NCQA approval, as described
elsewhere in this preamble.
Comment: One commenter requested that CMS clarify that it will
continue its own review of SNP applications rather than allow NCQA
approvals of two documents to serve as deemed compliance with all
regulatory requirements.
Response: We confirm that we will retain responsibility of the MA
and SNP application review process, and the SNP approval process is one
component of this process. We believe this commenter may have confused
the NCQA approval process with the annual application process, since
both have the same timeline.
Comment: Several commenters recommended that CMS remove the SNP
approval process from the annual SNP application timeframe.
Response: We disagree with these commenters' recommendation. While
we proposed to link the SNP approval process to the MA application
process, the SNP approval process is only one component of the overall
process for determining whether a SNP may operate in contract year
2012. SNPs must still complete other components of the SNP proposal and
other CMS requirements to be fully operational in contract year 2012.
We believe we are minimizing MA organizations' administrative burden by
linking the SNP approval process to the annual application cycle.
Synchronizing the timelines for these two processes will allow SNPs to
follow timelines and procedures with which they are familiar and allow
for SNP approvals to be completed prior to the bid submission deadline.
Comment: One commenter recommended that CMS work with SNPs to
identify a list of SNP-specific clinical and non-clinical QIP topics
that are relevant to target populations served by SNPs, as well as a
list of topics for dual-eligible SNPs (D-SNPs) that could be
coordinated with State Medicaid agencies so that they can meet both
Federal and State requirements.
Response: A major element in the design of the QIPs and CCIPs
continues to be that they must address a target population that is
appropriate for that plan. We intend to review the non-clinical and
clinical QIPs and CCIPs that MA organizations have submitted to
identify gaps in topics that plans should be addressing. We intend to
issue further guidance on the submission of QIPs and CCIPs, through
HPMS memoranda or the annual call letter process.
Comment: Several commenters requested the opportunity to review and
comment on the new QI program plan and MOC instructional guidance.
Response: We are currently in the process of conducting a review of
MOCs from a sample of SNPs. Information received from the review will
be used to assist us in revising and improving the

[[Page 21448]]

MOC. In addition, we intend to use the information to modify and refine
the required evaluation criteria over time to improve the QI program
and the MOC. Updates or changes to the QI program plan and MOC
instructional guidance will be made available in advance for public
review and comment.
Comment: One commenter recommended that the CMS Federal Coordinated
Health Care Office work with NCQA and States to align MOC and QI
program requirements established by CMS for the SNP approval process
for D-SNPs.
Response: We appreciate the recommendation and note that we are
already working closely with the Federal Coordinated Health Care Office
on a myriad of SNP issues.
Comment: One commenter believed it was not clear when plans that
are not requesting a service area expansion (SAE) would be evaluated.
This commenter also requested that CMS clarify whether the January 1,
2012 effective date means that the approval process begins in 2012 or
that the approvals must be completed for all existing SNPs prior to
January 1, 2012 (thus beginning in 2011).
Response: We approve potential applicants for contract the year
prior to the date the contract becomes operational. Therefore, any
requirements that must be in effect as of January 1, 2012 will be
addressed as part of the 2012 SNP application cycle for contract year
2012. The deadline for submitting applications for consideration during
the 2012 application cycle was February 24, 2011.
4. Section 1876 Cost Contractor Competition Requirements (Sec.
417.402)
In accordance with section 3206 of the ACA, which revised section
1876(h)(5)(C) of the Act, we proposed in our November 2010 proposed
rule (FR 75 71199) to extend implementation of the section 1876 cost
contract competition provisions until January 1, 2013. Previously,
MIPPA had specified that section 1876 cost contractors operating in
service areas or portions of service areas with two or more local or
two or more regional Medicare coordinated care plans meeting minimum
enrollment requirements (5,000 enrollees for urban areas and 1,500
enrollees for non urban areas) would be non-renewed beginning in 2010.
In implementing the new contract non-renewal date, we specified in
our November 2010 proposed rule that we would evaluate enrollment of
competing MA coordinated care plans beginning in 2012, send out non-
renewal notices to affected section 1876 cost contracts in 2013, and
that affected section 1876 cost contractors would first be unable to
offer a plan beginning contract year 2014. We proposed to codify the
statutory change in Sec. 417.402(c).
We received no comments on this provision and are finalizing the
provision as proposed.
5. Making Senior Housing Facility Demonstration Plans Permanent (Sec.
422.2 and Sec. 422.53)
Section 3208 of the ACA established (at section 1859(g) of the Act)
that as of January 1, 2010, senior housing facility plans participating
as of December 31, 2009 ``in a demonstration project established by the
Secretary under which such a plan was offered for not less than 1
year'' may continue participation as Medicare Advantage senior housing
facility plans. In implementing this provision of the ACA, we proposed
in our November 2010 proposed rule (75 FR 71199 and 71200) to amend the
definitions at Sec. 422.2 to include ``senior housing facility plan''
as a new coordinated care plan type. Our proposed definition of the
term was consistent with the statutory requirements for such plans at
section 1859(g) of the Act: that such a plan restrict enrollment to
individuals who reside in a continuing care retirement community as
defined in Sec. 422.133(b)(2); provide primary care services onsite
and have a ratio of accessible physicians to beneficiaries that we
determine is adequate consistent with prevailing patterns of community
health care as provided under Sec. 422.112(a)(10); provide
transportation services for beneficiaries to specialty providers
outside of the facility; and was participating as of December 31, 2009
in a demonstration established by us for not less than 1 year. We also
noted that a senior housing facility plan must otherwise meet all
requirements applicable to MA organizations under this part.
In addition, we proposed to add a new Sec. 422.53 to subpart B of
Part 422 to address the eligibility and enrollment policies applicable
to senior housing facility plans. We proposed specifying at Sec.
422.53 that MA senior housing facility plans must restrict enrollment
in these plans to residents of continuing care retirement communities,
and that individuals enrolled in such plans must meet all other MA
eligibility requirements in order to be eligible to enroll. In
addition, we proposed specifying at Sec. 422.53(c) that an MA senior
housing facility plan must verify the eligibility of each individual
enrolling in its plan using a CMS-approved process. We proposed that
the regulations implementing this provision would be effective 60 days
after the publication of the final rule.
We are finalizing our proposed provisions regarding senior housing
facility plans without modification.
Comment: One commenter requested that our regulations make clear
that, if a beneficiary who is enrolled in a senior housing facility
plan moves out of the senior housing facility, he/she would be eligible
for a special election period and, therefore, able to enroll in another
MA plan or PDP outside of the annual election period.
Response: We agree with this commenter that a special election
period should apply in this situation; however, it is not necessary to
codify a new special election period for this situation. Current
guidance in Chapter 2 of the Medicare Managed Care Manual http://www.cms.gov/MedicareMangCareEligEnrol/Downloads/FINALMAEnrollmentandDisenrollmentGuidanceUpdateforCY2011.pdf, entitled
``Medicare Advantage Enrollment and Disenrollment,'' provides that an
MA enrollee is eligible for the SEP for changes in residence if he/she
moves out of the plan's service area. Since a senior housing facility
plan's service area is comprised of only the senior housing facility,
an enrollee who moves out of the senior housing facility may use this
existing SEP to enroll in any MA or Part D plan for which he/she is
eligible in his/her new place of residence and is eligible for Medigap
guaranteed issue rights if he/she disenrolls to Original Medicare.
6. Authority to Deny Bids (Sec. 422.254, Sec. 422.256, Sec. 423.265,
and Sec. 423.272)
Section 3209 of the ACA amends section 1854(a)(5) of the Act by
adding subsection (C) (ii) to stipulate and expressly provide that the
Secretary may deny a bid submitted by an MA organization for an MA plan
if it proposes significant increases in cost sharing or decreases in
benefits offered under the plan. Section 3209 of the ACA also extends
this provision to apply to the review of bids from Part D sponsors by
amending section 1860D-11(d) of the Act to add a new paragraph (3).
This statutory authority applies to bids submitted for contract years
beginning on or after January 1, 2011. However, as indicated in section
II.A. of this final rule, the regulations codifying this provision will
be effective 60 days after the date of display of the final rule.
In the proposed rule, we stated that we believe these amendments
clarify the Secretary's authority to deny bids

[[Page 21449]]

submitted by MA organizations and PDP sponsors and provide support for
our current policies as specified in our final rule, ``Policy and
Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs'' (75 FR 19678 through 19826). These
policies include imposing limits on cost sharing and denying bids
submitted by plans with sustained low enrollment or bids for multiple
plans offered by the same MA organization or PDP sponsors in a service
area that are not meaningfully different with respect to benefits or
costs. These policies were further discussed in a memorandum sent on
April 16, 2010 via the Health Plan Management System (HPMS) titled
``Benefits Policy and Operations Guidance Regarding Bid Submissions;
Duplicative and Low Enrollment Plans; Cost Sharing Standards; General
Benefits Policy Issues; and Plan Benefits Package (PBP) Reminders for
Contract Year (CY) 2011.''
Because these policies have been implemented so recently, we
concluded that it was premature to propose additional regulatory
restrictions limiting MA organizations' or PDP sponsors' flexibility in
developing plan bids until we are able to evaluate the effectiveness
and impact on the market of those current policies. However, in the
preamble to the proposed rule, we requested comments on the criteria
outlined in our April 16, 2010 guidance issued via HPMS and whether we
should establish additional requirements to limit plan offerings in a
service area and whether there are other measures we should consider as
part of future rulemaking that may help us in our efforts to protect
beneficiaries and promote the provision of high quality, affordable
health plans. We also invited comments on whether we should adopt other
substantive criteria for exercising our authority under 3209 of the ACA
by implementing caps or limits on the number of plans offered in a
region, or on the number of sponsors participating in the program.
Finally, we solicited comments on the best way to ensure fair notice
and equal treatment for all plan bids in the absence of specific non-
acceptance and denial policies. While we indicated that we would not
propose additional specific regulatory criteria for CY 2012, we noted
that our decision should not be interpreted as an indication that we
would not adopt specific policies in future rulemaking. We will
consider the suggestions and comments we received from the public on
the proposed rule to guide our future policy.
We proposed to codify the amendments made to sections 1854(a)(5)
and 1860D-11(d) of the Act by adding paragraph (a)(5) to Sec. 422.254,
revising Sec. 422.256(a), adding paragraph (b)(3) to Sec. 423.265 and
by adding paragraph (b)(4) to Sec. 423.272.
Comment: We received several recommendations in response to our
request for comments on our current meaningful differences policies.
Commenters recommended that CMS issue clear and comprehensive guidance
containing the CMS criteria for evaluating and accepting or denying MA
and Part D plan bids well in advance of the bid deadline. Moreover,
commenters recommended that CMS provide specific information to MA
organizations and Part D sponsors that is sufficiently detailed to
allow sponsors the ability to replicate the methodologies applied in
the tools that CMS uses in its bid evaluations. This information should
be sufficient for plan actuaries to test their assumptions against CMS
assumptions prior to their bid submission.
Response: We appreciate your comments regarding our current
meaningful differences policies. We have released, via the Final Rate
Announcement and Call Letter for CY 2012 released on April 4, 2011, a
detailed discussion of the methods and tools that CMS intends to use to
evaluate bids and ensure beneficiaries enjoy meaningful choices among
MA and Part D plans. Specifically, in the final CY 2012 Call Letter, we
announce that we will make an out-of-pocket cost (OOPC) model available
that will allow plans to calculate OOPC estimates for each of their
benefit offerings to prepare for negotiations with us. Standalone PDPs,
MA, and MA-PD sponsors and organizations are encouraged to run their
plan benefit structures through the OOPC model to ensure meaningful
differences between their plan offerings as required by CMS regulations
(see Sec. 423.272(b)(3)(i) and Sec. 423.265(b)(2)). Plans will be
asked to complete this analysis prior to submitting their bids for the
CY 2012.
A detailed discussion regarding the thresholds that CMS will be
using for CY 2012 meaningful differences policies are included in the
Final Rate Announcement and Call Letter for CY 2012.
Comment: We received several comments regarding the bid evaluation
tools used by CMS and as specified in the April 16, 2010 guidance.
Specifically, commenters indicated that if the total beneficiary cost
(TBC) metric is used in future bidding cycles, CMS will need to take
into account plan-specific variations such as plan consolidation, new
plan service areas, pairing of plans to meet target margins and other
payment policy issues such as the lagged sustainable growth rate (SGR)
fix.
A few commenters indicated that CMS did not provide sufficiently
detailed information as to how plan benefits as part of the OOPC
calculation were projected and estimated for 2011. A number of sponsors
discovered during bid negotiations that estimates they had produced to
guide their benefit designs were significantly different than CMS
recommendations. Commenters recommended CMS reevaluate use of the tool
to analyze plan bids and engage in detailed discussion with MA and Part
D plan sponsors to identify alternatives.
One commenter believes the OOPC tool, which is used by CMS to
provide out-of-pocket costs information through the http://www.Medicare.gov Web site, is inappropriate and the estimates produced
by the tool are not linked to the projections of MA and Part D plan-
specific enrollee utilization of healthcare services and the revenue
needed to fund them that are at the core of plan bids. Instead, these
estimates reflect utilization under the Medicare fee-for-service
program for a sample of beneficiaries that is somewhat out of date.
Response: We appreciate the commenters' suggestions and critique of
our current bid evaluation tools. Based on the comments we have
received in response to this rule and from the industry following bid
negotiations for CY 2011, we have committed to providing additional
information regarding the OOPC calculation and an OOPC tool to address
the industry's specific concerns and to support their development of
plan bids for CY 2012. We have also provided additional guidance and
proposed policies for bid review in the Final Rate Announcement and
Call Letter for CY 2012.
Comment: A few commenters recommend that star quality ratings
either should, or should not, be used when evaluating plan bids. One
commenter indicated that quality ratings, such as low star ratings,
should be used as bid evaluation criteria since lower star ratings
would result in decreased enrollment causing the plan to eventually
fail meeting our low-enrollment thresholds. Other commenters support
the use of star ratings and recommended that CMS only reassign
beneficiaries to plans with a star rating of four stars or higher
ensuring beneficiaries are offered plans that have a track record of
quality service. One commenter indicated that they support the use of
the star rating system; however, CMS would need to

[[Page 21450]]

consider the different changes faced by plans in geographic areas.
Response: We appreciate the comments we received regarding the
potential use of quality ratings in determining whether to deny or
decline bids under our new authority. While we will not be codifying
specific criteria under this rule at this time, in the future we may
explore the use of our authority to deny bids based on quality ratings,
such as the star ratings.
Comment: Several commenters indicate that CMS should not impose
limits on the number of plans in a service area, nor limit the number
of MA organizations or Part D sponsors participating in the program, as
this would be inconsistent with the competitive framework of the MA and
Part D programs. One commenter indicated that limiting the number of
plans in a specific service area would limit competition and
potentially lead to higher prices and program costs in the long run.
Another commenter suggests that CMS defer further consideration of
initiatives to limit the number of plans offered until the impact of
existing policies and statutory program changes can be fully evaluated.
Response: We appreciate the comments we received regarding limiting
the number of plans in a service area and limiting the organizations
that participate in the program using the new authority to not accept
bids. We will not be codifying such limits under this rule. We will
consider these comments if we propose additional rulemaking limiting
plans in a service area, or, limiting organizations participating in
the program.
Comment: One commenter requests that we continue the waiver of our
meaningful differences policy for employer group waiver plans (EGWPs).
Response: We announced in the Final Rate Announcement and Call
Letter for CY 2012, released on April 4, 2011, that this waiver will
continue to apply to EGWPs for CY 2012 and future contract years.
Comment: Many commenters indicated either their support for, or
opposition to, a premium increase threshold when determining whether to
deny or decline bids under our new authority. In particular, one
commenter indicated that CMS be permitted to deny a bid if such premium
increases or benefit changes are unsubstantiated. An exception to an
unsubstantiated change would be if actuarially the benefit design
requires that benefits be decreased if premiums increased. Another
commenter indicated that denying bids based upon changes to premiums
assumes all sponsors have gravitated to the same level of maturity and
that individual plan differences should be accounted for when applying
a cap on premium increases.
Response: We appreciate the comments we received regarding the use
of strict limits on premium increases or benefit decreases when
evaluating bids. While we will not be codifying into regulation strict
limitations on premium increases or benefit decreases as part of this
final rule, we will take these comments into consideration as our
policies regarding our authority to deny bids evolve.
Comment: One commenter urged that CMS consider a plan's proposed
profit margin in order to assure consistent and fair treatment across
health plans. This commenter believed that plans with higher profit
margins have a greater capacity to implement member cost reductions
requested by CMS, and plans that have losses, or very small profit
margins, should be allowed to increase their profit to allow for risk
reserves.
Response: We appreciate the recommendation provided by this
commenter. As our meaningful differences policies and the impact of
such policies on plan bids evolve, we will consider the possibility of
examining plan profit margins as part of our bid evaluation criteria.
Comment: A few commenters believed it was important for us to
develop an appeals process for plans that face bid denials and that
such processes should allow for the timely reconsideration of our
decision.
Response: We will not be adopting specific bid denial criteria or
processes in this final rule. We will continue to work with plans prior
to, and during, the bidding process to ensure the meaningful
differences policies and bid evaluation criteria, as set forth in our
CY 2012 Final Rate Announcement and Call Letter, take into account the
individual plan's population, service area, and level of maturity. We
will ensure this information is provided in a timely manner so that
plans will know, prospectively, our expectations regarding the plans
that will be made available to our Medicare population.
Comment: We received many comments requesting that CMS disclose,
prior to bid development, all criteria that will be used to review bids
each contract year. The commenters asserted that without definitions of
what CMS identifies as ``significant increases'' in cost sharing or
``decreases in benefits'' offered and all other criteria by which plan
bids will be evaluated and possibly denied, MAOs and Part D sponsors
could be subject to inconsistent and potentially unfair bid denials.
Commenters overwhelmingly requested that CMS make available in this
final rule, its annual Call Letter or other appropriate published
guidance, no later than mid-April, the specific standards plan bids
will be required to meet as well as, the tools and methodologies that
would be necessary for plans to replicate CMS' bid review results. They
asserted that if plans are provided the appropriate tools and
information they will be able to develop and submit initial plan bids
that meet all CMS requirements.
Response: We agree with commenters that plan bids based on guidance
we provide prior to or during bid development are more likely to
satisfy our requirements. The final CY 2012 Call Letter, released on
April 4, 2011, provides the tools and information necessary for
sponsors to develop and submit complete initial bids that will meet our
requirements.
Comment: Some of the comments we received requested that CMS not
deny bids based on increases in beneficiary costs or on decreases in
benefits offered because plans may need to increase costs or decrease
benefit offerings to cover the growing gap between costs for providing
services and revenue. Commenters expressed concern that continued
application of the Total Beneficiary Cost (TBC) review criterion that
CMS used for review of CY 2011 bids has the potential to undermine the
financial integrity of plan bids and to adversely affect enrolled
beneficiaries. Some stated their beliefs that the constraint on
increases in plans' revenue required to meet the TBC measure is likely
below a reasonable cost trend and could result in negative margins for
some plan bids, putting them in conflict with other CMS bid guidance.
Finally, commenters asserted that CMS criteria that limit premium and
other beneficiary cost increases or decreases in benefits offered are
not consistent with competitive bidding, the fundamental principal that
bids should satisfy actuarial soundness requirements that anticipated
revenue is sufficient to cover plan costs, or the requirement that bids
be certified by actuaries.
Response: We understand that MAOs and Part D plan sponsors may be
facing a number of challenges as they develop plan bids for CY 2012,
including those related to meeting our standards for meaningfully
different plan offerings, out-of-pocket maximums and cost sharing
standards. We develop bid requirements with input from our Office of
the Actuary (OACT), which takes into consideration the potential impact
of its own guidance regarding negative margins. Together, we have
developed a

[[Page 21451]]

TBC requirement that will not restrict a plan's ability to meet any
additional bid guidance (for example, OACT's negative margin
requirement) and considers environmental changes, as well as changes in
Medicare payment and their impact on plan bids. In our final CY 2012
Call Letter, we describe the methodology we will use to limit
significant increases in TBC to ensure that plans offered for CY 2012
are affordable and offer good value for enrollees. As described
previously, we have provided a detailed discussion of the methods and
tools we intend to use to evaluate plan bids in our CY 2012 Call
Letter. We evaluate this guidance annually, and make refinements as
necessary, taking into consideration comments we receive from industry
following the end of bid review season. For CY 2012, we also are
providing additional information about the OOPC calculation and will
make an OOPC model available so that plans will be able to calculate
OOPC estimates for their target benefit offerings in advance of
submitting their bids to CMS. We believe that this increased
transparency will support plans in their work to develop their benefit
designs.
Comment: Many commenters indicated that if CMS does maintain its
policy to approve only plan bids that do not propose significant
increases in beneficiary costs or decreases in benefits offered using
the TBC measure then the measure will need to take into account the
large effects of CMS payment changes, plan-specific variations such as
plan consolidation, new plan service areas, whether the plan is a SNP,
pairing of plans to meet target margin and other payment policy issues.
One commenter urged that MAOs be able to adjust for mistakes made in
prior years' bids, such as to revise benefit amounts to curb
demonstrated adverse selection into the plan.
Response: We thank the commenters for their suggestions for
enhancing the development of the TBC criterion. We have considered
these issues and worked with OACT to incorporate several of these
factors, to the extent possible, into the TBC measure for CY 2012.
However, we wish to point out that CMS does not support the notion that
a plan should be able to adjust their pricing year to year to account
for ``mistakes'' in a prior year's bid. Plans are responsible for
submitting bids that reflect accurate and actuarially reasonable bid
projections and assumptions for the coming year, which should not
include amounts attributable to making up for errors in a past year.
Therefore, our TBC measure will not account for errors in a plan's
previous year's bid. To the extent practicable, we will consider
relevant and appropriate factors and circumstances in order to develop
and publish in a timely manner measures that we will use to evaluate
bids consistently across plans.
Comment: Commenters expressed their concern that any single
threshold established by CMS for review of significant increases in
beneficiary costs or decreases in benefits offered would fail to
address the many circumstances that vary across plans such as,
geographic location, plan size, plan experience, plan type, and their
belief that CMS must ensure that plans have some ``due process'' rights
related to the upcoming contract year bid review. In addition to
receiving full and timely disclosure of the criteria to be used for
evaluating plan bids, commenters would like an opportunity to question,
or comment on, CMS' methodologies prior to their implementation, and
request assurance from CMS that bids will be reviewed using only
published criteria. The commenters believe that CMS owes them a
meaningful opportunity to challenge the application of CMS' criteria to
their bids, using actuarial analysis, and to modify a bid that does not
satisfy the criteria or where CMS choose not to accept the
organization's rationale for the bid. As another example, commenters
requested that CMS permit bid approvals in cases in which the plan can
demonstrate actuarial justification for decreases in benefits offered
and/or increases in beneficiary costs that exceed CMS' threshold.
Response: We thank the commenters for sharing these concerns. As in
past years, our goal is to ensure that the MA and Part D programs
remain healthy and that there are meaningful, high value choices
available to beneficiaries We note that during CY 2011 bid reviews, the
vast majority of outlier plans came into compliance with CMS guidance
or submitted acceptable justifications to CMS for their plan bid. In an
effort to reduce confusion, and the need for resubmissions, CMS is
providing comprehensive guidance and tools in advance of the bid
submission deadline so that organizations can develop initial
submissions that meet all bid requirements. Organizations had an
opportunity to comment on our guidance and methodology through the
draft CY 2012 Call Letter and we considered such comments in preparing
the final CY 2012 Call Letter, released on April 4, 201l.
Comment: One commenter recommended that CMS, as it implements its
authority deny bids, continue to examine the impact of cost sharing for
specialty tier drugs in a plan's formulary which may reduce patient
access to needed medications.
Response: This comment is not relevant to the discussion in the
proposed rule concerning our authority to deny bids; rather, it is a
comment on CMS' formulary review process. We have in place a rigorous
formulary review process that ensures cost-sharing imposed by plans on
drugs found on specialty tiers will not impede a beneficiary's access
to medications.
7. Determination of Part D Low-Income Benchmark Premium (Sec. 423.780)
The ACA amends the statute governing the calculation of the LIS
benchmark premium amount (see section 3302 of the ACA, as amended by
section 1102 of HCERA). As amended, section 1860D-14(b)(3)(B)(iii) of
the Act requires us to calculate the LIS benchmarks using MA-PD basic
Part D premiums before the application of Part C rebates each year,
beginning with 2011. We proposed to update the regulations at Sec.
423.780(b)(2)(ii)(C) to incorporate this change. We also proposed that
the regulations implementing this provision would be effective 60 days
after the publication of the final rule.
Comment: We received several comments in support of the proposed
change.
Response: We agree that LIS benchmarks should be calculated using
basic Part D premiums before the application of Part C rebates and we
are finalizing this provision without modification.
8. Voluntary De Minimis Policy for Subsidy Eligible Individuals (Sec.
423.34 and Sec. 423.780)
Section 3303(a) of the ACA modifies section 1860D-14(a) of the Act
by creating a new subsection (5) that permits PDPs and MA-PD plans to
waive a de minimis monthly beneficiary premium for low income subsidy
(LIS) eligible individuals who are enrolled in the plan. The provision
also prohibits the Secretary from reassigning LIS individuals enrolled
in a plan with a premium greater than the LIS benchmark premium amount,
so long as the amount of the premium that exceeds the LIS benchmark is
de minimis and the plan volunteers to waive that de minimis amount.
Section 3303(b) of the ACA modifies section 1860D-1(b)(1) of the
Act by inserting new language in subparagraph (C) and adding a new
subparagraph (D) that permits the Secretary to include PDPs and MA-PD
plans that waive the de minimis amount in the auto-

[[Page 21452]]

enrollment process that we use to enroll those LIS-Eligible individuals
who fail to enroll in a Part D plan. If these plans are included in the
process, and more than one such plan exists within the respective PDP
region, the statute requires that enrollees be randomly assigned among
all such plans in the PDP region. We proposed to amend Sec. 423.34 and
Sec. 423.780(f) to codify the new statutory requirements. The
statutory provision is effective January 1, 2011; however, as indicated
in section II.A. of this final rule, the regulations implementing these
provisions are effective 60 days after the date of display of this
final rule.
a. Reassigning LIS Individuals (Sec. 423.34)
Section 423.34(c) specifies that CMS may reassign certain LIS-
eligible individuals if CMS determines that further enrollment is
warranted. We have used this authority to reassign LIS-eligible
individuals annually when a PDP's monthly beneficiary premium amount
will exceed the low income benchmark, as calculated in Sec.
423.780(b)(2). As noted previously, the ACA prohibits the Secretary
from reassigning a plan's LIS eligible enrollees based on the fact that
the plan's monthly beneficiary premium exceeds the LIS benchmark
premium amount, so long as the amount of premium that exceeds the LIS
benchmark is de minimis and the plan volunteers to waive that de
minimis amount. Thus, plans that would otherwise have lost enrollees
because of a de minimis monthly beneficiary premium can retain such
membership. We proposed to amend Sec. 423.34(c) regarding reassignment
of LIS beneficiaries to reflect section 1860D-14(a)(5) of the Act.
Comment: All commenters supported our proposal to amend section
Sec. 423.34(c) to reflect newly added section 1860-14(a)(5) of the
Act. These commenters noted that the primary benefits of such a de
minimis policy are to minimize the need for reassignments, and the
associated disruptions of an individual's continuity of care. One
commenter recommended that we provide additional language in Sec.
423.34(c)(1) to describe the circumstances under which reassignment
occurs and the individuals affected by reassignment, in order to
provide meaningful context for the exception described in Sec.
423.34(c)(2).
Response: We agree with commenters that the de minimis policy
supports the desirable goal of minimizing disruptions of an
individual's continuity of care potentially associated with
reassignment, while simultaneously ensuring a zero-premium Part D
benefit to certain LIS-eligible individuals unlikely to have the
financial means to pay the de minimis amount. Also, we appreciate the
suggestion that additional context be added in Sec. 423.34(c)(1) to
describe the circumstances under which reassignment occurs and the
individuals affected by reassignment. However, we believe that it is
more appropriate to provide the level of detail the commenters request
through subregulatory guidance. Therefore, we are finalizing our
proposal to amend Sec. 423.34(c) without modification. We will update
Chapter 3 of the Medicare Prescription Drug Benefit Manual,
(``Eligibility, Enrollment, and Disenrollment''--available at the
following link: http://www.cms.gov/MedicarePresDrugEligEnrol) to
provide the additional context requested by commenters.
b. Enrollment of LIS-Eligible Individuals (Sec. 423.34)
Section 423.34(d) specifies that CMS will automatically enroll LIS-
eligible individuals who fail to enroll in a PDP. The pool of PDPs into
which we auto-enroll these individuals includes those plans with
monthly beneficiary premiums for LIS-eligible individuals that do not
exceed the low income benchmark as calculated in Sec. 423.780(b)(2).
We proposed to amend Sec. 423.34(d) regarding auto-enrollment of LIS-
eligible individuals to be consistent with section 1860D-1(b)(1) of the
Act, as modified by section 3303(b) of the ACA, which expands the
Secretary's discretionary authority to include PDPs or MA-PD plans that
voluntarily waive the de minimis amount in the pool of Part D plans
qualified to receive auto-enrollees and reassignees, if the Secretary
determines that such inclusion is warranted.
Comment: The majority of commenters supported our proposal to amend
Sec. 423.34(d) to be consistent with section 1860D-1(b)(1) of the Act,
as modified by section 3303(b) of the ACA. However, a few commenters
urged that CMS not codify such discretionary authority with respect to
including MA-PD plans that voluntarily waive the de minimis amount in
the pool of qualified plans to receive auto-enrollees and reassignees.
Among the reasons they cited for not including the provisions
concerning MA-PD plans in the regulations were that: (1) Random auto-
enrollment and reassignment of such beneficiaries into MA-PD plans
could have deleterious consequences on an individual's access to his or
her Part A and Part B benefits; and (2) the public policy goal of
eliminating premium cost-sharing for such LIS-eligible beneficiaries
would not be accomplished for those individuals enrolled into an MA-PD
plan with a Part D beneficiary premium within the de minimis amount but
a Part C beneficiary premium of an amount for which the LIS recipient
would incur liability.
Response: We agree with the concerns raised by these commenters,
particularly with respect to the potential disruption of an
individual's access to his or her Part A and Part B benefits (for
example, by imposing network restrictions) by including MA-PD plans
that voluntarily waive the de minimis amount in the pool of Part D
plans qualified to receive auto-enrollees and reassignees. Since the
inception of the auto-enrollment and reassignment processes, this
concern has served as an underlying basis for inclusion of only PDPs in
the pool of Part D plans that receive auto-enrollees and reassignees.
We also agree that auto-enrollment and reassignment of such LIS-
eligible individuals into MA-PD plans, in some cases, would fall short
of our public policy goal of ensuring zero premium cost-sharing for
these beneficiaries to access their Part D benefit.
For the reasons stated previously, we are amending Sec. 423.34(d)
to codify the Secretary's authority only with respect to including PDPs
that voluntarily waive the de minimis amount in the pool of plans
qualified to receive auto-enrollees and reassignees. At this time, we
do not intend to exercise such authority to auto-enroll or reassign
LIS-eligible beneficiaries into PDPs that voluntarily waive the de
minimis, except under limited instances, such as to allow beneficiaries
to remain within the same parent organization or to ensure that LIS-
eligible beneficiaries in all PDP regions have access to a plan with
zero beneficiary premium liability. However, the regulations will
retain the flexibility to permit future reassignments to PDPs above the
LIS benchmark that waive the de minimis amount, should the Secretary
determine such reassignments to be warranted.
Comment: One commenter suggested that CMS examine the impact on
enrollment stability if the Agency were to apply the de minimis policy
to partial premium subsidy recipients.
Response: The underlying goal of the de minimis policy is to
minimize unexpected disruptions of care that may result from
reassignment. The proposed application of the de minimis policy to
full-benefit subsidy beneficiaries supports this policy goal, as we do
not reassign partial premium subsidy recipients enrolled in a Part D
plan with

[[Page 21453]]

a beneficiary premium amount that exceeds the LIS benchmark amount.
Since partial premium subsidy recipients pay a partial premium, they
are more likely to be accustomed to proactively selecting a plan with a
premium amount within their financial means to avoid disruption of
care. Finally, application of the de minimis policy to partial premium
subsidy recipients would partially undermine the downward pressure on
Part D bids by decreasing the incentive for plans to bid lower in order
to retain such beneficiaries. Therefore, we are making no modifications
to our de minimis proposal with respect to its application to only
full-benefit subsidy recipients.
Comment: One commenter urged CMS to permit plan sponsors to
reassign LIS beneficiaries enrolled in its ``enhanced plan'' into the
plan sponsor's ``basic plan.'' The commenter noted that such a change
would minimize disruption of care as the beneficiary would remain
within the same parent organization, which typically has the same
formularies and many similar benefits and services across plans. The
commenter further noted that such a policy would prevent potential
future terminations of members due to non-payment of premium, since
their premium in the new plan should be much less than in the enhanced
plan.
Response: In accordance with our long-standing public policy of
honoring a beneficiary's plan choice by excluding from the reassignment
process those beneficiaries who have proactively enrolled in a plan, we
will continue our like-minded policy that prohibits plans from
passively and selectively reassigning LIS-eligible beneficiaries who
have proactively enrolled in the sponsor's enhanced plan. In the rare
instance of plan consolidations, such reassignments may be permitted at
our discretion, as they would not dishonor the beneficiary's plan
choice, since the chosen plan no longer exists under such
circumstances. Such situations would generally involve the elimination
of the enhanced plan for all enrollees, and thus would not result in
the selective reassignment of LIS-eligible beneficiaries.
c. Premium Subsidy (Sec. 423.780)
We also proposed to amend Sec. 423.780(f) to reflect section
1860D-14(a)(5) of the Act, permitting a Part D plan to waive a de
minimis amount that is above the monthly beneficiary premium defined in
Sec. 423.780(b)(2)(ii)(A) or (B) for full subsidy individuals as
defined in Sec. 423.780(a) or Sec. 423.780(d)(1), provided waiving
the de minimis amount results in a monthly beneficiary premium that is
equal to the established low income benchmark as defined in Sec.
423.780(b)(2). In addition, because section 1860D-14(a)(5) of the Act
refers to waivers of de minimis premium that exceeds the low-income
benchmark, which accounts only for the basic benefit, we limit the
waiver of the de minimis amount to the premium applicable to the basic
benefit.
Comment: We received one comment strongly encouraging CMS to
increase the de minimis amount beyond $2.00 for full-benefit dual-
eligible beneficiaries enrolled in special needs plans to help meet the
needs of this more vulnerable population.
Response: We determine the de minimis amount based on the outcome
of the plan bidding process. We consider the impacts of setting the de
minimis amount at varying levels each year, including the impact on the
number of zero premium plans and the number of reassignments. At this
time, however, we do not believe that it is necessary to apply
different de minimis amounts for various plan types, because we believe
that a uniform de minimis amount ensures that impacted beneficiaries
are treated equitably in terms of their premium assistance regardless
of plan type. Thus, we plan to continue establishing a uniform de
minimis amount applicable to all plan types each year.
Comment: Some commenters recommended that CMS release the LIS
benchmarks and the de minimis amount earlier than August to allow
adequate time for Part D sponsors to modify systems and member
communications given the statutory change to the AEP.
Response: While we appreciate concerns about providing sufficient
time for Part D sponsors to modify their systems and member
communications, we cannot determine the regional LIS benchmarks until
August when the Part D bids have been received and reviewed. In order
for Part D sponsors to modify systems and member communications, they
would need both the regional LIS benchmarks and the de minimis amount.
Additionally, we release the de minimis amount in August to ensure that
it does not influence bid submissions inappropriately. Therefore, we
will not be modifying the release date of the regional LIS benchmarks
or de minimis amount and are finalizing our proposal without
modification.
9. Increase In Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44, Sec. 423.286, and Sec.
423.293)
Section 3308 of the ACA amended section 1860D-13(a) of the Act by
establishing an income related monthly adjustment amount (hereafter
referred to as Part D--IRMAA) that is added to the monthly Part D
premium for individuals whose modified adjusted gross income exceeds
the same income threshold amounts established under section 1839(i) of
the Act with respect to the Medicare Part B income related monthly
adjustment amount (Part B--IRMAA).
In CY 2007, the income ranges set forth in section 1839(i) of the
Act required that individual and joint tax filers enrolled in Part B
whose modified adjusted gross income exceeded $80,000 and $160,000,
respectively, would be assessed the Part B--IRMAA on a sliding scale.
As specified in section 1839(i)(5) of the Act, since the implementation
of the Part B--IRMAA, each dollar amount within the income threshold
tiers has been adjusted annually based on the Consumer Price Index. As
a result of the annual adjustment, for calendar year 2010, the income
threshold amounts were increased to reflect the four income threshold
amount tiers shown below:

[[Page 21454]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.004

We note that section 3402 of the ACA freezes the income thresholds at
the above 2010 levels through 2019.
In accordance with section 3308 of the ACA, effective January 1,
2011, any individual enrolled in the Medicare prescription drug program
whose modified adjusted gross income exceeds the same income threshold
amount tiers established under Part B will have an income related
increase to his/her Part D monthly premium. Section 3308 of the ACA
provides that the Part D--IRMAA will be calculated using the Part D
national base beneficiary premium and the premium percentages in the
above chart as follows: BBP x [(P percent -25.5 percent)/25.5 percent].
The BBP is the base beneficiary premium and P is the applicable premium
percentage (35 percent, 50 percent, 65 percent, or 80 percent). The
premium percentage used in the calculation will depend on the level of
the Part D enrollee's modified adjusted gross income.
Section 3308 of the ACA requires CMS to provide the Social Security
Administration (SSA) with the national base beneficiary premium amount
used to calculate the Part D--IRMAA no later than September 15 of every
year, beginning in 2010. Beginning in 2010, we must also provide SSA,
no later than October 15 of each year, with: (1) The modified adjusted
gross income threshold ranges; (2) the applicable percentages
established for Part D--IRMAA in accordance with section 1839(i) of the
Act; (3) the corresponding monthly adjustment amounts; and (4) any
other information SSA deems necessary to carry out the Part D--IRMAA.
With respect to the final item, we previously provided SSA with an
initial list of all individuals enrolled in the Part D program.
In accordance with section 3308 of the ACA and the interim final
rule with request for comments entitled ``Regulations Regarding Income-
Related Monthly Adjustment Amounts to Medicare Beneficiaries'
Prescription Drug Coverage Premiums'' (75 FR 75884), SSA used this
initial list of Part D enrollees to request beneficiary-specific tax
payer information from the Internal Revenue Service in order to
determine: (1) Which Part D enrollees exceed the income threshold
amounts established under section 1839(i) of the Act; and (2) the
income related monthly adjustment amount that these enrollees must pay.
This exchange of information between CMS and SSA occurred in 2010 so
that individuals identified were billed the correct Part D--IRMAA
beginning January 1, 2011. Following this initial data exchange with
SSA, CMS will routinely provide SSA with the names of all individuals
newly enrolling in the Part D program so that SSA can repeat the
process of identifying individuals who must pay the Part D--IRMAA and
the specific income-related amount. We will also routinely provide the
names of individuals who have disenrolled from the Part D program so
that such individuals will no longer be assessed the Part D--IRMAA. In
cases where an individual disagrees with a determination that he/she is
subject to the Part D--IRMAA, such individual may appeal as provided in
the SSA regulations under 20 CFR part 418.
Section 3308 of the ACA also stipulates that the Part D--IRMAA must
be withheld from benefit payments in accordance with section 1840 of
the Act. Therefore, in cases where an individual is receiving benefit
payments from SSA, the Railroad Retirement Board (RRB), or the Office
of Personnel Management (OPM), the Part D--IRMAA must be withheld from
such benefit payments. However, if the benefit payment is insufficient
to allow the Part D--IRMAA withholding, or an individual is not
receiving benefit payments as described in section 1840 of the Act,
section 3308 of the ACA requires SSA to enter into agreements with CMS,
RRB, and OPM, as necessary, in order to allow the Part D--IRMAA to be
collected directly from these beneficiaries.
To implement section 3308 of the ACA, we proposed to revise Sec.
423.286 (rules regarding premiums), Sec. 423.293 (collection of
monthly beneficiary premium), and Sec. 423.44 (involuntary
disenrollment by PDP).
a. Rules Regarding Premiums (Sec. 423.286)
Currently, Sec. 423.286(a) provides that the monthly beneficiary
premium for a Part D plan in a PDP region is the same for all Part D-
eligible individuals enrolled in the plan with the exception of
employer group waivers, the assessment of the Part D late enrollment
penalty, or an enrollee receiving low-income assistance. We proposed to
revise the following:
Section 423.286(a) to include the assessment of the income
related monthly adjustment amount as another exception to the
requirement for a uniform monthly beneficiary premium for a Part D plan
in a PDP region;
Section 423.286(d)(4) to define the increase for the
income related monthly adjustment amount for Part D;
Section 423.286(d)(4)(i) to specify that SSA would
determine the individuals that are subject to the Part D--IRMAA and the
amount of the adjustment;
Section 423.286(d)(4)(ii) to provide the formula used to
calculate the monthly adjustment amount; and
Section 423.286(d)(4) to provide appeals rights to
individuals who disagree with SSA's determination that they are subject
to the Part D--IRMAA or the threshold amount of the adjustment they
must pay.
Comment: Commenters wanted to know if there was any plan
responsibility in tracking or collecting the Part D--IRMAA. One
commenter believed the Part D--IRMAA would

[[Page 21455]]

cause beneficiary confusion and that plans would have little recourse
to address beneficiary concerns. A few commenters requested that CMS
provide information to plans, including copies of communications
released to the IRMAA population and individuals' Part D--IRMAA billing
information, potentially through the Medicare Advantage Prescription
Drug (MARx) System via a transaction reply response (TRR). This
information would enable plans to address both general and specific
beneficiary concerns and provide proactive communications to improve
the beneficiary experience. Lastly, a commenter encouraged CMS to
provide plans with guidance regarding how plans' customer service
agents can best handle beneficiary inquiries regarding income related
adjustments to their premium.
Response: Part D plan sponsors do not have responsibility for
tracking or collecting the Part D--IRMAA. Section 3308 of the ACA
clearly states that the additional amount is to be withheld from a
beneficiary's Social Security benefit check. In cases where the benefit
check is not sufficient to allow the withholding, the beneficiary will
be directly billed the amount by CMS. However, as discussed below, Part
D plan sponsors will be responsible for providing beneficiaries with
the disenrollment notice after we notify plans that the beneficiary's
Part D coverage has been terminated for failure to pay his/her Part D--
IRMAA.
On December 10, 2010, we released to Part D plan sponsors a
memorandum entitled, ``Part D--Income Related Monthly Adjustment
Amount--Frequently Asked Questions & Answers,'' which included plain-
language, beneficiary-friendly questions and answers specifically
addressing inquiries plans may receive from beneficiaries. These FAQs
include information such as how the Part D--IRMAA is collected, the
responsible entity for determining who should be assessed the amount,
as well as the appropriate government agency a beneficiary should
contact with additional questions.
We have provided clear instructions to plans regarding the
appropriate referral agency for specific questions regarding an
individual's Part D--IRMAA determination and billing. We will continue
to work with Part D plan sponsors to determine what specific additional
guidance they need in answering beneficiary inquiries related to the
Part D--IRMAA.
Comment: A commenter asserted that there will be an increase in
premium-related complaints submitted to 1-800-MEDICARE due to the Part
D--IRMAA noting that plans are unable to influence or control members'
experiences related to the premium increase and should not be penalized
for these complaints. The commenter requested that CMS exclude
complaints specific to the Part D--IRMAA premiums in plan quality
metrics.
Response: While there may be an increase in the number of
beneficiary complaints related to the Part D--IRMAA, we believe our
developed scripts and FAQs will address most concerns. We agree
beneficiary complaints related to these types of issues should not be
part of Medicare Part D plan sponsors' quality metrics.
Comment: Commenters requested that we clarify how a Part D sponsor
would operationalize the Part D--IRMAA and whether the Part D--IRMAA
affects the Part D bid or the base beneficiary premium.
Response: Currently, Part D sponsors are not expected to implement
any operational changes with regards to the collection of the Part D--
IRMAA. Unlike the normal Part D plan premiums, applicable beneficiaries
will not pay the Part D--IRMAA to Part D sponsors. Instead, as noted
previously, the Part D--IRMAA will be collected by the Federal
government via a withholding from beneficiaries' SSA, RRB, or OPM
benefit payments or collected by us directly. As stated previously,
though, Part D plan sponsors will be responsible for providing
beneficiaries with the disenrollment notice if we involuntarily
disenroll an individual for failure to pay his/her Part D--IRMAA, just
as they would for any other disenrollment action initiated via a CMS
transaction file, such as those disenrollments that result from
choosing another plan.
Consistent with section 1860D-15(a)(1) of the Act, we will not
apply Part D--IRMAA to the base beneficiary premium used to calculate
the Part D direct subsidy payments. In addition, no other Part D--IRMAA
related adjustments will be made to the Part D payments received by
Part D sponsors. As a result, the Part D--IRMAA is expected to have no
impact on the Part D bids or Federal payments received by Part D
sponsors.
Comment: One commenter conveyed that it did not support the
imposition of the Part D--IRMAA because of the ``potentially adverse
effect'' of this provision, referencing our estimate that approximately
220,000 beneficiaries may disenroll from the Part D program as a result
of the Part D--IRMAA (see 75 FR 71256). Another commenter suggested
that CMS monitor the impact of this policy on enrollment in Part D
plans and the potential for adverse selection. More specifically, this
commenter was concerned that the most healthy, affluent seniors may
elect to delay enrollment in a Part D plan as it may be financially
advantageous to pay the late enrollment penalty for delaying enrollment
rather than paying the Part D--IRMAA for many years when expected drug
expenditures are minimal. Despite one of the commenters' dislike for
this statutory requirement, the commenter applauded CMS for developing
timely regulations to implement this new requirement.
Response: We have no discretionary authority to waive the Part D--
IRMAA, which is clearly required by the ACA. We are dedicated to
ensuring a timely and thorough implementation and appreciate
acknowledgement of our efforts to develop regulations to implement this
new requirement. We will monitor all aspects of Part D--IRMAA
implementation, including the impact of this policy has on future Part
D disenrollments and enrollments.
Comment: One commenter asserted that the introduction of the IRMAA
for Part B and Part D premiums through Social Security deductions is
not understood by many beneficiaries. Consequently, the commenter
encouraged consideration of some notification from SSA or CMS of each
individual's premiums under each Part prior to the upcoming year.
Response: Each year, SSA will determine who will be assessed an
IRMAA in both the Part B and Part D programs. In November, SSA will
send the beneficiary an annual letter that indicates the amount of any
IRMAA the individual may owe. Further, CMS and SSA developed
beneficiary-friendly publications and FAQs to assist beneficiaries and
our partners with understanding this new requirement. We believe that
more outreach and education will assist beneficiaries in understanding
the IRMAA and which government Agency (CMS or SSA) should be contacted
with further questions. Plans may refer beneficiaries to SSA with
questions regarding the content of their annual letter from SSA
regarding the IRMAA.
We would also like to note that in the preamble of the proposed
rule we inadvertently referenced the wrong citation in describing our
proposal to add provisions regarding a beneficiary's right to file an
appeal of SSA's Part D--IRMAA determination. We referenced Sec.
423.286(d)(4)(iii) and (iv), but should have referred to Sec.
423.286(d)(4)(i) which is where these provisions were

[[Page 21456]]

proposed and where they are being finalized in this rule.
b. Collection of Monthly Beneficiary Premium (Sec. 423.293)
We proposed establishing a new Sec. 423.293(d)(1) to describe how
the Part D--IRMAA would be collected. First, we addressed the process
for collecting the Part D--IRMAA from SSA, RRB, or OPM benefit
payments. In cases where SSA determines that a Part D enrollee must pay
a Part D--IRMAA, such amount must be paid through withholding from the
enrollee's Social Security benefit payments, or benefit payments by the
RRB or OPM in the manner that the Part B premium is withheld.
Additionally, we proposed at Sec. 423.293(d)(2) that in cases where
premium withholding is not possible because the monthly benefit check
is insufficient to allow the withholding, or the enrollee is not
receiving any monthly benefit payment, the individual must be directly
billed for the Part D--IRMAA through an electronic funds transfer
mechanism (such as automatic charges of an account at a financial
institution or a credit or debit card account) or according to other
means that we may specify.
Section 3308 of the ACA provides that the Part D--IRMAA is an
increase to the monthly beneficiary premium for certain individuals.
Section 1851(g)(B)(i) of the Act, as incorporated by section 1860D-
1(b)(5) of the Act, establishes that a beneficiary may be terminated
for failing to pay his/her Part D premiums. At Sec. 423.293(d)(3), we
proposed that CMS will terminate Part D coverage for any individual who
fails to pay the income related monthly adjustment amount in accordance
with proposed Sec. 423.44 (see discussion below).
Comment: Several commenters conveyed that they understood that
implementation of the Part D--IRMAA requires coordination among CMS,
Part D plan sponsors, and SSA, with SSA having primary responsibility
for an individual's IRMAA determination. They suggested that the final
regulations address the need for the timely exchange of beneficiary
information and any updates in order to facilitate coordination amongst
these entities. As an example, commenters contended that in cases where
a higher income beneficiary is no longer enrolled in a Part D plan, the
Part D sponsor should send this information immediately to CMS and SSA
so that the Part D--IRMAA is no longer deducted from the beneficiary's
benefit check or billed to the beneficiary.
Response: We appreciate the recommendation that CMS and SSA
maintain close and timely coordination related to Part D enrollment and
the Part D--IRMAA. As noted in the proposed rule ``* * * CMS will
routinely provide SSA with the names of all individuals newly enrolling
in the Part D program * * * and will also routinely provide the names
of individuals who have disenrolled from the Part D program so that
such individuals will no longer be assessed the Part D--IRMAA.''
Furthermore, as stated in Sec. 423.36 and in our guidance, Part D plan
sponsors must submit the disenrollment transactions to CMS within 7
calendar days of receipt of the beneficiary's completed disenrollment
request in order to ensure the correct effective date. (See Chapter 3,
Sec. 50.4.1 ``Voluntary Disenrollments'' of the Medicare Prescription
Drug Benefit Manual published August 17, 2010). We believe that through
this existing process, all involved entities will receive timely
notification to address changes to either Part D enrollment or Part D--
IRMAA.
Comment: One commenter asserted that they foresaw enrollment
``glitches'' similar to those of LIS-eligible beneficiaries who were
inadvertently dropped from one plan but not correctly auto-enrolled in
the next. This commenter further stated that, undoubtedly, some high-
income beneficiaries would face disenrollment because of
miscommunications that result because prescription drug plan premiums
are paid to their chosen plan and the Part D--IRMAA is paid to CMS.
Based on this assertion, the commenter encouraged CMS to develop an
expeditious, straight-forward process for resolving such problems and
to publicize that process on Medicare.gov.
Response: We appreciate the commenter's concern about possible
problems or beneficiary confusion regarding payments for the Part D--
IRMAA to the Federal government and plan premiums. The vast majority of
individuals required to pay the Part D--IRMAA will have the IRMAA
amount deducted from their monthly benefit check, which will eliminate
the possibility of involuntary disenrollment for failure to pay the
Part D--IRMAA. For those individuals who will be billed by CMS
directly, we will notify them via monthly billing notices. Further, we
have developed FAQs for use by plans, partners, and 1-800-MEDICARE to
educate beneficiaries on the proper means to make payments for their
Part D--IRMAA. However, we will consider outlining the process for Part
D--IRMAA payment and possible disenrollment on Medicare.gov to assist
in beneficiary understanding.
c. Involuntary Disenrollment by CMS (Sec. 423.44)
Section 3308 of the ACA provides that the Part D--IRMAA increases
the monthly beneficiary premium for individuals who are subject to the
assessment. Therefore, we proposed to apply provisions similar to the
existing Part D premium rules to terminate Part D coverage (provided
for by Section 1860D-13(c) of the Act) for any individual who fails to
pay the Part D--IRMAA. Specifically, we proposed the following:
Section 423.44(e)(1) provides that CMS will disenroll
individuals who do not pay their Part D--IRMAA.
Section 423.44(e)(2) provides individuals a 3-month grace
period to pay outstanding Part D--IRMAA amounts before they are
involuntarily disenrolled.
Section 423.44(e)(3) provides an opportunity for a
disenrolled beneficiary to establish ``good cause'' for failure to pay
their Part D--IRMAA and have their plan enrollment reinstated if Part
D--IRMAA arrearages are paid.
Section 423.44(e)(4) requires PDPs, after notification by
CMS, to notify enrollees of the termination of their enrollment in the
Part D plan in a form and manner determined by CMS.
Section 423.44(e)(5) establishes that the effective date
of disenrollment is the first day following the initial grace period.
Finally, we proposed modifying the title of Sec. 423.44
from ``Involuntary Disenrollment by the PDP'' to ``Involuntary
Disenrollment from Part D Coverage.''
Comment: We received several comments on the length of the proposed
grace period applicable to Part D--IRMAA premiums. While several
commenters commended CMS for proposing a longer grace period to pay the
Part D--IRMAA, other commenters suggested that CMS synchronize the 3-
month grace period for payment of the Part D--IRMAA with the plans'
minimum 2-month grace period already established by CMS regulations and
guidance. Commenters asserted that having different grace periods could
cause potential conflict and confusion if the enrollee failed to pay
both the Part D premium and the Part D--IRMAA and was provided a grace
period by both the PDP and CMS, but on differing timelines (for
example, a 2-month grace period under the PDP and a 3-month grace
period under CMS).
Commenters also requested that we take into consideration the
potential

[[Page 21457]]

overlap, conflicts, and/or confusion that could occur for beneficiaries
receiving notices for non-payment of their plan premium and non-payment
of the Part D--IRMAA and any conflicting grace periods. The commenter
requested that CMS revise the approach to better coordinate the timing
of the plan beneficiary disenrollment notices with the plan and the
Part D--IRMAA grace periods and that we should do our best to prevent
the potential problems. Another commenter asked us to clarify that a
Part D beneficiary could be disenrolled from a Part D plan for failure
to pay the plan premium after the plan's two-month grace period
regardless of whether the enrollee has paid their Part D--IRMAA or has
not exhausted the 3-month grace period for the D--IRMAA.
In addition, one commenter recommended that CMS delay
implementation of the grace period specific to the Part D--IRMAA in
light of the other CMS provisions that require process and system
changes. According to this commenter, CMS should consider this
recommendation since the Part D--IRMAA affects only a small percentage
of the total Part D population.
Response: Under the Original Medicare program, beneficiaries
assessed the Part B-IRMAA are afforded an initial 3-month grace period
to pay their Part B premiums before they are terminated. As individuals
may be subject to both the Part B and the Part D--IRMAA, we believe
that the grace period for both programs should be consistent.
With respect to synchronizing the Part D--IRMAA with plan premium
grace periods, our regulations at Sec. 423.44(d)(1)(iii) stipulate
that plans choosing to implement a policy of involuntary disenrollment
for failure to pay the Part D plan premium must provide a minimum 2-
month grace period. A Part D plan sponsor with an established 2-month
minimum grace period may disenroll a beneficiary for failing to pay the
plan's premium, if such grace period ends prior to the 3-month grace
period allotted for payment of the Part D--IRMAA. Current guidance
(Medicare Prescription Drug Benefit Manual, Chapter 3, Sec. 50.3.1)
allows plans to implement a longer grace period or forgo involuntary
disenrollments for failure to pay premiums entirely. Therefore, plans
already have the ability to modify their respective grace periods and
are encouraged to do so if they believe the existence of two different
grace periods will create conflict or confusion.
As noted previously, the vast majority of individuals subject to
the Part D--IRMAA are paying the income-based amount through a
deduction from their Social Security checks, and thus the grace period
associated specifically with payment of the Part D--IRMAA is not a
factor. However, to the extent that individuals fail to pay only the
Part D--IRMAA, we believe it is appropriate to use the same procedures
and time frames that apply to the Part B-IRMAA. Note that individuals
who fail to pay the Part D premium that is owed to a plan may be
disenrolled by the plan after the expiration of the 2-month grace
period, regardless of the payment status of their Part D--IRMAA.
If a plan chooses to retain a grace period that is shorter than the
one specific to the Part D--IRMAA, once the beneficiary is disenrolled
from the plan, the assessment of the Part D--IRMAA will cease.
Therefore, the beneficiary will receive the disenrollment notice as a
result of not paying the plan's premium and there will be no need to
issue the involuntary notice for failing to pay the Part D--IRMAA. For
example, if the beneficiary fails to pay the plan premium within the
plan's grace period but the grace period specific to the Part D--IRMAA
has not lapsed, the Part D plan sponsor will, in accordance with CMS
rules, send us a plan transaction to disenroll the beneficiary.
Following confirmation from us that the disenrollment transaction has
been accepted, the Part D plan sponsor must send the beneficiary the
disenrollment notice no later than 3 business days following the last
day of the grace period. (See Chapter 3, Section 50.3.1 of the Medicare
Prescription Drug Benefit Manual.) Once the beneficiary has been
disenrolled from the plan, the withholding and/or billing of the Part
D--IRMAA will cease. Lastly, in those cases where the Part D--IRMAA and
the plan premium grace periods are different, but end on the same date,
the beneficiary will receive two disenrollment notifications--Notice of
Failure to Pay Plan Premiums and the Notification of Involuntary
Disenrollment by the Centers for Medicare and Medicaid Services for
Failure to Pay the Part D--IRMAA since the former conveys information
about requesting the plan to reconsider its decision and the latter
provides information about requesting a ``good cause'' determination.
For these reasons, we are finalizing the regulatory provisions as
proposed. However, we will carefully consider these comments and
potential system impacts as it develops its program instructions to
plans regarding the procedures for disenrolling beneficiaries who fail
to pay their Part D--IRMAA and the timing of when plans will convey the
notice. In addition, we will closely monitor the disenrollment process
and make adjustments to the process to ensure optimum coordination
between the timing of the grace period and the issuance of the
beneficiary disenrollment notice.
Comment: One commenter recommended that CMS make attempts to
collect the Part D--IRMAA before terminating the enrollee, and
encourages CMS to publish, with opportunity for public comment, the
proposed process for doing so.
Response: As explained previously, for individuals that do not have
their Part D--IRMAA deducted from their Social Security checks, we are
following the same process we use in collecting the Part B-IRMAA. This
process involves repeated monthly statements (initial bill, second
notice and a delinquent notice) to the beneficiary to solicit the
payment and to notify the individual of the potential consequences of
failure to make a payment prior to disenrollment at the end of the
initial 3-month grace period. In addition, if payment is not made, the
beneficiary will have an additional 3 months to establish ``good
cause'' for failure to pay their Part D--IRMAA and remit payment for
any arrearages to be reinstated into their Part D plan. We believe this
process provides sufficient notification to the beneficiary and
opportunity to pay their Part D--IRMAA prior to disenrollment for
failure to pay.
Comment: Several commenters expressed concern with the proposed
requirement that plans issue the disenrollment notice to enrollees
involuntarily disenrolled for failure to pay their Part D--IRMAA.
Commenters believed that CMS was in the best position to send these
notices in a timely manner since we, not the plan, are aware of the
member's Part D--IRMAA amount and any possible arrearages. Commenters
were concerned that if plans served as an intermediary in this process,
they would inevitably be contacted with complaints or subject to
grievances. It was suggested that a CMS-generated notice would reduce
the burden on plans and would more clearly communicate to enrollees
that CMS should be contacted regarding questions on the Part D--IRMAA.
Response: As described previously, individuals who are subject to
disenrollment based on their failure to pay the Part D--IRMAA will have
first received a series of monthly billing statements from CMS
informing them of

[[Page 21458]]

their obligation to pay the Part D--IRMAA, and the consequences of
their failure to do so. If and when disenrollments do become necessary,
we believe affected individuals should be afforded the same notices
that other individuals would receive from their plans. Thus, we
disagree that plans should not be responsible for sending a
disenrollment notice. Such notices are part of a plan's daily business
operations. This process is consistent with existing requirements for
disenrollment of a beneficiary who is no longer eligible to remain in a
Medicare prescription drug plan due to loss of Medicare Part A and/or
B. In this situation, we involuntarily disenroll the beneficiary, and
the beneficiary's Part D plan sponsor is required to provide the
individual with the Disenrollment Due to Loss of Medicare Part A and/or
Part B Notice (See Chapter 3, Section 50.2.2 of the Medicare
Prescription Drug Benefit Manual).
We recognize that Part D plan sponsors may receive questions from
their members regarding the disenrollment. As such, the notification
used by Part D plan sponsors will explicitly state that the
disenrollment is being effectuated by the plan at CMS' direction. This
notice further instructs the beneficiary to contact us, not the plan,
about questions pertaining to the notice. As noted previously, the
December 10, 2010 CMS memorandum mentioned previously provides plans
with language they can use in responding to members' Part D--IRMAA
inquiries. We will continually develop and release information to Part
D plan sponsors, partners, and beneficiaries via the CMS information
channels (1-800-MEDICARE, http://www.medicare.gov) that will assist
beneficiaries with questions about their Part D--IRMAA and direct them
to the appropriate entity for assistance. Thus, we will retain the
proposed provision that Part D plan sponsors will provide a beneficiary
with the notice when he/she is disenrolled for failing to pay the Part
D--IRMAA.
Comment: A commenter contended that it was not clear from our
proposal if CMS intended to tell Part D plan sponsors to disenroll the
non-paying member before or after the end of the grace period. The
commenter concluded that if timing for notification is the latter, this
could result in a retroactive disenrollment from the plan, with
possible complications in terms of bills for non-covered services and
medications retroactive to the effective date of the disenrollment.
Response: We recognize this concern and will keep this issue in
mind as we develop operational guidance on the disenrollment process.
Comment: Two commenters disagreed with the proposed policy of an
additional 3-month grace period for individuals to establish ``good
cause'' after the disenrollment date, allowing for no disruption in
coverage if reinstated. Another commenter suggested that plans be
informed if a disenrolled member requests a ``good cause''
determination for failure to pay their Part D--IRMAA.
Response: We believe that beneficiaries should be afforded the
opportunity to establish ``good cause'' for not paying the Part D--
IRMAA amount and the ability to be reinstated in their Part D coverage
without interruption. We appreciate the comment regarding plan
notification of requests for good cause and will take this into
consideration as we develop the process for good cause''
determinations. (See section II.C.8 of this preamble for a further
discussion of this issue.)
Comment: A few commenters expressed concern about what would happen
to individuals involuntarily disenrolled from their plan for failure to
pay their Part D--IRMAA. Some commenters requested that we clarify that
a disenrollment for failure to pay the Part D--IRMAA would result in a
loss of health coverage if the individual is enrolled in an MA plan,
cost plan, or employer group health plan with prescription drug
coverage. Another commenter asked whether a beneficiary who is
disenrolled for failure to pay the Part D--IRMAA would be subject to
the Part D late enrollment penalty (LEP) upon reenrollment in a Part D
plan. In addition, commenters made the following suggestions:
Establish a special enrollment period (SEP) for
disenrolled individuals to re-enroll into another MA-only (or a cost
plan).
Allow for passive enrollment into an MA-only plan within
the same organization if an individual is disenrolled from their MA-PD
plan for failure to pay Part D--IRMAA.
Grant employer group waiver plans a waiver from the
disenrollment process.
Response: An individual in an MA-PD who fails to pay the Part D--
IRMAA within the 3-month grace period will be disenrolled to Original
Medicare. Because this policy ensures that beneficiaries will not lose
health care coverage, we believe an SEP is unwarranted and unnecessary.
Furthermore, a beneficiary's Part D coverage may be reinstated without
interruption if within 3 months after disenrollment, the enrollee
demonstrates ``good cause'' for failure to pay the Part D--IRMAA and
pays all Part D--IRMAA and plan premium arrearages. The SEP policy at
Sec. 423.38(c)(8)(ii) permits CMS to address exceptional enrollment
cases for individuals on a case-by-case basis. To the extent that
individuals believe they have exceptional situations that warrant
consideration to enroll in a MA-only (or other plan that does not offer
Part D coverage), they should call 1-800-MEDICARE and ask to be put in
touch with a CMS regional caseworker. In addition, the policies for the
Part D LEP remain unchanged by the implementation of Part D--IRMAA. An
individual who is disenrolled for failure to pay the Part D--IRMAA may
be subject to the Part D LEP if he or she goes without creditable
prescription drug coverage for 63 days or more. If an individual would
like to restart prescription drug coverage, he or she would have to pay
any arrearages and make an election during a valid enrollment period.
Individuals in employer group waiver plans and employer group
health plans will also be disenrolled for failure to pay Part D--IRMAA.
Employer groups that want to assure that their members retain coverage
are not prohibited from informing their retirees that they will be
reimbursed by their employer group for any Part D--IRMAA they are
required to pay.
We appreciate the comments on our proposals and, for the reasons
contained in the discussion previously, are finalizing these provisions
as proposed. We have, however, made technical revisions to Sec.
423.286(d)(4) andSec. 423.293(d) to incorporate references to the new
SSA regulations regarding the Part D IRMAA, which were published after
the issuance of our proposed rule.
10. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
The MMA, as reflected in Sec. 423.782, established that full-
benefit dual eligible institutionalized individuals have no cost-
sharing for covered Part D drugs under their PDP or MA-PD plan. Section
3309 of the ACA eliminates cost-sharing for full-benefit dual eligible
individuals who are receiving home and community-based services (HCBS)
under a home and community-based waiver authorized for a State under
section 1115 or subsection (c) or (d) of section 1915 of the Act, or
under a State Plan Amendment under section 1915(i) of the Act, or if
such services are

[[Page 21459]]

provided through enrollment in a Medicaid managed care organization
with a contract under section 1903(m) or 1932 of the Act. These
services are targeted to frail, elderly individuals who, without the
delivery in their home of services such as personal care services,
would be at risk of institutionalization. We proposed to amend Sec.
423.772 to establish the definition of ``individual receiving home and
community-based services'' and Sec. 423.782(a)(2)(ii) to reflect that
these individuals will have no cost-sharing. The Best Available
Evidence (BAE) policy set forth in Sec. 423.800--which requires plans
to charge a lower copayment if certain evidence is provided--is written
broadly enough that it will apply to this new copayment category;
therefore, we proposed to make no regulatory changes to Sec. 423.800.
We proposed to update our guidance to plans to provide additional
detail on how the BAE rules apply to this population.
Section 3309 of the ACA provides the Secretary with discretion
regarding the effective date of this provision, with the stipulation
that it shall be effective no earlier than January 1, 2012. We proposed
that this provision would take effect on January 1, 2012, because we
believed it was important to provide this benefit at the earliest
possible date to an estimated 600,000 beneficiaries a year.
Comment: Commenters supported our proposal to amend Sec. 423.772
to establish the definition of an ``individual receiving home and
community-based services'' and Sec. 423.782(a)(2)(ii) to reflect that
these individuals will have no cost-sharing. One commenter urged the
inclusion of individuals residing in assisted living facilities in the
definition of an ``individual receiving home and community-based
services'' in Sec. 423.772.
Response: The commenter that urged the inclusion of individuals
residing in assisted living facilities in the definition of an
``individual receiving home and community-based services'' raises an
important distinction warranting the following clarification in our
guidance to plans and States. Individuals residing in an assisted
living facility will be included in the definition of an ``individual
receiving home and community-based services'' only to the extent that
they satisfy the inclusion criteria set forth in section 3309 of the
ACA. Specifically, the assisted living facility resident must be a
full-benefit dual eligible individual receiving HCBS under a home and
community-based waiver authorized for a State under section 1115 or
subsection (c) or (d) of section 1915 of the Act, or under a State Plan
Amendment under section 1915(i) of the Act, or if such services are
provided through enrollment in a Medicaid managed care organization
with a contract under section 1903(m) or 1932 of the Act.
We appreciate the strong support we received from commenters for
our proposal to amend Sec. 423.772 to establish the definition of an
``individual receiving home and community-based services'' and Sec.
423.782(a)(2)(ii) to reflect that these individuals will have no cost-
sharing. We are finalizing these regulations as proposed.
Comment: Many commenters urged us to provide explicit guidance on
the types of BAE that would be deemed acceptable to establish HCBS
status, along with clear reporting requirements for plans receiving
such evidence to report it to us. Several of these commenters
recommended that we categorize these individuals on the Transaction
Reply Report (TRR) as low-income subsidy level 3 (institutionalized--$0
cost share), as opposed to developing a new low-income subsidy level
for the HCBS status. One commenter requested guidance on whether the
PDE value will be unique for these individuals.
Response: We agree with commenters that successful implementation
of this provision will require us to update its guidance to plans to
provide additional detail on how BAE rules apply to this population. In
such guidance, we intend to address key concerns raised by commenters,
including at a minimum how such beneficiaries will appear on the TRR,
their low-income subsidy level, and the correct PDE value to be
reported.
Comment: Several commenters urged CMS to provide explicit guidance
to State Medicaid Agencies regarding the new zero copayment group, and
develop data transfer protocols to ensure that States accurately
identify HCBS eligible individuals and transmit such data to CMS in a
timely fashion.
Response: We look forward to partnering closely with States to
facilitate the identification of all such HCBS eligible individuals and
to ensure timely and accurate transmission of the necessary data to
CMS. We will provide customized guidance to states to ensure that they
have a clear understanding of this new category of individuals
qualified for the zero copayment status. We will require State Medicaid
Agencies to submit data at least monthly identifying these individuals
by leveraging the existing data exchange currently used by States to
identify their dual eligible individuals to CMS. We will add a new
value for the existing institutional status field, which will prompt
CMS to set a zero copayment liability for full-benefit dual eligible
beneficiaries who qualify for HCBS zero cost-sharing, as set forth
under section 3309 of the ACA.
Comment: One commenter recommended that CMS provide model
notifications to Part D plans to send to affected beneficiaries to
ensure that such beneficiaries are provided maximal opportunities to
understand their new zero copayment Part D status. Another commenter
suggested that CMS develop a form for Medicaid Managed Care plans to
provide to beneficiaries, attesting to their use of HCBS services.
Response: We thank the commenters for these suggestions. We will
determine later in 2011 whether the existing Part D model notifications
that provide such beneficiaries with their copayment status are
adequate or whether a new Part D model notice customized to this
population might be beneficial. We will also consider the latter
suggested notice as we update our BAE guidance to plans to ensure the
most efficient procedures for accurately identifying this population.
Comment: Two commenters noted that individuals who receive HCBS
under a home and community-based waiver under section 1115 and State
plan participants under section 1915 of the Act generally receive
letters informing them that they have qualified. These commenters
described such letters as varying significantly among States and
programs, and urged that CMS work with plans to help them identify such
letters to serve as BAE.
Response: We will work with States to identify the most common
forms of such letters provided to participants, and we intend to share
best practices with plans to more effectively identify full-benefit
subsidy eligible individuals who qualify for zero cost-sharing under
this HCBS provision.
Comment: One commenter urged CMS to clarify that an effective date
of January 1, 2012, for the HBCS provision does not permit retroactive
application of the zero cost-sharing benefit to extend prior to January
1, 2012, notwithstanding that the effective date of LIS eligibility in
many cases is retroactive and extends prior to January 1, 2012.
Response: In accordance with section 3309 of the ACA, the
Secretary's discretionary authority to establish the effective date of
the HCBS provision is limited by the stipulation that the effective
date shall be no earlier than January 1, 2012. This effective date does
not allow for retroactive application of

[[Page 21460]]

the zero cost-sharing benefit to extend prior to January 1, 2012, even
for beneficiaries whose effective date of LIS eligibility extends prior
to January 1, 2012. We appreciate the commenter bringing to our
attention the need for such clarification and we will provide such
clarification in our guidance to plans.
Comment: A commenter urged that CMS require Part D sponsors to
appropriately reimburse long term care (LTC) pharmacies for the
additional value that those pharmacies must provide to beneficiaries
receiving pharmacy services in assisted living facilities, such as
special unit dose medication packaging, medication delivery, and
medication reviews by pharmacists.
Response: Any such reimbursements are a matter of negotiation
between the plan sponsor and the LTC pharmacy.
Comment: Two commenters recommended that CMS adopt the same
procedural approach for determining the deeming period for HCBS
eligibility that CMS uses for individuals who qualify for the full-
benefit subsidy based on Medicaid enrollment. Specifically, if an
individual appears on State files as eligible for HCBS at any point
during the year, that individual would qualify for the HCBS zero cost-
sharing for the remainder of the year. If an individual shows as
eligible in the month of July or any later month in the year, the HCBS
zero cost-sharing would continue through the next plan year.
Response: We thank the commenters for raising this issue, as it
warrants the following noteworthy clarification in our guidance to
plans and States. To ensure procedural consistency and operational
efficiency, we will apply the same procedural approach for determining
the deeming period for HCBS eligibility that we apply for individuals
who qualify for the full benefit subsidy based on Medicaid enrollment,
as set forth under Sec. 423.773(c)(2), to the extent that an
individual's HCBS deemed period does not exceed the individual's full-
benefit dual deemed period. Specifically, if an individual is deemed
eligible for HCBS zero cost-sharing at any point during the year, that
individual will qualify for HCBS zero cost-sharing for the remainder of
the year. If an individual is deemed eligible for HCBS zero cost-
sharing in the month of July or any later month in the year, the
individual's HCBS zero cost-sharing will continue through the next plan
year so long as the individual was also deemed in the month of July or
any later month in the year for the full-benefit subsidy based on
Medicaid enrollment. In other words, an individual's ongoing HCBS
deemed status is dependent on concurrent deemed full-benefit dual
eligibility. We believe that this policy will promote effective
administration of the HCBS cost-sharing benefit and decrease the
administrative burden on CMS and State Medicaid Agencies, as well as on
HCBS eligible individuals. We note that it also is consistent with how
we determine the deeming period for institutionalized full benefit dual
eligible individuals.
We appreciate the comments that were submitted on these provisions
and will be finalizing these proposals.
11. Appropriate Dispensing of Prescription Drugs in Long-Term Care
Facilities Under PDPs and MA-PD Plans (Sec. 423.154)
In our proposed rule, we proposed to implement section 3310 of the
ACA by adding a new regulation at Sec. 423.154 to govern how plan
sponsors (all organizations and sponsors offering Part D including
stand-alone Part D plans, MA organizations, EGWP contracts, and PACE
plans) direct network pharmacy dispensing of covered Part D drugs in
LTC facilities. Under Sec. 423.154 (a)(1)(i) of the proposed rule, we
require all sponsors to contract with network pharmacies servicing LTC
facilities, as defined in Sec. 423.100, to dispense brand medications,
as defined in Sec. 423.4, to enrollees in such facilities in no
greater than 7-day increments at a time. In an effort to target the
drugs resulting in the most financial waste and to lessen the burden
for facilities transitioning from 30-day supplies to 7-day-or-less
supplies, we proposed initially limiting the requirement for 7-day-or-
less dispensing to brand drugs as defined in Sec. 423.4. We noted in
the proposed rule that as a result of consultation with industry
representatives, a transitional approach would ease the initial burden
on nursing and pharmacist staff by reducing the number of products for
which a pharmacy would have to transition from dispensing one 30-day
supply per month to dispensing at least four 7-day supplies per month.
We also acknowledged that we are not aware of any objective data that
demonstrate the cost effectiveness of full versus partial
implementation, but welcomed comments from the public presenting such
data and also solicited comments on how soon the industry can
transition to include generic drugs in the 7-day-or-less requirement.
Under Sec. 423.154(a)(1)(ii) of the proposed rule, we require Part
D sponsors to permit the use of uniform dispensing techniques defined
by each of the LTC facilities being serviced. We proposed to define
uniform techniques to mean that dispensing methodologies will be
uniform with respect to the type of packaging used to dispense Part D
drugs within a LTC facility, but may vary by the quantity of medication
(days' supply) dispensed at a time. We explained that it is the LTC
facilities that are in the best position to identify uniform dispensing
techniques to be used throughout their LTC facility. Therefore, we
proposed that Part D sponsors must permit their contracted pharmacies
to implement the uniform dispensing techniques selected by each LTC
facility, and may not require the use of a different packaging system
or technology than that selected by the facility through its contracted
LTC pharmacy.
We noted in the proposed rule that we do not expect pharmacy
delivery schedules to change as a result of the 7-day-or-less
dispensing requirement since deliveries are generally made daily to
accommodate new admissions and first doses. We do recognize, however,
that there may be changes in the way some pharmacies make deliveries.
We stated in the preamble of the proposed rule that, subject to State
restrictions, pharmacies, and LTC facilities may agree to use a common
carrier for some deliveries to LTC facilities. We would not consider a
contractual agreement for a pharmacy to deliver a portion of Part D
drugs to Part D enrollees residing in LTC facilities via common carrier
as causing the pharmacy to be considered a mail order pharmacy. We
solicited comments on our interpretation.
We proposed to exclude from the requirements of Sec. 423.154(a),
those drugs that are difficult to dispense in a 7-day-or-less supply
and those drugs that are dispensed for acute illnesses. We expressed
our belief that requiring these types of drugs to be dispensed in 7-
day-or-less increments could result in safety or efficacy concerns or
could have the counterproductive effect of increasing drug waste. For
medications that we proposed to exclude from the requirement, we
encouraged use of smaller size containers, when available, to reduce
the potential for waste. We proposed to codify these exclusions at
Sec. 423.154(b) and solicited comments on the types of dosage forms
and drugs that should be excluded from the requirements under Sec.
423.154(a).
We explained that we considered ``return for credit and reuse'' as
a possible solution to reduce waste in LTC facilities. Although
``return for credit and reuse'' is not prohibited by CMS, we recognized
limitations to this approach since ``return for credit and

[[Page 21461]]

reuse'' is not permitted in all states, often excludes lower cost
generic drugs, is frequently limited to a subset of drugs in unused or
specially approved packaging, does not address issues regarding
diversion, and is subject to Drug Enforcement Agency (DEA) limitations
with respect to controlled substances. Upon consideration of these
facts, we decided that ``return for credit and reuse'' would not be the
optimal solution to address the issue of unused drugs in LTC facilities
under Part D.
Although we did not propose ``return for credit and reuse'' as an
alternative to 7-day-or-less dispensing, we understand that it may be a
supplement to reduce the minimal pharmaceutical waste associated with
7-day-or-less dispensing, particularly in circumstances where a Part D
drug can be safely returned to stock for reuse. We proposed to
explicitly allow ``return for credit and reuse'' in LTC pharmacies,
when ``return for credit and reuse'' is permitted under the State law
and is explicitly allowed under the contract between the Part D sponsor
and the pharmacy. In addition, when permitted or required
contractually, we noted that pharmacy dispensing fees paid to
pharmacies may take into account restocking fees consistent with the
modification to dispensing fees under Sec. 423.100, ``Dispensing
Fees'' discussed in section II. F. of this final rule (Other
Clarifications and Technical Changes).
We explained in our proposed rule that only when data has been
systematically collected will the extent of waste of Part D drugs be
quantifiable on other than an anecdotal basis. Therefore, we proposed
to add a provision at Sec. 423.154(f) to require that Part D sponsors
include terms in their LTC pharmacy contracts that require any unused
drugs originally dispensed to the Part D sponsor's enrollees to be
returned to the pharmacy (not necessarily for reuse) and reported to
the sponsor. Such contracts would also address contractual obligations
for disposal in accordance with Federal and State regulations. We
solicited comments on whether there are DEA or state technical issues
that may be barriers to the implementation of this provision.
We noted that options for billing to accommodate 7-day-or-less
dispensing are being discussed in a National Council for Prescription
Drug Programs (NCPDP) workgroup, and unless the industry voluntarily
adopts a single billing standard, we believe that Part D sponsors
should generally allow pharmacies to use be currently accepted
transactions to minimize burden in transitioning to more frequent
dispensing of smaller amounts.
Pursuant to our authority under section 1860D-12(b)(3)(D) of the
Act, which incorporates by reference section 1857(e)(1) of the Act, we
proposed a new requirement under Sec. 423.154(a)(2) in which Part D
sponsors must collect and report to CMS the dispensing methodology used
for each dispensing event described by Sec. 423.154(a)(1)(i) and (ii)
and on the nature and quantity of unused drugs returned to the
pharmacy. This data collection would be done in an effort to help us
estimate the relative efficiencies of dispensing methodologies and
determine the residual waste to estimate additional savings.
We stated in the proposed rule that this provision would likely
lead to a change in copayment methodology. We noted that we anticipate
the implementation of particular copayment methodologies will be
dependent on the billing and dispensing methodologies used, and as a
result, we acknowledged that copayment methodologies within the same
plan may vary depending on the LTC facility where the beneficiary
resides. Copayment may be collected at the first dispensing event in a
month, the last dispensing event in a month, or prorated based on the
number of days a Part D drug was dispensed in a month. However, due to
the relatively small copayments for low-income subsidy (LIS)
beneficiaries, copayments for LIS beneficiaries should be billed with
the first or last dispensing event of the month.
Under Sec. 423.154(c) of the proposed rule, we would waive the
requirements under paragraph (a) for pharmacies when they dispense
brand Part D drugs to Part D enrollees residing in intermediate care
facilities for the mentally retarded (ICFMR) and institutes for mental
disease (IMDs) due to specific problems with medication delivery and
dispensing to closed (and often locked) facilities. We explained that
waiving the requirements in this instance would be consistent with the
statute when done on a uniform basis (that is, all similarly situated
LTC facilities) and when there is a demonstration that applying the
dispensing requirements to pharmacies servicing enrollees residing in
that type of LTC facility would not serve to reduce waste. We solicited
comments on whether other types of facilities (such as LTC facilities
utilizing Indian Health Service (IHS) facilities to provide Part D
drugs or utilizing Tribal facilities providing pharmacy services for
the IHS under Pub. L. 93-638 compacts or contracts) should also be
waived from the requirement and on the specific reasons as to why those
facilities should be waived from the requirement. In addition, we
solicited specific comments on the waiver criteria for LTC pharmacies.
Under Sec. 423.154(d) of the proposed rule and pursuant to section
3310 of the ACA, the requirements of this section would be effective
January 1, 2012. However, under Sec. 423.154(e) of the proposed rule,
we proposed to allow an independent community pharmacy (such as, not a
closed door pharmacy dedicated to servicing LTC facilities only) that
is the primary provider of the Part D drugs to a small LTC facility
(less than 80 beds) located in a rural community (as defined by the
Bureau of the Census) to dispense no more than a 14-day supply through
December 31, 2012, assuming that the pharmacy is not already dispensing
a 7-day supply to any patient population in the LTC facility. We
explained that we expected that Part D sponsors contracting with these
pharmacies would find solutions to their significant challenges and
work toward full compliance with Sec. 423.154(a) during this
extension. Under the proposed rule, these pharmacies would be required
to come into full compliance with Sec. 423.154(a) by January 1, 2013.
We solicited comments on this matter.
Based on the preceding, we proposed revising Sec. 423.150 by
renumbering paragraphs (b) through (g) as paragraphs (c) through (h)
and adding a new paragraph (b) to address appropriate dispensing of
covered Part D drugs to enrollees in LTC facilities. We proposed adding
new requirements, as discussed previously, at Sec. 423.154 to require
Part D sponsors to ensure that all pharmacies servicing LTC facilities
dispense no more than a 7-day supply of brand medications and use
uniform dispensing methodologies as defined by each of the LTC
facilities being serviced. In addition, under Sec. 423.154(a)(2), we
proposed requiring Part D sponsors to collect and report, as CMS
specifies, the dispensing methodology used for each dispensing event
described by paragraphs (a)(1)(i) and (ii) of Sec. 423.154. We
proposed identifying exceptions to this requirement at Sec.
423.154(b)(1) and (2) relative to specific drugs and waivers of this
requirement for specific pharmacies under Sec. 423.154(c). Pursuant to
section 3310 of the ACA, we proposed an effective date of January 1,
2012 for these requirements at Sec. 423.154(d), with a limited
extension through December 31, 2012 for pharmacies meeting the
requirements under Sec. 423.154(e). We also proposed that Part D
sponsors require any unused Part D drugs originally dispensed to

[[Page 21462]]

their enrollees to be returned to the pharmacy and reported to the
sponsor and address whether ``return for credit and reuse'' is
permitted under their contracts with pharmacies servicing LTC
facilities at Sec. 423.154(f).
Comment: We received several comments regarding the term ``waste.''
Commenters requested that we clarify the term. Some commenters
recommended that we not use the term ``waste'' but rather ``unused
drugs'' because the ``waste'' description in the proposed rule does not
harmonize with definitions of waste in other State and Federal
regulations applicable to unused pharmaceuticals.
Response: We agree with the commenters that the use of the term
``waste'' may cause confusion because ``waste'' as discussed in the
proposed rule may not be consistent with other agencies' definitions.
Further, we believe that in using the term ``waste'' in section 3310 of
the ACA, Congress intended to refer to unused drugs. Therefore, in this
final rule we will use the term ``unused drugs'' instead of ``waste.''
Comment: A few commenters requested that we allow for 14-day-or-
less dispensing instead of 7-day-or-less dispensing. Commenters stated
that a 14-day dispensing cycle would balance CMS's goal of reducing
drug waste with the administrative, technological, and financial
burdens placed on Part D sponsors, pharmacies, and beneficiaries.
Commenters urged CMS to consider implementing a 14-day-or-less
dispensing cycle because it is a more reasonable and realistic goal
that will minimize the burden on pharmacies, beneficiaries, and plans.
Some commenters stated that the statute does not mandate 7-day
dispensing and that the dispensing techniques may (but need not)
include weekly dispensing.
Response: We initially proposed limiting these techniques to 7-
days-or-less methodologies. We continue to believe that 7-day-or-less
dispensing more effectively minimizes the volume of unused drugs and
the resulting financial waste paid for under the Part D program.
However, the majority of comments we received in response to our
request for information on the impact of our proposed provision
suggested that costs might increase significantly. While this point of
view conflicts with other opinions we heard during the consultation
period with the industry, we did not receive detailed comments that
supported more moderate cost increases. We also received little
additional information during the comment period on the amount of
unused drugs in LTC facilities paid for under the Part D program, and
none that could be considered as thorough, unbiased, or authoritative.
As a result, the information we have to work with in projecting
potential savings reflects widely divergent estimates. The variation in
savings estimates range from as low as approximately 3 percent to as
high as 17 percent for 7-day supplies, and as high as 20 to 25 percent
for automated dose dispensing. Given the divergence in estimates and
the uncertainty in the rate of conversion to the more efficient
methodologies, we have elected to be conservative in estimating savings
and costs in order to finalize a policy we estimate will result in
savings. Therefore, we are finalizing the requirement to dispense in
14-day-or-less increments. Nothing about this change, however,
precludes facilities and pharmacies from selecting 7-day-or-less
methodologies or Part D sponsors from incentivizing the adoption of
more efficient dispensing techniques.
We agree with the commenters that the statute does not mandate 7-
day-or-less dispensing. Section 3310 of ACA, which is implemented by
Sec. 423.154, states ``[t]he Secretary shall require PDP sponsors of
prescription drug plans to utilize specific uniform dispensing
techniques, as determined by the Secretary, in consultation with
relevant stakeholders, * * * such as weekly, daily, or automated dose
dispensing * * *'' Because the dispensing frequencies are illustrative
examples (as indicated by the use of the phrase ``such as''), we
interpret this language as an indicator of Congress' preference to give
the Secretary flexibility in determining the dispensing increments
based on information received from the relevant stakeholders. Based on
comments, we believe that 14-day-or-less dispensing is a more prudent
approach to initially implementing section 3310 of ACA. A 14-day-or-
less dispensing requirement will place less of a burden on pharmacies
and LTC facilities than a 7-day-or-less dispensing requirement while
allowing CMS to collect data to determine the impact of 14-day-or-less
dispensing on unused drugs in LTC facilities.
For purposes of scoring this final rule, we project that the
current aggregate level of dispensing fees will double. Obviously, the
negotiations between LTC pharmacies and Part D sponsors or PBMs that
would determine any changes in dispensing fees have not yet taken place
and the actual level of dispensing fees is not knowable. Historically,
we believe dispensing fees on LTC claims have been relatively low and
not directly related to pharmacy costs, reflecting the economies of
scale and dominant competitive strategy of long-term care pharmacies in
a highly concentrated industry and the negotiating leverage of large
PBMs. Therefore, pharmacy costs have not been recovered solely through
dispensing fees, but also through other revenue sources, such as mark-
up of negotiated prices for drug sales over acquisition costs and
receipt of rebates from drug manufacturers. Since these other revenue
sources are expected to remain, it is not at all clear that negotiated
dispensing fees must or will increase directly in proportion to the
number of dispensing events per month as some, but not all, commenters
assert. Although the way we are finalizing this rule will result in
only minimal additional costs (for example, only one additional
dispensing event per month with 14-day dispensing and a substantial
reduction in burden associated with the reporting requirements as
compared to the proposed rule), we believe that there will be some
upward pressure on dispensing fees to incentivize the use of more
efficient and cost effective systems in some pharmacies. Therefore, in
order to be as conservative as possible in projecting cost increases,
we have assumed a doubling of the current aggregate level of dispensing
fees.
The comments that follow refer to the 7-day-or-less dispensing
requirement reflecting our requirement in the proposed rule. We believe
that the comments also apply to 14-day-or-less dispensing, as it is a
shorter dispensing increment than traditional 30-day dispensing used in
LTC facilities today. Although all of the comments apply to 14-day-or-
less dispensing, we believe that some of the burden and costs described
in the comments are decreased as a result of less frequent dispensing
events per month associated with 14-day-dispensing versus 7-day-
dispensing.
Comment: We received few comments related to concerns about patient
care. Some commenters believe that that the confusion resulting from
two different dispensing methodologies will lead to medication errors
and patient safety issues. Another commenter was concerned about delays
in treatment, in particular related to protected class drugs, resulting
from, for example, delivery delays due to bad weather. Another
commenter recommended that we implement 7-day-or-less dispensing only
when the requirement is not likely to interfere with patient care.
Response: Based on our conversations with the industry, we know
that most facilities have experience utilizing

[[Page 21463]]

multiple dispensing methodologies today. For example, most pharmacies
dispense using one technique for their Part D patients and another for
their Part A patients. We understand that many pharmacies already
dispense in less-than-30-day increments for their Part A patients
because it is more efficient for the LTC facilities to do so. This is
because the LTC facilities must pay for Part A drugs out of their per
diem payments. These LTC facilities already require their LTC
pharmacists to employ 7- or 14-day dispensing methodologies to limit
exposure to unnecessary costs associated with unused drugs when they
are the payor. Thus, it is clear that LTC facilities and their
contracted pharmacies have been able to manage dispensing to patients
using multiple dispensing methodologies. Consequently, we do not see
any evidence that multiple dispensing methodologies per se in a LTC
facility necessarily results in medication errors, and we received no
comment that provided any specific information to support this
assertion.
In fact, we believe that the original 7-day-or-less dispensing
requirement, and to a somewhat lesser extent, the new 14-day-or-less
dispensing requirement, incentivizes the use of the most effective and
efficient dispensing technologies, such as automated dose dispensing,
which we believe based on conversations with LTC facility and pharmacy
staff who have implemented such systems, will actually result in fewer
medication errors. We learned from multiple industry representatives
that automated dose dispensing systems reduce medication errors by
ensuring the accuracy of the medication dispensed to the patient by
eliminating many manual steps involved in removing doses from multiple
blister packs and collecting them in paper cups prior to the medication
pass. In addition, these systems free up nursing time allowing nursing
staff to focus more on patient care.
We believe that facilities and pharmacies evaluating the optimal
systems to employ in meeting the required change from 30-day dispensing
will seriously consider all alternatives, and many will find that the
confluence of improvements in dispensing equipment technology and
developments in health information technology standards, combined with
changes in dispensing fees represent an excellent opportunity to
upgrade their dispensing systems to the most efficient methodologies to
further both cost-effective operations and competitive advantage.
As stated in the proposed rule, we have learned from many industry
representatives that delivery schedules will not be expected to change
significantly to accommodate 14-day-or-less dispensing. We received a
few comments on the proposed rule asserting that there might be delays
in therapy as a result of changes to delivery schedules to accommodate
shorter dispensing increments. However, no commenters provided details
that contradict what we heard from most industry representatives during
consultation. In most LTC facilities deliveries are already made on a
daily basis to accommodate new admissions and first doses. We did not
receive any comments with substantiating detail that lead us to believe
delivery schedules will have to significantly change as a result of
this requirement. Nor do we believe that bad weather will impact
deliveries to any greater extent than it does today. We did, however,
state in the proposed rule that the way in which some deliveries are
made may have to change. We stated that, when allowed by State law,
common carriers may be used to make some deliveries from the pharmacy
to the LTC facility. So in rare circumstances when a delivery cannot be
made by the pharmacy, deliveries by common carrier may supplement the
delivery schedule. In summary, the comments we received did not
persuade us that the information we received during our pre-rulemaking
consultation with the industry was incorrect or insufficient, and for
this reason, we continue to believe that the parties are capable of
handling various dispensing methodologies and frequent deliveries, and
thus the 14-day-or-less dispensing requirement will not interfere with
patient care.
Comment: Several commenters supported the proposal that a pharmacy
should not be considered a mail order pharmacy because the pharmacy
delivers some of the drugs using a common carrier.
Response: We received only supportive comments on this issue, and
we intend to issue guidance in manual chapters to document this policy.
Comment: We received a couple of comments regarding the
identification of brand name versus generic drugs. A commenter
questioned whether the brand name status would be based on the NDA/ANDA
status.
Response: As indicated in the proposed rule, ``brand name drug'' is
defined at Sec. 423.4. ``Brand name drug'' means a drug for which an
application is approved under section 505(c) of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 355(c)), including an application referred
to in section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (21
U.S.C. 355(b)(2)). Thus, the definition specifically refers to a drug
approved under an NDA. In response to this comment, however, and to
avoid confusion, we are making a technical change to the regulation to
refer to ``brand name drug'' instead of ``brand name medication.''
Comment: We received many comments in support of our proposal to
limit the 7-day-or-less dispensing requirement to brand name drugs only
to minimize any transition issues. Commenters agreed that the majority
of the financial waste is associated with brand name drugs. Commenters
also stated that limiting the requirement to brand name drugs was a
practical approach. We also received a smaller number of comments from
certain pharmacies and from environmental groups that did not support
our proposal to limit the requirements to brand name drugs.
Environmental groups urged us to include generics in the requirement
because generic drugs account for majority of the unused drugs (in
terms of quantity).
Response: We proposed to limit the requirement to brand name drugs
because, after consultation with the industry, we were persuaded by its
arguments that by targeting brand name drugs, we would target a
majority of the financial waste but minimize the initial burden on LTC
facilities and pharmacies converting from a 30-day dispensing increment
to a shorter dispensing increment. Once we are able to collect data on
unused drugs and negotiated prices in the Part D market, we will be in
a better position to evaluate the implications of extending the
requirement to generics. As we stated in our proposed rule, however,
nothing in the requirement prevents LTC facilities and pharmacies from
extending the practice to generic drugs, and we encourage Part D
sponsors to facilitate that practice. Given that pharmacies and
facilities have that flexibility, we continue to believe that imposing
this requirement initially only for brand name drugs is the appropriate
policy.
We agree with the environmental groups that extending the
requirement to generic drugs would result in fewer unused drugs.
However, we must weigh the effect of our proposal against the costs to
the Part D program that may arise and the burden on LTC pharmacies and
facilities. As such, we believe that the phased-in approach--which
focuses first on reducing the amount of unused

[[Page 21464]]

drugs in terms of monetary waste--is appropriate.
Comment: Some commenters requested that we conduct a pilot program
or conduct studies prior to implementing the 7-day-or-less dispensing
requirement. We received some comments recommending that we limit the
7-day-or-less requirement to the most expensive brand name drugs and
add drugs to the requirement after studying the impact of the 7-day-or-
less requirement. Some commenters urged us to conduct studies prior to
extending the 7-day-dispensng requirement beyond brand name drugs and,
in particular, measure the increase in dispensing fees relative to the
average cost of generic drugs not wasted, to determine whether the
requirement should be extended beyond brand-name drugs.
Response: We disagree with the commenters that believe studies or
pilots must be conducted prior to any 14-day-or-less requirements.
First, section 3310 of the ACA does not contemplate that we conduct a
study prior to implementing the provision. Second, we do not believe a
pilot program is necessary. Shorter dispensing cycles have already been
successfully implemented in many LTC facilities and thus, are not a new
approach that warrants a pilot program. Moreover, as noted previously,
we already are proceeding with implementation on an incremental basis
by applying the requirement only to brand name drugs and taking other
steps to facilitate information gathering. In this way, we already are
further mitigating any burden associated with this transition by
initially focusing on only a portion (20 percent of the drugs
dispensed) of drugs dispensed. As discussed elsewhere in this final
rule, we will be requiring pharmacies to report dispensing
methodologies and report unused drugs to Part D sponsors. Our reporting
requirements will provide us with data we can use to evaluate the
implications of extending the requirement to generic drugs. Finally, we
decline to limit the 14-day-or-less dispensing requirement to the most
expensive brand name drugs. Pharmacy reimbursement varies from pharmacy
to pharmacy and plan to plan, and therefore the most expensive brand
name drugs similarly may vary. We do not believe it would be useful or
prudent for us to attempt to identify and maintain a list of such
drugs, particularly given that we are prohibited from interfering with
price negotiations.
Comment: We received a number of comments in support of our
acknowledgment that it is not possible or practical for CMS or Part D
sponsors to identify the uniform dispensing techniques that must be
used in all pharmacies. We also received comments asking us to clarify
``dispensing methodology.'' Commenters wanted us to clarify whether
``dispensing methodology'' refers to only the technique used or also
the number of days. We received one comment that CMS should require all
plan sponsors utilize ``7-day'' dispensing rather than ``7-day-or-
less'' dispensing. The commenter argues: (1) ``7-day-or-less''
dispensing is neither uniform nor specific as mandated by the statute;
(2) less than 7-days will increase dispensing fee-related costs; and
(3) it is impractical because each LTC facility and LTC pharmacy would
have to ascertain the requirements imposed by each resident's plan and
then manage those requirements.
Response: For the purposes of this provision, the term ``dispensing
methodology'' refers to both the packaging system (for example, single
or multidose packing systems such as punch cards, envelopes, or strip
packaging) and the dispensing increment (such as 14-day, 7-day, ``2-2-
3'' day, ``4-3'' day, daily, or automated dose dispensing). ``Uniform
dispensing techniques'' refers to the dispensing methodology or
methodologies used in a particular LTC facility. As stated in the
proposed rule, the days' supply dispensed to enrollees may vary
depending on the drug. Under this provision, it is the LTC facilities
that select the dispensing methodology or methodologies used in the LTC
facility, obviously in concert with their contracted LTC pharmacy. We
disagree with the commenter that our requirements are neither uniform
nor specific. We also disagree with the commenter's third point and
believe it indicates a misunderstanding of our proposal. The dispensing
methodology (or methodologies) will be uniform with respect to each LTC
facility, and these uniform requirements will apply to all Part D
sponsors and pharmacies dispensing to enrollees in that facility. Thus,
a LTC facility may choose to have one dispensing methodology for brand
name Part D drugs, and another for generic Part D drugs, and a third
for drugs dispensed to non-Part D enrollees. As long as the facility,
not the Part D sponsor, chooses the methodologies, such methodologies
will be uniform throughout that facility. Conversations with the
industry lead us to believe that the facilities will elect to
standardize around the 14-day-or-less dispensing methodologies because
these methodologies will minimize waste-related costs across the board.
Further, the LTC facility will identify the specific type (or types) of
packaging to be used to dispense Part D drugs within the LTC facility.
Although the days' supply dispensed at a time may vary (up to 14 days'
worth), we believe the 14-day maximum is sufficiently uniform,
particularly given that LTC facilities may vary widely in terms of
their resources, physical plant, and enrollee population. Given these
disparities, we continue to believe that it is the LTC facilities that
are in the best position to identify the uniform dispensing technique
or techniques to be used throughout the facility. That is, we look to
the facility to define the technique or combination of techniques that
meet the facilities' business needs in concert with their contracted
LTC pharmacies and require that the Part D sponsors defer to that
decision rather than impose their own requirements. Therefore, the LTC
facility will not need to ascertain Part D sponsors' requirements for
the LTC facility's residents--indeed, our requirement is precisely the
opposite.
However, we agree with the commenter that dispensing fees will
likely increase with 14-day-or-less dispensing. Although we are
prohibited from intervening between negotiations between Part D plans
and pharmacies, we do expect that dispensing fees will increase with
the increased number of dispensing events in a billing cycle up to a
point. Consistent with feedback from the LTC industry and comments on
the proposed rule, we believe that drugs dispensed in shorter
dispensing increments will result in fewer unused drugs. We also
believe that appropriate dispensing fees that differentiate among the
various dispensing methodologies could incentivize more rapid adoption
of the most cost-effective technologies and effectively align facility,
plan sponsor, and public interest in minimizing costs associated with
unused drugs.
Comment: Several commenters asserted that leaving uniform
dispensing techniques to the discretion of the LTC facility would lead
to undue expense upon pharmacies. One commenter stated that the
proposal would lead to more concentration in the LTC pharmacy business
which would potentially increase costs.
Response: We believe this comment is based on a misunderstanding of
what is meant by ``uniform.'' The commenter may believe that we
intended to impose a requirement for a single dispensing methodology
throughout each LTC facility and that such regimentation would present
a barrier to entry in the

[[Page 21465]]

market to pharmacies that specialize in innovative systems. Decreased
competition could be expected to result in higher prices. However, as
explained previously, we define ``uniform'' by the dispensing
methodologies chosen by the facility because the facility will choose
the set of dispensing methodologies that best suits its needs and
effectively minimize costs. We expect pharmacies will work with the LTC
facilities they contract with to determine the 14-day-or-less
dispensing methodology or methodologies that will work best for the LTC
facility, taking into account not only physical plant and labor
considerations, but also the overall cost effectiveness and waste
reduction potential. Again, we have no intent to limit the range of
methodologies selected by the LTC facilities to meet the facilities'
needs; rather we mean to prohibit Part D sponsors requirements from
imposing different requirements than those selected by the facility.
Comment: We received comments stating that CMS should be
indifferent to dispensing, shipping and other operational methods
employed by a pharmacy as long the billing for the medication is not in
excess of 7-days of usage.
Response: We disagree. Section 3310 of the Act directs us to impose
requirements aimed at reducing the amount of unused drugs in LTC
facilities. For that reason, we do not believe it is enough for us to
merely limit billing to no greater than 14-day increments. If we were
to focus only on billing, nothing would preclude a pharmacy from
dispensing a full 30-day supply of drugs and bill for all of them in
14-day increments regardless of whether they had been used. Such a
practice would not prevent the accumulation of unused drugs in LTC
facilities and certainly would not reduce financial waste associated
with unused drugs. Thus, the commenter's suggested approach would, in
our view, run counter to the purpose of the statute.
Comment: Some commenters supported CMS' decision not to require the
use of automated dose dispensing. The commenters agreed that such
systems are not practical for all facilities. We also received many
comments that generally supported the use of automated dose dispensing
systems. Commenters believe that these systems are the most efficient
and cost effective way to reduce the volume of unused drugs and
increase patient safety. We received comments that CMS should promote
the rapid adoption of this technology by ensuring appropriate
dispensing fees, providing incentive programs similar to the electronic
prescribing incentive program, and establishing a Federal program that
makes capital more readily available to LTC pharmacies and facilities
that are investing in technologies aimed at reducing waste.
Response: We agree that automated dose dispensing systems appear to
be the most efficient and effective way to reduce waste. However, as
stated in the proposed rule, we recognize there are significant
limitations to the rapid industry-wide adoption of automated dose
dispensing systems, including capital acquisition costs, state pharmacy
board restrictions, lack of final automated medical record to pharmacy
system interface standards, and inventory considerations. Additionally,
automated dose dispensing may not be considered practical by some LTC
facilities due to physical size and plant limitations. However, given
our proposed changes to the definition of ``dispensing fee'' in Sec.
423.100 and the prohibition on our ability to interfere with
negotiations between pharmacies and Part D sponsors, we do not believe
it is necessary or appropriate for us to provide financial incentives
or support of the type the commenters suggest. With respect to
incentive programs, we understand the value of the incentive programs;
however, we do not believe that the implementation of section 3310 of
ACA is predicated on those programs.
Comment: We received comments in support of our proposal to limit
the 7-day-or-less dispensing requirement to LTC facilities as defined
in Sec. 423.100. This definition excludes assisted living facilities.
We also received several comments requesting that we extend the
requirements to include assisted living facilities. One commenter
stated that including assisted living facilities in the requirements
would reduce the pharmacy burden of having to manage multiple
dispensing systems. Another commenter suggested that including assisted
living facilities in the requirements would be the only way to ensure
the Part D sponsors would reimburse pharmacies for services provided.
Response: We decline to revise the regulation to include assisted
living facilities. Section 3310 of the ACA refers to LTC facilities,
which we believe indicates Congress's intent that the requirements
apply to LTC facilities as defined in our regulations that predate the
ACA. Therefore, terms and conditions pertaining to services to
residents in assisted living facilities, including any differential in
dispensing fees is a matter of negotiation between the parties.
Moreover, we are aware that the medication packaging requirements
needed for beneficiaries residing in assisted living facilities may be
different from the medication packaging needs of beneficiaries residing
in LTC facilities due to the different levels of independence of the
residents of the facilities. Therefore, extending the requirements to
assisted living facilities may not reduce the burden associated with
multiple systems. However, nothing in the provision precludes
pharmacies from extending 14-day-or-less dispensing to assisted living
facilities if the assisted living facilities and pharmacies decide that
is the best option for their operations. Pharmacies and facilities
believing that it is a burden to manage multiple dispensing systems may
want to consider extending 14-day-or-less dispensing to assisted living
facilities. Pharmacies choosing to extend 14-day-or-less dispensing to
assisted living facilities are free to negotiate dispensing fees to
reflect that service. However, dispensing fees for those services
remain a matter of contract negotiations between the pharmacy and the
Part D sponsor.
Comment: We received support for our proposal that the requirements
would apply to all pharmacies, including closed-door LTC pharmacies,
retail pharmacies, and mail order pharmacies that dispense to Part D
enrollees residing in LTC facilities. We received a couple of comments
requesting that we limit the requirements to those pharmacies
contracted to the LTC pharmacy network, in part, because most retail
and mail order pharmacies have no means to identify enrollees residing
in LTC facilities.
Response: We disagree that the requirements should be limited to
pharmacies dedicated to dispensing medications to patients residing in
LTC facilities because we do not believe section 3310 of the ACA is
intended to apply only to those pharmacies. We further believe that to
accomplish that the purpose of section 3310 of the ACA, which is to
reduce the amount of unused drugs in LTC facilities, it is necessary
for all pharmacies that dispense Part D drugs to enrollees in LTC
facilities to dispense brand name drugs in no greater than 14-day
increments. We note that Part D sponsors receive a long-term care
institutionalized resident report twice a year from CMS. This report
provides information to Part D sponsors on which of their enrollees are
institutionalized, as well as the names and addresses of the particular
LTC facilities in which those beneficiaries reside. Therefore, Part D
sponsors' pharmacies providing services to LTC facilities do have a way

[[Page 21466]]

to identify enrollees residing in LTC facilities. Moreover, sponsors
generally become aware of their enrollees' institutionalized status
much sooner when they get a claim from the LTC pharmacy including the
``place of service'' code. Upon receipt of that claim, the Part D
sponsor is required to contract with that LTC pharmacy. Part D sponsors
manage the care of their enrollees, not merely process claims for
prescription drugs. Part D sponsors' LTC pharmacies must be capable of
meeting certain performance and service criteria, as specified under
50.5.2 of Chapter 5 of the Medicare Prescription Drug Benefit Manual.
These performance criteria must be incorporated into an addendum to a
Part D sponsor's standard network contract for those pharmacies that
would like to be designated as a network long-term care pharmacy. In
order to comply with these criteria, sponsors must be able to identify
beneficiaries residing in LTC facilities. For these reasons, we believe
sponsors will have sufficient information to determine to which
enrollees these dispensing requirements apply and can therefore
appropriately monitor pharmacy compliance with these requirements.
Comment: We received many comments requesting that we extend the 7-
day-or-less dispensing requirement to pharmacies other than those that
dispense to LTC facilities. Many commenters requested that we
investigate the potential to reduce the volume of unused drugs in other
non-institutionalized settings including retail pharmacy and mail order
pharmacy.
Response: We appreciate these comments and will consider them as
appropriate for future rulemaking; however, we decline to extend these
requirements at this time--our proposal was intended to implement
section 3310 of the ACA, which is specific to reducing unused Part D
drugs in LTC facilities. However, we again reiterate that pharmacies,
facilities and Part D sponsors are free to implement measures intended
to reduce the amount of unused drugs dispensed, and we believe our
revised definition of ``dispensing fees'' in Sec. 423.100 makes it
clear that costs associated with such measures can appropriately be
included in pharmacy dispensing fees.
Comment: Many commenters supported our proposal to exclude certain
drugs from the 7-day-or-less dispensing requirement. In addition to the
list of excluded drugs suggested in the proposed rule, some
organizations specifically recommended that we exclude all antibiotics,
insulin and diabetic supplies, all controlled substances,
contraceptives, liquids, patches, limited distribution drugs, kits,
Boniva monthly, vaginal rings, Prephase and Prempro, steroid bursts,
weekly medications, Fosamax, powdered medications, total parenteral
nutrition (TPNs), and compounded medications. Many commenters requested
that we exclude liquids from the 7-day-or-less requirement for
practical and patient-safety-related reasons. Some commenters thought
it may be difficult to interpret and operationalize the ``drugs
difficult to dispense in supply increments of 7-day-or-less''
exclusion. We also received comments requesting that we clarify the
definition of ``acute illness.'' Finally, many commenters requested
that CMS should maintain a list of excluded drugs to promote
consistency across the industry.
Response: We agree with the commenters who believe the ``drugs
difficult to dispense'' standard may be difficult to interpret and
operationalize and, as a result, we are modifying this standard. We
will require 14-day-or-less dispensing specifically for solid oral
doses of brand name drugs. We also will eliminate the reference to
``acute illnesses'' and ``drugs difficult to dispense.'' Based on the
comments, we will specifically exclude antibiotics and drugs that must
be dispensed in their original container as indicated in the Food and
Drug Administration Prescribing Information and drugs that are
customarily dispensed in their original packaging to assist patients
with compliance (for example, oral contraceptives). We believe that
with this simplification of the rule, a list of Part D drugs by NDC is
not necessary; therefore, we decline to maintain such a list.
We disagree with commenters that requested that we exclude
controlled drugs. As stated in the proposed rule, the Drug Enforcement
Agency rules do not preclude dispensing controlled drugs in 14-day-or-
less increments. Further, we believe that 14-day-or-less dispensing of
controlled drugs will result in less unused controlled drugs in the LTC
facilities, and therefore, will be less of a disposal burden on LTC
facilities or a diversion risk. But unlike antibiotics and drugs that
must be dispensed in their original packaging, we do not find a similar
basis for excluding controlled substances from the dispensing
requirements (unless they are excluded for another reason) because
there is no clinical or patient safety reason to do so.
Comment: We received some comments requesting an exemption from the
dispensing requirement in cases where a prescriber determines that it
is medically necessary for the enrollee to receive more than a 7-day
supply at a time and in cases where patients are stabilized on a
medication. One commenter stated that some drugs and biologicals may
require a longer time period in order to gauge tolerance or efficacy,
and in those circumstances a partial fill may not be medically
appropriate.
Response: We disagree with these comments. First, we believe an
exclusion from the dispensing requirements for ``medical necessity'' is
unnecessary. As we stated in the proposed rule, the dispensing
requirements have no bearing on the quantity prescribed. A prescriber
is free to prescribe any quantity of medication that he or she believes
is medically appropriate for the patient. Our requirements merely would
govern the increment in which such medication is dispensed to the
facility at a time. Further, we are not persuaded that there should be
an exception for patients who are stabilized on a medication--we
believe it would be more burdensome for pharmacies, Part D sponsors,
and LTC facilities to apply beneficiary-specific, drug-specific
dispensing requirements without any benefit in the form of reduced
financial waste associated with unused drugs. In fact, such an approach
could both increase the amount of unused drugs and increase costs.
Moreover, while we agree that some drugs and biologicals require a
longer time to gauge tolerance or efficacy, we disagree that the answer
is to exempt these drugs from the dispensing requirements. To the
contrary, it makes more sense to dispense those drugs in 14-day-or-less
increments. If the patient does not tolerate the drug or the drug is
ineffective and has to be discontinued, fewer unused drugs will result
when a 14-or-less day's supply, as opposed to a 30-day supply, is
discontinued.
Comment: Some commenters agreed that return and reuse was not an
optimal method to reduce the amount of unused drugs in LTC facilities.
Others commented that we should allow either return and reuse or a 7-
day-or-less dispensing requirement, but not both. Others commented that
we should prohibit ``return for credit and reuse'' for Part D drugs
that are subject to the 7-day-or-less dispensing requirement. Some
commenters requested that we exempt from the requirement those
pharmacies that already utilize low-waste practices or ``return for
credit and reuse''.
Response: As stated in the proposed rule, we considered ``return
for credit

[[Page 21467]]

and reuse'' as a way to reduce waste in LTC facilities. We explained
that there are limitations to this approach, especially that fact that
not all states allow ``return for credit and reuse,'' and reuse of
controlled substances is limited by the DEA. Because of these
limitations, we believe financial waste will be more effectively
reduced by preventing the accumulation of unused drugs in the first
place rather than addressing handling of unused drugs after they have
accumulated in the LTC facilities. That said, we do not prohibit the
``return for credit and reuse'' of drugs, and under this provision
require Part D sponsors' pharmacy contracts to explicitly address
whether return and reuse is authorized where permitted by State law. As
stated in the proposed rule, we recognize that ``return for credit and
reuse'' can be effective in certain situations (for example, where
there is an onsite pharmacy at the LTC facility); however, we believe
that ``return for credit and reuse,'' where allowed by State law,
should be used in conjunction with 14-day-or-less dispensing to further
reduce the volume of unused drugs over and above that of 14-day-or-less
dispensing. We decline to provide an exception from the requirements
for those pharmacies already practicing techniques that limit the
volume of unused Part D drugs. Part D sponsors' pharmacies that already
utilize 14-day-or-less dispensing will be compliant with the
requirements. Therefore, pharmacies utilizing ``other low waste
practices'' will not be exempt from the 14-day-or-less dispensing
requirements.
Comment: A few organizations commented that the dispensing
methodology would not be apparent from the claim making it difficult to
comply with the proposed reporting requirement that the Part D sponsor
collect and report information on the dispensing methodology used for
each dispensing event. We also received comments requesting that we not
apply the reporting requirement absent compelling justification of how
we will use the information to evaluate efficiencies. Some commenters
questioned our authority to collect data on dispensing methodologies
and unused Part D drugs. We received a comment that the National
Council for Prescription Drug Programs (NCPDP) has developed codes for
dispensing methodology that are compatible with the HIPAA billing
transactions and that will facilitate CMS's and Part D sponsors'
ability to track the dispensing.
Response: We will collect the data from sponsors through Part D
reporting requirements. Under section 1860D-12(b)(3)(D) of the Act,
which incorporates section 1857(e)(1) of the Act, we are authorized to
require Part D sponsors to provide such information as we find
necessary or appropriate. We are concurrently issuing further guidance
on this reporting requirement in a revision to the Part D Reporting
Requirements (currently approved under OMB Control No. 0938-0992). We
intend to use this data to determine the extent to which the dispensing
requirements reduce the amount of unused drugs and determine the cost
effectiveness of expanding the requirement beyond brand name drugs. We
note that billing transactions are handled through regulatory processes
associated with HIPAA transactions. We appreciate the comment from
NCPDP that they have developed codes for dispensing methodologies that
will facilitate CMS's and Part D sponsors' ability to track the
dispensing using information available on version D.0 claim
transactions.
Comment: Some commenters supported our proposal to have unused
drugs returned to the pharmacy and also supported data collection of
the quantity and types of drugs that go unused in LTC facilities. We
also received several comments from organizations requesting that CMS
delay the requirement that unused drugs be returned to the pharmacy and
reported to the Part D sponsor until such time when NCPDP has developed
an electronic transaction to capture the nature and quantity of unused
drugs. Commenters stated that manual reporting of unused drugs would
create a burden on the pharmacy and sponsor and require additional
staffing to accommodate the increased workload. Some organizations
recommended that we require all solid oral doses (brand and generic
drugs) to be dispensed in 7-day-or-less increments and eliminate the
``return and report'' requirement at least until an NCPDP transaction
is developed. Some commenters wanted us to clarify the ``return and
report'' provision. Commenters requested that we clarify whether the
provision applies to Part D drugs dispensed prior to the implementation
date of the requirement and whether drugs to which the requirements do
not apply were exempt from the ``return and report'' requirement. Many
commenters believed that the Controlled Substance Act, hazardous waste
laws, and State laws would be a barrier to LTC facilities returning
unused drugs to pharmacies. One commenter requested that we add an
option for the LTC facilities to report the unused drugs. Another
commented that since Part D sponsors do not directly contract with LTC
facilities, the Part D sponsors will not have the authority to require
LTC facilities to return unused medications to LTC pharmacies. Some
commenters stated that there may be more effective ways to gather data
than to require all unused drugs be returned to the pharmacies.
Response: As a result of comments, we better understand the
existing State and Federal requirements on LTC facilities to manage
waste. In response to the comments, we will eliminate the requirement
that unused drugs be transferred to the pharmacy and instead retain
only the requirement that Part D sponsors collect information from the
network LTC pharmacies to determine the amount of unused brand and
generic drugs, as defined in Sec. 423.4. We understand that pharmacies
routinely receive a date of discontinuation or other information that
can be used to calculate such a date (for example, the start date of
the new ``substitute'' prescription may be used as the discontinuation
date of the previous prescription) from the LTC facility whenever a
medication is discontinued for any reason. Therefore, we believe
pharmacies have the data in their own systems to calculate the
difference between the quantity dispensed and the quantity consumed,
which can be used to calculate the amount of unused medication and
which plan sponsors can audit and validate reported amounts. We are
revising the PRA package for the Part D Reporting Requirements
(currently approved under OMB Control No. 0938-0992) to reflect this
approach and will be able to confirm our understanding in the next
comment period for the Reporting Requirements.
However, for pharmacies that voluntarily adopt 7-day-or-less
dispensing for all solid oral doses (that is, both brand name drugs and
generic drugs), we will waive the requirement that Part D sponsors
report on the unused drugs. All other pharmacies must report on the
amount of unused brand and generic drugs as of implementation of this
provision, January 1, 2013. We continue to believe that reporting is
essential in order to acquire data from which to evaluate the potential
savings from extending the dispensing requirement to generic drugs.
Only when data has been systematically collected will the extent of the
volume of unused Part D drugs be quantifiable. However, we will
eliminate the reporting requirement for those pharmacies that
immediately adopt 7-day-or-less dispensing for both brand name and
generic drugs given

[[Page 21468]]

that doing so will almost eliminate unused drugs.
Comment: We received a comment requesting that CMS prohibit plan
sponsors from seeking credits for unused drugs that are returned to LTC
pharmacies but not reused. We also received a comment requesting that
CMS ensure that the final regulations expressly state that
beneficiaries are to share in any refund resulting from the return in
proportion to the amount of the total cost for the returned drugs
covered by their cost sharing contribution.
Response: We believe that the commenter is concerned that sponsors
will demand credit for unused drugs associated with the reporting
requirement. We stress that this is not the requirement under the rule
and expect that sponsors will pay pharmacies for drugs dispensed under
this rule, subject to any contractual provisions in the contract
between the Part D sponsor and LTC pharmacy. Whether or not Part D
plans receive credits and the affect on beneficiaries will be
determined by the contract between the sponsor and the pharmacy and the
terms of the benefit package. With respect to return and reuse, that is
a practice governed by State law and the provisions of the contract
between the Part D sponsor and the pharmacy. We do not believe it is
necessary or desirable for CMS to preempt State laws on this issue. For
these reasons, we decline to adopt the commenters' suggestions. If a
pharmacy processes unused drugs and redispenses the drugs, then the
pharmacy must abide with any conditions in its contract with the Part D
sponsor regarding providing credit and the Part D sponsor must adjust
the prescription drug event data and TrOOP accordingly for the original
dispensing event.
Comment: We received comments that Part D sponsors should generally
allow pharmacies to use currently accepted transactions unless the
industry voluntarily adopts a single billing standard. Others
recommended that we implement a specific billing standard. Some
commenters recommended that we implement ``post-consumption billing''
as a standard billing methodology because there would be minimal need
for drug returns, claim reversal, and TrOOP and drug spend adjustments.
Some also stated that a post-consumption-billing method would reduce
the potential for fraud.
Response: We defer to the appropriate industry standard-setting
organizations and the HIPAA-mandated rulemaking process to determine
billing standards and for this reason, decline to amend our regulations
for this purpose at this time.
Comment: We received several comments concerned about copayment
methodologies. Some commenters recommended that the copayment method
not be linked to the dispensing methodology. Several commenters
expressed concern over charging beneficiaries additional copays. Many
recommended that the beneficiary only be charged one copayment per
month. Other commenters believed that the beneficiaries' copayments
should be prorated based on the number of days a Part D drug was
dispensed in a month.
Response: As stated in the proposed rule, we expect that copayments
will be billed on the first dispensing event of the month, the last
dispensing event of the month, or prorated with each dispensing event.
We leave the decision of which copayment collection methodology to use
up to the parties involved in these transactions; however, in response
to these comments, we will add a provision to the regulation to clarify
our interest that regardless of the number of incremental dispensing
events, the total cost sharing for a Part D drug to which the 14-day-
or-less dispensing requirements apply shall be no greater than the
total cost sharing that would be imposed for such Part D drug if the
14-day-or-less requirements did not apply. This requirement applies for
all beneficiaries including low-income subsidy eligible beneficiaries.
(We note that, for CY 2013, we are considering collection of daily
copayment information in the PBP tool, and that such information would
facilitate copayment proration.)
Comment: Some organizations expressed concern over ``refill too
soon'' edits and utilization management requirements that may be placed
on drugs dispensed in 7-day-or-less supplies. A majority of the
organizations that commented on ``refill too soon'' edits requested
that we issue guidance to Part D sponsors requiring them to turn off
the ``refill too soon'' edit. These organizations were concerned that
``refill too soon'' edits on drugs dispensed in 7-day-or-less supplies
would result in an increase in missed doses due to medication
unavailability. Some commenters recommended that Part D sponsors would
need to allow for all medications to receive a one-time prior
authorization. We also received a comment recommending that prior
authorization and step edits be eliminated for drugs dispensed in 7-
day-or-less increments and arguing that the rationale behind these
utilization management edits is to reduce costs and therefore, they
would not be necessary under 7-day-or-less dispensing.
Response: We agree that customary ``refill too soon'' edits for
traditional 30-days supplies will be inappropriate for 14-day-or-less
supplies and could result in access issues. We do not agree that PA and
step-therapy should be eliminated as they allow savings through use of
less costly alternatives with potentially equivalent therapeutic value.
We expect that the industry will modify utilization management edits,
including refill too soon edits to prevent discriminatory practices
that could result in Part D drug access issues.
Comment: We received comments that there may be penalties
associated with billing Medicaid for quantities less than a 30-day
supply. We also received comments that even the minimal Medicaid co-
payment on a prescription becomes a financial burden on such patients
if the states are allowed to impose the copayment obligations currently
in effect on each 7-day fill.
Response: By statute, Medicaid cannot be billed for Part D drug
claims. Therefore, this comment is beyond the scope of the rule because
our final rule with respect to dispensing to LTC residents applies only
to Medicare Part D.
Comment: We received many comments that did not support our
proposal to grant a limited extension to independent community
pharmacies servicing small LTC facilities in rural communities. Many
commenters believe that it would be difficult to determine which
pharmacies meet our proposed extension criteria. Some commenters
requested that CMS keep a list of pharmacies that qualify for the
extension to eliminate any confusion regarding those pharmacies that
qualify for the extension.
Response: As discussed further below, we intend to delay the
effective date of the dispensing and reporting requirements set forth
in Sec. 423.154 until January 1, 2013. For this reason, an extension
for pharmacies servicing small LTC facilities in rural communities is
no longer necessary. Instead, the delay in the implementation date will
allow all pharmacies and LTC facilities time to evaluate dispensing
methodologies and allow them to make a decision regarding the most
effective and efficient systems for their facilities. We are amending
the final regulation to eliminate the extension for certain pharmacies.
Comment: We received many comments in support of our proposal to
waive the dispensing requirements when pharmacies are dispensing to
Part D enrollees residing in intermediate care

[[Page 21469]]

facilities for the mentally retarded (ICF/MRs) and Institutes for
Mental Diseases (IMDs). We also received comments that supported
waiving the requirements when pharmacies dispense to similar facilities
that meet and demonstrate the same criteria outlined in the proposed
rule. We received specific requests to waive I/T/U pharmacies and
Indian Health Service or tribal facilities from the requirement. We
also received a request to waive this requirement for pharmacies when
dispensing to PACE programs. Other commenters opposed any waivers.
These commenters argued that the lack of data on unused Part D drugs in
these facilities justifies the opposition to the waiver.
Response: We were persuaded by the comments that under certain
circumstances, waivers should be granted. The requirements under Sec.
423.154(a) will not apply to I/T/U pharmacies defined in Sec. 423.100.
We understand that the I/T/U system is understaffed. As a result,
unlike in most LTC pharmacies, which have dedicated clinical pharmacy
staff, pharmacists in the I/T/U system are often called upon to perform
multiple non-dispensing tasks including providing patient care that
would otherwise be provided by a physician. These pharmacists make
medication deliveries to LTC facilities only on days when they provide
consultant services. In addition, some of these pharmacists provide
translation services and/or provide information in a culturally
appropriate manner and protocol for the Indian population they serve.
Further stressing the system, these pharmacies are called upon to
support very remote health stations that are often accessible, in some
cases, only on foot, by horseback, airplane, or via helicopter. The
majority of the clinics and health stations serviced by I/T/U
pharmacists are in remote areas where deliveries cannot be made on a
daily basis. For these reasons, we believe that requiring the 14-day-
or-less requirement is not feasible for I/T/U pharmacies and could
increase rather than decrease costs associated with 30-day dispensing.
The 14-day-or-less dispensing requirements will generally not apply
to PACE organizations because PACE programs provide community-based
care. When PACE enrollees are in SNFs, we would expect that pharmacies
servicing those facilities adhere to the 14-day-or-less dispensing
requirement. Therefore, we are waiving these requirements for I/T/U
pharmacies, but not for pharmacies when they serve PACE programs.
Comment: We received some comments requesting the CMS maintain a
list of facilities for which the dispensing requirements have been
waived along with the NCPDP patient resident code so that pharmacies
could inform the Part D sponsors that the pharmacy is dispensing to an
enrollee residing in a facility that has been waived.
Response: We will consider whether this is a practice that CMS
should maintain. However, we currently believe Part D sponsors can
adequately identify ICF/MRs, IMDs, and I/T/U pharmacies as these
entities generally contract with and bill Part D sponsors directly.
Comment: We received many comments from organizations recommending
that we delay the implementation of the requirements described under
Sec. 423.154. Many commenters requested a 1-year delay, but some
commenters requested a 2-year delay. Most commenters argued that an
implementation date of January 1, 2012 would not give sufficient time
to renegotiate contracts between the Part D sponsors and the pharmacies
or make necessary systems and operational modifications to comply with
the requirements. Some commenters argued that maintaining the January
1, 2012 implementation date would lead to inaccurate bids for the 2012
contract year, since planning for systems changes and renegotiation of
appropriate dispensing fees incorporating related costs would be
expected to extend beyond the CMS bid submission deadline. One
commenter indicated that without a delay to permit appropriate
negotiation of pharmacy reimbursement, pharmacies would likely just
convert existing 30-day punch card systems to 7-day punch card systems
rather than make capital investment in more efficient and cost-
effective methods for complying with the dispensing requirement.
Commenters stated that conversely, the delay until at least January 1,
2013 would ensure that nursing facilities have sufficient time to
evaluate dispensing system options (such as automated dose dispensing
systems) with their contracted pharmacies and make clear capital
investment decisions. A commenter expressed concern that without the
delay, hasty business decisions made under pressure could put an
otherwise stable pharmacy business at unnecessary risk for failure,
particularly given that these decisions would involve capital
investments that cannot easily be reversed. This commenter believes
that as a result, there could be a decrease in the number of pharmacies
that are able to serve LTC facilities. Commenters also expressed
concern that the proposed implementation date of January 1, 2012 might
put a strain on the supply of appropriate dispensing equipment. Several
commenters stated that failure to delay the implementation date would
likely result in rushed transitions to 7-day-or-less dispensing that
might jeopardize patient safety (for example, because of inadequate
staff training time). Commenters stated that given that the LTC
facilities will dictate the uniform dispensing techniques to be used in
their facilities, pharmacies may need to work with the facilities one
at a time, which will require additional time and resources.
Response: We are persuaded by the comments that a 1-year delay in
the implementation of these requirements is appropriate. Therefore, we
are revising Sec. 423.154 to specify that it will take effect January
1, 2013.
This delay will give LTC facilities and pharmacies more time to
evaluate dispensing methodologies and make decisions regarding the most
effective and efficient systems. In particular, we are persuaded by the
comments that indicate that more pharmacies will convert to the more
efficient dispensing systems if given more time to make arrangements
for those systems. We also believe, based on the comments, that if the
affected parties have more time to make measured and fully considered
decisions about capital investments in dispensing technologies, they
will be more likely to immediately extend shorter cycle dispensing to
both brand and generic drugs in order to maximize the return upon their
investment. We believe that these decisions will increase program
savings in the long run and lead to greater savings than if, because of
an earlier implementation date, the parties did the minimum necessary
and merely made minor adjustments to their current systems to meet the
requirements.
We also are persuaded by the comments suggesting that the delay
will give Part D sponsors sufficient time to negotiate contractual
changes and finalize dispensing fees with LTC pharmacies in advance of
the 2013 bid deadline, thereby allowing Part D sponsors to submit
accurate bids. We would be concerned that bids that could not
accurately account for yet-to-be renegotiated dispensing fees would
increase program costs in other ways and could potentially offset
savings resulting from implementing the requirement for 2012,
potentially defeating the purpose of section 3310 of the ACA.
We further are persuaded that, given that we do not have concrete
data about the amount of savings that could be achieved, and consistent
with our

[[Page 21470]]

incremental approach to the dispensing requirement, a 1-year delay will
reduce the burden on Part D plans, pharmacies and LTC facilities by
permitting a more orderly transition to the new dispensing requirement.
In addition, the delay will more closely align the reporting
requirement for unused drugs with the availability of an electronic
informational reporting transaction that could be used for this
purpose, which we believe will further reduce the burden of data
collection on pharmacies and Part D sponsors. Finally, we are persuaded
that that a delay will give pharmacies and LTC facilities more time to
transition to different workflows, new systems and operational
requirements, and conduct appropriate staff training. We believe this
will mitigate any potential start up issues, such as medication errors,
and thus will increase patient safety.
As a result of comments, in our final rule, we modify Sec.
423.154(a)(1)(i) to dispense solid oral brand name drugs, as defined in
Sec. 423.4, to enrollees in LTC facilities in no greater than 14-day
increments at a time. We modify Sec. 423.154(a)(2) to collect and
report information, in a form and manner specified by CMS, on the
dispensing methodology used for each dispensing event described by
paragraph (a)(1) of this section and on the quantity of unused brand
and generic drugs, as defined in Sec. 423.4. Reporting on unused brand
and generic drugs is waived for Part D sponsors' when their pharmacies
dispense both brand and generic drugs, as defined in Sec. 423.4, in no
greater than 7-day increments. We modify Sec. 423.154(b) to exclude
from the requirements under paragraph (a) of this section: (1) Solid
oral doses of antibiotics; and (2) solid oral doses that are dispensed
in their original container as indicated in the Food and Drug
Administration Prescribing Information or are customarily dispensed in
their original packaging to assist patients with compliance (for
example, oral contraceptives). We modify Sec. 423.154(c) to include a
waiver for I/T/U pharmacies. We modify Sec. 423.154(d) to change the
effective date from January 1, 2012 to January 1, 2013. We modify Sec.
423.154(e) by eliminating the extension for certain pharmacies and
adding a requirement that regardless of the number of incremental
dispensing events, the total cost sharing for a Part D drug to which
the dispensing requirements under this paragraph (a) apply must be no
greater than the total cost sharing that would be imposed for such Part
D drug if the requirements under paragraph (a) of this section did not
apply. Finally, we modify Sec. 423.154(f) by eliminating paragraph
(f)(1) and combining paragraph (f)(2) with the introductory clause of
paragraph (f).
12. Complaint System for Medicare Advantage Organizations and PDPs
(Sec. 422.504 and Sec. 423.505)
In our November 2010 proposed rule, we proposed to implement a new
requirement under the authority of section 3311 of the ACA to require
MA organizations and Part D sponsors to respond to complaints.
Specifically, we proposed to require that MA organizations and Part D
sponsors use our existing Health Plan Management System (HPMS)
Complaints Tracking Module (CTM) to document the closure of complaints
and provide a detailed complaint resolution summary when the complaint
is resolved. That is, we proposed to require an MA organization or Part
D sponsor to provide an explanation of the way in which the complaint
was closed, rather than simply providing the words ``complaint closed''
in the CTM.
In our proposed rule, we proposed applying these requirements to
both MA organizations and Part D sponsors ensure beneficiary access to
medical services and drugs under the MA and Part D programs. We also
indicated that we were considering adding a drop down checklist to CTM
for MA organizations, and Part D sponsors to use as the documentation
method when closing complaints, as opposed to requiring free text
descriptions of complaint closure, and we invited comments on this
approach.
As provided under section 3311 of ACA, we developed a model
electronic complaint form on the Medicare.gov Internet Web site and on
the Internet Web site of the Medicare Beneficiary Ombudsman. We
proposed that plans be required to prominently display the CMS-
developed complaint form on their Web site and directly link to the CMS
Medicare.gov Web site and the Web site of the Medicare Ombudsman. As we
explained in the proposed rule, when we completed our development of
the model electronic complaint form was made available on the internet
Web sites as in December 2010.
In our proposed rule, we stated the new requirement for plans to
prominently display the electronic model on their Web sites would be
effective January 1, 2012 and indicated that following the issuance of
this final rule, we would be developing guidance to instruct MA
organizations and Part D sponsors on how to comply with this new
requirement.
Comment: We received a significant number of comments regarding our
proposed requirement in Sec. 422.405(a)(15)(i) and Sec.
423.405(b)(22)(i) regarding the addition of a drop down checklist in
CTM that would provide clear and consistent closure categories. Many
commenters supported this proposed new requirement. Two commenters
recommended that, in addition to the drop down menu, we include a text
box for plans that desired to add comments about the resolution of
complaints. These commenters believed that this modification would
improve specificity of the responses. A few commenters requested that
we define the term complaint in order that a complaint might be clearly
distinguished from a grievance or an appeal.
Response: We appreciate the support expressed by the commenters.
The purpose of the CTM system is to record and track complaints we
receive from beneficiaries, provider, and others regarding Medicare
health plans and prescription drug plans. While our current
instructions to MA organizations and PDP sponsors indicate that when a
complaint is resolved the plan should concisely summarize the complaint
closure in CTM, we have found that many sponsors failed to do so.
Rather, they have merely entered, ``Complaint Closed'' without any
explanation of the action taken. After reviewing many complaint
entries, we also discovered that ``complaint closed'' has often been
used inappropriately. For example, it has been used when the sponsor
has been unable to reach the beneficiary by phone, which alone does not
constitute a reasonable basis for closing a complaint.
We agree with the commenters that a text box in addition to the
drop-down menu in the CTM would be helpful for capturing information on
the MA organization's or PDP sponsor's resolution of a complaint.
Therefore, we are adding a text box to the complaint form. We will
clarify in instructions that CMS and plan users must select at least
one item in the drop down box or use the text box in CTM to resolve a
complaint. Thus, the system will not permit the complaint to be
resolved if at least one of the available options is not selected.
Regarding the commenters' request that we define a complaint, we
note that the Frequently Asked Questions section of CTM describes the
difference between a complaint and grievance. It states that grievances
are received directly by the plan from beneficiaries and that plans are
required to report

[[Page 21471]]

grievances to CMS per the Part D reporting requirements. CTM
complaints, however, are received by CMS (through 1-800-Medicare call
centers, phone calls to the CMS regional office, etc.) and are entered
into CTM for resolution by either the plan or CMS. We require that
plans track grievances separately from CTM complaints.
Comment: Many commenters supported our proposed requirements that
MA organizations and PDP sponsors address and resolve all complaints in
the CMS complaint tracking system and link to the electronic complaint
form on the Medicare.gov and Internet Web site of the Medicare
Ombudsman from each sponsor's main Web page. However, a few commenters
expressed opposition to the requirement to link to the electronic
complaint form, stating that a direct link on the plan's Web site could
potentially discourage use of other plan resources available for issue
resolution and confuse beneficiaries. One commenter suggested that, by
imposing this requirement, we would create an additional administrative
expense that would add little to enhance either the complaint
resolution process or beneficiary satisfaction. Another commenter
requested the opportunity to review and comment on the new electronic
complaint form prior to its implementation.
Response: We appreciate the support commenters expressed for these
requirements. Congress has directed the Secretary to annually report
the number and types of complaints reported in CTM, any geographic
variations that exist in the complaints, the timeliness of CMS' and the
plan's responses, and the resolution of such complaints. Given the
importance that Congress has placed on complaints and their resolution,
it is important that we have reliable and complete data not only
prepare our annual report to Congress, but also to monitor complaint
resolution for oversight purposes.
We do not agree with those who claimed that having a direct link on
the plan's Web site to the Medicare.gov Web site and the Web site of
the Medicare Ombudsman would discourage use of plan resources for
resolving issues, confuse beneficiaries or create additional
administrative costs. It has been our experience that beneficiaries go
directly to their MA organization or PDP sponsor with issues of
concern, including complaints, prior to contacting CMS for assistance.
We have no cause to believe that requiring sponsors to directly link to
the Medicare.gov Web site and the Web site of the Medicare Ombudsman
would alter the beneficiaries' practice of seeking to resolve their
issues by first contacting their plan. We also do not believe that
requiring a link from the sponsor's Web site to the Medicare Web sites
will add significant administrative costs. Since the proposed
requirement is similar to existing requirements regarding a plan's Web
site, we expect that any costs related to this requirement are
currently reflected in the organization's bid.
We appreciate the commenter's interest in commenting on the new
electronic complaint form prior to its implementation, but as we noted
previously, we have already posted the model electronic complaint form
which is available at https://www.medicare.gov/MedicareComplaintForm/home.aspx.
For the reasons discussed previously, we are finalizing these
requirements as proposed with an effective date of January 1, 2012 for
the requirement that MA organizations and Part D plans create a link
from their main Web page to the CMS-developed electronic complaint form
on the http://www.Medicare.gov Web site.
13. Uniform Exceptions and Appeals Process for Prescription Drug Plans
and MA-PD Plans (Sec. 423.128 and Sec. 423.562)
Section 3312 of the ACA amends section 1860D-4(b)(3) of the Act by
adding a new section (H) that requires, effective January 1, 2012, each
PDP sponsor to use a single, uniform exceptions and appeals process
(including, to the extent the Secretary determines feasible, a single
uniform model form for use under such process) with respect to the
determination of prescription drug coverage for an enrollee under the
plan; and to provide instant access to such processes through a toll-
free telephone number and an Internet Web site.
In accordance with the new section 1860D-4(b)(3)(H) of the Act, we
proposed in the November 2010 proposed regulation to revise the
regulation at Sec. 423.562(a) to require Part D plans to use a single,
uniform exceptions and appeals process that includes procedures for
accepting oral and written requests for coverage determinations and
redeterminations. In addition, we proposed to revise the regulation at
Sec. 423.128 paragraphs (b)(7) and (d) to identify specific mechanisms
that plan sponsors must have in place in order to meet the uniform
appeals requirements of section 1860D-4(b)(3)(H) of the Act. Most
notably, at Sec. 423.128(b)(7), we proposed adding paragraph (i) to
require that plan sponsors make available a standard form to request a
coverage determination and a standard form to request a
redetermination, to the extent such standard request forms have been
approved for use by CMS. (Note that in the context of appeals, the term
``standard form'' or ``standardized form'' is generally used to refer
to a form that would be the only permissible vehicle for requesting a
coverage determination or redetermination.)
Section 3312 of the ACA also requires plan sponsors to provide
instant access to the coverage determination and appeals process
through an internet Web site. Consistent with the requirement, we also
proposed to add paragraph (ii) to Sec. 423.128(b)(7), which would
require sponsors to provide immediate access to the coverage
determination and redetermination processes via an Internet Web site.
We requested comments and ideas regarding how this should work and any
issues that needed to be addressed before operationalizing this
requirement. Section 3312 of the ACA also specifies that plan sponsors
must establish a toll-free telephone line that provides instant access
to the coverage determination and appeals processes. Because plan
sponsors are currently required to offer a toll-free customer call
center as part of the provision of information requirement at Sec.
423.128(d), we proposed to revise Sec. 423.128(d)(1) to include a
requirement that sponsors provide enrollees with access to the coverage
determination and redetermination processes through their toll-free
customer call center.
To codify the proposals that plans make available standard forms
for requesting coverage determinations and redeterminations (to the
extent that standard request forms have been approved for use by CMS),
and establish a toll-free telephone number and Web site for accepting
requests for coverage determinations and redeterminations, we proposed
to amend Sec. 423.562 by adding a new paragraph (a)(1)(ii) which
cross-references the requirements in Sec. 423.128 paragraphs (b)(7)
and (d)(1)(iii), and redesignating paragraphs (a)(1)(ii) and
(a)(1)(iii) as paragraphs (a)(1)(iii) and (a)(1)(iv), respectively.
Finally, we proposed that Part D sponsors modify their electronic
response transactions to pharmacies so that they can transmit codes
instructing the pharmacy to provide a standardized point-of-sale (POS)
notice to enrollees when a prescription cannot be filled. Specifically,
we proposed at Sec. 423.128(b)(7)(iii) to require that Part D sponsors
modify their systems so that the plan sponsors are capable of
transmitting codes to their in-network

[[Page 21472]]

pharmacies and that the pharmacy will be notified to populate or
provide a notice that can be printed by the pharmacist at the point of
sale. We indicated that we would develop a model notice to ensure that
messaging at the pharmacy is consistent with and in accordance with CMS
rules. Consistent with this proposal, we also proposed to revise Sec.
423.562(a)(3) by deleting the reference to posting the pharmacy notice
and instead requiring the sponsor to arrange with its network
pharmacies to distribute notices instructing enrollees how to contact
their plans to obtain a coverage determination or request an exception
if they disagree with the information provided by the pharmacist. We
proposed that the pharmacy notice be provided in writing, consistent
with the standards established in Sec. 423.128(b)(7)(iii), and include
instructions explaining how enrollees can request a coverage
determination by calling their plan sponsor's toll free customer
service line or accessing their plan sponsor's Web site.
Comment: We received a large number of comments on the merits of
requiring the use of a standard form for requesting Part D exceptions
and appeals. Several commenters expressed the belief that standard
forms are not feasible, noting that a single form cannot accommodate
the wide variations that exist among plan formulary and utilization
management requirements, and would therefore hinder access to the
exceptions and appeals processes. Some commenters stated that,
particularly for biotech or other specialty drugs, drug-specific forms
improve access to coverage because they give enrollees and prescribers
clearer information on the specific plan requirements for coverage.
Other commenters asserted that a single form would simplify the
processes for enrollees, prescribers and plans.
Response: We have carefully considered all the comments we received
on this issue, both in the context of the overarching statutory
requirement that Part D plans use a ``single, uniform exceptions and
appeals process'' as well as keeping in mind the requirements and
procedures that are already in place with respect to requests for
coverage determinations and appeals. (Note that, as set forth in detail
in the existing regulations at Sec. 423.578, the term ``exception''
refers to certain types of coverage determinations, such as a request
for a non-formulary drug, that require an oral or written supporting
statement from a prescribing physician or other prescriber.)
Our current regulations permit either written or oral requests for
a coverage determination (Sec. 423.568), with the exception of
requests for payment, which must be made in writing unless the sponsor
has a voluntary policy of accepting oral payment requests. Standard
redetermination requests generally are made in writing, under Sec.
423.582; plans may also accept oral requests for standard
redeterminations but are not required to do so. Plans must accept oral
requests for expedited redeterminations (Sec. 423.584). Currently, we
have developed model forms for requesting a coverage determination--one
for beneficiaries and one for prescribers--but there are no comparable
model forms for requesting redeterminations. It is also important to
note that our existing subregulatory guidance specifies that any
written request from an enrollee or prescriber is acceptable, and that
plans may not require an enrollee or prescriber to make a written
request on a specific form (see Section 40 of Chapter 18 of the
Prescription Drug Benefit Manual, Part D Enrollee Grievances, Coverage
Determinations and Appeals). We believe that the requirement that plans
accept any written request builds significant enrollee protection into
the coverage determination and appeals processes, and requiring the use
of a ``standard'' form may inadvertently create barriers for enrollees
accessing these processes. Thus, introducing a requirement that a
standard form be used could actually conflict with the underlying
statutory intent of the new provisions which are meant to enhance
enrollee access to the exceptions and appeals processes.
Therefore, we are modifying the proposed regulatory language at
Sec. 423.128(b)(7)(i) by replacing the proposed reference to a
``standard'' form with the statutory language referencing use of a
``uniform model form.'' In support of this requirement, we will work
with plans, prescribers, and beneficiary advocates to revise the
existing model coverage determination request form, including combining
the existing enrollee and prescriber request forms into a single model
form. We will also develop a separate model redetermination request
form for use by enrollees and their prescribers and representatives.
Plans will be required to make these model forms available to their
enrollees via their websites, and to include the model redetermination
request form with any coverage determination denial notice, consistent
with the requirement under Sec. 423.568(g)(4) that denial notices
comply with notice requirements established by CMS.
The introduction of uniform model forms is not intended to
interfere with the current requirements regarding acceptance of oral or
written requests, nor does it preclude plans from developing and making
available drug-specific coverage determination request forms to
supplement the model forms to the extent such forms can enhance access
to the exceptions and appeals process. Given that plan formularies,
utilization management tools and step therapy requirements can vary
widely, we believe that not allowing plans to continue making drug-
specific forms available or precluding enrollees from making coverage
determination requests through other written vehicles, may actually
delay decision-making and/or result in additional unfavorable decisions
based on a lack of adequate documentation. Thus, although we
acknowledge that making multiple forms available for use may cause some
confusion for enrollees, we believe that continuing to permit such
variation is in the best interests of Medicare beneficiaries. Plans
must comply with the appropriate marketing procedures for approval of
forms, including CMS-approved model forms.
Comment: A few commenters noted that adopting a single form for
both coverage determinations and redeterminations could lead to
confusion and erroneous or unnecessary submissions from enrollees and
prescribers because of the often-different rationales and necessary
supporting documentation for these processes. This in turn would
increase the burden on both enrollees and prescribers and cause delays
in accessing prescription drugs.
Response: We agree with the commenters, and as stated previously,
intend to develop separate model forms for coverage determinations and
redeterminations.
Comment: We received a number of comments with recommendations that
CMS work closely with stakeholders in developing standard forms. Some
commenters also supported consumer testing and/or piloting standard
forms before full implementation.
Response: We thank the commenters for their suggestions. As noted
previously, rather than require a standard form, we intend to revise
the existing model coverage determination form and develop a new model
redetermination form. Stakeholders will have an opportunity to comment
on draft versions of these forms via the same process used to solicit
stakeholder input on changes to manual guidance.

[[Page 21473]]

Comment: Several commenters urged CMS to require that all plan
sponsors make standard forms available in multiple languages and make
them widely available in plan materials and on plan Web sites.
Response: The regulations in Subpart V of Part 423, and related
subregulatory guidance, establish CMS' marketing rules with respect to
translated materials. Model coverage determination and redetermination
notices are considered post-enrollment marketing materials, and
therefore must be translated in accordance with CMS marketing
requirements, consistent with the related discussion above.
Comment: Although several commenters were supportive of the
proposal related to providing instant access to the coverage
determination and appeals process via an internet Web site, many
commenters raised concerns about the administrative and technological
burdens and costs associated with the development of a Web-based
interface that would allow enrollees to access the coverage
determination and appeals processes. Several commenters thought that
the benefit to enrollees will be minimal compared with the additional
costs and operational complexities. These commenters also claimed that
plans will not be able to fully realize potential cost-savings in using
such a system if they are also required to maintain processes for
accepting requests via telephone and mail. CMS also received comments
suggesting a pilot program, greater stakeholder input, delayed
implementation, and making acceptance of electronic requests optional.
Almost all commenters, whether they opposed or supported the
proposal, raised questions about systems specifications and
functionality, including whether plan systems for accepting electronic
requests must: (1) Accept electronic attachments such as clinical
documentation, prescriber supporting statements, enrollee receipts for
out-of-pocket expenses, and Appointment of Representative (AOR) forms
or, alternatively, be equipped to generate a bar code or other receipt
to allow for the separate submission of supporting documents via fax;
(2) generate an auto-reply acknowledging receipt of the request; (3)
have a user authentication feature; and (4) include mandatory fields or
other specifications (for example, font type/size).
Response: As noted in the proposed rule, section 3312 of the ACA
states that Part D plan sponsors shall provide instant access to the
coverage determination (including exceptions) and appeals processes
through an Internet Web site. In the proposed rule, we solicited
comments on the viability of a Web-based electronic interface that
would allow an enrollee (or an enrollee's prescriber or representative)
to immediately request a coverage determination or redetermination via
a plan's secure Web site. Our proposal indicated that the interface
would be the ``electronic equivalent'' of the paper coverage
determination and appeals forms proposed at Sec. 423.128(b)(7)(i). The
proposed rule described a system that would provide some level of
interactive functionality on a plan's Web site, such as the ability to
populate and submit an online request form.
However, after reviewing all of the comments on this provision, we
agree that requiring plans to develop an interactive Web-based system
by the 2012 plan year would impose significant costs and operational
difficulties on many Part D plans. Therefore, although we are
finalizing the regulatory language as proposed, we are clarifying that
``immediate access'' to the coverage determination and appeals
processes can be satisfied through a variety of means. We strongly
encourage plans to establish interactive, web-based systems to meet
this requirement. At a minimum, however, plans must have a process for
allowing an enrollee to initiate a coverage determination or appeal
request by sending a secure e-mail to an e-mail address that is
prominently displayed on the plan's Web site. In response to such
requests, plans must provide notice of decisions in a timely manner,
consistent with all existing requirements in Subpart M of our
regulations. We believe that this approach takes into consideration the
plans' differing technological capabilities, while implementing the
statutory requirement that plans provide access to the coverage
determination and appeals processes via plan Web sites. Although plans
that have the capability to deploy a more robust and sophisticated Web-
based system are encouraged to do so, we do not intend to specify
systems functionality for plan Web sites, beyond the requirement that
an enrollee (and an enrollee's prescriber or representative) be able to
initiate a request by sending a secure e-mail via the plan's Web site.
Finally, we note that enrollees (and their prescribers and
representatives) will retain the right to make requests for oral
coverage determinations and expedited appeals which serve as another
means of obtaining instant access to the coverage determination and
appeals processes.
Comment: We received some comments regarding the requirement that
plans provide immediate access to the coverage determination and
redetermination processes through a toll-free phone number. Commenters
opposed to this requirement indicated that maintaining a toll-free line
creates an undue burden on plans, provides minimal benefit to enrollees
and increases confusion among enrollees. These commenters also
requested a delayed implementation date. Commenters who support the
proposed requirement requested that CMS require plans to disseminate
the toll-free number and related information widely in plan materials,
and support stakeholder input in the development of model scripts for
customer service representatives (CSRs) who staff these toll-free
lines.
Response: The existing regulations at Sec. 423.128(d)(1) already
require plan sponsors to maintain a toll-free customer call center, and
existing subregulatory marketing guidance clarifies applicable call
center coverage requirements for coverage determinations and
redeterminations. The proposed change we intend to finalize adds the
requirement that plans provide immediate access to the coverage
determination and redetermination processes through their toll-free
customer call centers. If using an existing toll-free number for
receiving and processing oral coverage determination and appeals
requests could potentially cause delays and/or missed time frames,
plans may establish a dedicated toll-free customer service line for
receiving these requests. We note that plans are currently required
under Sec. 423.568(a) and Sec. 423.570(b) respectively, to accept
oral requests for both standard coverage determinations (excluding
reimbursement requests) and expedited coverage determinations, and
under Sec. 423.584(b), to accept oral requests for expedited
redeterminations. In the proposed rule, we noted that a CSR could
potentially access the plan's web-based application for coverage
determinations and appeals and enter information supplied by the
enrollee via telephone. However, as discussed previously, we are
scaling back our expectations with respect to plan capabilities for
having an interactive web-based application for coverage determinations
and appeals. As such, we expect that plans will continue to utilize
existing mechanisms for receiving and processing oral coverage
determination and appeal requests, including those received outside
normal business hours. Requests made through the toll-free number would
still be subject to existing processing guidelines

[[Page 21474]]

and timeframes outlined in Subpart M of the regulations.
Comment: Several comments were received regarding the proposed
requirement that Part D sponsors revise their payment systems to notify
network pharmacies that they need to generate a printed notice
containing information for enrollees about how to contact their plan to
request a coverage determination, including an exception, when a
prescription cannot be filled as written. Commenters indicated that
because the POS notice would not provide enrollees with any more
information than what is already provided on their member ID cards, it
is an undue burden on pharmacies, and is not ``green.''
Response: We disagree with the commenters' concerns regarding the
lack of utility in the distribution of a POS notice. Other commenters
have expressed concern that enrollees are not aware of their right to
request a coverage determination and that having the notice posted at
the pharmacy counter is only useful to the extent the enrollee is
directed to it by his/her pharmacist.
We also do not agree that the distribution of the POS notice is an
additional burden on pharmacies. It is likely the POS notice will
relieve pharmacy staff from being queried by enrollees as to why their
prescriptions could not be filled as written, because the notice refers
the enrollee directly to their plan to obtain a coverage determination.
Furthermore, we believe that eliminating the current option of
directing enrollees to a posted notice and requiring that they receive
a printed notice strengthens enrollee access to the coverage
determination process because the enrollee will leave the pharmacy with
printed instructions about contacting the plan to request a coverage
determination.
Comment: Several of the comments regarding the proposed requirement
to distribute POS notices incorrectly referred to the POS transaction
at the pharmacy counter as a denial of prescription drug coverage (an
adverse coverage determination).
Response: We reiterate our position in previous rulemaking and
existing subregulatory guidance that plan sponsors are not required to
treat the presentation of a prescription at the pharmacy counter as a
request for coverage determination. Accordingly, the plan sponsor is
not required to provide the enrollee with a written denial notice at
the pharmacy as a result of the transaction.
Comment: Several commenters supported the requirement that a POS
notice be distributed at the pharmacy, but stated that the notice
should be tailored to each individual's situation, including a
description of why the prescription could not be filled as written.
Response: We agree it would be useful for enrollees to have
additional information such as the name of the drug and the specific
reason(s) the prescription cannot be filled as written as part of the
POS notice. However, such situation-specific messaging cannot be
generated at this time. Until we have the opportunity to work with the
industry, specifically the National Council of Prescription Drug
Programs (NCPDP), to develop and standardize codes that will assist
Part D sponsors, processors and pharmacies with generating this kind of
information as part of the transaction, we cannot require Part D
sponsors or their processors to code their systems to generate such a
notice.
We are finalizing the proposed language in Sec. 423.128(b)(7) and
Sec. 423.562, with the modifications to Sec. 423.128(b)(7)(i)
described previously. Consistent with section 3312 of the ACA, these
new requirements will be effective January 1, 2012.
14. Including Costs Incurred by AIDS Drug Assistance Programs (ADAPs)
and the Indian Health Service Toward the Annual Part D Out-of-Pocket
Threshold (Sec. 423.100 and Sec. 423.464)
Section 1860D-2(b)(4)(C) of the Act provides protection against
high out-of-pocket expenditures for Part D eligible individuals. Under
the standard Part D benefit, a beneficiary is entitled to reductions in
cost sharing under the catastrophic phase of the benefit once his or
her true out-of-pocket (TrOOP) expenditures reach the annual Part D
out-of-pocket threshold. Prior to enactment of the ACA, TrOOP
expenditures represented costs actually paid by the beneficiary,
another person on behalf of the beneficiary, or a qualified State
Pharmaceutical Assistance Program (SPAP).
Thus, prior to the passage of the ACA, supplemental drug coverage
provided by the Indian Health Service (IHS), Indian tribes and
organizations, and urban Indian organization facilities (as defined in
section 4 of the Indian Health Care Improvement Act) were not
considered to be TrOOP eligible because these entities fell under our
definition of ``government-funded health program,'' under Sec.
423.100. Similarly, the Health Resources and Services Administration
(HRSA) Ryan White HIV/AIDS Program-funded AIDS Drug Assistance Programs
(ADAPs) cost sharing were not counted toward TrOOP for the purpose of
meeting the out-of-pocket threshold at which catastrophic coverage
under the Part D benefit begins. As explained in the preamble in the
January 2005 final rule (see 70 FR 4240 and 4241) implementing the Part
D program, ADAPs were not considered SPAPs because these programs
received Federal funding. With the passage of the ACA, CMS regulations,
as they relate to IHS/Tribes and ADAPs, have been superseded effective
January 1, 2011. Section 3314 of the ACA amends section 1860D-
2(b)(4)(C) of the Act to specify that costs borne or paid for by IHS,
an Indian tribe or tribal organization, or an urban Indian
organization, and costs borne or paid for by an ADAP will be treated as
incurred costs for the purpose of meeting the annual out-of-pocket
threshold. Based on these amendments, we proposed to revise the
definition of incurred cost at Sec. 423.100(2)(ii) to include payments
by the IHS (as defined in section 4 of the Indian Health Care
Improvement Act), an Indian tribe or tribal organization, or an urban
Indian organization (referred to as I/T/U pharmacy in Sec. 423.100) or
under an AIDS Drug Assistance Program (as defined in part B of title
XXVI of the Public Health Service). We also proposed to amend Sec.
423.464(f)(2) to specifically exclude expenditures made by IHS, an
Indian tribe or tribal organization, or an urban Indian organization
(referred to as I/T/U pharmacy in Sec. 423.100) or under an AIDS Drug
Assistance Program (as defined in part B of title XXVI of the Public
Health Service) from the requirement to exclude such expenditures for
the purpose of determining whether a Part D enrollee has satisfied the
out-of-pocket threshold.
Comment: We received a comment requesting that CMS revise
regulations at Sec. 423.100 and Sec. 423.464(f)(2) to reference
section 4 of the Indian Health Care Improvement Act in the
parenthetical following the phrase ``urban Indian organization,'' and
replace the term ``payments'' in Sec. 423.464(f)(2) with the phrase
``costs borne or paid by'' to more closely track the statutory language
provided in 3314 of ACA.
Response: We agree with this comment and revise the regulation text
at Sec. 423.100 to reference section 4 of the Indian Health Care
Improvement Act. In addition, in response to this comment and to avoid
confusion, we are removing the redundant reference to ADAPs and IHS/
tribes/tribal organizations in Sec. 423.464(f)(2)(i)(B). Because costs
borne or paid by these organizations already are included in the
definition of ``incurred costs'' as

[[Page 21475]]

referenced in Sec. 423.464(f)(2)(i)(A), they need not be expressly
referenced in Sec. 423.464(f)(2)(i)(B). We also revised Sec.
423.100(2)(ii) to remove the cross reference to Sec. 423.464.
Comment: Another commenter requests that CMS provide a list of ADAP
BINs (bank identification numbers)/PCNs (processor control numbers) to
ensure proper TrOOP calculation for ADAP members by the Part D sponsor.
Response: Both CMS and the Health Resources and Services
Administration (HRSA) have provided training and assistance to ADAP
grantees about CMS' coordination of benefits (COB) data exchange
process and its relationship to the member's TrOOP calculation.
Participation in this process will allow ADAPs to provide the BIN and
PCN directly to CMS' COB contractor, who will then identify ADAPs as
TrOOP-eligible payers as part of transactions sent from our TrOOP
facilitator to Part D sponsors.
Except for the technical amendments to the proposed regulations
text noted previously, we are finalizing the regulation as proposed.
15. Cost Sharing for Medicare-Covered Preventive Services (Sec.
417.454 and Sec. 422.100)
Effective January 1, 2011, sections 4103 and 4104 of the ACA
revised sections 1833 and 1861 of the Act to create new coverage of
Personalized Prevention Plan Services (PPPS) or ``annual wellness
visits'' and establish a requirement that no cost sharing may be
charged to beneficiaries under Original Medicare for the annual
wellness visit, the initial preventive physical exam (IPPE) and
Medicare-covered preventive services graded as an A or B by the U.S.
Preventive Services Task Force (USPSTF).
In light of the new legislative requirements for Original Medicare,
and the importance of preventive services in managed and coordinated
care, we included information related to coverage and cost sharing for
preventive services in guidance issued via the Health Plan Management
System (HPMS) on April 16, 2010 (``Benefits Policy and Operations
Guidance Regarding Bid Submissions; Duplicative and Low Enrollment
Plans; Cost Sharing Standards; General Benefits Policy Issues; and Plan
Benefits Package (PBP) Reminders for Contract Year (CY) 2011'') and May
20, 2010 (``Supplemental 2011 Benefits Policy and Operations Guidance
on Application of the Mandatory Maximum Out-of-Pocket (MOOP) for Dual
Eligible SNPs, and Cost Sharing for Preventive Services''). In this
guidance, we strongly encouraged MA organizations to provide all in-
network Medicare-covered preventive services without cost sharing
charges under their MA plans in contract year 2011, indicated our
intention to consider rulemaking to require that such preventive
services be provided with no cost sharing, and provided instructions on
how to reflect the zero cost sharing in their plan benefit package
(PBP) submissions for contract year 2011.
As required at section 1852(a)(1)(A) of the Act (except as provided
in section 1859(b)(3) of the Act for MSA plans and in section
1852(a)(6) of the Act for MA regional plans), each MA plan must provide
to its members all Parts A and B benefits included under the Original
Medicare fee-for-service program as defined at section 1852(a)(1)(B) of
the Act. We agree that the utilization of preventive services should be
encouraged by providing such services without cost sharing. Therefore,
we believe it is necessary, and appropriate, to provide this same
incentive to all Medicare beneficiaries, whether they receive their
benefits through Original Medicare, under an MA plan, or under a
section 1876 cost contract.
Therefore, under our authority in section 1856(b)(1) of the Act to
establish MA standards by regulation, and our authority in section
1857(e)(1) of the Act to establish requirements we find ``necessary and
appropriate,'' we proposed to add a new paragraph (k) to Sec. 422.100,
and under our authority in section 1876(i)(3)(D) of the Act to impose
``other terms and conditions'' deemed ``necessary and appropriate,''
new paragraph (f) to Sec. 417.101, to require MA organizations and
section 1876 cost plans to provide in-network Medicare-covered
preventive benefits at zero cost sharing, consistent with the new
regulations for Original Medicare-covered preventive benefits.
For specific information about the list of preventive services
covered under Original Medicare without cost sharing and information
about what is included in the annual wellness visit, we directed plans
to go to the following Medicare Web sites: https://www.cms.HospitalOPPS/ and http://www.cms.gov/PhysicianFeeSched/.
Comment: Commenters expressed their support for our proposal to
require MA organizations and section 1876 cost plans to provide in-
network Medicare-covered preventive benefits at zero cost sharing,
consistent with the new regulations for Original Medicare-covered
preventive benefits. Some of those commenters also requested that CMS
clarify that only in-network preventive services will be required to
have zero cost sharing and that MA plans will be required to cover the
same preventive services at zero cost sharing as are provided under
Original Medicare without cost sharing.
Response: We thank the commenters for their support. We clarify
that the preventive services to be provided by MA plans without cost
sharing are those provided in-network and that they are to be the same
services that are covered under Original Medicare with zero cost
sharing and will take into consideration the commenters' concerns as we
move forward with other guidance and educational materials.
Comment: We received one comment requesting that we extend the
requirement for preventive services' zero cost sharing to out-of-
network settings. The commenter believes that because preventive
services are so important for beneficiary health CMS should provide
equal access to them no matter where the beneficiary receives them.
Response: Our policy for cost sharing is limited to in-network
Medicare parts A and B services and we made no proposal to change that
policy. Furthermore, we believe that the nature of the specified
preventive services is such that there is not a need for beneficiaries
to have the same access to them out-of-network as is provided in-
network. We believe that the services are most beneficial to an
enrollee when provided in-network because communication among the
enrollee's providers is an integral part of a successful prevention
plan. By receiving in-network preventive services the enrollee's needs
for any follow-on services will be identified and furnished and this is
less likely to occur if individual preventive services are received
elsewhere.
Comment: We received a comment expressing concern that some of the
policies related to implementation of zero cost sharing for Medicare-
covered preventive benefits would create beneficiary confusion on
specific elements and that such confusion would lead to complaints that
could have an impact on plans' quality bonus payments.
Response: We appreciate the commenter's concern and going forward,
we will continue to make every effort to educate beneficiaries and
providers about the services and situations in which zero cost sharing
applies.
Comment: We received a few comments requesting that additional
services be included as Medicare-

[[Page 21476]]

covered preventive services with zero cost sharing.
Response: We thank the commenters for their suggestions but they
are beyond the scope of this proposed rule.
Comment: Two commenters objected to our codification in the
proposed rule of our proposal to extend the requirement for plans to
charge zero cost sharing for CMS-specified in-network preventive
services to section 1876 cost plans by adding new paragraph (f) to
Sec. 417.101, which otherwise does not govern cost plans. The
commenters suggested that instead we may want to propose to add a new
paragraph to Sec. 417.454, Charges to Medicare Enrollees.
Response: We thank the commenters for alerting us to this
codification issue. In this final rule, we will not make a change to
Sec. 417.101 and will instead add new paragraph (d) to Sec. 417.454
to require that no cost sharing may be charged by section 1876 cost
plans for CMS-specified in-network preventive services.
We have considered all of the comments received on this proposal
and will finalize our proposed policy to amend Sec. 422.100 by adding
new paragraph (k) to require that there be no cost sharing for in-
network Medicare-covered preventive services, as specified by CMS
annually. In addition, we are adding new paragraph (d) to Sec. 417.454
as previously specified.
16. Elimination of the Stabilization Fund (Sec. 422.458)
Section 221(c) of the MMA added section 1858 of the Act to
establish rules for MA Regional Plans. Section 1858(e) established an
MA Regional Plan Stabilization Fund (the Fund) for the purpose of
providing financial incentives to MA organizations that offered new MA
Regional Plans nationally, or in each MA region without one.
Section 10327(c) of the ACA repealed section 1858(e) of the Act,
eliminating the Stabilization Fund. Therefore, we proposed to delete
paragraph (f) from Sec. 422.458, since the statutory basis for the
Fund no longer exists. We received no comments on this proposal and
therefore are finalizing this provision without modification. We are
also adopting Sec. 422.258(f) as proposed in this final rule.
17. Improvements to Medication Therapy Management Programs (Sec.
423.153)
As required by section 1860D-4(c)(1)(C) of the Act, Part D sponsors
must establish Medication Therapy Management Programs (MTMPs). Section
1860D-4(c)(2) of the Act requires MTMPs to be designed to ensure that,
with respect to targeted beneficiaries described in section 1860D-
4(c)(2)(A)(ii) of the Act, covered Part D drugs are appropriately used
to optimize therapeutic outcomes through improved medication use and to
reduce the risk of adverse events. As noted in our November 2010
proposed rule, these requirements are codified in Sec. 423.153(d) of
the Part D regulations.
Effective January 1, 2013, section 10328 of the ACA amends section
1860D-4(c)(2) of the Act to require prescription drug plan sponsors to
perform a quarterly assessment of all ``at risk'' individuals who are
not already enrolled in an MTMP, establish opt-out enrollment for MTM,
and offer medication therapy management services to targeted
beneficiaries. These MTM services must include, at a minimum, an annual
comprehensive medication review (CMR) that may be furnished person-to-
person or via telehealth technologies and a review of the individual's
medications, which may result in the creation of a recommended
medication action plan, with a written or printed summary of the
results of the review provided to the targeted individual. The law also
requires that the action plan and summary resulting from the CMR be
written in a standardized format.
In our November 2010 proposed rule, we noted that prior to the
passage of the new legislation, we had already made several
improvements to the MTM program. We also indicated that in comparing
the requirements in section 10328 of the ACA to those codified in the
April 2011 final rule containing policy and technical changes under the
Part C and Part D programs (see 75 FR 19772 through 19776 and 19818 and
19819), we found that a number of the provisions are consistent.
Specifically, the April 2011 final rule requires the use of an opt-out
method of enrollment for targeted beneficiaries, an annual
comprehensive medication review (CMR) with a written summary, quarterly
targeting of beneficiaries for enrollment into the MTMP, and quarterly
targeted medication reviews for individuals enrolled in the MTMP with
follow-up interventions when necessary. However, to ensure that our
policies are fully consistent with the new requirements added by
section 10328 of the ACA, we proposed to amend the current regulations
to clarify the Part D MTMP requirements relating to the required use of
a standardized format for the written summary and action plan that may
result from the CMR. Thus, in our November 2010 proposed rule, we
proposed to amend Sec. 423.153(d)(1)(vii) to add the requirement that
Part D sponsors use a standardized format for the action plan and
summary resulting from a review of the targeted beneficiary's
individual medications, and to provide the individual with a written or
printed copy of the summary. We also noted our plan to award a contract
to an outside entity, pending the availability of funding, to work in
consultation with stakeholders in order to develop a standardized
format for the action plan and summary which may result from annual or
quarterly targeted medication reviews.
In our November 2010 proposed rule, we also proposed to amend the
MTMP requirements at Sec. 423.153(d)(1)(vii) to explicitly permit the
use of telehealth technologies to conduct the required annual CMR as
referenced under the ACA, to allow the sponsors to attempt innovative
techniques that provide care at a distance in order to better serve the
beneficiary, especially beneficiaries who cannot travel to the
provider's location, or who reside in a remote location or in a
different time zone. We emphasized as well that when using telehealth
technologies, personal health information privacy and security must be
ensured. This would involve the establishment of appropriate
administrative, technical, and physical safeguards to protect the
confidentiality of data and to prevent unauthorized use of, or access
to, it. The safeguards must provide a level and scope of security that
is not less than the level and scope of security requirements
established by the Office of Management and Budget (OMB) in OMB
Circular No. A-130, Appendix III--Security of Federal Automated
Information Systems) as well as Federal Information Processing Standard
200 entitled ``Minimum Security Requirements for Federal Information
and Information Systems''; and Special Publication 800-53 ``Recommended
Security Controls for Federal Information Systems.'' The use of
unsecured telecommunications, including the Internet, to transmit
individually identifiable information would, therefore, be prohibited.
In addition to the proposed regulatory changes required to
implement the ACA provisions, in our November 2010 proposed rule, we
proposed to amend the MTMP requirements related specifically to MTM
services furnished in LTC facilities. As provided under sections
1819(b)(4) and 1919(b)(4) of the Act, LTC facilities must provide,
either directly or under arrangements with others, for the provision of
pharmaceutical services to meet the

[[Page 21477]]

needs of each resident. In our November 2010 proposed rule, we noted
this requirement is codified in regulations at Sec. 483.60 which
require LTC facilities to employ or obtain the services of a licensed
pharmacist to provide consultation on all aspects of the provision of
pharmacy services in the facility, including a drug regimen review at
least once a month for each facility resident. We stated further that,
although Part D sponsors are required to provide MTM services to all
beneficiaries meeting the target criteria, it is not clear that these
services are being made available to nursing home residents meeting
these criteria. We noted our concern that if MTM is provided, in the
absence of coordination, the MTMP and the consultant pharmacist's drug
regimen review could result in conflicting recommendations relating to
medication management. Therefore, we proposed to amend Sec.
423.153(d)(5) to require Part D sponsors to contract with LTC
facilities to provide appropriate MTM services to residents in
coordination with the monthly medication reviews and assessments
performed by the LTC consultant pharmacist. We expressed our belief
that this approach would enable beneficiaries to receive the full
benefits of the sponsor's MTMP and would also result in coordinated
assessments that would be more likely to discover evidence of adverse
side effects and medication overuse, and solicited comments from the
public on how such coordination between sponsors and LTC facilities
might work best.
Comment: One commenter noted that much evidence has been provided
over the years indicating the superior results of face-to-face
encounters between patients and health care providers and asked that
the regulation specifically identify pharmacists as face-to-face
providers.
Response: While we recognize that some MTM providers may prefer
face-to-face encounters, section 1860D-4(c)(2)(C) of the Act requires
the annual comprehensive medication reviews include either an
interactive person-to-person or telehealth consultation. We believe
that, given the variability of beneficiary circumstances and needs and
the advances in technology such as telehealth, it is important that MTM
providers take advantage of this flexibility in the methods of delivery
of MTM services in order to maximize beneficiary access to these
services. We note further that the proposed regulation at Sec.
423.153(d)(1)(vii)(B) specifies that the annual comprehensive
medication reviews must be performed by a pharmacist or other qualified
provider. We will retain this requirement in the final rule.
Comment: Several commenters expressed strong support for the use of
telehealth technologies in conducting CMRs; one commenter emphasized
the importance of face-to-face counseling in the MTM context; and
another commenter opposed the use of remote MTM for long term care
(LTC) beneficiaries. This latter commenter noted that many LTC
residents have cognitive impairments and, thus, will rarely be able to
interact with, or respond to, MTM services.
Response: We appreciate the support commenters expressed for the
use of telehealth technologies for CMRs, but note that use of these
technologies is an option. The ACA amended section 1860D-4(c)(2) of the
Act to require an annual CMR ``furnished person-to-person or using
telehealth technologies'' (emphasis added). We agree that the use of
telehealth technologies for conducting CMRs may not be appropriate for
all beneficiaries. We also recognize and agree with the commenter that
beneficiaries residing in LTC facilities who have cognitive impairments
may be unable to participate in an interactive CMR. The current
regulations at Sec. 423.153(d)(1)(vii)(B) reflect this awareness by
exempting sponsors from offering interactive CMRs to targeted
beneficiaries in LTC settings. The Act, as amended by section 10328 of
ACA, does not provide a basis for distinguishing the offering of MTM
services based on setting. Since the ACA requirements are not effective
until January 2013, we will undertake additional rulemaking to further
amend the current regulations at Sec. 423.153(d)(1)(vii)(B) to clarify
the requirement for MTM programs to offer CMRs to targeted
beneficiaries in LTC settings.
Comment: One commenter recommended that we ensure that when MTM
services are provided by individuals who are not pharmacists and who
have not received the extensive training in medications that a
pharmacist receives, these individuals are qualified to provide MTM
consultations.
Response: We are not aware of consensus within the industry
regarding the qualifications necessary to provide MTM consultations. As
a result, we are not prepared at this time to establish requirements
regarding MTM provider qualifications. However, we may perhaps do so in
the future and would welcome information to assist us in defining the
qualifications.
Comment: Numerous commenters expressed support for a standardized
format for the written summary and action plan resulting from an annual
comprehensive medication review CMR). One commenter applauded our plan
to work with stakeholders to develop the standardized formats. Another
commenter asked how the stakeholders who would be included in the
development of the standardized formats would be determined. Several
more commenters recommended we consider input from all industry
stakeholders, including plan sponsors, PBMs, pharmacy organizations,
and current MTM providers. Two commenters expressed an interest in
working on the development and testing of the formats. Two commenters
noted that there may be substantial administrative costs associated
with implementing these new standardized documents and recommended that
we issue the formats in draft for comment and carefully review the
comments received to minimize the implementation costs and burden.
Response: We appreciate the support as well as the interest
expressed by commenters in participating in the development process and
we agree with the recommendation to provide opportunity for the
industry to review and comment on the draft formats. The statute
specifies that the standardized formats for the action plan and summary
will be developed in consultation with relevant stakeholders. It is our
intention to examine existing model summaries and action plans in
current use and to create draft formats based on the existing models.
We have already begun to solicit copies of the existing models in use
today and are in the process of reviewing the documents received in
response to our request. Once the draft standardized formats have been
developed, we will issue them for industry review and comment. We will
consider the input from all stakeholders and revise the draft
standardized formats based on the comments received. Additional
opportunities for public review and comment will be available as the
revised formats undergo the OMB approval process required by the
Paperwork Reduction Act (PRA). We believe our plan for developing the
standardized formats by offering multiple opportunities for public
review and comment will be adequate to permit all relevant stakeholders
to provide input. We will carefully consider the comments received at
all points in the process to ensure that the standardized

[[Page 21478]]

formats do not present an undue implementation burden.
Comment: Several commenters suggested that the standardized formats
should be limited and offer adequate flexibility for plan sponsors to
tailor the summaries and action plans to meet the needs of
beneficiaries, caregivers, and plan sponsors.
Response: As we interpret the statute, Congress asked for
standardized formats. Therefore, although the specific content of the
summary or action plan will be tailored to the beneficiary, there will
not be much variability in the style, organization, and general
appearance of these documents.
Comment: Two commenters noted that, with the exception of
correcting his or her non-adherence, a beneficiary cannot make
medication changes without a prescriber's intervention and, as a
result, suggested that a copy of the CMR summary also should be
provided to all the beneficiary's prescribers that are known to the
plan.
Response: We believe the results of the medication review should be
shared with the prescribing physicians as necessary, based on the
professional judgment of the reviewer and needs of the beneficiary. In
our view, mandating that review summaries are always sent to all
prescribers would add unnecessary administrative burden and cost.
Comment: One commenter questioned whether the standardized format
would require sponsors to use vendor software. This commenter also
asked when the standardized formats would be available and if the
formats would be required for the targeted medication reviews (TMRs) or
only CMRs.
Response: Use of the standardized summary and action plan formats
will not require sponsors to use a specific vendor's software. As noted
previously, we expect to create draft formats based on existing models
and issue the draft for review and comment. Since we have already begun
the process of examining some of the existing models in use today, we
hope to have a draft available for review within the next few months.
With regard to the required use of the formats, the ACA amended section
1860D-4(c)(2) of the Act to require that a CMR include the provision of
a written or printed summary and may also result in the creation of an
action plan. The statute expressly required the development of
standardized formats for summaries and action plans that are provided
as part of the CMR. However, we would encourage plans to use these
formats for TMRs as well.
Comment: One commenter requested that we define telehealth.
Response: Section 1860D-4(c)(2) of the Act states that an annual
CMR must be ``* * * furnished person-to-person or using telehealth
technologies (as defined by the Secretary) * * *'' The U.S. Department
of Health and Human Services' Office of the National Coordinator for
Health Information Technology (ONC) defines telehealth as ``the use of
telecommunications technologies to deliver health-related services and
information that support patient care, administrative activities and
health education. The technology is a means to improve access to care,
while reducing cost of transportation and increasing convenience to
patients care.'' This definition is available on the ONC Web site at
http://healthit.hhs.gov/portal/server.pt?open=512&objID=1224&parentname=CommunityPage&parentid=27&mode=2&in_hi_userid=11113&cached=true.

The ONC Web site also includes descriptions of various telehealth
applications that may be considered for performing a CMR, including for
example--
Live videoconferencing: Audio and video feeds used to
connect two or more geographically dispersed health care facilities to
enable patients and physicians to consult in real time; and
E-visits/e-consults: Evolved from secure email or phone
based encounters, e-visits can be offered by health insurers through a
secure Web portal.

Whatever telehealth technology is used for the CMR, it must enable the
MTM provider to perform an interactive consultation with the targeted
beneficiary.

Comment: A few commenters suggested that we monitor the outcomes
and methods for conducting CMRs, including tracking the technology used
and outcomes for various telehealth technologies.
Response: We agree that it is important to evaluate outcomes and
identify best practices in MTM, including possibly the use of
telehealth technologies. We will consider such monitoring in the
future.
Comment: A few commenters strongly supported our proposed
requirement to coordinate MTM with LTC consultant pharmacist evaluation
and monitoring. A large number of commenters, however, expressed
concerns regarding the proposed requirement for Part D sponsors to
contract with all the LTC facilities in which their Part D enrollees
reside and many offered alternative contracting arrangements or
approaches for ensuring that LTC beneficiaries receive the benefits of
the sponsor's MTM program and that evidence of adverse side effects or
medication overuse is discovered and addressed. Several commenters
suggested we delay implementation and work with industry stakeholders
to identify and evaluate alternatives.
Response: We appreciate the support expressed for our proposed
requirement, but we also agree that there may be a less burdensome
approach for achieving our goal. Therefore, we are not finalizing the
proposed requirement in Sec. 423.153(d)(5) and will work with
stakeholders to develop an alternate proposal. We thank the many
commenters who suggested alternative arrangements and will consider
these recommendations as we seek to identify the best approach for
coordinating MTM and LTC consultant pharmacist monitoring.
Based on the comments received, we are finalizing this provision
with the amendments previously noted. This provision will be effective
January 1, 2013.
18. Changes To Close the Part D Coverage Gap (Sec. 423.104 and Sec.
423.884)
In our November 2010 proposed rule, we noted that paragraphs (b)(3)
and (d) of section 1101 of the ACA amended section 1860D-2(b) of the
Act by adding provisions that revise the Part D benefit structure to
close the gap in coverage that occurs between the initial coverage
limit for the year and the out-of-pocket threshold. We noted that the
new provisions not only will revise the amount of coinsurance for costs
of covered drugs above the initial coverage limit and below the out-of-
pocket threshold (that is, within the Part D coverage gap) for
applicable beneficiaries, but also will reduce the growth in the annual
out-of-pocket threshold from 2014 to 2019.
As stipulated under the new provisions in section 1860D-2(b)(2)(C)
and (D) of the Act, effective January 1, 2011, cost sharing in the
coverage gap for ``applicable beneficiaries'' will be determined on the
basis of whether the covered Part D drug is considered an ``applicable
drug'' under the Medicare coverage gap discount program as defined at
section 1860D-14A(g)(2). Section 1860D-14A(g)(2)(A) defines an
applicable drug under the Medicare coverage gap discount program as a
covered Part D drug that is either approved under a new drug
application (NDA) under section 505(b) of the Federal Food, Drug, and
Cosmetic Act or, in the case of a biologic product, licensed under
section 351 of the Public Health Service Act (BLA) (other than under
section 351(k)). Under standard

[[Page 21479]]

prescription drug coverage, coinsurance for applicable beneficiaries in
the coverage gap for drugs that are not applicable drugs under the
Medicare coverage gap discount program (that is, generic drugs) will be
either: (1) Equal to the statutory generic gap coinsurance percentage
for the year; or (2) actuarially equivalent to an average expected
coinsurance for covered Part D drugs that are not applicable drugs
under the Medicare coverage gap discount program at the statutory
generic gap coinsurance percentage for the year, as determined through
processes and methods established under section 1860D-11(c) of the Act
and implemented at Sec. 423.265(c) and (d) of our regulations. In our
November 2010 proposed rule, we explained that for applicable drugs
under the Medicare gap coverage discount program, coinsurance in the
coverage gap for the actual cost of the drug as defined at Sec.
423.100 minus any applicable dispensing fees will be either: (1) Equal
to the difference between the applicable gap percentage for the year
and the discount percentage determined under the Medicare coverage gap
discount program at section 1860D-14A(4)(A) of the Act; or (2)
actuarially equivalent to an average expected payment of the
coinsurance for applicable covered Part D drugs at the applicable gap
percentage for the year, as determined through processes and methods
established under section 1860D-11(c) of the Act and implemented at
Sec. 423.265(c) and (d) of our regulations. We stated that, as a
result, when the applicable drug is purchased at a network pharmacy,
the beneficiary will be fully liable for any dispensing fees, since the
statute requires that the coinsurance apply only to the negotiated
price of the drug minus dispensing fees.
We proposed to codify these new requirements in Sec.
423.104(d)(4). Additionally, since the terms applicable drug,
applicable beneficiary, and coverage gap have not been previously
defined in regulation, we proposed new definitions for these terms at
Sec. 423.100. Consistent with section 1101 of the ACA, these
reductions in cost sharing during the coverage gap will apply only to
applicable beneficiaries. In defined standard coverage, cost sharing
during the coverage gap will remain unchanged at 100 percent
coinsurance for all other Part D beneficiaries (prior to application of
any low-income cost sharing subsidy).
As provided under the new provisions in section 1860D-2(b)(4)(B)(i)
of the Act, the rate of growth of the annual out-of-pocket threshold
will be reduced from 2014 to 2019. In our November 2010 proposed rule,
we proposed to amend Sec. 423.104(d)(5)(iii) to state that the annual
out-of-pocket threshold for years 2014 and 2015 will be the amount
specified for the previous year, increased by the ``annual percentage
increase'' in the average expenditures for Part D drugs per eligible
beneficiary currently specified in Sec. 423.104(d)(5)(iv), minus 0.25
percentage point. Further, we proposed to amend Sec.
423.104(d)(5)(iii) and (v) to reflect that for years 2016 through 2019,
the annual out-of-pocket threshold will be the amount specified for the
previous year, increased by the lesser of: (1) the annual percentage
increase in the consumer price index specified in Sec.
423.104(d)(5)(v) for the year involved plus 2 percentage points; or (2)
the ``annual percentage increase'' specified in Sec.
423.104(d)(5)(iv), rounded to the nearest $50. We also noted that the
new provisions in section 1860D-2(b)(4)(B)(i) of the Act require us to
calculate the annual out-of-pocket threshold for 2020 and later as if
no change had been made to the calculation of the out-of-pocket
threshold for 2014 through 2019 under the ACA. Thus, we proposed to
amend Sec. 423.104(d)(5)(iii) to reflect this requirement.
In our November 2010 proposed rule, we noted the ACA also amended
section 1860D-22(a)(2)(A) of the Act by adding a provision with regard
to the actuarial equivalence of retiree prescription drug plan coverage
to standard coverage. Specifically, the new provision requires that
when attesting to the actuarial equivalence of the plan's prescription
drug coverage to defined standard coverage, qualified retiree
prescription drug plans not take into account the value of any discount
or coverage provided during the gap in coverage that occurs between the
initial coverage limit during the year and the out-of-pocket threshold
for defined standard coverage under Part D. We proposed to codify this
new requirement in Sec. 423.884(d).
As indicated in section II.A. of this final rule, the regulations
implementing these provisions are effective 60 days after the date of
display of the final rule.
Comment: Several commenters expressed support for this provision
and the proposed new definitions for ``applicable drug,'' ``applicable
beneficiary'' and ``coverage gap.'' Two commenters urged us to provide
stakeholders, including beneficiaries and independent pharmacists, with
educational materials regarding program implementation as early as
possible.
Response: We appreciate the commenters' support and we agree with
those who encouraged us to provide educational materials to inform
stakeholders of the changes to close the coverage gap for applicable
beneficiaries.
Comment: We received many comments regarding various aspects of the
Medicare coverage gap discount program.
Response: Since these comments pertain to the coverage gap discount
program as specified in section 1860D-14A of the Act, rather than to
the revisions to the Part D benefit structure specified in section
1860D-2(b) of the Act that were the subject of the November 2010
proposed rule, we believe these comments are outside the scope of the
proposed rule. However we plan, to address the comments as appropriate
in any future rulemaking regarding the coverage gap discount program.
Comment: One commenter requested that the regulatory language
define the amount that will be counted toward the beneficiary's true
out-of-pocket (TrOOP) cost when the ``generic'' gap cost-sharing is
applied.
Response: We do not believe there is a need to address this issue
in regulation. The amount of the applicable beneficiary's TrOOP for
generic drugs in the coverage gap will be the coinsurance amount
specified in Sec. 423.104(d)(4)(i) and paid by the beneficiary,
another individual on the beneficiary's behalf, or by a TrOOP-eligible
payer under Sec. 423.100.
Comment: Several commenters recommended revisions to our proposed
definition of the term ``applicable drugs.'' Two commenters suggested
we exclude all ``authorized generics'' from the term and one commenter
recommended we clarify whether or not the term includes ``authorized
generics.'' Another commenter requested we specify that a drug may be
an ``applicable drug'' for a particular applicable beneficiary if the
drug is provided through an exception or appeal to that particular
applicable beneficiary.
Response: We believe ``applicable drug'' means all drugs approved
under new drug applications (NDAs) and this includes those ``authorized
generics'' licensed by sponsors of NDAs. It is our understanding that
while most ``authorized generics'' are approved under NDAs, others may
be approved under abbreviated new drug applications (ANDAs). However,
only those ``authorized generics'' licensed by sponsors of NDAs are
applicable drugs. To avoid confusion, we are defining ``applicable
drug'' with respect to an applicable beneficiary as a Part D drug

[[Page 21480]]

that is approved under an NDA. We are also removing the superfluous
parenthetical phrase that was inadvertently included in the proposed
definition.
We agree with the commenter requesting that we specify that drugs
provided through an exception or appeal are applicable drugs only for
that particular beneficiary. As a result, we are revising the final
clause in the definition to state that the drug ``is provided to a
particular applicable beneficiary through an exception or appeal for
that particular applicable beneficiary.''
Comment: One commenter indicated the part of the proposed
definition of ``applicable beneficiary'' that addresses claims that
straddle or span the benefit phases is confusing and should be deleted.
Response: We believe it is important to reference straddle claims
in the definition of an applicable beneficiary. However, we agree that
the punctuation in the proposed definition was incorrect and the source
of potential confusion. As a result, we are retaining the clause
pertaining to claims that straddle or span the benefit phases and
revising the punctuation to clarify that this clause is part of the
definition.
Comment: One commenter noted that, in the definition of ``coverage
gap'' we should state that for purposes of applying the initial
coverage limit, sponsors must apply their plan specific initial
coverage limit under enhanced alternative benefit designs in addition
to the basic alternative and actuarially equivalent benefit designs
referenced in the proposed definition.
Response: We agree with the commenter and will revise this
definition in the final rule to include a reference to enhanced
alternative benefit designs.
Comment: One commenter suggested that we clarify that, in addition
to dispensing fees, vaccine administration fees are not included in the
definition of negotiated price and, therefore, should be excluded from
the cost sharing reductions in the coverage gap.
Response: We agree with the commenter. In prior subregulatory
guidance, we expressed our belief that vaccine administration fees are
analogous to dispensing fees for purposes of the coverage gap discount
program and, therefore, must be excluded from the definition of
negotiated price for purposes of determining the applicable discount.
We noted that unlike sales tax, dispensing fees, and vaccine
administration fees pay for services apart from of the applicable drug
itself. This is made clear by the fact that a vaccine administration
fee may be billed separately from the dispensing of the vaccine.
Further, as the commenter points out, the definition of negotiated
price would not include a vaccine administration fee billed by someone
other than the pharmacy.
Therefore, in finalizing the proposed rule, we will also exclude
the vaccine administration fee from the cost sharing reductions and
revise the regulatory language in Sec. 423.104(d)(4)(ii) to specify
coinsurance in the coverage gap is based on actual cost minus the
dispensing fee and any vaccine administration fee.
We also clarify that the reductions to cost sharing in the coverage
gap specified in Sec. 423.104(d)(4) apply only to ``applicable
beneficiaries'' by revising the title of this paragraph to ``Cost-
sharing in the coverage gap for applicable beneficiaries.''
Comment: One commenter recommended that when attesting to the
actuarial equivalence of a qualified retiree prescription drug plan's
coverage to the defined standard coverage, the plan sponsor be
permitted to account for the value of drug discounts and/or coverage
provided during the coverage gap.
Response: As noted in the preamble to our November 2010 proposed
rule, the ACA amended section 1860D-22(a)(2)(A) by adding a new
provision requiring that when attesting to the actuarial equivalence of
the plan's prescription drug plan coverage to defined standard
coverage, qualified retiree prescription drug plans not take into
account the value of any discount or coverage provided during the gap
in coverage that occurs for defined standard coverage under Part D.
Thus, this is a statutory requirement and we cannot accept the
commenter's recommendation.
Comment: One commenter recommended that we permit Part D sponsors
to use actuarially equivalent copayments as alternatives to the
coinsurance amounts for generic drugs in the coverage gap as the
enrollee cost-sharing is phased down to 25 percent in 2020.
Response: We agree with the commenter that Sec.
423.104(d)(4)(ii)(B) of this regulation will permit actuarially
equivalent cost sharing for generic drugs in the coverage gap. However,
we believe that there is a high degree of risk associated with
permitting actuarially equivalent copayments for generic drugs in the
coverage gap. Due to significant variations in price for generic drugs
and the coverage level for these drugs during the first few years of
the transition to 25 percent cost sharing, actuarially equivalent co-
payments for these drugs will often be higher than the actual cost for
commonly used generic drugs. As a result, we are concerned that the
majority of beneficiaries will not benefit from the cost sharing
reductions in the coverage gap if we permit actuarially equivalent co-
payments for these drugs.
We believe that the risk associated with permitting actuarially
equivalent co-payments will be mitigated once coverage for generic
drugs in the coverage gap reaches a reasonable coverage level for
actuarial equivalence. We note that Chapter 4 of the Medicare Managed
Care Manual Section 50.1 provides that for an Original Medicare item or
service to be considered a reasonable benefit, cost-sharing for that
service cannot exceed 50 percent of the plan's financial liability for
the benefit. Consistent with this policy, we believe that 50 percent
would be a reasonable benefit level at which to permit actuarial
equivalence. Therefore, we anticipate permitting actuarially equivalent
co-payments in the coverage gap for drugs that are not applicable (that
is, generic drugs) starting in 2018 when beneficiary cost sharing for
these drugs will be below 50 percent.
For these reasons, we will continue our current policy of not
accepting actuarially equivalent co-payments in the coverage gap for
drugs that are not applicable (that is, generic drugs) until 2018.
We are finalizing this provision with the amendments previously
noted.
19. Payments to Medicare Advantage Organizations (Sec. 422.308)
In our November 2010 proposed rule, we proposed the revisions to
the regulations described below in order to reflect changes in payment
rules specified in statute and implemented in the Annual Announcement
of MA Capitation Rates and MA and Part D Payment Policies.
a. Authority To Apply Frailty Adjustment Under PACE Payment Rules for
Certain Specialized MA Plans for Special Needs Individuals (Sec.
422.308)
In our November 2010 proposed rule, we noted that section 3205 of
the ACA provides the Secretary with the authority to apply a frailty
adjustment to payments to certain Special Needs Plans (SNPs) that meet
our definition of a fully integrated dual-eligible special needs plan
at Sec. 422.2, and have a similar average level of frailty as the PACE
program, starting with plan year 2011. The statute permits the
Secretary to apply the payment rules under section 1894(d) of the Act
(other than paragraph (3) of such section), rather than the

[[Page 21481]]

payment rules that would otherwise apply under this part, but only to
the extent necessary to reflect the costs of treating high
concentrations of frail individuals.
We proposed that payments to Fully Integrated Dual Eligible SNPs
that qualify for frailty adjusted payment continue to be calculated
using the existing MA payment rules under which all SNPs are paid, with
the sole exception of the application of a frailty adjustment. Further,
we stated that the new law continued to allow us to use the same
methodology to adjust payment to take into account the frailty of SNP
enrollees as we use for the PACE program.
As the Secretary determines the adjustment methodology for frailty,
which frailty scores will be considered ``similar'' to PACE program,
and how to measure the ``average level of frailty of the PACE
program,'' we noted that we will announce any changes to the
methodology used to pay for frailty, as well as how we determine PACE
program averages, and which SNPs have similar levels of frailty to the
PACE program, in the Advance Notice and Rate Announcement for the plan
year in question.
In order to have a frailty score that can be compared to the PACE
program, we proposed requiring MA organizations sponsoring a dual
eligible SNP that meets our definition of a fully integrated dual-
eligible SNP to fund any survey used by us to support the calculation
of frailty scores. Moreover, we proposed requiring the survey to be
fielded such that we can calculate a frailty score at the plan benefit
package level for each SNP in question (currently the counts of
limitations on activities of daily living (ADLs) used to calculate
frailty scores are taken from the HOS or HOS-M), and to adhere to the
methodological requirements of any such survey.
Comment: A commenter suggested that CMS should either allow the
frailty adjustment to all plans based on a given set of criteria or
drop it for all plans. In addition, another commenter suggested that
CMS consider applying frailty adjustment on an individual basis instead
of at the plan level.
Response: By law, we must use the same payment methodology for all
MA plans, except as explicitly provided for in statute. Section 3205 of
the ACA changed the law to permit CMS to make frailty-adjusted payments
only to certain D-SNPs--those fully integrated dual-eligible special
needs plans, as defined in Sec. 422.2., that have similar average
levels of frailty as the PACE program. We have considered making
frailty payments to all MA plans, but decided that, given the use of
the survey-based data collection method, that calculating frailty
scores for every PBP across the entire industry was prohibitive.
Further, frailty would need to be applied on a budget neutral basis.
Given the survey-based methodology used for measuring frailty, a method
of reliably calculating individual level frailty scores is not
possible. We have explored other methods of measuring frailty, all of
which posed substantial challenges to calculating accurate payments.
Comment: Several commenters requested that CMS provide specific and
transparent criteria that would be used to determine those plans
eligible for frailty in determining similar average frailty levels as
PACE, including providing to plans actual frailty scores, the data to
be used to calculate the scores and the source of the data, recommended
criteria such as using a range of PACE frailty scores, using the same
survey methods and data for both populations, and not basing the
comparison on an average frailty across all PACE organizations, and
requested that CMS provide plans with the eligibility criteria for
frailty adjusted payments before plans are required to request
participation in PBP level HOS surveys and before they submit their
Notices of Intent to offer a Fully Integrated Dual Eligible SNP in the
next contract year.
Response: We appreciate these comments and concerns; however, as
required by law, CMS provides information on our payment methodology in
the Advance Notice and Rate Announcement for the plan year in question.
Comment: A few commenters suggested that the intent of this
provision in the ACA was to provide a frailty factor adjustment to all
legacy SNPs (that is, the dully integrated plans in Minnesota,
Wisconsin and Massachusetts that serve as models for SNP integration).
Response: Section 3205 of the ACA permits CMS to make frailty-
adjusted payments to certain D-SNPs--those fully integrated dual-
eligible special needs plans, as defined in Sec. 422.2, that enroll
beneficiaries with similar average levels of frailty the PACE program,
and does not refer to specific plans to which it is to be applied.
Comment: One commenter expressed concerns regarding the requirement
to have plans pay for the survey and urges CMS to be flexible in
coordinating with and using ADL assessments from the states.
Response: It is a contract requirement that plans are financially
responsible for the surveys that support measurement of their
performance and quality, including the Consumer Assessment of Health
Plan Satisfaction (CAHPS) and Health Effectiveness Data and Information
Set (HEDIS), and for reporting payment-related data. The responsibility
to finance the HOS is similar. Since SNPs bid and are paid at the Plan
Benefit Package (PBP) level, CMS must be able to calculate a frailty
score at the PBP level. Further, our frailty payment methodology is
based on surveying plan enrollees to determine the plan's average
frailty level and the use of assessments conducted by the plans was
specifically ruled out in the development of this methodology.
Therefore, we must require survey sampling at the PBP level, rather
than coordinating with States.
Comment: A few commenters agree with the clarification provided
regarding which plans will be eligible for frailty adjusted payments
because they meet the definition of ``fully integrated dual eligible
SNP'' as well as the ``similar average frailty levels'' as PACE plans
eligibility criteria.
Response: We appreciate the support expressed for the proposed new
provisions.
Comment: Several commenters inquired about the methodology and
implementation of the HOS and CHAPS surveys.
Response: We appreciate these commenters' concerns. We will take
these comments under advisement in the next survey update.
After considering the comments received, we are adopting Sec.
422.308(a) as proposed into this final rule.
b. Application of Coding Adjustment (Sec. 422.308)
In our November 2010 proposed rule, we noted that the ACA adds new
statutory language clarifying our existing authority to adjust risk
scores for coding trends in the FFS sector, under CMS's general
authority to conduct risk adjustment in an actuarially equivalent
manner under 1853(a)(1)(C)(i) of the Act. Further, this new language
extends the mandate that CMS adjust risk scores for differences in
coding patterns between MA plans and FFS beyond 2010.
Previously, in accordance with the Deficit Reduction Act of 2005
(DRA), the Secretary was expressly required to conduct an analysis of
the differences in FFS and MA coding patterns in order to ensure
payment accuracy, and that such analysis was to be completed in time to
ensure that the results of such analysis were incorporated into the
risk scores

[[Page 21482]]

for 2008 through 2010. The ACA made four modifications to this
requirement for analysis: (1) The analysis must now be conducted
annually; (2) the data used in the analysis is to be updated as
appropriate; (3) the results of the analysis are to be incorporated
into risk scores on a timely basis; and (4) the application of an
adjustment for differences in coding patterns is extended until the
Secretary implements risk adjustment using Medicare Advantage
diagnostic, cost, and use data.
Moreover, we mentioned that the ACA added two additional
requirements to the DRA-mandated requirements. First, the ACA requires
that the coding adjustment factor for 2014 be not less than the coding
adjustment factor applied for 2010 plus 1.3 percentage points; for each
of the years 2015 through 2018, not less than the coding adjustment
factor applied for the previous year plus 0.25 percentage points; and
for 2019 and each subsequent year not less than 5.7 percent. Second,
the ACA requires the Secretary to apply the coding adjustment to risk
scores until the implementation of risk adjustment using MA diagnostic,
cost, and use data.
Comment: A commenter suggested that the coding intensity adjuster
should be modified each year using payment adjustments from the RADV
audit process which could be used to determine industry wide averages
to estimate industry-wide accuracy. After making this modification, the
coding adjuster should then be adjusted downward given that plan
payments will be adjusted for inaccuracy through the RADV audits.
Response: As we have noted in previous guidance documents such as
the Rate Announcements, the MA coding adjustment factor is not intended
to adjust for inaccurate coding in a particular instance, and the
specific affects on an individual's risk score, but for the impact on
risk scores of coding patterns that differ from FFS coding, the basis
of the CMS-HCC model and the Part C normalization factor. RADV audits
have the purpose of validating that diagnosis codes submitted for risk
adjustment are documented in the medical record and, therefore, are
correctly reported for the beneficiary in question.
Comment: One commenter suggested that there should not be a minimum
coding adjustment per year and that more detailed information should be
released on the coding adjustment calculations for the industry to
review.
Response: The minimum adjustment factors are specified in law. For
additional information regarding our coding adjustment methodology,
please refer to the 2010 Advance Notice and Announcement, published on
February 20, 2009 and April 6, 2009, respectively. Any updates to our
methodology will be published in the appropriate future Advance Notice.
After considering the comments we received, we are adopting Sec.
422.308 (b) as proposed into this final rule.
c. Improvements to Risk Adjustment for Special Needs Individuals With
Chronic Health Conditions (Sec. 422.308)
In the November 2010 proposed rule, we proposed for 2011 and
subsequent years, for purposes of the adjustment under section
1853(a)(1)(C)(i) of the Act, using a risk score for chronic SNP
enrollees that reflects the known underlying risk profile and chronic
health status of similar individuals, as the Secretary is required to
use such risk score instead of using the default risk score that is
otherwise used in payment for new enrollees in MA plans.
The risk score developed for this purpose will be used in
calculating payments for a special needs individual described in
section 1859(b)(6)(B)(iii) of the Act who enrolls in a specialized MA
plan for special needs individuals on or after January 1, 2011.
We proposed for 2011 and periodically thereafter, for the Secretary
to evaluate and revise the risk adjustment system under this
subparagraph in order, as accurately as possible, to account for higher
medical and care coordination costs associated with frailty,
individuals with multiple, comorbid chronic conditions, and individuals
with a diagnosis of mental illness, and also to account for costs that
may be associated with higher concentrations of beneficiaries with
those conditions. We also noted that we will publish in the Rate
Announcement, as described under section 1853(b) of the Act, a
description of any evaluation conducted during the preceding year and
any revisions made under such clause as a result of such evaluation.
Comment: Several commenters supported the provisions in the ACA
that require the Secretary to evaluate and revise the risk adjustment
system in order to, as accurately as possible, account for higher
medical and care coordination costs associated with frailty,
individuals with multiple comorbid chronic conditions, and individuals
with a diagnosis of mental illness, and also to account for costs that
may be associated with higher concentrations of beneficiaries with
those conditions, as well as to publish as part of an announcement a
description of any evaluation conducted during the preceding year and
any revisions made as a result of such evaluation. In addition, several
commenters pointed out that improving risk adjustment will decrease
plan cherry-picking of healthier beneficiaries, improve the plans'
incentive to focus on costs, reduce unnecessary costs and stop
overpaying for low risk beneficiaries and underpaying for high risk
beneficiaries.
Response: We appreciate the support expressed for the provision for
an evaluation of the risk adjustment model.
Comment: A few commenters urge CMS to implement some risk
adjustment model changes in 2012 and more in 2013 in addition to
implementing the methodologies announced in the 2011 Advance Notice.
Response: We continually work to develop improvements to the risk
adjustment model. Changes to the model for a particular year are
discussed in that year's Advance Notice.
Comment: Several commenters recommended that we consider
persistency of multiple comorbid chronic conditions and one suggested
CMS use 2 years of data in the model beginning in 2012.
Response: We do not believe that using 2 years of data in the risk
adjustment model will improve the risk scores, largely because a model
developed using 2 years of diagnostic data would lower the model values
for chronic conditions and decrease the predictive power of the model
for those with conditions under treatment. While, theoretically, such a
model may help plans that do not code well, CMS prefers that plans
enrollees are seen by providers and that current diagnoses are
documented as part of those visits.
Comment: One commenter recommended that CMS engage in active
dialogue with MA organizations to permit CMS to consider MAO experience
with these populations.
Response: We appreciate these comments and look forward to working
with MAOs on this issue.
Comment: A few commenters expressed that they had no knowledge of
any current evaluations performed by CMS evaluating the adequacy of the
current risk adjustment methodology or of any CMS research exploring
alternative methods of risk adjustment that would include methods such
as frailty and disability factors, drug utilization information, or
using multiple years of data to calculate risk scores, while a few
other commenters expressed that they strongly support the provisions in
the ACA, however, note that the proposed rule does not provide

[[Page 21483]]

any additional clarity about how CMS intends to implement these
policies.
Response: We evaluate the performance of the model regularly.
Please refer to the following publications for information on model
development and performance: http://www.cms.gov/HealthCareFinancingReview/Downloads/04summerpg119.pdf. The ACA
specified that the evaluation be published as part of the Announcement.
We are planning to publish the evaluation in the 2102 Announcement,
published on April 4, 2011.
Comment: One commenter requested that no delays in the evaluation
be caused by the collection of encounter data.
Response: We appreciate the commenter's concern. Evaluations of the
risk models are ongoing and are not related to the collection of
encounter data.
Comment: A few commenters requested that CMS recognize problems in
the 10 decile analysis for high risk chronically ill beneficiaries as
the model inappropriately treats high spending chronically ill
beneficiaries as healthy causing them to be assigned to a lower than
``true'' risk decile.
Response: We measure model predictive strength by comparing
predicted costs to actual costs. We typically group beneficiaries into
risk deciles, meaning that we create ten equal-sized groups of
beneficiaries, ranging from the group with the highest predicted costs
to the group with the lowest predicted costs. For each risk-based
group, we then create ratios of predicted costs to actual costs. Using
predictive ratios, we find that the CMS-HCC model performs well.
Comparing predictive ratios across beneficiaries grouped by actual
costs (as the comment implies) is not an actuarially sound way to look
at the ability of the model to accurately predict costs. If one looks
at the cost data retrospectively (after the fact) the result will
always be that high cost beneficiaries are under-predicted as high cost
is largely due to random events. Determining whether the costs
associated with beneficiaries predicted to be high, medium or low cost
is the only actuarially sound way to evaluate the risk adjustment
model.
Comment: A commenter inquired as to whether the new C-SNP policy
applies only to new Medicare Beneficiaries or to all existing Medicare
beneficiaries who are newly enrolling in a C-SNP--and recommended that
qualifying for the C-SNP should trigger the assumed payment adjustment.
Response: Current law requires the implementation of the new
enrollee model for C-SNPs to apply only to new Medicare beneficiaries.
Comment: One commenter urged flexibility in expanding on the intent
of the ACA in the area of risk adjustment for persons with chronic
illness, and recommended that the process should apply to all SNPs,
noting that persons under age 65 who become eligible for Medicare do so
because of a disability and the duals under age 65 are even more likely
to have a long history of chronic as well as disabling conditions. They
are also more likely to have co-occurring mental health needs and the
current risk adjustment system unfairly assumes these ``new to
Medicare'' beneficiaries are healthier than their history shows.
Response: We believe that absent explicit statutory authority we
cannot pay Dual or Institutional SNPs differently from regular MA
plans. Further, we are not considering applying differential new
enrollee risk scores to all SNP enrollees. We believe that for Dual-
eligible and Institutional SNPs' our evidence shows that the new
enrollee risk scores in the CMS-HCC model are adequate to address the
aggregate risk faced by these plans because the current new enrollee
risk score model captures the additional costs due to Medicaid and
disabled status. In creating the C-SNP new enrollee model, we found
that the new enrollee age/sex factors had a similar increment
regardless of Medicaid status. This finding indicates that the costs
for Medicaid and by age group (including the disabled) are fully
accounted for in the current new enrollee model.
Comment: A commenter recommended that prior claims data, currently
available through the Medicaid program, be used to set payment upon
entry to a SNP.
Response: We disagree with the comment. New enrollee risk scores
account for the average risk of the new enrollee population, and
already account for additional costs attributable to Medicaid status
with an explicit Medicaid status marker. Medicaid status for new
enrollees is based on concurrent status in the payment year. This means
that a dual Medicare/Medicaid enrollee to an MA plan (SNP or regular MA
plan) receives an increment that is adjusted for their age/sex and
Medicaid status in the payment year.
After considering the comments we received, we are adopting Sec.
422.308(c) as proposed into this final rule.
20. Medicare Advantage Benchmark, Quality Bonus Payments, and Rebate
(Sec. 422.252, Sec. 422.258, and Sec. 422.266)
a. Terminology (Sec. 422.252)
We proposed revising Sec. 422.252 by adding two new terms and
revising one term. We proposed adding the terms ``new MA plan'' and
``low enrollment contract.'' A new MA plan means, for the purpose of
quality ratings under Sec. 422.258(d)(7) (discussed below), with
respect to a year, a plan offered by an organization or sponsor that
has not had a contract as an MA organization in the preceding 3-year
period. A low enrollment contract is a contract that could not
undertake Healthcare Effectiveness Data and Information Set
(HEDIS[supreg]) and Health Outcome Survey (HOS) data collections
because of a lack of a sufficient number of enrollees to reliably
measure the performance of the health plan.
We also proposed revising the definition of Unadjusted MA area-
specific non-drug monthly benchmark amount. Effective for 2012, the MA
area-specific non-drug monthly benchmark amount is the blended
benchmark amount determined according to the rules set forth under
Sec. 422.258(d). In addition, this revision clarifies that rate-
setting rules for county capitation rates are specific to a time
period, as set forth at Sec. 422.258(a). Finally, this revision
further clarifies that the term ``unadjusted'' refers to a standardized
amount, reflecting a risk profile based on the national average.
We received no comments on these proposals and therefore are
finalizing these provisions without modification. We are also adopting
the definitions proposed for ``new MA plan'' and ``low enrollment
contract'' in Sec. 422.252 in this final rule.
b. Calculation of Benchmarks (Sec. 422.258)
Section 3201(b) of the ACA establishes a new blended benchmark as
the MA county rate, effective 2012, and section 3201(c) of the ACA
establishes quality-based increases to the blended benchmark. To
implement these rate-setting rules, we proposed to amend Sec.
422.258(a) and Sec. 422.258(c)(3), and add a new paragraph Sec.
422.258(d), which sets forth the provisions for MA blended benchmarks,
including increases to the benchmarks for quality bonuses at Sec.
422.258(d)(7).
Section 3201(b)(2) of the ACA introduces section 1853(n) of the
Act, which creates a new type of county capitation rate, the ``blended
benchmark amount'' for an area for a year, which also must be--used to
determine MA

[[Page 21484]]

plans' service area-level benchmarks. Effective 2012 onward, the
blended benchmark will be set at some percentage of the county's
average FFS expenditure (the FFS rate). There are two components of the
blended benchmark: the applicable amount determined under section
1853(k)(1) of the Act and described at Sec. 422.258(d)(1); and the
``specified amount'' introduced at section 1853(n)(2) of the Act and
described at Sec. 422.258(d)(2). The two components must be combined
using weights that are specific to the phase-in period assigned each
area (county), according to rules set forth at sections 1853(n)(1) and
(n)(3) of the Act and implemented at paragraphs (d)(8) and (d)(9) of
Sec. 422.258 of the regulations. At the conclusion of an area's phase-
in period, the blended benchmark for the area for a year will be the
area's specified amount under section 1853(n)(2) of the Act.
Specified Amount. Section 1853(n)(2) of the Act, as implemented by
proposed Sec. 422.258(d)(2), (d)(3), and (d)(4), sets forth the
formula for the specified amount and the rules for tabulating the
components of the formula. Specifically, the specified amount is the
product of two quantities: the base payment amount defined at section
1853(n)(2)(E) of the Act (adjusted to carve-out the indirect medical
education (IME) amount, as required at section 1853(k)(4)) of the Act
and implemented at Sec. 422.306(c); and the applicable percentage
defined at section 1853(n)(2)(B) of the Act and implemented at Sec.
422.258(d)(4).
The base payment amount for an area for 2012 is the average FFS
expenditure amount determined for 2012, as specified in Sec.
422.306(b)(2). For subsequent years, the base payment amount for an
area is the average FFS expenditure amount specified in Sec.
422.306(b)(2), which includes the requirement to rebase (update with
more recent data) the FFS rates no less frequently than every 3 years.
The applicable percentage is one of four values assigned to an area
(a county) based on our determination of the quartile ranking for the
previous year of the area's average FFS expenditure amount (described
at Sec. 422.306(b)(2)) relative to this amount for all counties. The
FFS rate used for the quartile ranking must be net of the IME amount
determined under Sec. 422.306(c) for the year. For the 50 States or
the District of Columbia, counties whose FFS rates (net of the IME
amount for the year) fall in the highest quartile of all such amounts
for the previous year receive an applicable percentage of 95 percent,
while counties falling in the second highest quartile receive an
applicable percentage of 100 percent, counties falling in the third
highest quartile receive an applicable percentage of 107.5 percent, and
counties falling in the lowest quartile receive an applicable
percentage of 115 percent.
After establishing the basic formula for the specified amount and
setting the rules for calculating its components--the base payment
amount and the applicable percentage, sections 1853(n) and (o) of the
Act provide additional rules for determining the applicable percentage
for a county for a year. There are four sets of rules: (1) When to re-
rank the county FFS rates to determine whether some counties receive
quartile reassignments; (2) how to transition a county from one
quartile assignment to another; (3) how to assign a county its
transition period of 2, 4, or 6 years, whereby at the conclusion of the
transition period, the county's blended benchmark equals 100 percent of
the specified amount; and (4) under what conditions the applicable
percentage shall be increased to provide quality bonus payments to
qualifying plans. The first three types of rules are discussed here,
and the fourth rule on quality bonuses is discussed in the next section
on paragraph Sec. 422.258(d)(7).
First, section 1853(n)(2)(C) of the Act, implemented at Sec.
422.258(d)(5)(i), provides that the quartile ranking of all county FFS
rates (net of the IME carve-out) for a contract year must be re-ranked
whenever the FFS rates for the year prior to the contract year are
rebased FFS rates, per the rebasing rule set forth at Sec.
422.306(b)(2). Second, section 1853(n)(2)(D) of the Act, implemented at
Sec. 422.258(d)(5)(ii), provides that for a year after 2012, if there
is a change in a county's quartile ranking for a contract year compared
to the county's ranking in the previous year, the applicable percentage
for the area for the year shall be the average of the applicable
percentage for the previous year and the applicable percentage that
would otherwise apply for the area for the year in the absence of this
transitional provision. Third, sections 1853(n)(2) and (n)(3) of the
Act, implemented at Sec. 422.258(d)(8) and (d)(9) respectively,
establish the methodology that we must use to assign one of three
transition periods to each county--a 2-year, 4-year, or 6-year
transition to phase-in the blended benchmark amount to be equal to 100
percent of the specified amount. Assignment of a phase-in period is
determined by the size of the difference between the 2010 applicable
amount under section 1853(k)(1) of the Act at paragraph (d)(1) and
``the projected 2010 benchmark amount'' at (d)(8)(i), which is a
quantity created at section 1853(n)(3)(C) of the Act solely for the
purpose of assigning a transition period to each county. The projected
2010 benchmark amount is equal to one-half of the 2010 applicable
amount and one-half of the specified amount; the latter is calculated
as if the 2012 effective date for the specified amount were instead
2010. This modified specified amount for 2010 is the product of two
quantities: The 2010 base payment amount adjusted as required under
Sec. 422.306(c); and the applicable percentage, which is determined
under the rules set forth at proposed paragraph (d)(8)(ii)(B).
Specifically, all applicable percentages are increased as if all
counties were in qualifying plans in 2010 for the purpose of
calculating the projected 2010 benchmark amount (thus adding 1.5
percentage points to each county's applicable percentage). Further, we
must determine a list of 2010 qualifying counties using the criteria
set forth for 2012 onward in proposed paragraph (d)(7)(ii), thus
further increasing the applicable percentage of this subset of 2010
counties an additional 1.5 percentage points.
Once the special quantity ``projected 2010 benchmark amount'' is
compared to the 2010 specified amount under section 1853(k)(1) of the
Act, the phase-in assignments are made as follows. A county is assigned
a 2-year phase-in period if the difference between the applicable
amount and the projected 2010 benchmark amount is less than $30, a 4-
year phase-in period if the difference is at least $30 but less than
$50, and a 6-year phase-in period if the difference is at least $50.
Finally, section 1853(n)(3), implemented at Sec. 422.258(d)(8),
sets forth the rules for calculating the blended benchmark depending on
the assigned phase-in period. For counties assigned the 2-year phase-in
period, the blended benchmark for 2012 is the sum of one-half of the
applicable amount at paragraph (1) and one-half of the specified amount
at paragraph (2); and or subsequent years, the blended benchmark equals
the specified amount. For counties assigned the 4-year phase-in period,
the blended benchmark is calculated as follows: For 2012 the blended
benchmark is the sum of three-quarters of the applicable amount for the
area and year and one-fourth of the specified amount for the area and
year; for 2013, it is the sum of one-half of the applicable amount for
the area and year and one-half of the specified amount for the area and
year; for 2014 it is the sum

[[Page 21485]]

of one-fourth of the applicable amount for the area and year and three-
fourths of the specified amount for the area and year; and for
subsequent years, the blended benchmark equals the specified amount.
For counties assigned the 6-year phase-in period, for 2012, the blended
benchmark is the sum of five-sixths of the applicable amount for the
area and year and one-sixth of the specified amount for the area and
year; for 2013 it is the sum of two-thirds of the applicable amount for
the area and year and one-third of the specified amount for the area
and year; for 2014 it is the sum of one-half of the applicable amount
for the area and year and one-half of the specified amount for the area
and year; for 2015 it is the sum of one-third of the applicable amount
for the area and year and two-thirds of the specified amount for the
area and year; for 2016 it is the sum of one-sixth of the applicable
amount for the area and year and five-sixths of the specified amount
for the area and year; and for subsequent years, the blended benchmark
equals the specified amount.
[GRAPHIC] [TIFF OMITTED] TR15AP11.005

Comment: One commenter requested that CMS offer plans more
information on how payments will be calculated, for example what years
will be used for the calculations. Response: Detailed payment
calculations are available in the Advance Notice of Methodological
Changes for Calendar Year (CY) 2012 for Medicare Advantage (MA)
Capitation Rates, Part C and Part D Payment Policies and 2012 Call
Letter, published on February 18, 2011 and the Announcement of Calendar
Year (CY) 2012 Medicare Advantage Capitation Rates and Medicare
Advantage and Part D Payment Policies and Final Call Letter, published
on April 4, 2011. These documents are available on the CMS Web site at:
http://www.cms.gov/MedicareAdvtgSpecRateStats/.
Comment: Several commenters asserted that while counties are
distributed evenly across the 4 quadrants, enrollment is skewed heavily
toward the top 95 percent quartile. In order to address the inequities
inherent in the new benchmark methodology, these commenters recommend
that CMS examine alternative benchmark-setting formulas, such as re-
stratifying the quartiles based on enrollment numbers, so as to address
the disadvantaged plans in the 95 percent quartile that maintain a
significant proportion of MA beneficiaries. Additionally, the
commenters asserted that the FFS quartile rule causes problems at the
cusps of the quartiles, due to the arbitrary drawing of a line between
2 FFS rates that may only be $0.20 different, with the result that gets
107.5 percent of the FFS rate, and the other only 100 percent of the
FFS rate. The commenters recommend that CMS study alternative benchmark
methodologies to address inequities in the current formula.
Response: The calculation of the blended benchmark and the
quartiles are specifically laid out in 1853(n). Any changes to the
calculation would require Congressional action.
We are finalizing this provision without modification. We are also
adopting Sec. 422.258 as proposed in this final rule.
c. Increases to the Applicable Percentage for Quality (Sec.
422.258(d))
We proposed regulations reflecting the new statutory requirements
that, as of January 1, 2012, provided for increases in MA plan
benchmarks based on an MA plan's score under a star quality rating
system. For the purposes of this preamble, we refer to these quality-
based increases in MA benchmarks as quality bonus payments (QBPs) for
MA plans. The 5 star rating system that serves as the basis for making
the bonus payment must be based on quality information collected by us
under authority of section 1852(e) of the Act.
The blended benchmark for 2012 and future years reflects the level
of quality rating at the organization or contract level that will be
set forth in a notice to MA organizations for the calendar year in
question. As discussed in section II.B.20.b of this final rule, the
blended benchmark has two components--the applicable amount and the
specified amount. Under the formula set forth in the ACA, a qualifying
organization that receives 4 or more stars on a 5 star rating system
would receive an increase in the specified amount component of the
blended benchmark amount of 1.5 percentage points in 2012, 3.0
percentage points in 2013 and 5.0 percentage points in 2014 and in
subsequent years. A qualifying organization in a qualifying county will
receive double the applicable percentage increase. A qualifying county
is defined as a county that has an MA capitation rate that, in 2004,
was based on the amount specified in subsection c1b for a Metropolitan
Statistical Area (MSA) with a population of more than 250,000; has at
least 25 percent of MA eligible individuals enrolled in MA
organizations as of December 2009; and has a per capita fee-for-service
spending that is lower than the national monthly per capita cost for
expenditures for individuals enrolled under the Original Medicare fee-
for-service program for the year. The ACA specified that a new MA
contract will receive an increase in the specified amount component of
the blended benchmark amount of 1.5 percentage points in 2012; 2.5
percentage points in 2013; and 3.5 percentage points in 2014 and in
subsequent years. The ACA provided that MA organizations that fail to
report data as required by the Secretary would be counted as having a
rating of fewer than 3.5 stars at the organization or contract level.

[[Page 21486]]

We proposed that the 5 star ratings system that will be used would
be based on the Plan Rating system currently in place for beneficiary
information and to identify contract performance issues. Under the Plan
Rating system, if an MA-PD organization offers health and drug
benefits, both Part C and Part D summary ratings scores are generated.
In the Fall of 2010, MA-PDs received a combined Part C and D summary
rating to summarize overall contract performance with respect to health
and drug issues. This combined rating is used to determine the new QBPs
based on quality for MA organizations offering prescription drug
coverage. The Part C summary rating is used to determine the QBPs for
MA only contracts.
As previously discussed, under Sec. 422.252, we proposed
definitions of a low enrollment contract and a new MA plan for the
purpose of identifying qualifying organizations eligible to receive a
bonus payment. Low enrollment contracts will be qualifying plans for
2012 and in subsequent years. For the purpose of awarding 2012 QBPs, we
proposed to define low enrollment contracts as those that could not
undertake HEDIS[supreg] and HOS data collections because of a lack of a
sufficient number of enrollees to reliably measure the performance of
the health plan. Under the ACA, new MA plans that meet criteria
specified by the Secretary are also treated as qualifying organizations
for the purposes of QBPs. We proposed to define a new MA plan as an MA
contract offered by a parent organization that has not had another MA
contract in the previous 3 years; these contracts will qualify for the
QBP. Under our proposal, other MA contracts that open in a given year,
but have had other contracts offered by the parent organization in the
prior 3 years, would be assigned a star rating based on the average
enrollment-weighted performance of the other contracts offered by the
parent organization to reflect the overall performance of the
organization.
In the proposed rule we discussed our plan to transform the rating
system in future years in order to advance more ambitious and
comprehensive quality improvement objectives. These objectives will
include greater emphasis on demonstrable improvements in beneficiary
access to care, beneficiary health status and outcomes, beneficiary
satisfaction and engagement, prevention and management of chronic
conditions as well as coordination across the continuum of care. By
designing the MA quality rating system around these types of
objectives, we expect to encourage and incentivize MA plans and
affiliated providers to transform their delivery systems and processes
to provide beneficiaries with high-quality and efficient care.
Ultimately, we seek to design the MA quality rating system to ensure
that Medicare beneficiaries enrolled in MA organizations receive
efficient, high quality care and services every time. Future quality
agenda and measurement development will be designed to ensure that MA
organizations lead the healthcare industry in providing cutting edge,
integrated and coordinated care for our beneficiaries using evidence-
based and demonstrable metrics.
We also discussed potential guiding principles for the MA quality
agenda. For instance, these principles could be based on aims from the
2001 Institute of Medicine (IOM) Report ``Crossing the Quality Chasm: A
New Health System for the 21st Century.'' From this IOM Report, the six
aims that have been described are a framework for the MA Quality
Strategic Plan. The IOM Report provides the following definitions for
the six aims: Safe is defined as avoiding injuries to patients from the
care that is intended to help them. Effective refers to providing
services based on scientific knowledge to all who could benefit, and
refraining from providing services to those not likely to benefit.
Patient-centered is providing care that is respectful of and responsive
to individual patient preferences, needs, and values, and ensuring that
patient values guide all clinical decisions. Timely is defined as
reducing waits and sometimes harmful delays for both those who receive
and those who give care. Efficient is avoiding waste, including waste
of equipment, supplies, ideas, and energy. Equitable is providing care
that does not vary in quality because of personal characteristics such
as gender, ethnicity, geographic location, and socioeconomic status
(IOM, 2001).
As a part of developing our long-term quality strategy, we
discussed our work to identify measures that can be implemented in the
near term to further the MA quality agenda. Looking beyond the 2012
Plan Ratings, we are exploring using measures, such as reportable
adverse events and hospital acquired conditions, which are submitted
via the Part C reporting requirements, and all-cause readmission rates.
We are also examining the use of alternative measurement sets (for
example, Assessing Care of Vulnerable Elders (ACOVE)), exploring the
use of data collected in other settings (for example, data from the
Hospital Inpatient Quality Reporting Program, formerly known as
Reporting Hospital Quality Data for the Annual Payment Update
(RHQDAPU)), considering incorporating encounter data into quality
measures, and are considering development of additional outcome
measures designed specifically for MA. The NCQA is also developing
measures of ambulatory care sensitive conditions that we will look to
implement as they become available.
Further, beyond broadening the goals of the MA quality rating
system, for instance by incorporating more outcomes-based measures, we
also discussed our desire to continually raise performance targets, so
as to incentivize continual quality improvement across established
metrics of performance and quality. We invited public comment on
appropriate performance and quality benchmarks, and what approach
should be used for updating these benchmarks, including frequency of
updates. Additionally, we invited public comment on what types of
principles or objectives that we should adopt for the MA quality rating
system over the longer term. For instance, are there specific
frameworks or elements that we should adopt from the National Quality
Forum (NQF), National Committee for Quality Assurance (NCQA), the
Agency for Healthcare Research and Quality (AHRQ) or other experts in
this field? How should these objectives evolve over time so the rating
system rewards continual improvement and innovation on the part of MA
organizations?
Comment: Several commenters raised concern that the 5 star rating
system for Plan Ratings is moving away from clinical measures and more
towards regulatory compliance measures. Specifically, it was noted that
the star rating system should be an appropriate mix of measures with an
emphasis on giving greater weight to clinical or outcome measures that
better reflect health outcomes. Another commenter was concerned that
Part D measures inordinately weight the Part C and D summary
calculations; the commenter suggested that CMS weight Part C and D
measures based on the contribution towards health care quality.
One commenter encouraged CMS to consider new and revised metrics
that focus more on patient care and experiences and less on
administrative segments. Items listed that should receive priority
include patient safety and reduction in preventable medical errors,
hospital infections and re-admissions, to name a few. This commenter
wants CMS to provide opportunities to comment on proposed measures on
an annual basis. One commenter suggested that CMS refrain from adding
additional measures to the star rating system at this time and
recommended that CMS continue to rely

[[Page 21487]]

upon the existing indicators to allow plans to focus improvement
efforts accordingly. Another commenter stated that many of the
evaluation measures in the Staying Healthy domain focus on early
detection instead of primary prevention. Also, this commenter suggested
that measures should be used that emphasize patient safety and
efficiency of care, consistent with the IOM's Crossing the Quality
Chasm report.
Response: We are committed to continuing to improve the Part C and
D quality performance measurement system to increase focus on improving
beneficiary outcomes, beneficiary satisfaction, population health, and
efficiency of health care delivery. To that end, CMS has been working
on developing a more robust system to measure quality and performance
of Part C and D contracts. As new measures are developed and adopted,
they will be incorporated into the Plan Ratings published each year on
the Medicare Plan Finder Web site.
We view the MA quality bonuses also referred to as value-based
payments as an important step to revamping how care and services are
paid for, moving increasingly toward rewarding better value, outcomes,
and innovations. As we add measures to the Plan Ratings over time, we
will consider the following principles:
Public reporting and value-based payment systems should
rely on a mix of standards, process, outcomes, and patient experience
measures, including measures of care transitions and changes in patient
functional status. Across all programs, we seek to move as quickly as
possible to the use of primarily outcome and patient experience
measures. To the extent practicable and appropriate, outcomes and
patient experience measures should be adjusted for risk or other
appropriate patient population or provider characteristics.
To the extent possible and recognizing differences in
payment system maturity and statutory authorities, measures should be
aligned across Medicare's and Medicaid's public reporting and payment
systems. We seek to evolve to a focused core-set of measures
appropriate to the specific provider category that reflects the level
of care and the most important areas of service and measures for that
provider.
The collection of information should minimize the burden
on providers to the extent possible. As part of that effort, we will
continuously seek to align its measures with the adoption of meaningful
use standards for health information technology, so the collection of
performance information is part of care delivery.
To the extent practicable, measures used by CMS should be
nationally endorsed by a multi-stakeholder organization. Measures
should be aligned with best practices among other payers and the needs
of the end users of the measures. Our strategy is to continue to adopt
measures that are nationally endorsed and are in alignment with the
private sector as we do today through the use of measures developed by
NCQA and the Pharmacy Quality Alliance (PQA), and the use of measures
that are endorsed by NQF.
As we modify the calculation approaches for the Plan Ratings, we
are incorporating the following principles:
Contracts should be scored on their overall achievement
relative to national or other appropriate benchmarks. In addition,
scoring methodologies should consider improvement as an independent
goal.
Measures or measurement domains need not be given equal
weight, but over time, scoring methodologies should be more weighted
towards outcome, patient experience and functional status measures.
Scoring methodologies should be reliable, as
straightforward as possible, and stable over time and enable consumers,
providers, and payers to make meaningful distinctions among providers'
performance.
A high priority for the 2012 Plan Ratings is to weight the outcome
and clinical measures more than performance measures such as call
center measures. This change would limit the impact of performance
measures as well as create more incentives for MA plans to improve
their outcome measures. Additionally, we are exploring incorporating
additional measures focusing on health outcomes in the Plan Ratings.
Potential outcome measures currently under consideration for
incorporation into the Plan Ratings include: all-cause readmission
rates and MA mortality rates. We will provide opportunities for comment
on proposed measures annually through the draft Call Letter.
We believe that the current set of quality measures are not driving
quality improvement as much as they could be. Many of the existing
measures have been collected and reported to CMS for more than 10
years, such as HEDIS[supreg], HOS, and CAHPS, so plans have had ample
opportunity to focus on quality improvement. Given the increased focus
on the star ratings, we are reevaluating the set of measures included
in the star ratings.
In determining whether additional measures will be added to the
star rating system, we will consider the value of the proposed measure
in improving the star ratings and how it supports the IOM's six aims.
These aims state that healthcare delivery should be safe, timely,
effective, efficient, equitable and patient-centered. These aims will
serve as a framework for selecting additional measures and making
methodological enhancements to the Plan Ratings. The comment that new
measures should focus on patient safety and efficiency of care is a
good point, and one we need to consider in working with NCQA, PQA, and
other consensus-building organizations in developing new measures.
The MA quality agenda will also be coordinated with the national
priorities for quality that are being set as part of the ACA. As the
national priorities for quality are shaped, the MA quality agenda will
be aligned with these priorities. We are working on the MA quality
agenda and have also established an agency-wide Quality Working Group
Advisory Panel. Senior CMS leadership has convened this panel to
facilitate the coordination of the CMS quality initiatives in support
of the development of the HHS National Strategy for Quality that is
required by the ACA. This working group will ensure that the MA quality
agenda aligns with other components within CMS and with HHS' national
goals. CMS' participation in the HHS-wide Interagency Quality Measures
Workgroup will also further ensure that MA quality measures are
developed in a coordinated way across the Department.
Accordingly, based on the preceding, we proposed to amend Sec.
422.258 to add a new paragraph (d)(7) to reflect our authority to make
bonus payments based on quality. Under Sec. 422.252, we also proposed
definitions of ``low enrollment contract'' and ``new MA plan'' for the
purpose of identifying qualifying organizations eligible to receive a
bonus payment.
While the regulations in this section will implement the QBP
provisions specified in the ACA on a permanent basis, for CYs 2012
through 2014, MA payment will be determined under the terms of the
national QBP demonstration project. Details on the demonstration are
provided on CMS' Web site. During the demonstration, the rules for
determining QBPs set forth in the ACA and in this final regulation will
be waived, and QBPs will instead be determined under the terms of the
demonstration.

[[Page 21488]]

Comment: We received a number of comments on the QBP Demonstration.
Response: Because this rulemaking establishes permanent regulations
implementing the QBP system provided for in the ACA, the proposed
regulations did not reflect the terms of the QBP Demonstration.
Information on this demonstration project was made available for
comment in the Advance Notice of Methodological Changes for Calendar
Year (CY) 2012 for Medicare Advantage (MA) Capitation Rates, Part C and
Part D Payment Policies and 2012 Call Letter, which was published on
February 18, 2011. We responded to comments in the Announcement of
Calendar Year (CY) 2012 Medicare Advantage Capitation Rates and
Medicare Advantage and Part D Payment Policies and Final Call Letter,
published on April 4, 2011. Both documents are available on the CMS Web
site at: http://www.cms.gov/MedicareAdvtgSpecRateStats/.
Comment: Numerous commenters supported and encouraged CMS to
develop the QBPs, including the current nationwide demonstration
program in a fully transparent manner, while emphasizing patient-
reported information in the star rating system. The commenters request
information regarding the measures used to assess performance,
including the method used to weight, score, determine cut points and
four-star thresholds, identify benchmarks, and other details be fully
disclosed to the public. Further, commenters recommended that CMS
continue to include beneficiaries and their representatives in
conversations regarding QBPs.
Response: The measures used to assess performance for MA plans are
derived from four sources: (1) CMS administrative data; (2) surveys of
beneficiaries; (3) plan-reported data; and (4) CMS contractor data. For
each contract, and each individual measure, CMS groups the range of
actual contract scores for each measure into one of the 5 star
groupings and assigns a star-rating score based on a 5 star scale. In
establishing individual measure star ratings, we consider whether the
measure is intended to achieve a specified regulatory performance
standard; if not, we examine the contract's performance on a measure
relative to all other contracts' performance on the same measure. The
segmentation of scores into groups is based on statistical techniques
that minimize the distance between scores within a grouping and
maximize the distance between scores in different groupings. Once the
star rating of 1 through 5 for each measure is known, a summary score
for the contract is computed by calculating a simple average of the
individual measure ratings, and adding small consistent bump-up amounts
to the average if a contract demonstrates consistency in 3, 4, or 5-
star ratings among measures. More details on the methodology to
calculate the star ratings are available through the technical notes
that are available at http://www.cms.gov/PrescriptionDrugCovGenIn/06_PerformanceData.asp. The technical notes describe in detail how the
star ratings are derived for each of the individual measures, domains,
summary ratings, and the overall rating. To ensure contracts are fully
aware of future enhancements to the Plan Ratings and have an
opportunity to comment on the changes, we will include in the draft and
final Call Letter expected changes in the star ratings 1 to 2 years in
advance. We will also provide additional information through HPMS memos
and presentations to the plans on User calls.
Comment: Some commenters recommended creating a separate star
rating system for SNPs with SNP-specific measures that more accurately
reflect the quality of care delivered by SNPs. The commenters argued
that this will place more focus on the needs of their targeted
populations. Some specific suggestions were to create ``transitional
star ratings'' for SNPs until the current star ratings can be modified
and to add one-half stars to SNPs that attain thresholds on SNP-
specific measures.
Response: We understand that SNPs would like to be rated using SNP-
specific measures and would like to be judged using different standards
to account for their special populations. We anticipate adding some
SNP-specific measures in the 2012 Plan Ratings. As part of the
``Advance Notice of Methodological Changes for Calendar Year (CY) 2012
for Medicare Advantage (MA) Capitation Rates, Part C and Part D Payment
Policies, and 2012 Call Letter,'' published on February 18, 2011, CMS
sought comment on the feasibility of creating a methodology to
incorporate SNP-specific measures into Plan Ratings. We are taking into
consideration feedback we received as we continue to study SNP-specific
measures.
In terms of using different standards for the SNPs, we do not agree
and want to ensure performance standards are consistent across all
contracts. That said, we typically case-mix adjust measures when the
data originate from beneficiary surveys and we will continue to
determine the need for case-mix adjustments of any outcome measures
added over time. We do not believe a transitional system is needed as
we are moving towards adding SNP-specific measures in the coming year.
Comment: Some commenters expressed concerns about the
appropriateness and reliability of the HOS data in the star rating
system. One commenter urged CMS to work with health plans, providers,
and patients to reconsider the best mix of measures for the star rating
system.
Response: There has been a published, peer-reviewed independent
evaluation of the HOS in 2004 that found that it provides a rich and
unique set of reliable data http://www.hqlo.com/content/2/1/33. For all
measures, we will continue to examine the quality of the data and
measure accuracy, validity, and stability. For those measures that are
not proven to be reliable and valid, we will determine whether they are
appropriate ``display measures,'' which would appear on www.cms.gov but
not be used in the plans' star ratings.
Comment: A few commenters recommended that the star ratings be made
more equitable by taking geographic and demographic variations into
account. One commenter recommended incorporating measures of care
coordination, care transitions, readmissions, shared decision-making,
health literacy, patient activation, and FFS/MA comparison into the
star rating system.
Response: As we pursue more outcome measures, we will ensure that
measures are case-mix adjusted. Currently, measures that originate from
beneficiary surveys are case-mix adjusted. CMS does not consider
geographic differences by themselves as sufficient reasons for
adjusting Plan Ratings so every state or region may have a 5 star plan.
However, CMS is exploring the feasibility of adjusting for provider
shortages, such as Health Professional Shortage Areas (HPSAs).
We are also currently exploring the feasibility of incorporating
potential survey measures of care coordination, care transitions and
patient activation as well as an all-cause readmissions measure into
the star rating system. In terms of the FFS and MA comparisons, we are
working internally to identify additional FFS comparison measures.
Comment: Several commenters recommended that CMS periodically
evaluate the star rating system and the measures selected for inclusion
in the star rating system in order to reflect ongoing evolution of
measures and to ensure that the system is more accurate, consistent,
and transparent.

[[Page 21489]]

Response: We strongly agree with the need to periodically evaluate
the star rating system. Given the need for the star ratings to adapt
quickly to changes in clinical practices and the state-of-the-art in
quality measurement, we plan to each year evaluate the measurement set.
We will provide information in the draft and final Call Letters about
specific expected changes in the star ratings system.
Comment: One commenter urged CMS not to factor Part D measures into
the benchmarks. They argue that since benchmarks are established based
on healthcare services provided, adding Part D measures into the
benchmarks will not reveal an accurate reflection of the contracts'
performance.
Response: Drug services are part of the continuum of care provided
by MA organizations so are included in the overall rating.
Comment: A few comments expressed concern about how Medicare Cost
contract organizations that convert to MA contracts will be treated for
star rating and QBP purposes. It was suggested that instead of treating
such converted organizations like other new MA organizations, CMS
should recognize the star rating track record the organization earned
as a Medicare Cost contractor and use this rating as the basis for the
QBP until the converted organization can generate an MA track record.
Response: The contract number of a Medicare Cost contract which
converts to an MA organization does not change. Since these cost
contracts are required to collect and report the same data as MA
contracts, they should have the data needed to continue to receive a
star rating. The only difference is that they will be included in the
list of contracts that receive a QBP rating because of their new
organization type designation.
Comment: One commenter supported the implementation of enhanced,
high-quality Medication Therapy Management (MTM) programs as a
component of the quality rating system.
Response: For the 2013 Plan Ratings, we are developing MTM-specific
measures.
Comment: A commenter asked for an explanation of the rationale for
a new and small plan receiving enhanced payments prior to proving that
corresponding level of performance.
Response: Under the ACA, the Secretary is required to consider a
low enrollment contract that does not have sufficient data to compute a
quality rating to be a ``qualifying plan'' and receive the QBP and that
a new MA plan, defined as a plan offered by an organization or sponsor
that has not had an MA contract in the prior 3-year period, would
qualify for the QBP.
Comment: One commenter expressed concern that HEDIS[supreg]
specifications for certain measures are inappropriate, irrelevant,
potentially harmful and/or not validated by medical literature. For
example, self-reported measures when the beneficiary is cognitively
impaired or mentally ill were noted.
Response: Each HEDIS[supreg] measure does have specific exclusions
relevant for that measure that NCQA has determined by the standards of
care for that condition and each measure has gone through rigorous
clinical review. Additionally, proxy respondents are allowed for the
beneficiary surveys. More information about HEDIS[supreg]
specifications can be found in the HEDIS[supreg] 2011 Technical
Specifications, Volume 2.
Comment: One commenter questioned whether Plan D sponsors are rated
using old data that may not be statistically accurate.
Response: We use the most recent data available in updating each
measure. These data represent the best available measures of a plan's
performance or quality of care. Some of the data we collect are based
on statistical sampling. When samples are used, the sample sizes are
chosen to ensure that we produce reliable estimates of true
performance.
Comment: A few commenters stated that Part D plans achieve very
different star ratings for identical services that are performed by the
same Pharmacy Benefits Manager (PBM).
Response: The star ratings assigned to each contract are based on
the service or performance in the specific measures, and therefore may
differ across contracts associated with the same PBM or other entity.
For example, the measures within the Drug Pricing and Patient Safety
domain utilize each contract's enrollees' prescription drug event (PDE)
data; this is separate and independent of a PBM's function as a
Pharmacy & Therapeutics (P&T) committee, claims adjudicator, or
exceptions/appeals processor for multiple Part D contracts. Enrollees'
utilization patterns differ among contracts, thus the resulting star
ratings for contracts will differ.
Comment: One commenter was concerned that the demonstration project
would award low performing contract a QBP. The same commenter asked if
the weighting can produce anomalous results.
Response: The demonstration project builds on the QBPs authorized
in the ACA by providing stronger incentives for contracts to improve
their performance thereby accelerating quality improvements during the
3-year period of the demonstration. Since the star ratings we are using
for QBPs are the overall rating which combines both Part C and D
measures, there are some contracts that have done poorly in Part C or
Part D for each of the past 3 years (2.5 stars or below), but their
overall rating was a 3. In most cases the Part D measures brought up
the overall summary rating to a 3. This is an issue for the
demonstration, but not for the ongoing QBP program since contracts
after the demonstration will not receive a bonus if they have 3 stars.
As changes are made in the weighting of clinical and outcome measures,
these anomalies are likely to lessen.
Comment: One commenter suggested that CMS develop outcome measures
relevant to Program of All-Inclusive Care for the Elderly (PACE) and
institute QBPs for PACE programs.
Response: PACE programs are not MA plans and according to statute
do not qualify for QBPs.
After consideration of the public comments we received, we are
finalizing Sec. 422.258(d) as proposed.
d. Beneficiary Rebates (Sec. 422.266)
The final rule for calculation of beneficiary rebates implements
section 3202(b)(1) of the ACA, which reduces the amount of beneficiary
rebate, and ties the level of rebate to a plan's star rating for
quality of performance.
Section 3202(b)(1) of the ACA changes the share of savings that MA
plans must provide to enrollees as the beneficiary rebate specified at
Sec. 422.266(a). Specifically, this provision mandates that the level
of rebate is tied to the level of a plan's star rating for quality of
performance. Under the new provisions, the highest possible rebate, for
plans with a 4.5 star rating or higher, is set at 70 percent of the
average per capita savings. The rebate is reduced further for plans
with lower star ratings for a year. These new provisions are phased-in
from 2012 through 2014. The demonstration project mentioned in section
II.B.20.(c). of this final rule will not affect the rebate percentages
associated with a particular star rating, under the terms of the ACA.
We revised Sec. 422.266 by first redesignating paragraph (a) as
paragraph (a)(1), and amending it to apply to years 2006 through 2011.
We further added paragraph (a)(2), which sets forth the rebate
determination rules for 2012 and subsequent years. Section
422.266(a)(2)(ii) states that for 2014 and subsequent years, the final
applicable rebate percentage (the percentage applied to the savings
amount to determine the rebate amount) is 70

[[Page 21490]]

percent in the case of a plan with a quality rating under such system
of at least 4.5 stars; 65 percent in the case of a plan with a quality
rating of at least 3.5 stars and less than 4.5 stars; and 50 percent in
the case of a plan with a quality rating of less than 3.5 stars.
Section 422.266(a)(2)(i) describes the transition period during
which the old 75 percent rule at paragraph (a)(1) will be phased-out
and the (a)(2)(ii) rules phased in. For 2012, the rebate percentage
equals the sum of: two-thirds of the old proportion of 75 percent of
the average per capita savings; and one-third of the new proportion
assigned the plan or contract under paragraph (ii), based on the plan's
star rating for the year. For 2013, the rebate percentage equals the
sum of: \1/3\ of the old proportion of 75 percent of the average per
capita savings; and two-thirds of the new proportion assigned the plan
or contract based on the plan's star rating for the year.
Section 422.266(a)(2)(iii) describes the rules for low enrollment
contracts. For 2012, the ACA requires that low enrollment contracts
shall be treated as having a rating of 4.5 stars for the purpose of
determining the beneficiary rebate amount. Section 422.266(a)(2)(iii)
describes the rules for new MA plans. For 2012 or a subsequent years, a
new MA plan defined at Sec. 422.252 that meets the criteria specified
by us for purposes of Sec. 422.258(d)(7)(v) must be treated as a
qualifying plan under paragraph (7)(i), except that plan must be
treated as having a rating of 3.5 stars for purposes of determining the
beneficiary rebate amount.
Comment: One commenter recommended that CMS allow part of the bonus
to be reinvested into the carrier's quality program.
Response: The rebate amount must be credited to one of the uses
described in section 1854(b)(1)(C) of the Act, as described in the
Advance Notice of Methodological Changes for Calendar Year (CY) 2012
for Medicare Advantage (MA) Capitation Rates, Part C and Part D Payment
Policies and 2012 Call Letter, published on February 18, 2011 and the
Announcement of Calendar Year (CY) 2012 Medicare Advantage Capitation
Rates and Medicare Advantage and Part D Payment Policies and Final Call
Letter, published on April 4, 2011. These documents are available on
the CMS Web site at: http://www.cms.gov/MedicareAdvtgSpecRateStats/.
Quality improvement program costs are legitimate administrative costs
and can be added as such to the plan's bid.
Comment: One commenter urged CMS to analyze the effect of rebate
reduction on duals. The commenter believes that since the quality
metrics are not scaled in any way by the risk of the population,
beneficiaries in plans with high concentrations of complex needs will
see a downward trend of available benefits.
Response: We will consider analyzing the effect of rebate reduction
on duals. However, as stated previously, the statute at 1854(b)(1)(C)
explicitly sets out the savings that MA plans can provide and star
rating that the rebate is tied to. Any change to this formulation would
require Congressional action.
We are finalizing this provision without modification. We are also
adopting Sec. 422.266 as proposed in this final rule.
21. Quality Bonus Payment and Rebate Retention Appeals (Sec. 422.260)
As noted in the proposed rule, while the ACA provisions
establishing the QBP system do not specify a process for requesting an
administrative review of the star ratings, historically, we have made
an administrative review process available to MA organizations for
certain payment determinations. Pursuant to our statutory authority to
establish MA program standards under section 1856(b)(1) of the Act, we
proposed to implement a process through which MA organizations may
request an administrative review of their star rating (``QBP status'')
for QBP determinations. We proposed that this review process would also
apply to the determinations made by us where the organization's Plan
Rating sets its QBP status at ineligible for rebate retention.
For calendar years 2012 through 2014, we proposed that QBP payments
would be awarded under the terms of a demonstration project; thus, we
proposed these regulations would not take effect until after the
demonstration project has terminated. We requested comment regarding
our proposal to delay the effective date of the appeals process set
forth in this final rule until after the end of the demonstration.
We received no comments on this specific proposal; however, based
on other comments regarding the appeals process we are aligning the
appeals process in the regulation with the administration review
process that will be used under the demonstration project.
While we proposed to reserve the right to use the same star rating
that applies to the Plan Rating for QBP determinations, we will provide
MA organizations notice each year regarding their QBP status. QBP
determinations would be considered made, subject to the appeal rights
described in this section, when the notice of QBP status is released.
We proposed MA organizations would have 5 calendar days from the date
of CMS' release of QBP determinations to request from CMS a technical
report explaining the development of their QBP status. As stated in the
proposed rule, if, after reviewing the technical report, the MA
organization believes that we were incorrect in its QBP determination,
the MA organization may request an appeal to be conducted by a hearing
officer designated by CMS. The organization would be required to make
such a request within 7 calendar days of the MA organization's
confirmed receipt of the technical report. We proposed the scope of the
hearing would be limited to challenges of CMS' application of its QBP
determination methodology to the appealing MA organization and, in very
limited instances, the accuracy of the data we used to make the QBP
determination. As a result, the appeals process would not be used as a
means to challenge the validity of the adopted methodology. We also
proposed limiting the scope of the hearing officer's consideration to
data sets that have not been previously subject to independent
validation. We solicited comments on whether this is an appropriate
limitation on the scope of a QBP status appeal.
Comment: One commenter would like to be able to appeal audited
data.
Response: The auditor and contract work together throughout the
entire audit. Any questions about the data or the auditor's assessment
of the plan are discussed and documented during the audit, and all
resolutions are documented. A contract should raise any concerns with
respect to audited data during their audit process. HEDIS[reg] audits,
for example, ensure accurate, reliable and publicly reportable data.
For this reason, NCQA encourages the organization to collect data
simultaneously with the audit. A concurrent audit lets the auditor
detect errors in the organization's data collection process while there
is time for the organization to correct its methods and minimize the
possibility of Not Reportable rates.
As provided in the proposed rule, the hearing officer's decision
would be final and binding on both the MA organization and CMS. In the
event that the hearing officer finds that CMS' QBP determination was
incorrect, we would be obligated to recalculate the organization's QBP
status based on the hearing officer's findings. We proposed to maintain
the right to revise an MA organization's QBP status at any time after
the initial release of the QBP determinations through May 15 of each

[[Page 21491]]

year. We indicated that we may take this action on the basis of any
credible information, including the technical report issued pursuant to
the process identified here, which demonstrates that the initial QBP
determination was incorrect. We are revising the date that CMS may, on
its own initiative, revise an MA organization's QBP status after the
initial release of the QBP determinations. While changes may occur
after this date based on appeals of QBP status, CMS, on its own
initiative, will only have through April 1 of each year to make changes
to an MA organization's QBP status. This change will afford MA
organizations more time to incorporate their QBP status into their plan
bids, due to us by the first Monday in June. Additionally, we did not
propose another level of administrative review beyond the hearing
officer. We solicited comment on the need for an independent
contractor-level review prior to an appeal to be conducted by a hearing
officer designated by CMS or an Administrator-level review.
Comment: One commenter recommended that CMS have a three-level
appeals process to ensure contracts have a robust mechanism to appeal
(such as, Level 1 would be a request for reconsideration, Level 2 would
be a request for a hearing, and Level 3 would be a request for CMS
Administrator review). Another commenter recommended a second level of
appeal for QBP determinations.
Response: Based on these comments, we are strengthening the
administrative review process for MA organizations that appeal their
star ratings for QBP. We are aligning the process in the regulation
with the process used during the demonstration. We will modify Sec.
422.260(d) to create a two-step administrative review process that
includes a request for reconsideration and a request for an informal
hearing on the record. MA organizations will no longer be requesting a
technical report from CMS detailing the data and measures used to
determine the QBP; however, as part of the reconsideration
determination, MA organizations will receive information about how
their star rating for the given measure in question was calculated and/
or what data was included in the measure. The MA organization may
appeal the reconsideration official's decision regarding its QBP status
by requesting an informal hearing. The informal hearing will be
conducted by a CMS hearing officer on the record.
Comment: A number of commenters requested more than 5 calendar days
to submit a request for a technical report and additional days to
request the appeal. Some commenters requested extension of the 5
calendar day window to 7 to 15 days, with clarification of calendar or
business days.
Response: The timeframes are tight given we want to resolve any
issues prior to contracts submitting their bids to CMS. However, in
order to be responsive to this concern, we are revising the timeframes.
MA organizations will have 10 business days from the time we issue the
notice of QBP status to submit a request for reconsideration. MA
organizations will have 10 business days after the issuance of the
reconsideration determination to request an informal hearing on the
record.
Comment: One commenter expressed concern that the appeals process
is not fully transparent.
Response: The appeals process is outlined in this regulation. Also,
each year MA contracts will receive additional details through HPMS
memos about the timing for submitting an appeal.
Comment: A few commenters requested that CMS send technical reports
to all contracts, without them having to request one.
Response: The technical notes published at http://www.cms.gov/PrescriptionDrugCovGenIn/06_PerformanceData.asp have detailed
information about how each of the star ratings is calculated. Also,
contracts may request information about how their scores were
calculated at any time by e-mailing CMS at [email protected].
Comment: A commenter requested that Medicare Cost contracts be
permitted to submit requests for Technical Reports and have appeal
rights.
Response: Medicare Cost contracts may request any additional
information during the plan preview for Plan Ratings or at any time by
e-mailing CMS at [email protected]. The appeals rights under
this regulation are related to using the star ratings for payment for
QBPs. Medicare cost contracts are not eligible for QBPs since they are
not considered MA contracts.
Based on the comments, we are revising the proposed Sec.
422.260(c) and Sec. 422.260(d) to create a two-step administrative
review process that includes a request for reconsideration and a
request for an informal hearing on the record. We are also extending
the timeframes for requests.

C. Clarify Various Program Participation Requirements

The provisions in this section of the final rule clarify existing
regulations or implement new requirements consistent with existing
policy guidance to assist sponsoring organizations with attaining the
goals of the Medicare Advantage and Prescription Drug Benefit programs.
These clarifications are detailed in Table 5.
BILLING CODE 4120-01-P

[[Page 21492]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.006

BILLING CODE 4120-01-C
1. Clarify Payment Rules for Non-Contract Providers (Sec. 422.214)
In our November 2010 proposed rule (75 FR 71223), we proposed
adding a new paragraph (c) to Sec. 422.214 to clarify that a request
for payment from an MA organization by a non-contracted provider who is
paid using a prospective payment system (PPS) methodology under
Original Medicare is deemed to be a request to be paid at the Original
Medicare payment rate unless the provider has notified the MA
organization in writing that it wishes to bill less than the Original
Medicare payment amount. We proposed this provision to codify the
guidance for plans and out-of-network providers in CMS' Out-of-Network
Payment Guide released February 25, 2010. This guidance, which was
responsive to questions we had received about this issue, reflects CMS'
longstanding policy that if a non-network facility such as a hospital,
skilled nursing facility, or home health agency renders services which
were not arranged by the plan, a non-private-fee-for-service MA
organization may pay the lesser of the Original Medicare amount or a
lower billed amount if it is clear that the provider is billing for
less than the Original Medicare rate. The guidance also clarified that
when a provider of services that is paid under a PPS system under
Original Medicare submits the same information to an MA organization
that it would submit to Original Medicare for the services in question,
this should be considered a bill for the PPS amount (and not the
``billed'' or ``charge'' amount from the claim) that Original Medicare
would pay in the case of the same submission.
We also proposed adding a new paragraph (d) to Sec. 422.214 to
clarify that an MA organization offering a regional PPO MA plan must
always pay non-contracted providers at least the Original Medicare
payment rate in those

[[Page 21493]]

portions of its service area where it is meeting access requirements by
non-network means under Sec. 422.111(b)(3)(ii). This is consistent
with the Medicare access requirements at section 1852(a)(2)(A) of the
Act--which specify that an MA plan may meet access requirements if it
pays providers at the Original Medicare payment rate.
After considering the comments received, we are finalizing these
provisions as proposed.
Comment: One commenter asked CMS to clarify that our proposed
policy that a non-contracted provider's request for payment be deemed
to be a request for the Original Medicare payment rate, unless the
provider expressly notifies the MA organization in writing that it is
billing a lesser amount, does not preclude health plans from
negotiating payment terms with contracted providers. Another commenter
requested clarification that MA plans can negotiate payment terms with
providers for more than Original Medicare rates. Another commenter
recommended that our proposed policy be applied in the Medicaid program
such that non-contracted provider payments are limited to no more than
what the provider would receive under the State's Medicaid fee-for-
service program.
Response: Our proposed policy does not preclude MA plans from
negotiating payment terms with providers. It implements section
1866(a)(1)(O) of the Act, which applies only where no agreement on
payment levels is in place. Extending our proposed policy to the
Medicaid program would be beyond the scope of this regulation, which
only addressed payments to non-contracted providers for Medicare
services provided to MA enrollees.
2. Pharmacist Definition (Sec. 423.4)
Pursuant to our authority under section 1860D-4(b)(3)(A)(i) and
1860D-4(c)(2)(A)(i) of the Act, we proposed to codify our understanding
that, for purposes of the Part D program, a pharmacist is an individual
with a current, valid license to practice pharmacy issued by the
appropriate regulatory authority of any of the states or territories of
the United States or the District of Columbia (DC) (collectively
referred to as United States authorities). We proposed adding a
definition for the word pharmacist to Sec. 423.4 in Subpart A to
reflect this understanding.
The change was prompted by recent Medicare Part D sponsor audit
findings in which we found that at least some Part D sponsors were
relying on pharmacists not licensed by United States authorities to
make clinical judgments associated with the administration of the Part
D benefit. As Medicare provides coverage for services throughout the
United States, beneficiaries should be able to expect that individuals
making clinical decisions related to their access to pharmaceuticals
are experts in United States pharmaceutical practice. Requiring
pharmacists to be licensed by United States authorities will help
guarantee that Part D sponsors meet these expectations.
Comment: CMS received support for codifying this definition from
numerous pharmacy associations, industry, and patient/beneficiary
advocacy organizations.
Response: We agree with these commenters and appreciate the
widespread stakeholder support for this definition. We received only
supportive comments for this proposal; therefore, we are finalizing
this provision without modification.
3. Prohibition on Part C and Part D Program Participation by
Organizations Whose Owners, Directors, or Management Employees Served
in a Similar Capacity With Another Organization That Terminated Its
Medicare Contract Within the Previous 2 Years (Sec. 422.506, Sec.
422.508, Sec. 422.512, Sec. 423.507, Sec. 423.508, and Sec.
423.510)
In the April 2010 final rule (75 FR 19678), we modified Sec.
423.508 by adding two paragraphs stating that: (1) As a condition
precedent to CMS' consent to a mutual termination, CMS requires
language in the termination agreement prohibiting the sponsor from
applying for new contracts or service area expansions for a period of
up to 2 years absent special circumstances warranting special
consideration; and (2) that as a necessary condition to contract as a
Part D sponsor, an organization must not have terminated a contract by
mutual consent within the 2 years preceding the application. Similar
modifications were made for the MA regulations at Sec. 422.508. These
changes ensured consistency across all situations in which a sponsor
elects-- through non-renewal, termination, or mutual termination-- to
discontinue its participation in the Part C or Part D programs.
In the proposed rule, we proposed to amend the 2-year new contract
prohibition in both Sec. 422.508 and Sec. 423.508 by adding a new
paragraph entitled ``Prohibition against Part C [and Part D] program
participation by organizations whose owners, directors, or management
employees served in a similar capacity with another organization that
terminated its Medicare contract within the previous 2 years.'' We also
proposed similar clarifying language to the existing language at Sec.
422.506, Sec. 422.512, 423.508, and Sec. 423.510. We stated our
belief that to carry out the intentions of the 2-year exclusion we
would need to ensure that new contracting organizations are not
actually repackaged versions of the same organizations that elected to
discontinue their participation in the Part C and Part D programs.
Therefore, we proposed to implement a requirement which would allow us
to determine whether the primary players in the organization submitting
the new application are the same as those in an organization that has
recently non-renewed, terminated, or mutually terminated a Medicare
contract.
We noted that the proposed requirement would assist CMS in
prohibiting and preventing such organizations from gaming the Medicare
program by reapplying for a contract as a new organization during the
2-year ban, when the applying organization has common ownership and
management control. This proposed requirement would help to ensure that
the provisions of the 2-year application prohibition are given full
effect.
Therefore, we proposed that the 2-year ban on new Part C or Part D
sponsor contracts to which non-renewing, terminating, or mutually
terminating organizations are currently subject under the regulation be
expanded to include organizations owned or managed by an individual
(referred to as a covered person) who served in a similar capacity for
a previously terminated or non-renewed Part C or Part D organization.
To implement this provision, we proposed to require as part of the
contract application process, that applicants supply CMS with full and
complete information as to the identity of each covered person
associated with the organization. In the proposed rule we defined
covered persons to include--
All owners of applicant organizations who are natural
persons (other than shareholders who: (1) Have an ownership interest of
less than 5 percent; and (2) acquired the ownership interest through
public trading). In addition, is a natural person who is an owner in
whole or part interest in any mortgage, deed of trust, note or other
obligation secured (in whole or in part) by the entity or any of the
property assets thereof, which whole or part interest is equal to or
exceeds 5 percent of the total property, and assets of the entity; or

[[Page 21494]]

An officer or member of the board of directors or board of
trustees of the entity, if the entity is organized as a corporation.
We solicited comments on whether plan sponsors, or other
stakeholders consider the definition of 5 percent or more as truly
representing current market conditions. We requested comment on this
section because we do not want to arbitrarily decide on the percentage
of interest the previously mentioned persons could have in an
organization, especially if this percentage does not reflect standard
business practices.
We proposed to amend Sec. 422.508 and Sec. 423.507 to make the 2-
year exclusion applicable to organizations for which any covered
persons were also covered persons for the excluded organization. We
also proposed to make similar amendments to Sec. 422.506, Sec.
422.512, Sec. 423.508, and Sec. 423.510.
Comment: Several commenters stated that the definition of covered
persons was too broad, and that it should not encompass senior
executives of the excluded organization. They noted that in many
instances, these executives were not responsible for the organization's
decision to terminate or non-renew a Medicare contract, but were simply
honoring their fiduciary duty to carry out the instructions of the
sponsor's ownership. The regulation as proposed would unfairly limit
the opportunities for these senior executives to obtain employment with
other Medicare Advantage organizations or PDP sponsors as those
employers may not want limit their ability to apply for new Medicare
business by hiring such individuals. Also, the proposed language may
also prompt senior executives to seek other employment when Medicare
contract termination or non-renewal is even discussed within their
organization to ensure that they preserve their eligibility for
employment with the broadest possible range of other Medicare Advantage
organizations or PDP sponsors.
Response: We agree that the definition of covered person, as
proposed, is too broad. CMS' intention in drafting the provision was to
make certain that organizations subject to the two-year application
prohibition did not evade the restriction by simply forming a new
corporation. Based on these comments, we have further clarified our
thinking to conclude that the focus of the restriction should be on
those individuals with absolute responsibility for control of and an
ownership stake in the business decisions of the terminating and non-
renewing sponsors--the owners of more than 5 percent of the shares of
the sponsor and the members of the board of directors. Therefore, we
have decided to modify the definition of covered person to delete the
term ``officer * * * of the entity'' in the final rule.
Comment: One organization commented that the inclusion of
individuals who own less than 5 percent of the total number of shares
of a sponsor's stock acquired other than through public trading in the
definition of covered person was unnecessarily broad and would unfairly
include individuals who receive shares through an organization's
employee stock ownership program.
Response: This comment is based in part on a typographical error in
the proposed rule as published at Sec. 422.506(a)(5)(i)(A), Sec.
422.508(d)(1)(i), and Sec. 422.512(e)(2)(i)(A). We intended for the
prohibition to apply to individuals who own more than 5 percent of the
shares of the sponsoring organization. However, in some parts of the
proposed rule, the standard was mistakenly stated as less than 5
percent. In the final rule, we have corrected the error to make more
than 5 percent the standard for stock ownership. Also, we acknowledge
that making a distinction between stock shares obtained through public
trading and shares obtained through all other means, as we proposed,
would create an irrelevant and confusing distinction. This proposed
provision was intended to restrict the ability to resume participation
in the Medicare Advantage and Part D programs of individuals who could
exercise control over a terminating or non-renewing organization
through their ownership of a significant portion of the organization.
We believe the level of an individual's control is established by the
percentage of shares owned, not by the source of those shares.
Therefore, we are also modifying the proposed rule to delete the
language excluding shareholders who acquired their stock through public
trading from classification as covered persons.
Comment: One organization expressed its concern that the inclusion
of members of a terminating or non-renewing sponsor's board of
directors in the definition of covered person would unfairly restrict
organizations with overlapping board membership from eligibility to
submit applications. The commenter noted that this could be a problem
especially for subsidiaries of the same parent organization where this
kind of arrangement is common.
Response: We believe that the arrangement the commenter described
represents one of the situations we intended to address through this
regulatory change. In drafting this provision, we are trying to make
certain that the parties that were responsible for a decision to
terminate or non-renew a Part C or D sponsor contract do not subvert
the 2-year application prohibition by submitting a new application
through the use of a different legal entity over which they similarly
exert control. As the commenter has not presented a justification as to
why an organization controlled by many or all of the same individuals
who controlled a terminating or non-renewing organization should not be
subject to the two-year application ban, we are making no change in the
final rule to reflect this comment.
Comment: Two commenters asked that we clarify whether the new
provision concerning covered individuals will apply to terminations
only at the plan benefit package (PBP) level.
Response: The regulation change we make here is intended simply to
define which individuals related to an organization already determined
to be subject to the 2-year application restriction may cause a second
organization to be similarly restricted when it has the same
relationship with those individuals. The methodology CMS uses to
determine whether organizations are subject to the two-year application
restriction is outside the scope of the proposed regulatory change.
In summary, we received several comments on this proposal. In
response to the comments opposing the inclusion of a contracting
organization's senior management in the definition of a covered person,
we have deleted the reference to officer from Sec. 422.506(a)(5)(iii),
Sec. 422.508(d)(3), Sec. 422.512(e)(2)(iii), Sec.
423.507(a)(4)(iii), Sec. 423.508(f)(3), and Sec. 423.510(e)(2)(iii).
Also, in response to the comments opposing the inclusion in the
definition of covered person owners of small amounts of stock acquired
other than through public trading, we deleted the phrase ``acquired the
ownership through public trading'' from the proposed Sec.
422.506(a)(5)(i)(B), Sec. 422.508(d)(1)(ii), Sec.
422.512(e)(2)(i)(B), Sec. 423.507(a)(4)(i)(B), Sec.
423.508(f)(1)(ii), and Sec. 423.510(e)(2)(i)(B). We also corrected our
typographical errors by replacing the statement ``more than 5 percent
with less than 5 percent'' at the proposed Sec. 422.506(a)(5)(i)(A),
Sec. 422.508(d)(1)(i), and Sec. 422.512(e)(2)(i)(A), as we intended
only to exclude from the definition of covered persons individuals
whose ownership stake is less than 5 percent.

[[Page 21495]]

We received no responses to our request for comments concerning whether
the use of the 5 percent ownership threshold for covered persons
reflected current marketing conditions or standard business practices
and have therefore otherwise made final this provision of the proposed
rule.
4. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
Federal regulations at Sec. 423.509(a) (1) through (a) (12)
clearly define the circumstances under which we have the authority to
terminate a Part D sponsor's contract. When we terminate a contract, we
must have assurances that the terminated Part D sponsor will maintain
sufficient staff and operations to make a smooth transition of the
sponsor's enrollees to new Part D coverage in a fashion that
facilitates continuity of care and fiscal responsibility. These
responsibilities include providing timely documentation requested by
CMS, retaining all documents for the periods specified in the Federal
laws and CMS regulations (see Sec. 423.505(d) and (e)) and otherwise
providing the resources necessary for an orderly transition of Medicare
beneficiaries to their newly assigned or selected plan.
In order for a timely and orderly transition to occur, the
terminated Part D sponsor must provide us with certain critical
Medicare beneficiary data including information to identify each
affected beneficiary, pharmacy claims files, true out-of-pocket (TrOOP)
cost balances, and information concerning pending grievances and
appeals. Data such as TrOOP balances are necessary to place the
beneficiary in the correct drug benefit phase and provide the
catastrophic level of coverage at the appropriate time.
The requirement to provide such data and files is already clearly
articulated for voluntarily non-renewing Part D plan sponsors (Sec.
423.507(a) (4)); for contracts terminated by mutual consent (Sec.
423.508(d)); and for contracts terminated by the plan sponsor for cause
(Sec. 423.510(f)). However, the regulation is currently silent
regarding contracts terminated by CMS. Therefore, in order to protect
both Medicare beneficiaries and CMS and to ensure that the requirement
to provide such data and files is clear for all types of contract non-
renewals and terminations, we proposed to add a new section (e) Timely
transfer of data and files to Sec. 423.509 (Termination of Contract by
CMS) to state that should the Part D plan sponsor's contract be
terminated by CMS, the Part D sponsor must ensure the timely transfer
of any data or files. This language would inform Part D sponsors being
terminated by CMS that they are required by Federal regulation to
timely transfer all requested data and files to CMS or its designee for
the required time as specified under Sec. 423.505(d) and (e). Because
the failure to provide this information directly harms beneficiaries,
plans that fail to comply with this requirement may be subject to a
Civil Monetary Penalty as defined in Sec. 422.752(c) and Sec.
423.753(c).
Comment: Several commenters expressed their support for this
provision. One commenter recommended that we go even further by
specifying through regulations the time period which terminated Part D
sponsors have to transfer data and files.
Response: We appreciate the commenters' support of our proposal.
Further specifying the time period for transfer of data in regulation
is not possible because circumstances vary from one CMS-initiated
termination to the next. We will provide timeframes in guidance to the
affected sponsor upon termination.
Comment: One commenter wanted CMS to specify through regulations a
plan for the smooth transfer of beneficiaries to a new Part D plan to
ensure that patients retain access to needed medications, and that
pharmacies and other downstream entities receive the reimbursement for
which they are entitled once a Part D plan sponsor is terminated.
Response: As explained in the proposed rule this provision merely
adds Sec. 423.509(e) to the existing regulations conforming the rules
regarding the timely transfer of critical beneficiary data for Part D
sponsors being terminated under any circumstance, and does not address
the transfer of beneficiaries nor reimbursement. While these are
important concerns, they are outside the scope of these proposed
revisions. We do, in fact, have protocols in place to ensure the smooth
transfer of beneficiaries to other Part D coverage with minimal
interruption in access to medications. With regard to reimbursement of
pharmacies, the statute and regulations governing Part D provide for
CMS to contract with entities that apply to be Part D sponsors and are
determined qualified as provided in Sec. 423.503. Once we evaluate and
determine an applicant is qualified to be a Part D sponsor, that
sponsor retains the ultimate legal responsibility for adhering to and
otherwise fully complying with all terms and conditions of its
contracts with downstream providers, such as pharmacies. Nevertheless,
we have recently strengthened its ability to ensure that sponsors
promptly pay pharmacies by codifying at Sec. 423.520 a requirement
that the contract between CMS and all Part D sponsors contain
provisions obligating the sponsor to promptly pay claims. As a result,
Part D sponsors that do not meet the prompt payment requirements of
Sec. 423.520 may be subject to contract compliance actions by CMS.
Having received only support for this proposal, we are therefore
finalizing this provision without modification.
5. Review of Medical Necessity Decisions by a Physician or Other Health
Care Professional and the Employment of a Medical Director (Sec.
422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
Based on sections 1852(g) and 1860D-4(g) of the Act, we have
established procedures for making organization determinations and
reconsiderations regarding health services under Part C, and for making
coverage determinations and redeterminations regarding covered drug
benefits under Part D. These requirements are codified in our
regulations at part 422 subpart M and part 423 subpart M, respectively.
In the proposed rule, we noted that although the Part C and Part D
regulations require physician review of appeals of adverse organization
determinations or coverage determinations, respectively, that involve
medical necessity, the regulations do not specify who must conduct the
initial determinations involving medical necessity. We proposed to
modify our requirements in Sec. 422.566 by adding a new paragraph (d)
which would require organization determinations that involve medical
necessity to be reviewed by a physician or other appropriate health
care professional with sufficient medical and other expertise,
including knowledge of the Medicare program. We also proposed to
require the physician or other health care professional to have a
current and unrestricted license to practice within the scope of his or
her profession in a State, Territory, Commonwealth of the United States
(that is, Puerto Rico), or the District of Columbia.
As noted in the proposed rule, section 1860D-4(g) of the Act
requires Part D plan sponsors to meet the requirements for processing
requests for coverage determinations and redeterminations in the same
manner as such requirements apply to Part C organizations with respect
to organization determinations and reconsiderations. Consistent with
the proposed changes to the Part C organization determination process,
we

[[Page 21496]]

proposed similar changes to the Part D coverage determination process
in new Sec. 423.566(d).
Comment: Many commenters expressed strong support for this proposal
as it relates to the Part C and Part D programs, but several of those
commenters conditioned their support for the proposal on its
applicability to only those cases where the plan's initial review (for
example, by a non-clinician claims specialist) will result in an
unfavorable decision. In other words, the commenters argued that if the
initial review of the request will result in a favorable coverage
decision for the enrollee, there is no need to involve a physician or
other health care professional in reviewing the case. These commenters
believe that the additional safeguards of this provision are only
necessary if, based on the initial review of the request, the plan
expects to issue an unfavorable decision.
Response: We acknowledge that it is common practice for an MA
organization or Part D plan sponsor to use a claims specialist (who may
not be a clinician) to conduct initial reviews of requests for
organization and coverage determinations. We agree that if the initial
review of an organization or coverage determination request will result
in a fully favorable decision for the enrollee, the request does not
require review by a physician or other appropriate health care
professional. However, if the initial review of the request will result
in the plan issuing a partially or fully unfavorable decision based on
medical necessity, a physician or other appropriate health care
professional must be involved in reviewing the request prior to the
plan issuing a final decision. We believe this approach strikes an
appropriate balance between ensuring that organization and coverage
determination requests involving medical necessity decisions are
subject to review by appropriate health care professionals and allowing
MA organizations and Part D plan sponsors to appropriately and
efficiently utilize health care professional staff resources. We
revised proposed Sec. 422.566 and Sec. 423.566 to reflect this
change.
Comment: Some commenters requested that CMS clarify that the
statement appropriate health care professional includes a pharmacist
for purposes of reviewing Part D coverage determinations involving
medical necessity. A few commenters suggested that pharmacists be
explicitly listed as health care professionals capable of reviewing
medical necessity determinations.
Response: We do not believe it is necessary or advisable to
explicitly list specific health care professionals who may
appropriately review organization or coverage determinations involving
medical necessity. The type of health care professional who may be
appropriate to review a particular request will depend on the type of
services being requested, related medical necessity issues, and whether
the review is consistent with the health care professional's scope of
practice under State law.
Comment: Some commenters asked that CMS clarify that the proposed
change does not impose a requirement on plans to employ a particular
number of physicians or other health care professionals for purposes of
reviewing organization or coverage determinations. One commenter noted
that the new requirement will result in undue increased cost to plans.
Response: We are not specifying the number or mix of physicians and
other health care professionals MA organizations or Part D plan
sponsors must employ or otherwise engage to review initial coverage
decisions involving medical necessity. Plans are responsible for
ensuring adequate staffing levels based on caseload mix and volume and
other business factors. We believe that this flexibility, coupled with
our clarification in the final rule that a physician or other
appropriate health care professional must be involved in a medical
necessity review only if the plan expects to issue an unfavorable
decision significantly reduces or eliminates any potential burden to
plan sponsors. We do not believe it is unreasonable or excessively
burdensome for an MA organization or Part D plan to utilize the
services of physicians and other health care professionals for medical
review activities.
Comment: One commenter noted that, instead of requiring knowledge
of the Medicare program as stated in the proposed rule, reviewers need
only have knowledge of Medicare coverage requirements.
Response: We agree with the commenter that requiring knowledge of
the Medicare program is unnecessarily broad, and that our primary
expectation is based on reviewers having knowledge of Medicare coverage
requirements. We are revising the proposed language accordingly.
However, reviewers are expected to follow all applicable Medicare
requirements, such as adjudication timeframes, in the performance of
their duties. Plan sponsors are responsible for having adequate
internal controls in place to ensure that their reviewers follow all of
these requirements. Thus, this change does not in any way negate a plan
sponsor's responsibility for ensuring compliance with Medicare's
program requirements.
Based on our review and consideration of the comments received on
this proposal, we are finalizing both Sec. 422.566 and Sec. 423.566
by revising them to include a new paragraph (d). Under new Sec.
422.566(d) and Sec. 423.566(d), if a plan expects to issue a partially
or fully adverse medical necessity decision based on the initial review
of the request, a physician or other appropriate health care
professional with sufficient medical and other expertise, including
knowledge of Medicare coverage criteria, must review the request before
the plan issues its decision. We also require the physician or other
health care professional to have a current and unrestricted license to
practice within the scope of his or her profession in a State,
Territory, Commonwealth of the United States (that is, Puerto Rico), or
the District of Columbia.
In a related proposal to enhance the plans' clinical decision
making process, we also proposed to revise Sec. 422.562(a) by adding
paragraph (4) and to revise Sec. 423.562(a) by adding paragraph (5) to
require MA organizations and Part D plan sponsors, respectively, to
employ a medical director who is responsible for ensuring the clinical
accuracy of all decisions involving medical necessity. We also proposed
that the medical director must be a physician with a current and
unrestricted license to practice medicine in a State, Territory,
Commonwealth of the United States (that is, Puerto Rico), or the
District of Columbia. As noted in the proposed rule, we believe the
requirement to employ a medical director will enhance the coordination
and accountability of plan operations and strengthen quality assurance
activities within these organizations. We received many comments on
these proposed revisions.
Comment: One commenter sought clarification on whether the medical
director must review all medical necessity determinations and appeals
or whether plans will be required to establish a process for elevating
reviews to the medical director. Other commenters sought clarification
that the medical director would only review adverse organization
determinations and would not review favorable organization
determinations.
Response: Under our proposal, the medical director would have
overall responsibility for the clinical accuracy of plan decisions. In
this oversight role,

[[Page 21497]]

we expect there to be a process for elevating issues of concern to the
medical director, but we do not expect that a plan's medical director
will review each and every decision involving medical necessity. The
medical director should collaborate with appropriate staff with respect
to all plan operations that involve medical and utilization review,
benefits and claims management, and quality assurance activities.
Comment: Some commenters argued that the proposed regulatory
language should be revised to permit MA organizations and Part D plans
sponsors to retain a medical director who is not directly employed by
the MA organization or Part D plan sponsor, but rather performs this
function under a contractual arrangement. A few commenters stated that
plans may prefer to utilize physicians through a physician
organization, or physicians who spend part of their time in clinical
practice. One commenter strongly supported direct employment of a
medical director, but sought clarification on whether a plan can
fulfill this requirement by retaining multiple medical directors (such
as, one for Part C and one for Part D).
Response: We acknowledge that plans utilize a variety of
subcontracting arrangements to perform some or most of their functions,
including subcontracting with physician groups to perform medical
review activities. Proper claims adjudication and accurate clinical
decision-making in organization and coverage determinations,
reconsiderations, and redeterminations are integral to the successful
performance of a plan's contract. Those decisions all involve items,
services, or medications ordered or performed by a physician or other
health care professional. In that vein, it is not unreasonable to
expect a plan to employ a medical director to ensure that the decision-
making process is clinically accurate, appropriate, and comports with
Medicare coverage guidelines. We have already clarified that we do not
expect that a medical director would review all decisions issued by the
plan, but instead would have the primary responsibility of providing
oversight for plan operations that involve medical and utilization
review, benefit, formulary and claims management, and quality assurance
activities.
It should be noted that all other entities that adjudicate Medicare
cases are already required to employ a medical director, including the
Medicare Part C and Part D Independent Review Entities (IREs). All
Medicare Administrative Contractors (MACs) in the Original Medicare
Program are required to employ a Medical Director, as are all of the
IREs, known as Qualified Independent Contractors (QICs) in the Original
Medicare program. The intent of imposing such a requirement on MA
organizations and Part D plan sponsors is the same as it is for those
entities--that is, to ensure that such decisions are clinically
accurate, appropriate, and comport with Medicare coverage guidelines.
We note that plans are ultimately responsible for the clinical
accuracy and appropriateness of their processes and decisions, which
includes oversight of their first tier, downstream and related
entities. Without a medical director employed by the plan to review
decision making processes of contracted entities (such as IPAs or
PBMs), the plan would be unable to ensure the decisions were clinically
accurate or appropriate. A medical director employed by a contracted
entity is ultimately responsible to that entity and is in no position
to inform the plan if they believe their employer's procedures or
decisions are inappropriate. MA organizations and Part D plan sponsors
must evaluate CMS' requirements and make staffing arrangements that
will ensure compliance with our requirements. Therefore, we will move
forward with implementing the requirement that MA organizations and
Part D plan sponsors employ a medical director. We will not, however,
specify the staffing level needed for this position. Instead, we will
allow plans the discretion to retain a medical director that works less
than full time or multiple medical directors as they deem appropriate
to comply with our requirements.
Comment: One commenter noted that CMS' rationale in support of the
requirement that plans employ a medical director does not support the
accompanying requirement that the medical director be a physician.
Response: We disagree with the commenter. In the proposed rule, we
noted that MA organizations and Part D plan sponsors will be required
to employ a medical director who would be responsible for ensuring the
clinical accuracy of all decisions involving medical necessity. This
physician oversight requirement is consistent with the existing
statutory and regulatory requirements at 1852(g)(2)(B) of the Act and
Sec. 422.590(g)(2) and Sec. 423.590(f)(2) that all medical necessity
redeterminations and reconsiderations be reviewed by a physician with
expertise in the field of medicine that is appropriate for the services
at issue. We also noted that, with respect to the Part D program, the
proposal to require the employment of a medical director who is a
physician would enhance the performance of other critical plan
functions such as formulary administration and application of plan
coverage rules, and assist in the early identification and correction
of potential quality concerns. Given this, we continue to believe that
the role of a medical director requires the expertise of a physician,
and are retaining the associated requirement.
After consideration of the comments on this proposal, and for the
reasons noted previously, we are finalizing the proposal to require MA
organizations and Part D plan sponsors to employ a medical director by
adding paragraph (4) to Sec. 422.562(a) and by adding paragraph (5) to
Sec. 423.562(a).
6. Compliance Officer Training (Sec. 422.503 and Sec. 423.504)
Pursuant to our authority under section 1857(d) of the Act for Part
C, and sections 1860D-4(c)(1)(D) and 1860D-12(b)(3)(C) of the Act (the
latter of which incorporates section 1857(d) by reference), we proposed
that MA organization and Part D sponsor compliance officers be required
to complete annual MA and/or Part D compliance training starting in
2013. Organizations applying for the 2013 contract year that are new to
the MA or Part D programs would have been required under this proposal
to have their compliance officers obtain training in 2012 to prepare
for the upcoming contract year. We proposed to add Sec.
422.503(b)(4)(vi)(B)(1)(i) and (ii) to subpart K of Part 422 and Sec.
423.504(b)(4)(vi)(B)(1)(i) and (ii) to subpart K of Part 423 to reflect
this change. We proposed these training clarifications because our
reviews have found that many MA and Part D compliance officers lack
basic knowledge about the requirements of the MA and Part D programs.
Our reviews have also found that many compliance officers do not seem
to understand that we expect sponsors to actively ensure compliance
with Medicare program requirements; that those requirements are
distinct from any commercial health or drug plan benefits they may
administer; and that they should not solely rely on subcontractors or
CMS to identify and resolve Part C and Part D contract compliance
matters for them. We stated our belief that requiring annual training
for compliance officers would help to address the knowledge gap by
emphasizing the necessity of compliance officer training and the
compliance officer's critical role in

[[Page 21498]]

maintaining and ensuring program compliance. However, based upon the
comments received, CMS will not be codifying these provisions at this
time.
Comment: Most commenters supported CMS' proposal to require
compliance officer training.
Response: We agree with these commenters that compliance officer
training would address our aforementioned concerns about the level of
knowledge compliance officers have about the Medicare Part C and D
programs, but for reasons discussed below, we are not finalizing our
proposals at this time.
Comment: The vast majority of comments regarding compliance officer
training were requests for clarification from industry regarding who
should take the training and the content, forum, format, and duration
of the training. Specifically, commenters were unsure if CMS intended
for the organization's corporate compliance officer or for its Medicare
compliance officer to attend training. Other commenters suggested that
only plan sponsors with poor audit results or significant compliance
problems should be required to take training. Nearly all commenters
wanted more details about the content or curriculum for the training.
Some thought that training should be designed to allow the compliance
officer to focus on areas or issues that presented the most risk to
their organization. Other commenters wanted to know if the content
would focus on compliance programs and plans or if it would focus on
Medicare Part C and D programs and compliance with those requirements.
With respect to the format of the training, some plan sponsors wanted
only CMS to provide the training either in-person or via the Internet,
while other plan sponsors wanted compliance courses and conferences
offered by non-CMS entities to be counted towards the annual training
requirement. Lastly, one commenter suggested that the training should
not exceed 12 hours per year.
Response: We agree that more clarification is warranted regarding
the audience, content, forum, format, and duration of proposed
compliance officer training. Therefore we will not be codifying the
proposed rule regarding compliance officer training at this time. We
will carefully consider whether to propose a similar rule in the future
that will address the clarifications suggested by industry.
Accordingly, we have not included Paperwork Reduction Act (PRA)
paperwork burden or regulatory impact analysis estimate for this
provision.
7. Removing Quality Improvement Projects and Chronic Care Improvement
Programs From CMS Deeming Process (Sec. 422.156)
Under section 1852(e) of the Act, we have delegated our authority
to evaluate whether an MA organization is in compliance with certain
Medicare requirements to three private accrediting organizations.
Currently, MA organizations may be deemed to meet requirements in a
number of areas, including quality improvement (QI), as specified in
Sec. 422.156(b).
We currently require all MA organizations to submit their quality
improvement projects (QIPs) and chronic care improvement programs
(CCIPs) on an annual basis. In our November 2010 proposed rule (75 FR
71227), we proposed to amend Sec. 422.156(b) to specify that, while QI
would still be a component of the deeming process, QIPs and CCIPs would
be excluded from the deeming process for QI. We also clarified that the
QIPs and CCIPs would instead be reviewed and evaluated by CMS or an
appropriate CMS contractor. After considering comments we received on
this proposal, we are finalizing this provision without modification.
Comment: One commenter supported the removal of QIPs and CCIPs from
the deeming process, to the extent that CMS intends to collect QIPs and
CCIPs for review on an annual basis. This commenter recommended that,
in order to avoid redundancy and unnecessary burden for plans, deeming
authorities should not be allowed to request the submission of QIPs and
CCIPs as part of the deeming process.
Two commenters stated that removing the QIPs and CCIPs from the
deeming process would negatively impact staffing resources for health
plan medical management, since both are reviewed by NCQA during site
visits. These commenters believed that maintaining two unique reporting
formats for the same quality programs would be duplicative.
Response: We appreciate commenters' concerns about duplication of
efforts. In our proposed rule, we proposed to exclude the QIPs and
CCIPs as components of the deeming process for QI precisely because we
were aware of the duplication of effort associated with submission of
this information to both CMS and NCQA, as well as auditing efforts by
both entities. As we stated in our proposed rule, removing the QIPs and
CCIPs from the deeming process for QI will avoid redundancy and reduce
burden for MA organizations. We believe removal of QIPs and CCIPs from
the deeming process for QI is essential to improving consistency in the
evaluation and assessment of the QIPs and CCIPs, especially given that
some elements therein may be incorporated into future plan ratings.
Therefore, we are finalizing our proposal without modification.
Comment: One commenter advised that removing two important elements
of the overall QI program would make it almost impossible for NCQA to
provide a balanced and comprehensive assessment of the overall QI
program and recommends that CMS reconsider this proposal.
Response: We disagree with the commenter's assertion that removal
of QIPs and CCIPs will result in NCQA's inability to assess the QI
program plans of its deemed entities. There are a number of quality
performance measures that an accreditation organization may use to
measure QI for purposes of deeming. Therefore, we are finalizing our
proposal without modification.
Comment: Several commenters recommended that CMS consider allowing
MA plans the flexibility to focus on QIPs and CCIPs that meet the
unique needs of their target populations.
Response: Irrespective of whether or not CMS identifies a list of
specific clinical and/or non-clinical topics for QIPs and CCIPs, MA
plans will retain the flexibility to develop their own special
projects. Furthermore, plans' QIPs and CCIPs must always address the
target population for a specific plan in order to demonstrate QI under
their plans. Identification of the appropriate target population is a
key component for ensuring QI and is the first element CMS assesses
when reviewing the QIPs and CCIPs.
Comment: One commenter recommended that CMS release standards that
will be used in determining if QIP and CCIP program standards are met.
Response: We appreciate the commenter's interest in this issue. The
submission of QIPs and CCIPs will be an ongoing annual QI assessment
activity for all MA organizations and SNPs. In an effort to improve
consistency, we are reviewing the current QIP and CCIP program
standards in an effort to determine where improvement is necessary.
Guidance regarding changes to the QIP and CCIP program standards will
be provided in separate guidance such as an HPMS memoranda and annual
call letters.
Comment: Several commenters recommended that CMS continue to permit
MA organizations that currently use the deeming process to continue to

[[Page 21499]]

do so, and apply our proposed requirement only to MA organizations that
avail themselves of the deeming process in the future.
Response: We disagree that our proposed requirement should apply
only to MA organizations not currently using the deeming process. While
MA organizations may continue to utilize the deeming process for areas
specified in Sec. 422.156, including QI, we are finalizing our
proposal without modification and clarify that it will apply to all MA
organizations including SNPs.
Comment: One commenter recommended that CMS should consider
allowing plans with a high star rating on quality measures the option
to use the deeming process.
Response: We clarify that the goal of our proposal in our November
2010 proposed rule was not to eliminate deeming, or even deeming for QI
requirements but, rather, to exclude QIPs and CCIPs as deemable QI
elements.
8. Definitions of Employment-Based Retiree Health Coverage and Group
Health Plan for MA Employer/Union-Only Group Waiver Plans (Sec.
422.106)
In our November 2010 proposed rule (75 FR 71227), we stated our
concern that, since enactment of the MMA, MA organizations have been
contracting with entities that cannot properly be characterized as
employment-based group health plan coverage (for example, professional
or group associations) to provide coverage to MA beneficiaries via
employer group waiver plans (EGWPs) or individual MA plans.
Specifically, some MA organizations have characterized contracts with
professional or group associations as employment/union coverage. We
stated we believed that this was inconsistent with the requirement in
section 1857(i) that such waivers facilitate a contract between an MA
organization and employers, labor organizations, or the trustees of a
fund established by one or more employers or labor organizations (or a
combination thereof) to furnish benefits to the entity's employees,
former employees (or combination thereof) or members or former members
(or combination thereof) of the labor organizations, as this language
is interpreted in guidance in Chapter 9 of the Medicare Managed Care
Manual (http://www.cms.gov/manuals/downloads/mc86c09.pdf), entitled
``Employer/Union Sponsored Group Health Plans. This guidance clearly
restricts employer/union group health plan enrollment in EGWPs and
individual MA plans to beneficiaries who are Medicare eligibles of an
employer/union sponsored group health plan. Such a plan is one that is
employment-based health coverage through an employer/union group health
plan that has entered into a contractual arrangement with an MA
organization to provide coverage or that has contracted directly with
CMS to provide coverage for its Medicare eligibles. To clarify our
requirements for offering employment-based retiree coverage via an MA
plan, we proposed to codify definitions of the terms employer-sponsored
group MA plan, employment-based retiree health coverage, and group
health plan at Sec. 422.106(d)(4) through (6). We also proposed to
change the reference to an MA plan at Sec. 422.106(d) to a reference
to an employer-sponsored group MA plan. In proposing these definitions,
we noted that they were consistent with those provided for Part D
sponsors at Sec. 423.454 and Sec. 423.882. We solicited comment on
our proposals to revise these definitions.
After considering comments received on these proposed changes, we
are finalizing these provisions without modification.
Comment: One commenter agreed with CMS that membership in an
association would by itself not have a sufficient employment nexus to
qualify as employment-based coverage and also noted that our proposed
definitions of the terms employer-sponsored group MA plan, employment-
based retiree health coverage, and group health plan are consistent
with the comparable definitions for Part D sponsors at Sec. 423.454
and Sec. 423.882.
Two commenters believed that our proposed definitions of the terms
employer-sponsored group MA plan, employment-based retiree health
coverage, and group health plan would unintentionally exclude coverage
by associations that is truly tied to employment in such associations,
and that a wholesale exclusion of associations and similar entities
from the definition of employment-based retiree coverage would be
overly broad and inconsistent with coverage in the commercial market.
One of these commenters explained that there are a variety of types of
associations, including (but not limited to) an association of farm
bureaus, for which eligibility for health coverage is tied to
membership in the association or bureau.
Response: We do not believe that Congress envisioned granting
access to EGWP waivers based on membership in an association or any
entity that did not meet the definition of a group health plan, as
defined under the Employee Retirement Income Security Act (ERISA). Our
intent in defining an employer-sponsored group MA plan, employment-
based retiree health coverage, and a group health plan was not to
preclude all associations from enrolling Medicare beneficiaries in
EGWPs and individual MA plans, but, rather, to ensure that a
beneficiary's enrollment in one of these MA plans is based on his/her
receipt of employment-based health coverage from and employer/union
group health plan sponsor. To the extent that membership in an
association is based on employment, that association could meet the
definition employment-based retiree coverage. For example, an
association may elect to provide coverage via an EGWP or individual MA
plan to retirees who were formerly employed by the association. We also
clarify that we believe that employers such as school districts could
form an association for the purpose of purchasing employer coverage on
behalf of retirees from the school districts and that this would be
acceptable because, independently, each school district would be
eligible to enroll its retirees in an EGWP or individual MA plan.
Therefore, two or more school districts could combine to form an
association for the purpose of purchasing retirement coverage for their
retired employees. However, an association of farm bureaus would not
meet this test if membership in a farm bureau were not exclusively
based on former employment by these farm bureaus.
Comment: Two commenters expressed concern that our proposed
definitions of employment-based retiree coverage and a group health
plan at Sec. 422.106(d)(5) and Sec. 422.106(d)(6), respectively,
would preclude employers that do not contribute financially to
retirees' health care costs--including cases where an employer plan is
provided at no cost to the employer or the employer furnishes a pension
in lieu of payment for health care coverage for its retirees--from
enrolling retirees in an employer-sponsored group MA plan. This
commenter recommended that CMS revise its proposed regulatory language
to ensure that the definition of employment-based coverage is not tied
to a financial contribution from the employer.
Another commenter stated that employers that are not contributing
financially to retirees' health care costs, which is an increasing
trend in the marketplace, can still meaningfully contribute to their
retirees' health care coverage by bargaining with an MA organization on
behalf of its retirees for

[[Page 21500]]

the best possible deal on premium and benefit design. This commenter
also noted that employers may choose to assist their retirees by
administering the MA plan premium payment process.
Response: Our proposed definitions would require that employment-
based retiree coverage include coverage of health care costs in
accordance with the ERISA definition of a group health plan. While
there is not a minimum amount an employer must contribute toward such
employment-based retiree coverage, we believe it is important that an
employer make both a financial contribution toward coverage and
negotiate on behalf of its retirees for a benefit package and cost
sharing levels which are as favorable as possible for them. We are
therefore finalizing our proposed revisions to Sec. 422.106(d) without
modification.
Comment: One commenter requested that CMS ensure that coverage
offered by a union or trust is considered employment-based as
recognized by the section 1857(i) of the Act.
Response: We agree that members or former employees of unions and
trusts, as recognized under section 1857(i) of the Act, generally meet
the definition of employment-based retiree coverage and could offer MA
coverage to retirees who are Medicare eligible individuals through an
EGWP or individual MA plan.

D. Strengthening Beneficiary Protections

This section includes proposed provisions aimed at strengthening
beneficiary protections under Parts C and D. Some of the provisions
affecting both Parts C and D include proposed regulations codifying the
requirement that MA organizations and Part D sponsors provide
interpreters for non-English speaking and limited English proficient
callers, and periodically disclose to each beneficiary specific data
for enrollees to use to compare utilization and out-of-pocket costs in
the current plan year to the following plan year. Changes affecting
only Part C include an extension of the mandatory maximum out-of-pocket
(MOOP) amount requirements to regional PPOs, and under Part D, we
address the delivery of adverse coverage determinations.
In the area of Parts C and D marketing, proposed provisions include
a proposal requiring MA organizations' and Part D sponsors' agents and
brokers to receive training and testing via a CMS endorsed or approved
training program and a proposal to extend annual training and testing
requirements to all agents and brokers marketing and selling Medicare
products.
This information is detailed in Table 6.
[GRAPHIC] [TIFF OMITTED] TR15AP11.007

1. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
a. CMS Approved or Endorsed Agent and Broker Training and Testing
(Sec. 422.2274 and Sec. 423.2274)
In the November 2010 proposed rule, in implementing sections
1851(h)(2), 1860D-1(b)(1)(B)(vi), 1851(j)(2)(E), and section 1860D-4
(l)(2) of the Act, we proposed revising Sec. 422.2274(b) and (c) and
Sec. 423.2274(b) and (c) to require MA organizations' and Part D
sponsors' agents and brokers to receive training and testing via a CMS-
endorsed or approved training program. We proposed this revision to
move toward greater standardization of agent broker training and
testing and ensure that agents and brokers selling Medicare products
have a comprehensive and consistent base of understanding of Medicare
rules.
In addition, we proposed that following the implementation of the
final rule, we would review and endorse or approve one or more entities
to provide annual testing and training to Medicare agents and brokers.
We specifically requested comments and suggestions on alternatives to
using a competitive request for proposals (RFP) process under the
Federal Acquisition Rules to effectuate this effort.

[[Page 21501]]

We further proposed that these new requirements also be applicable
to section 1876 cost contract plans, since in our April 2010 final rule
(75 FR 19784 through 19785), we extended the MA marketing provisions in
part 422 to section 1876 cost contract plans.
Comment: Many of the comments received supported the proposal and
responded to our request for suggestions. The suggestions offered in
conjunction with the approval were (1) provide a low-cost option to the
public or non-profit sector; (2) provide uniform training and testing
materials that can be graded by an outside independent entity; (3)
create a separate test for the general Special Needs Plan (SNP); and
(4) include information regarding SPAPs, COB rules and eligibility in
the training.
Response: The purpose of standardizing the training and testing is
to ensure continuity, accuracy and quality of training and testing
vehicles. We will evaluate and approve vendor products by developing
specific criteria against which training and testing programs will be
assessed. We will take into consideration and evaluate the options for
lower cost offerings to the public and non-profit sector and will also
consider the suggestions for developing training and testing modules.
Comment: One commenter requested clarification of our use of the
terms CMS ``endorsed'' training program and CMS ``approved'' program.
Response: Although the intent of the language was to use the two
terms interchangeably, we note that the final selections of the
developed vendor products will first be approved by our agency and
subsequently certified or endorsed.
Comment: One commenter recommended that CMS apply the same bid
process as we apply to the plans using the training portal. They
expressed full support for having a certified company provide the
training and a certification that they can accept without having to
provide that training themselves.
Response: We believe this commenter was referring to our pilot
agent/broker training and testing module in 2009. We do not believe the
development approach taken for that module is appropriate for the
current effort, given that we developed the training under that
approach and solicited volunteer plan sponsors to train and test their
agents via the pilot training and testing module. We will consider all
access and value options prior to and throughout the solicitation of
training and testing information and technical proposals.
Comment: One commenter supported CMS's proposal to require specific
training for agents and brokers and also recommended that CMS training
be specific to the plan the agent/broker is actually selling. Other
commenters requested that plan sponsors be allowed the option of
continuing to develop and administer training and testing that complies
with CMS specified criteria. Specifically, the commenter stated that
plans should continue to be responsible and held accountable for
adequate training regimens, and requested that CMS continue to impose
training obligations on plans rather than contracting with third-party
entities to provide such training to plan employees and contractors.
Response: We do not have the resources at this time to initiate
development by vendors of training and testing vehicles that would
contain plan-specific details for each plan type for which
organizations contract with CMS. Plan sponsors will continue to be
responsible for administering plan specific training and testing to
brokers and agents. Our development of an ``approved or endorsed''
training and testing program will ensure consistency and accuracy
across plan sponsors.
Comment: One commenter proposed that we allow plans to review
training and testing products before they are finalized and to make
further recommendations regarding the specific companies and
organizations that would develop the specific products. The commenter
urged that CMS provide a transparent process and agreed with using the
RFP process to develop an ``approved or endorsed'' training and testing
curriculum. The commenter stated that the curriculum and its
development should not be considered proprietary, even if it is
developed by a private contractor.
Response: We will not consider a plan preview of products prior to
finalizing our decisions. We will develop specific requirements and
implement a process for reviewing proposals to ensure participants meet
the requirements and develop a training and testing program as
specified in future guidance. Furthermore, we believe that allowing
plans to review the training and testing proposals and recommend
approval of specific organizations might interfere with our ability to
ensure a level playing field.
Comment: One commenter noted that it is not a practice of PACE
programs to utilize agents and brokers in their efforts to inform the
public about their program. The commenter requested the CMS clarify
that the training and testing requirements to not supersede or modify
the requirements currently applicable to PACE programs.
Response: PACE plans are governed by separate requirements which
are not included in these provisions. These requirements do not
supersede or modify the current requirements applicable to PACE
programs.
b. Extending Annual Training Requirements to All Agents and Brokers
(Sec. 422.2274 and Sec. 423.2274)
In the November 2010 proposed rule, we proposed a change in the
regulations text that would correct an omission in our current
regulations at Sec. 422.2274(b) and (c) and Sec. 423.2264(b) and (c).
These regulations currently require MA organizations and Part D
sponsors to ensure that independent agents selling Medicare products
are trained and tested annually on Medicare rules and regulations
specific to the plan products they intend to sell. Consistent with our
statutory authority at sections 1851(j)(2)(E) and 1860D-4(l)(2) of the
Act, we proposed to revise Sec. 422.2274 and Sec. 423.2274 to
correctly apply these requirements to all agents and brokers marketing
and selling Medicare products, whether independent agents or employees.
In addition, we also noted that these new requirements would be
applicable to section 1876 cost contract plans, since in our April 2010
final rule (75 FR 19784 through 19785), we extended the MA marketing
provisions in Part 422 requirements to section 1876 cost contract
plans.
After considering the comments we received, we are finalizing our
proposal without further modification.
Comment: One commenter expressed support for correcting the error
in Sec. 422.2274(b) and (c) and Sec. 423.2264(b) and (c) that applied
training requirements only to independent agents and brokers.
Response: We agree that all agents and brokers, including those
employed by MA and Part D plans, should be subject to the same training
and testing requirements. Therefore, we are adopting as final our
proposed correction to Sec. 422.2274(b) and (c) and Sec. 423.2264(b)
and (c).
2. Call Center and Internet Web site Requirements (Sec. 422.111 and
Sec. 423.128)
a. Extension of Customer Call Center and Internet Web site Requirements
to MA Organizations (Sec. 422.111)
Under the authority of section 1852(c) of the Act, which requires
MA organizations to disclose MA plan information upon request, as well
as the authority of section 1857(e) of the Act

[[Page 21502]]

to specify additional contractual terms and conditions the Secretary
may find necessary and appropriate, we proposed to extend call center
and Internet Web site requirements to MA organizations to parallel to
those applicable to Part D sponsors. We proposed to amend Sec. 422.111
by adding a new paragraph (g) to expressly require MA organizations to
operate a toll-free customer call center that is open during usual
business hours and provides customer telephone service in accordance
with standard business practices, as well as to provide current and
prospective enrollees with information via an Internet Web site and in
writing (upon request). We proposed this amendment to ensure that
current and prospective enrollees of MA plans have the same access to
customer service call centers and information via an Internet Web site
as current and prospective enrollees of a Part D plan in order to
obtain more information about plan coverage and benefits. We also noted
that although similar call center and Internet Web site requirements
were never codified for MA plans, we have required through
subregulatory guidance (the Medicare Marketing Guidelines at http://www.cms.gov/ManagedCareMarketing/Downloads/R91MCM.pdf) that MA
organizations comply with the same requirements regarding customer
service call centers as Part D sponsors, and, for those offering Part D
benefits through MA-PD plans, all Part D sponsor Internet Web site
requirements.
As part of the proposed rule, we also proposed removing paragraph
Sec. 422.111(f)(12), which requires that certain information--
including the evidence of coverage, summary of benefits and information
about network providers--be posted to an Internet Web site in the event
that an MA organization has a Web site or provides MA plan information
through the Internet, and moving these requirements to Sec.
422.111(g)(2)(i).
After considering comments on our proposal, we are adopting these
provisions as final with one modification, proposed paragraph (g) is
redesignated as paragraph (h).
Comment: Several commenters expressed their support of our
extending the call center and Web site requirements to MA plans. One
commenter that supported our proposal believed that these requirements
will serve to ensure beneficiaries receive the information needed to
make informed decisions on their healthcare options.
Response: We thank the commenters for their response. We believe
this change will allow MA enrollees the same access to customer service
call centers services as a current or prospective members of a Part D
plan. Therefore, we are finalizing our proposal without modification.
Comment: One commenter noted that regulations governing the PACE
program provide for a waiver of the requirement to maintain customer
call centers as well as the requirement to provide information via an
Internet Web site.
Response: PACE plans are governed by separate requirements that are
not included in these provisions. These requirements do not supersede
or modify the current requirements applicable to PACE programs.
Comment: One commenter recommended that since the open enrollment
period that existed for the first 3 months of the year has been
replaced with a period during which an MA enrollee may disenroll from
an MA plan, CMS should allow extended call center hours to coincide
with the new 45-day annual period. Additionally, the commenter
indicated that there is no need for continued weekend call center
coverage by live agents after the 45-day period ends.
Response: We have taken these comments into consideration and will
be proposing revisions to our Medicare Marketing Guidelines for
contract year 2012 that would require all plan sponsors to have
extended call center hours during the 45-day annual disenrollment
period (January 1 to February 14 of each contract year).
b. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
Pursuant to our authority under sections 1857(e)(1) and 1860D-
4(a)(3)(A) of the Act to specify additional contractual terms and
conditions the Secretary may find necessary and appropriate, we
proposed to codify Medicare Part C and D requirements regarding current
and prospective enrollee toll-free customer call centers. Specifically,
we clarified that MA organizations and Part D sponsors must provide
interpreters for all non-English speaking and limited English
proficient (LEP) callers. We proposed to add new paragraphs Sec.
422.111(g)(1)(iii) (redesignated as paragraph (h)) and Sec.
423.128(d)(1)(iii), respectively, to reflect this clarification.
This clarification is a result of findings from our call center
monitoring, which revealed that a significant percentage of MA
organizations and Part D sponsors were not providing foreign language
interpreters for non-English speaking callers. This clarification
addressed the problem by explicitly codifying the requirement to
provide interpreters for LEP callers in regulations.
Comment: Several commenters from advocacy groups and industry
supported codification of CMS' requirement that MA organizations and
Part D sponsors must provide interpreters for non-English speaking and
LEP individuals.
Response: We agree with these commenters because requiring
interpreters ensures LEP beneficiaries have access to Medicare Part C
and D benefit information.
Comment: A few commenters asked for clarification regarding the
requirement that interpretation services should be available for
``all'' languages. Commenters offered alternatives such as providing
interpreters for languages that meet a 10 percent threshold or require
plan sponsors to provide interpreters for all languages spoken by more
than 10 percent of the plan's membership.
Response: We agree with commenters who noted that ``all'' may be
too inclusive, as there are more than 6,000 languages spoken world-
wide. As such, we are striking the word ``all'' from the proposed
language. Based on data collected during the 2000 U.S. Census, more
than 300 languages are spoken in the United States. We revised the
regulatory language to read as follows, ``Provides interpreters for
non-English speaking and limited English proficient (LEP)
individuals.'' Our expectation is that MA organizations and Part D
sponsors' call centers will provide interpretation services for all
languages that are served in common by the largest commercial
interpretation service providers in the U.S., as these organizations
are experts in assessing the languages for which interpretation
services are needed. Currently these large organizations provide
interpretation services for approximately 150 to 180 languages, which
accommodates the vast majority of interpretation needs. Our Medicare
Marketing Guidelines have long established the expectation that MA
organizations and Part D sponsors provide interpretation services to
any LEP caller. Our monitoring of this area has demonstrated that MA
organizations and Part D sponsors' call centers are capable of
providing interpreters to meet the needs of LEP callers when they use
commercial interpretation service providers.
We do not accept the suggested alternatives, that is, to require
that plan sponsors only provide an interpreter for languages that meet
a 10 percent threshold or require plan sponsors to provide interpreters
for all languages spoken by more than 10 percent of the

[[Page 21503]]

plan's membership. Because beneficiaries are not required to indicate
their primary or preferred language when they enroll in a plan, it
would be impossible for a plan sponsor to know all the languages they
would need to interpret. Moreover, the availability of commercial
interpretation service providers for these 150-180 languages is a
cornerstone of CMS' effort to establish the widest practical safety net
for providing access to those individuals who are outside of the
translation threshold requirement for translating marketing materials
found in Sec. 422.2264 and Sec. 423.2264.
Comment: One commenter asked CMS to clarify whether MA
organizations and Part D sponsors are required to have interpreters on-
site.
Response: We clarify that MA organizations and Part D sponsors may
use on-site interpreters, contract with a commercial interpretation
service provider, or employ some combination of both approaches. For
instance, many MA organizations and Part D sponsors provide Spanish
language interpretation on-site while using one of the numerous and
readily available commercial interpreter services to providers for
other languages.
Comment: One commenter requested clarification as to whether the
Program of All-inclusive Care for the Elderly (PACE) program is subject
to the requirement that plan sponsors maintain toll-free customer call
centers.
Response: Although this comment is not within the scope of the
proposed rule, we clarify that PACE programs are not subject to this
requirement.
Comment: One commenter suggested that CMS provide best practices
for plan sponsors regarding interpretation services. The commenter also
asked CMS to discuss methods for preventing long wait times for non-
English speaking callers.
Response: We agree with this comment, and we have made a concerted
effort to disseminate best practices on this topic. In a Health Plan
Management System (HPMS) memo published to all plan sponsors on January
2, 2008 entitled ``Best Practices for Addressing the Needs of Non-
English Speaking and Limited English Proficient (LEP) Beneficiaries,''
We provided guidance to plans, which addressed, among other topics,
call center phone systems and customer service representative staffing,
training, and oversight. Additionally, when we issue informational
memos or compliance letters to plan sponsors regarding our call center
monitoring results, we include a special section that lists tips for
how an organization can improve its service to LEP beneficiaries.
With regard to concern about long wait times for LEP callers, data
collected during our call center monitoring study indicated that the
average hold time for an interpreter was one minute and sixteen
seconds. This hold time is below our existing 2 minute hold time
standard in the Medicare Marketing Guidelines.
In summary, we are finalizing this provision, and the only change
from the proposed version is to strike the word ``all.''
3. Require Plan Sponsors To Contact Beneficiaries To Explain Enrollment
by an Unqualified Agent/Broker (Sec. 422.2272 and Sec. 423.2272)
Current regulations (Sec. 422.2272 and Sec. 423.2272) require
plan sponsors that use independent agents and brokers for their sales
and marketing to only use State licensed and appointed agents or
brokers. Under these provisions, plan sponsors must also report the
termination of agents or brokers to the State. Based on information
uncovered during program audits, we proposed revisions to Sec.
422.2272(c) and Sec. 423.2272(c) to require MA organizations and Part
D sponsors to terminate unlicensed agents upon discovery and notify any
beneficiaries who were enrolled in their plans by unqualified agents.
Since beneficiaries rely heavily on information they receive from
agents regarding plan benefits and costs, we believe they should have
the opportunity to ask additional questions or reconsider their
enrollment when they have been enrolled in a plan by an unqualified
agent.
In addition, we noted that these requirements would be applicable
to section 1876 cost contract plans, since in our April 2010 final rule
(75 FR 19784 and 19785), we extended the MA marketing provisions in
part 422 to section 1876 cost contract plans.
After considering the comments we received, we are modifying the
proposal as described below.
Comment: Several commenters were concerned that the requirement to
notify beneficiaries when they have been enrolled by an unqualified
agent is duplicative of the outbound enrollment verification call
requirement and is unnecessary.
Response: The intent of this provision is not to duplicate the
outbound enrollment verification process. Rather, it is to ensure that
beneficiaries are fully informed of the circumstances of their
enrollment and to allow them the opportunity to reconsider their
options given the new information about the agent. While we do not
anticipate that many beneficiaries will want to make plan changes based
on notification that the agent is unqualified, especially considering
that the plan sponsor likely would have already conducted the required
outbound verification call, we believe that it is important that
beneficiaries are fully informed of the details of their enrollment in
the event the agent misrepresented the package of benefits in any way.
Additionally, to ensure that we do not confuse beneficiaries with
duplicative information, we have modified our original proposal at
Sec. 422.2272(c) and Sec. 423.2272(c) to indicate that plan sponsors
are required to provide affected enrollees with information about their
options to confirm enrollment or make a plan change (including a
special election period) at the beneficiary's request.
Comment: A few commenters requested clarification of our proposal,
since plan sponsors are not allowed to use unlicensed agents.
Response: In the proposed rule, we used the term ``unlicensed'' and
``unqualified'' interchangeably. However, there is an important
difference between the two terms. Being unlicensed is just one
criterion for determining whether an agent or broker is qualified to
sell Medicare plans. In addition to having a license (in States that
require one), agents and brokers must also be trained annually, pass a
Medicare test annually (with a score of 85 percent or better), and be
appointed in States with appointment laws.
The final provisions would require plan sponsors to terminate
unlicensed agents and report them to the State upon discovery. However,
we have modified our original proposal at Sec. 422.2272(c) and Sec.
423.2272(c) to replace the term ``unlicensed'' with ``unqualified''
with respect to the beneficiary notification requirement. We did not
propose terminating all unqualified agents or brokers because there may
be circumstances in which an unqualified licensed agent should not be
terminated--for example, an agent who takes an automated test, but a
software bug notifies the agent that he has passed the entire test when
he only passed the first component of the test. In this case, the plan
sponsor would not be required to terminate the agent or report him/her
to the State upon discovery; however, the plan sponsor would be
required to notify individuals enrolled by that agent of his/her
unqualified status.
Comment: One commenter suggested that CMS sanction plans that have
repeated instances of unlicensed agents selling for them, and that
agents be

[[Page 21504]]

required to include their national producer number (NPN) on the
application.
Response: Due to the fact that some States do not participate with
the National Insurance Producer Registry (NIPR), we are not considering
requiring the agent NPN on the enrollment application. However, we will
continue to evaluate ways to better monitor agent behavior, as part of
our current surveillance, compliance, and enforcement processes. We
will also monitor plan compliance with this new requirement.
Comment: A couple of commenters stressed the importance that
beneficiaries not be pressured to enroll in another plan offered by the
plan sponsor during the notification call.
Response: The purpose of the call is to notify beneficiaries that
an unqualified agent was involved in their enrollment, not to persuade
them to join other plans. We anticipate that most beneficiaries will
appreciate the notice and may have some questions, but we do not
anticipate that the majority of them will want to make a plan change.
Plan sponsors will be expected to take the lead from the beneficiary,
rather than initiate conversation about plan changes. We will provide
more specific instructions for plans in subregulatory guidance.
Comment: One commenter asked whether a special election period
(SEP) would apply when a beneficiary is enrolled by an unqualified
agent, if the requirement would apply only during the AEP or throughout
the year and what should a plan sponsor do if it is unable to reach the
beneficiary.
Response: There will be no SEP specifically tied to enrollment by
an unqualified agent; however, these circumstances will be treated just
like any other complaint regarding marketing misrepresentation by an
agent. The requirement will apply throughout the plan year because
beneficiaries eligible for an SEP (for example, dual eligibles and
those who move outside their plan's service area) can enroll in a new
plan at other times during the year, and plans can market to these
individuals. The contact requirements will be similar to the contact
requirements for outbound enrollment verification calls. We will
provide more direction through subregulatory guidance.
Comment: One commenter asked whether this requirement applied to
family, friends, or others presenting themselves as agents.
Response: This requirement does not apply to situations in which
family members or friends (who are not agents) give advice or
recommendations to beneficiaries. However, plan sponsors should report
individuals impersonating agents to the State Department of Insurance
as unlicensed agents.
4. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
In our November 2010 proposed rule (75 FR 71230), we discussed our
concern that information that MA organizations and Part D provide their
enrollees annually in the annual notice of change/evidence of coverage
(ANOC/EOC) document may not be enough to prompt enrollees to actively
evaluate their plans annually with respect to plan costs, benefits, and
overall value. Therefore, we proposed to require MA organizations and
Part D sponsors to periodically provide each enrollee with enrollee
specific data to use to compare utilization and out-of-pocket costs in
the current plan year to projected utilization and out-of-pocket costs
for the following plan year. We proposed to add new paragraphs (12) and
(11) to Sec. 422.111(b) and Sec. 423.128(b), respectively, to specify
this requirement. Plans would disclose this information to plan
enrollees in each year in which a minimum enrollment period has been
met, in conjunction with the ANOC/EOC.
We discussed several options for implementing this data disclosure
requirement (75 FR 71230 through 71233), and we noted that the proposed
rule only specified our authority to require such a disclosure. We
sought suggestions and comments from MA organizations, Part D sponsors,
the beneficiary community, and other external stakeholders related to
the design, content, and the cost calculations to assist us in
implementing these provisions. In addition, we noted that we were
considering implementing a pilot program for CY 2012 with a few MA
organizations and Part D sponsors to test approaches to conveying
customized beneficiary data, based on the comments and suggestions that
we received.
We also solicited comments on the possibility of exempting dual
eligible special needs plans (D-SNPs) from the requirement to provide
such customized enrollee data through a customized out-of-pocket cost
statement or an explanation of benefits (EOB), since enrollees in these
plans generally do not incur out-of-pocket costs. We sought comment on
exempting D-SNPs from this requirement.
After considering the comments we received, we are modifying our
original proposal, as described below.
Comment: Many commenters expressed appreciation for our effort to
identify the best ways to provide useful information to beneficiaries.
However, while a few commenters supported requiring a customized
statement that would provide an estimate of future costs, most
commenters opposed this model, citing the administrative and financial
burden on plans.
Many commenters stated that a customized estimate of future costs
would create more significant administrative, financial and IT resource
burdens on MA plans and Part D sponsors than CMS anticipated in its
proposal. These commenters stated that the expense and operational
burden of the proposal could not be justified relative to its value to
beneficiaries, considering the potential for beneficiary confusion and
dissatisfaction that may result from any projection of future costs.
Other commenters stated that such a requirement would likely result in
the need for additional funding of audits as well as rigorous quality
assurance programs consistent with HIPAA requirements related to the
dissemination of this type of document with the ANOC/EOC. Several
commenters expressed concerns that such a requirement would result in a
need to significantly increase call center or 1-800-Medicare staffing
to handle the questions resulting from the documents; or that it would
also result in more complaints to monitor in the Complaints Tracking
Module. One commenter suggested that the significant costs of producing
and distributing a custom statement would increase administrative costs
that, in turn, might increase plan bids and result in a negative impact
on benefits and or premiums.
Several commenters suggested that providing these reports for Part
D benefits would be very burdensome, even assuming that drug prices
will not change in the following year. They stated that it would be
difficult to estimate future expenses related to the initial coverage
limit and coverage gap. Several commenters also stated that since
enrollees already receive Part D EOBs, a customized out-of-pocket cost
statement would be redundant and confusing for beneficiaries. Another
commenter asked how plans would be expected to coordinate between the
medical and prescription drug portions of their benefit to the extent
that we required a customized out-of-pocket cost statement to include
information about Parts C and D costs.
Many stated that requiring a customized out-of-pocket cost
statement to be ``bundled with'' the ANOC and EOC presents an
insurmountable timing problem due to the change in the annual

[[Page 21505]]

enrollment period (AEP). They expressed concern that, due to the timing
of bid approvals, usually in August, that the remaining four-to-six
week period would be much too short to prepare these data and mail a
customized statement to each beneficiary with his/her ANOC/EOC. Several
commenters stated that it is an expensive and time consuming process to
place an extra customized document into an envelope package with a
standard ANOC/EOC. However, one commenter recommended that any
customized enrollee data be based on current year utilization only and
that data should be included in the ANOC instead of a separate document
to save on costs associated with development, printing, and fulfillment
of an incremental document while creating just one document for
beneficiaries to read.
One commenter stated that a standard, CMS-designed report would
eliminate the existing flexibility that plans have to tailor enrollee
communications to their particular needs.
A few commenters expressed concerns related to the ability of
network providers receiving capitated payments for medical services to
calculate out-of-pocket costs. Several commenters noted that some plans
have established limited mechanisms to calculate the MOOP, but that
these systems may not incorporate necessary utilization data such as
the specific service the enrollee received and that this information
would have to be extracted from multiple sources.
Response: We appreciate the many thoughtful and detailed responses
submitted by commenters. As we noted in our proposed rule (75 FR
71230), we have been concerned that the ANOC/EOC information alone may
not be enough to prompt enrollees to actively evaluate their plans
annually with respect to plan costs, benefits, and overall value. We
also acknowledged receiving requests from the beneficiary advocacy
community to require that MA organizations and Part D sponsors provide
enrollees with a personalized dollar estimate of their out-of-pocket
costs in the coming contract year based on their use of services in the
current contract year. We noted in the proposal that we are aware of
the inherent difficulties in accurately estimating future year plan
costs, especially the unknown variable of specific service utilization,
and presenting that information to beneficiaries in a clear, concise,
and useful way. We also recognized the impact of an earlier annual
election period (AEP) beginning in CY 2011, as well as plans' ability
to gather a sufficient amount of utilization data to make useful and
accurate projections of costs for the following contract year.
Based on the comments we have received, we are modifying our
original proposal and finalizing Sec. 422.111(b)(12) to state that CMS
may require an MA organization to furnish directly to enrollees, in the
manner specified by CMS and in a form easily understandable to such
enrollees, a written explanation of benefits, when benefits are
provided under Part 422. We do not plan to test a customized out-of-
pocket cost statement that estimates future costs in CY 2012. Rather,
we intend to work with MA organizations, Part D sponsors and
beneficiary advocates to develop an EOB for Part C benefits modeled
after the EOB currently required for Part D enrollees at Sec.
423.128(e), and we will test that model through a small pilot program
with volunteer organizations in CY 2012. We will consider integration
of Part C and Part D EOBs, level of detail, and frequency of EOB
dissemination as part of the pilot program. Our goal is to finalize a
model EOB document in the future based on the pilot program and to
require all MA organizations to periodically send an EOB to enrollees
for Part C benefits. In addition, since an EOB requirement already
exists for Part D enrollees, we will not finalize the language proposed
for Sec. 423.128(b)(11). We believe that delaying full implementation
of this requirement will provide MA organizations with sufficient time
to prepare for periodic dissemination of a Part C EOB.
Comment: Many commenters expressed concerns that a customized
statement, especially with future projections, would not be meaningful
or useful for beneficiaries. Some stated that it would create
significant confusion in relation to Part C costs and Part D costs as
medical and medication requirements change over time or their Low
Income Subsidy (LIS) status changes. One commenting organization stated
that it has encountered problems with beneficiary understanding of the
maximum out-of-pocket (MOOP) limit, believing that it is a financial
obligation on the beneficiary. This commenter was concerned that a
similar misunderstanding would accompany a customized EOB or statement
with estimated future costs. Other commenters believed that it would
create a false assurance of future costs as well as an expectation of
what their costs will be in the following year, and significant
dissatisfaction if their actual costs are higher than projected. They
stated that if the beneficiary's costs are materially higher,
beneficiaries are likely to be alarmed, dissatisfied or confused. Some
commenters also expressed concern about beneficiaries' expectations of
plan liability if their costs are higher than the estimate. Another
commenter was concerned about perceived credibility of the plans to
their enrollees if inadequate or confusing information was to prompt
beneficiaries to move to a plan that turns out to be of lesser value.
Some commenters also stated that any information projecting future
costs only for an enrollee's current plan would be of limited use to
beneficiaries because it would provide no similar data for any
alternative plan. They expressed concern that such a statement using
partial year data would not provide information that is comparable to
the annual cost estimates available through the Medicare Plan Finder
(MPF) tool. These commenters disagreed that CMS would improved an
enrollee's ability to compare plans to make better enrollment choices
from year to year with a customized statement including estimated
future costs.
In addition, many commenters raised concerns that fluctuations in
utilization of services per year and past utilization of ``one-time''
services would mislead a beneficiary with respect to his/her decision.
Some stated that beneficiaries would not consider what would happen if
their health needs change. Another commenter stated that enrollee-
specific information based on past utilization has the potential to de-
emphasize the value of considering future needs. Another commenter
suggested that any comparison of expenses should include a comparison
to Medicare FFS and Medicare FFS with the most popular Medigap plan
(Plan F) as benchmarks in order to give the data context and to
facilitate informed choice.
Response: We agree with commenters' concerns that the information
presented to beneficiaries must be clear, concise and useful, without
creating a false expectation of costs. We had similar concerns and
therefore requested comments about the types of information as well as
the format plans could use to provide customized utilization data. We
also agree that the data that is presented to beneficiaries should be
of a type that it would lend itself to comparisons with Medicare FFS,
as well as other plans' information, and could be understandable to
beneficiaries with a range of levels of health literacy. As previously
discussed, we intend to consider these issues in our CY 2012 pilot
program.

[[Page 21506]]

Comment: Several commenters provided comments on the example tables
we included in our proposed rule. A few commenters stated that Table 7
(75 FR 71232), which breaks out Medicare Part C services by inpatient
care, outpatient care and supplemental services, would provide the most
useful information to beneficiaries with respect to services. Several
commenters suggested that this table should present premium data for
the entire year instead of six months. Several other commenters
recommended that Table 6 in our proposed rule (75 FR 71232), presenting
an average monthly cost and combining all Medicare Part A and B
services, but excluding supplemental services, would be the best
choice.
Several commenters contended that data for a 6-month period does
not generally accurately reflect the enrollee's year-long utilization
or out-of-pocket cost-sharing. One of these commenters recommended that
CMS use at least nine months of data and allow the out-of-pocket cost
information to be sent after the ANOC/EOC to give beneficiaries a more
complete picture and to reduce burden on MA organizations during the
ANOC timeframes. Many commenters were also concerned about errors in
estimating future costs and the limited value of these estimates due to
future changes in beneficiary health status or one-time high
expenditure items (such as a power wheelchair).
One commenter suggested that CMS study the feasibility of requiring
plans to use a minimum of 12 months of data over 2 or more contract
years and whether this would provide more reliable data. This commenter
also suggested that CMS incorporate more information from the ANOC into
the estimate, such as page references for more information about cost
sharing for specific services.
Another commenter suggested that CMS implement procedures to ensure
that the systems and calculations developed by plan sponsors are
uniform, especially in regard to estimating future costs to minimize
the potential for fraudulent and misleading practices by plans in order
to retain members.
Response: We appreciate the detailed responses provided by
commenters concerning the type and amount of data, the presentation of
the data, and procedures to ensure uniform calculations and data
population. As previously discussed, we believe that requiring an EOB
that summarizes incurred costs but does not project future costs will
address a number of these concerns. We will continue to take data
calculation and presentation issues into consideration as we develop a
model EOB.
Comment: Many commenters supported the use of an EOB to give
enrollees ongoing information throughout the year about their Part C
utilization and their cost-sharing and to help them in decision making
during the AEP. One commenter recommended that a Part C EOB should
clearly distinguish between in- and out-of-network costs and
supplemental benefits, as well provider and date of service. Others
commenters opposed an EOB and considered it too costly and burdensome
to plans without clear value to beneficiaries in comparing utilization
or costs from year to year. Commenters supporting an EOB model
supported different frequencies of distribution, including monthly,
quarterly, bi-annually and annually.
One commenter recommended requiring an annual EOB that contains
utilization data for the months of January through September, to be
received at the start of the annual election period, so that it would
provide important information at the most appropriate time for the
beneficiary. This commenter also stated that requiring a monthly EOB
would not provide any additional benefit to beneficiaries beyond that
of an annual EOB, but it would add significantly to plans'
administrative expenses through printing, postage and increased volume
of customer service calls.
One commenter recommended that instead of enrollee out-of-pocket
expenses, CMS develop a list of common services for which plan sponsors
would calculate out-of-pocket costs under the current plan year and the
upcoming plan year. The commenter believed that this would create a
comparable format, consistent across all plans, that would be a more
economically viable option and could be produced in the limited time
frame of the new AEP dates.
Another commenter asked that CMS consider allowing MA organizations
to provide enrollees with comparison information upon request only.
This commenter suggested that plans could advise members via their
websites or in a notice with premium bills of the opportunity to
receive this comparison.
Response: We agree with commenters that a Part C EOB without future
projections would be a useful tool for beneficiaries, allowing them to
keep track of costs throughout the plan year. While it would not
achieve the goal of specifically linking utilization to projected
costs, we do believe that it would be a valuable tool in annual plan
choice decisions. We will also continue to consider commenters'
suggestions for the development of a list of common services tied to
utilization and the option of plans providing comparison information to
beneficiaries upon request.
Comment: Several organizations supported the use of a pilot to test
approaches to conveying custom beneficiary data, but requested that CMS
delay finalizing the requirement in regulation until a pilot program
can be conducted and evaluated. Another commenter requested that the
pilot aim to identify other potential alternatives for providing this
information, such as ways to enhance the MPF tool. Several commenters
suggested that CMS conduct consumer focus groups to ascertain the type
and extent of information consumers/beneficiaries would find useful. A
commenter suggested that we include beneficiaries with a range of
health literacy and decision making skills to determine which models
are the most beneficiary-friendly and effective. Others recommended
that CMS convene a CMS-industry-advocacy working group to examine the
value in this proposed requirement and determine what design, content
and timing might enhance that value.
Several commenters recommended that CMS instead put its resources
into enhancing the MPF tool, since many beneficiaries already rely on
and are familiar with this tool. They stated that these enhancements
would permit enrollees to input their utilization data and receive
direct comparisons of plans based on specific data. Another commenter
stated that their plan already uses an online portal where members can
view all claims made, pending, and paid. This commenter stated their
belief that this ``real time'' data is more useful to beneficiaries to
estimate their costs than 6 months of data the plans would use to
estimate costs.
Other commenters requested that we put more resources instead into
government agencies, community organizations and other groups that
provide one-to-one counseling to beneficiaries to help them choose the
best plans for them. One commenter requested that we retain existing
market basket estimates instead of individual estimates, because they
provide useful comparative information and accomplish some goals of
this provision. Another commenter suggested that we require plans to
make MOOP information more prominent in member materials instead of
providing more information that would be marginally helpful.

[[Page 21507]]

Response: We appreciate the commenters' suggestions. We do not
believe that it is necessary to delay finalizing the statement of
authority in regulation, but we note that our final regulation text for
Sec. 422.111(b)(12), will allow us to move forward with a pilot
program while allowing sufficient room to modify our initial
requirements based the results of the pilot, to continue to modify
requirements over time, or to extend the pilot program if necessary
before full-scale implementation. We agree with commenters that
enhancing the MPF tools to be able to input utilization data and
generate enrollee specific information on plan choices would be an
ideal option. However, we do not foresee this as an option that could
be accomplished in a relatively short timeframe of a year or two. While
the suggestion that CMS invest more resources into organizations that
provide one-on-one counseling to beneficiaries is a valuable one, it is
outside the scope of this regulation. Also, only MA organizations have
the individual utilization data that would be needed to enhance the MPF
tools and improve one-on-one counseling for beneficiaries. Therefore,
both improving the MPF tool and improving one-to-one counseling would
require plans to track and disclose individual Part C utilization data.
Comment: A few commenters recommended that EGWPs be exempt from the
requirement to distribute customized beneficiary data. Commenters noted
the limited range of choices available to beneficiaries who receive
coverage through these plans; MA organizations' lack of knowledge
regarding the contribution EGWP retirees make toward the cost of the
premium for their plan; and changes made by the employers to their EGWP
MA plans that are not known to the MA organization at the time these
summaries are to be provided to enrollees. Another commenter stated
that any summary sent to enrollees who have employer group commercial
group coverage primary and Medicare as secondary payer, and who enroll
in their employer's EGWP MA plan to obtain this Medicare secondary
coverage, will not be accurate because it would be based on MA plan
out-of-pocket cost-sharing but would not account for the commercial
group coverage cost-sharing that these enrollees actually pay. This
commenter also stated that some enrollees will not have had the
``minimum enrollment period'' of 6 months, so the plan would have to
exclude them from receiving the summary.
Response: We disagree with these commenters and do not intend to
exempt EGWPs from the requirement Sec. 422.111(b)(12). Given that we
are modifying our original proposal to provide CMS with authority,
under to require an MA organization to furnish directly to enrollees, a
Part C EOB, we do not believe that many of these comments are relevant.
We also note that EGWPs currently must comply with all MA marketing
requirements under Sec. 422.111, although they have flexibility
through previously granted waivers with respect to submission, CMS
review, and timing requirements. Since a Part C EOB would be part of MA
disclosure requirements under Sec. 422.111, we expect EGWPs would be
afforded these same times of flexibility but would still be required to
comply with the requirement.
Comment: Several commenters responded to our request for comments
related to exempting dual eligible special needs plans (D-SNPs) from
the requirements. Several commenters recommended that D-SNPs and/or
chronic and institutional care SNPs should be exempt from the
requirement to furnish customized enrollee data on out-of-pocket costs.
Another commenter recommended that CMS exempt any dual eligible
beneficiary that enrolls in an MA plan that is not a D-SNP. These
commenters believe that since the States' Medicaid plans generally pay
enrollees' out-of-pocket costs, providing customized enrollee data
through a customized out-of-pocket cost statement or an EOB would be
unnecessary and confusing for enrollees.
Response: We appreciate the responses from commenters, but given
the modification of our original proposal, we believe that an EOB
allowing beneficiaries to track utilization of services as well as any
out-of-pocket costs would be a useful tool for dual eligible MA
enrollees. While we are not exempting any MA plan type from the
requirements at Sec. 422.111(b)(12) at this time, we intend to study
the issue of applicability to dual eligible MA enrollees--regardless of
whether they are enrolled in D-SNPs--further under our pilot program.
Comment: A few commenters requested confirmation that cost plans
will be exempt from furnishing customized enrollee data, since we did
not specifically include cost plans in the proposal. One commenter
stated that cost plans should not have to provide an EOB due to the
difficulty of gathering the information and the significant cost and
time required. One commenter also stated that because out-of-network
services are paid directly by Medicare Administrative Contractors
(MACs), cost plans do not know a member's full out-of-pocket costs.
This commenter also stated that for most cost plans, the MACs process
claims before sending them to the cost plan; thus there could be a
delay in receiving the information, resulting in an inability to
produce customized enrollee documents in time to be distributed with
the ANOC/EOC.
Response: We did not propose to include cost plans in the proposal
for customized enrollee data and, therefore, will not include them in
this final policy. However, we will continue to study whether to apply
the EOB requirement to cost plans in the future.
5. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
In our April 2010 final rule (75 FR 19709 through 19711), we
established a mandatory maximum out-of-pocket (MOOP) requirement for
local MA plans effective contract year 2011. As provided at Sec.
422.100(f)(4), all local MA plans, including HMOs, HMOPOS, local PPO
(LPPO) plans and PFFS plans, must establish an annual MOOP limit on
total enrollee cost sharing liability for Parts A and B services, the
dollar amount of which will be set annually by CMS. As provided at
Sec. 422.100(f)(5), LPPO plans are required to have a catastrophic
limit inclusive of both in- and out-of-network cost sharing for all
Parts A and B services, the dollar amount of which also will be set
annually by CMS. Since a statutory MOOP requirement was already in
effect with respect to RPPO plans, we had proposed to apply the new
mandatory MOOP requirement only to local MA plans, and thus in our
April 2010 final rule (75 FR 19711) subjected only local MA plans to
the requirement that they meet the MOOP dollar amount specified. We
encouraged RPPOs to adopt either the mandatory or voluntary MOOPs
established in CMS guidance, stating that, to the extent an RPPO sets
its MOOP and catastrophic limits above the mandatory amounts set by CMS
for other plan types, it may be subject to additional CMS review of its
Parts A and B services cost sharing amounts. We also expressed our
intent to address this discrepancy in future notice-and-comment
rulemaking.
In our November 2010 proposed rule (75 FR 71233 and71234), we
proposed to extend these mandatory MOOP and catastrophic limit amount
requirements to RPPO plans beginning in contact year 2012, in order to
make it easier for beneficiaries to understand and compare MA plans.
Each RPPO plan would establish an annual MOOP limit

[[Page 21508]]

on total enrollee cost sharing liability for Parts A and B services,
the dollar amount of which would be set annually by CMS. All cost
sharing (that is, deductibles, coinsurance, and copayments) for Parts A
and B services would be included in RPPO plans' MOOPs. We proposed to
codify this requirement by revising Sec. 422.100(f) to include
regional MA plans. In addition, we proposed revisions to paragraphs
(d)(2) and (d)(3) of Sec. 422.101(d) to specify that the catastrophic
limits set by RPPOs may not be greater than the annual limit set by
CMS.
After considering the comments received, we are finalizing these
proposed provisions without further modification.
Comment: We received several comments on this proposal, most of
which expressed support for our proposal to extend the mandatory MOOP
and catastrophic limits to RPPOs and agreement that doing so would make
it easier for beneficiaries to understand and compare plans.
However, a commenter argued that since CMS is paying MA plans based
on projected costs of providing Parts A and B benefits under the fee-
for-service program, we should not require MA plans to provide richer
benefits than Parts A and B required benefits without being compensated
for the additional cost.
Response: We agree with commenters that extending the MOOP and
catastrophic limit requirements applicable to RPPOs will make plan-to-
plan comparisons easier and will level the playing field for RPPOs
relative to LPPOs.
We disagree with the commenter that recommended that MA plans be
compensated for the additional cost of including MOOP and catastrophic
limits in their benefit packages. As discussed previously in our April
2010 final rule (75 FR 19710), 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 RPPO plans are required by statute to have such a
liability limit in place, we were concerned that enrollees with high
out-of-pocket costs would be discouraged from enrolling in RPPOs if
similar protection from high out-of-pocket costs is not offered under
those plans. We continue to believe that requiring a mandatory MOOP and
catastrophic limits set by CMS does not unduly disadvantage MA plans
relative to original Medicare.
We are therefore finalizing our proposal to extend the mandatory
MOOP and catastrophic limit requirements to RPPO plans at Sec.
422.100(f) and Sec. 422.101(d). Effective contract year 2012, each
RPPO plan must establish an annual MOOP limit on total enrollee cost
sharing liability for Parts A and B services, the dollar amount of
which would be set annually by CMS. All cost sharing (that is,
deductibles, coinsurance, and copayments) for Parts A and B services
will be included in RPPO plans' MOOPs and catastrophic limits.
Comment: Several commenters recommended that we eliminate the MOOP
requirement for dual eligible SNPs (D-SNPs) because members are not
responsible for out-of-pocket costs.
Response: We disagree with these commenters. As we explained
previously in our April 2010 final rule (75 FR 19711), dual-eligible
individuals entitled to have their cost sharing paid by the State and
enrolled in a SNP may experience mid-year 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 D-SNPs from
the requirement that they implement MOOP and catastrophic limits as
established annually by CMS. Like all MA plans, D-SNPs must establish a
MOOP limit to provide this enrollee protection, even though the State
Medicaid program is usually paying those costs on the enrollee's
behalf. For purposes of tracking out-of-pocket spending relative to its
MOOP limit, a D-SNP must count only the enrollee's actual out-of-pocket
spending. Thus, for any D-SNP enrollee, MA plans must count only those
amounts the individual enrollee is responsible for paying net of any
State responsibility or exemption from cost sharing toward the MOOP
limit rather than the cost-sharing amounts for services the plan has
established in its plan benefit package.
6. Prohibition on Use of Tiered Cost Sharing by MA Organizations (Sec.
422.262)
As provided in section 1854(c) of the Act and implemented at Sec.
422.100(d)(2), an MA organization offering an MA plan must offer the
plan to all Medicare beneficiaries residing in the service area of the
MA plan at a uniform premium, with uniform benefits and levels of cost
sharing throughout the plan's service area, or segment of the service
area, as provided at Sec. 422.262(c)(2). In spite of this regulatory
guidance, we have become aware that an increasing number of plans are
charging beneficiaries different amounts of cost sharing for services
depending on, for example, which provider group the beneficiary
selects, the plan's network of hospitals, or how frequently the
beneficiary uses selected services.
In an effort to ensure that MA organizations establish cost sharing
that is fully consistent with the intent of the uniformity requirement
in section 1854(c) of the Act, we proposed to revise Sec. 422.262 to
stipulate that MA organizations cannot vary the level of cost sharing
for basic or supplemental benefits for any reason, including based on
provider groups, hospital network, or the beneficiary's utilization of
services.
Comment: We received many comments that opposed our proposal to
prohibit ``tiered'' cost sharing on the basis of provider group or
hospital network. Comments stated that prohibiting tiering would create
an overly restrictive environment and would prevent plans from
developing benefit designs that encourage enrollees to compare
providers on the basis of price. For example, plans would be prevented
from implementing various value-based insurance designs. Others
asserted tiering allows plans to develop benefit designs that encourage
enrollees to compare providers on the basis of price and is valuable
component of the MA program. Further, some stated that tiered cost
sharing is an integral component of HMO point-of-service and PPO plans'
benefit structures and is generally an acceptable practice in health
insurance. One comment stated that CMS should not restrict a plan's
ability to create innovative benefit package designs that would
encourage member participation in programs that support increased
access to quality care and allow members to seek services from lower
cost providers.
In addition, commenters expressed their concern that the CMS
proposal failed to recognize the value of using cost sharing incentives
to encourage enrolled beneficiaries to choose high quality, efficient
providers. They stated the belief that tiered networks that group
providers into tiers based on quality and efficiency may be used to
promote quality, and that lower cost sharing could be used to encourage
enrollees to receive care from high-value providers rather than low
quality or inefficient providers. Other commenters mentioned that plans
may use tiering to encourage enrollees to join patient-centered
``medical homes'' that improve quality while reducing hospitalizations,
ER visits, and per capita cost.
Several commenters stated that rather than prohibiting tiered cost
sharing for

[[Page 21509]]

medical services CMS should use revised summary of benefit (SB)
sentences and plan benefit package (PBP) software revisions to make
transparent plans' tiered cost sharing.
Response: Our proposal to prohibit tiering of medical benefits
would not restrict the benefit design of PPO or HMO-POS plans, as
beneficiaries are able to clearly distinguish cost sharing differences
on the basis of in-network and out-of-network providers. Our proposal
addressed designs that would create sub-networks with varying levels of
cost sharing for in-network services that may not be clearly
distinguishable and/or accessible by beneficiaries.
We do not disagree with commenters that believe it is important for
plans to be able to design benefit packages that allow enrollees to
choose providers based on both quality and cost. Our concerns about
tiered cost sharing for medical services are focused on the potential
barriers to access that may be created if plans implement differential
cost sharing by provider network (or on any basis) and the lack of
transparency to beneficiaries as they compare plans, and to providers
and enrolled beneficiaries that are participants of any such benefit
design. We require that all enrollees in a plan's service area must
have adequate access to plan providers and that permitting different
levels of cost sharing for provider networks or provider groups may
create inconsistent access to providers at each cost sharing tier. We
believe some enrollees in a service area could have access only to the
highest cost providers or that implementation of tiered cost sharing
could disrupt an established relationship with a provider that becomes
one of those grouped into a higher cost sharing level or that the
enrollee would begin paying the higher cost sharing, not realizing that
lower cost providers are available.
We also are committed to ensuring that beneficiaries are able to
understand their choices of plan offerings and there is currently no
system to facilitate the disclosure of tiered cost sharing to
beneficiaries as they compare plans or to beneficiaries that are
enrolled in the plan. Further, tiered cost sharing based on provider
group or network complicates referrals within the plan network as the
providers themselves must be informed about the enrollee costs to see
other plan providers to effectively manage enrollees' health care
needs.
Finally, we are committed to ensuring that enrolled beneficiaries
have access to high quality, efficient providers and to supporting MA
plans that create innovative benefit packages that would provide
enrollees with low cost, high quality services. We greatly appreciate
the comments that expressed plans' same goal of providing enrollees
with affordable, high quality care and their belief that enrollees
appreciate having choices about providers and the amount they are
spending for care.
To date, we are aware of only a few instances of tiered cost
sharing for medical services but, in those cases, we believe the
differential cost sharing was not based on quality of care or value but
rather, on a plan's ability to negotiate favorable rates with
providers. That is not to say that we are not persuaded that it may be
possible to allow plans more flexibility to design benefit packages
that include some differential cost sharing in order to encourage
enrollees to seek care from the most efficient providers. In fact, we
have decided that we will not finalize at this time our proposal to
prohibit tiered cost sharing. After carefully considering all of the
comments, we have determined that it would be appropriate for us to
consider this policy more broadly. We will provide future guidance and
investigate a number of aspects for possible future policymaking
related to tiered cost sharing, including, but not limited to: possible
revisions to the PBP and SB sentences that would enable transparency;
methods for verifying that any tiered cost sharing for medical benefits
does not impede access to care for a plan's enrollees; identifying
methods for evaluating quality of care furnished by providers or
provider networks; processes by which plans could submit for review
proposed tiered benefit structures.
Further, we note that although we are not finalizing our proposal,
based on our authority at section 1852(b)(1) of the Act and as codified
at Sec. 422.100(f)(2), we prohibit tiered cost sharing based on
utilization as a type of cost sharing that discriminates against
beneficiaries, promotes discrimination, discourages enrollment or
encourages disenrollment, steers subsets of Medicare beneficiaries to
particular plans or inhibits access to services. Thus, although we
included tiered cost sharing based on utilization in our proposal to
prohibit all tiered cost sharing, it is also prohibited because it is
discriminatory against beneficiaries.
Comment: There were many comments that supported our proposal to
prohibit tiered cost sharing on any basis.
Response: We thank the commenters for their support of the proposal
but, as explained previous comment, we are not finalizing our proposal
at this time.
Comment: There were two commenters that specifically supported the
prohibition of tiering based on utilization and several others that
stated tiering based on utilization could result in most plan members
having lower cost sharing obligations because the first few provider
services would have low cost sharing and only the minority of plan
enrollees that over-utilize services would have to pay the higher cost
sharing amounts charged for more frequent use of services.
Response: We believe that increasing enrollees' cost sharing to
charge more to enrollees as they use more services is an example of
discriminatory cost sharing which we prohibit under our authority as
codified at Sec. 422(f)(2). While the commenters believe that some
enrollees are over-utilizing services, we must consider that the
enrollees who use the most services may be the sickest enrolled
beneficiaries who need more services than do most enrollees. We expect
plans to manage enrollees' care and believe there are tools available
that enable plans to do so without implementing policies that
inappropriately create barriers to access to care. Our policies (for
example, cost sharing standards, benefit package review) are designed
to prevent discriminatory cost sharing and are in place to protect
sicker enrollees from plan designs that charge higher costs for more
frequent or more costly utilization in order to discourage use of
needed services.
Comment: There were several commenters that requested general
clarification of the proposal. There were other comments that stated
the proposal was inconsistent with the objectives of the ACA. One
plan's comment also requested clarification of what the proposal does
to prohibit plans from varying cost sharing by place of service in
order to manage cost. For example, lowering cost sharing for physical
therapy delivered in the PCP's office compared to the hospital
outpatient setting, since such variation is instrumental in plans'
efforts to encourage enrollees to utilize the most effective setting
for care and to manage cost. Another commenter explained tiering allows
health plans to experiment with alternative cost sharing structures
that promote better access to care for sicker beneficiaries and better
compliance with treatment regimens. For example, by waiving co-payments
for certain services provided to diabetics. The commenter also
suggested that tiering can be found throughout the Medicare FFS and MA
programs since plans are allowed to

[[Page 21510]]

charge different cost sharing for out-of-network services and
providers.
Response: We believe these disagreements with our proposal are
based on a misunderstanding of what we mean by tiered cost sharing,
specifically the examples regarding the prohibition of higher cost
sharing for out-of-network services and the special cost sharing
arrangements for diabetic services/supplies. These examples cited by
the commenters are not what we define as tiering of medical services.
Therefore, we would like to clarify that even under our proposal,
higher cost sharing would have been permitted for out-of-network
services (for example, PPOs) and incentivizing enrollees through cost
sharing to use more cost-effective settings to receive the same service
(for example, charging lower cost sharing for the same service in a
PCP's office than in the hospital outpatient department, or for
services in a freestanding imaging facility than in the outpatient
department of a hospital).
Comment: One commenter questioned CMS's elimination of tiered cost
sharing, especially as the industry moves towards patient centered
medical homes and accountable care organizations to ensure quality care
and tiered cost sharing could be one way to encourage these types of
organizations.
Response: We recognize that there is an evolving market for new
models for care such as medical home and accountable care
organizations. We do not believe that MA cost sharing standards create
barriers to plans providing access to those high quality care delivery
organizations. CMS will take these comments into consideration in
future rulemaking.
Comment: One commenter wanted to clarify whether this prohibition
of tiered cost sharing would be at the Plan Benefit Package (PBP)
level.
Response: The tiered cost sharing we have observed has been at the
PBP level and our proposal would have prohibited tiering at the PBP
level.
Comment: One commenter sought clarification on whether or not the
proposal applies to the drug portion of Part C plans and encouraged CMS
to apply the proposed change to the drug portion of Part C plans.
Another commenter proposed that CMS allow differential cost sharing
based on provider group or hospital, or modify the meaningful
differences test to allow for evaluation of differences in network or
referral requirements between plans.
Response: Our proposal targeted tiering of all medical benefits,
including Part B drugs under Part C. We thank the commenters and will
include the suggestion that allowing differential cost sharing and
including the resulting differentiation in provider networks to be
considered in our evaluation of meaningful differences during bid
review, in our future policy discussions and rulemaking.
Comment: One commenter stated that tiering is the core of modern
drug therapy management.
Response: We would like to clarify that our proposal would have no
effect on the drug tiering under the Medicare Part D drug benefit.
Comment: One commenter suggested expanding the proposed prohibition
to the Part D Program.
Response: We thank the commenter for their suggestions but tiering
within Part D is beyond the scope of this proposed rule.
Comment: One commenter requested that CMS establish an employer
group waiver excepting MA plans offered through employer/union group
health plans from the tiered cost sharing.
Response: We thank the commenter for the suggestion, but we believe
that employer group plans must be subject to the same cost sharing as
other MA plans in order to provide the beneficiaries enrolled in those
plans the same protections as beneficiaries enrolled in other MA and
cost plans.
Based on the comments received on this proposal, we will not
finalize the proposal to amend Sec. 422.262 by revising paragraph
(c)(1). We will consider further rulemaking related to this practice in
the future.
7. Delivery of Adverse Coverage Determinations (Sec. 423.568)
Section 1860D-4(g) of the Act requires Part D plan sponsors to
establish procedures for processing requests for coverage
determinations and redeterminations. Those procedures must apply to
Part D plan sponsors in the same manner as they apply to MA
organizations with respect to organization determinations and
reconsiderations under Part C. Under Sec. 422.568(d), an MA
organization must provide written notice when it makes an unfavorable
standard organization determination.
In accordance with section 1860D-4(g) of the Act, we created a
parallel notice provision in Sec. 423.568(f) for unfavorable Part D
standard coverage determinations. We proposed to revise Sec.
423.568(f) by allowing a Part D plan sponsor to first provide oral
notice of an adverse standard coverage determination decision, so long
as it also provides a written follow-up notice of the decision within 3
calendar days of the oral notification.
As noted in the proposed rule, we believe this change is necessary
because of the short decision-making timeframes under Part D. As we
also noted in the proposed rule, this change is consistent with Sec.
422.572(c) whereby an MA organization may choose to meet the 72-hour
notification timeframe for adverse expedited organization
determinations by first providing oral notice of its decision within 72
hours, so long as it also sends a written follow-up notice within 3
calendar days after providing oral notice.
After considering the comments received in response to this
proposal, we are adopting this provision without modification. Thus, we
have revised Sec. 423.568(f) to allow a Part D plan sponsor to provide
initial notice of an adverse standard coverage determination decision
orally, so long as it also provides a written follow-up notice within 3
calendar days of the oral notice.
Comment: Several commenters supported this policy. Some of the
comments in support of the proposal also requested that CMS clarify
that plan sponsors have 3 business days from the date of the oral
notice to send written notice. Other commenters requested that plans
have the option of mailing the notice within 3 days of receipt of the
request if oral notice is not provided, citing the difficulty in
providing oral notice in cases where the plan does not have a telephone
number for the enrollee or the enrollee is difficult to reach by
telephone.
Response: The regulations in Subpart M of Part 423 related to
providing notice to enrollees refer to calendar days, not business
days. We do not believe there is a good reason to deviate from that
approach for purposes of Sec. 423.568(f). Accordingly, if a plan
chooses to provide the initial notice orally, the written follow-up
notice must be mailed to the enrollee within 3 calendar days of the
oral notice. We appreciate commenters' concerns about those instances
where the enrollee cannot be reached by telephone. However, providing
oral notice is optional. If the plan does not provide oral notice of a
standard coverage determination to deny a drug benefit, the plan
sponsor must notify the enrollee of its determination in writing as
expeditiously as possible, but no later than 72 hours after receipt of
either the request or, for an exceptions request, the physician or
other prescriber's supporting statement.
Comment: One commenter expressed concern that the intent of the
provision to provide enrollees with information quickly will be
diminished if

[[Page 21511]]

beneficiaries have to wait to receive the written notice to learn the
reason for the denial and appeal rights. The commenter requested that
the regulation require the oral notice to include the reason for the
denial and information about requesting a redetermination. The
commenter also requested that CMS issue guidance to plans and develop
model scripts.
Response: We believe that the written notice plans must send the
enrollee following the oral notice is the most effective means of
providing detailed information on the coverage decision and an
explanation of appeal rights. However, we agree there is value in
providing guidance to plans on the information that should be conveyed
to enrollees when providing an oral decision. Therefore, we will
provide guidance in relevant manual provisions regarding the content of
oral notification provided by plans.
8. Extension of Grace Period for Good Cause and Reinstatement (Sec.
422.74 and Sec. 423.44)
Section 1851(g)(3)(B)(i) of the Act provides that MA plans may
terminate the enrollment of individuals who fail to pay basic and
supplemental premiums after a grace period established by the plan.
Section 1860D-1(b)(1)(B) of the Act generally directs us to use
disenrollment rules for Part D sponsors that are similar to those
established for MA plans under section 1851 of the Act. Consistent with
these sections of the Act, the Part C and D regulations set forth our
requirements with respect to involuntary disenrollment procedures under
Sec. 422.74 and Sec. 423.44, respectively.
Currently, Sec. 422.74(d)(1)(i)(B) specifies that an MA
organization must provide, at minimum, a 2-month grace period before
disenrolling individuals for failure to pay the premium. Similarly,
under current regulations at Sec. 423.44(d)(1)(ii), Part D sponsors
must also provide a 2-month minimum grace period before disenrolling
individuals for failure to pay the premium. For both Part C and Part D,
involuntary disenrollments are not mandatory and, thus, organizations
may choose to implement longer grace periods or forgo involuntary
disenrollments entirely as long as they apply their policy
consistently. MA and Part D plans that choose to disenroll
beneficiaries for failure to pay premiums must notify the beneficiary
of the delinquency and provide the beneficiary at least 2 months to
resolve the delinquency. The plan must also be able to demonstrate to
CMS that it has made reasonable efforts to collect the unpaid premium
amounts.
Since beneficiaries who are disenrolled from an MA or Part D plan
for failure to pay premiums generally are not eligible for a special
enrollment period, the next opportunity to enroll in another plan is
during the annual election period in the fall. As a result, these
beneficiaries may lose their prescription drug coverage for the
remainder of the year, and may incur a late enrollment penalty if they
subsequently choose to re-enroll in Part D. For these reasons, and to
be consistent with the provision for delinquent premium payments for
Supplementary Medical Insurance (Part B of Medicare), we proposed to
permit reinstatement of enrollment in an MA or Part D plan for
instances in which the individual was involuntarily disenrolled for
failure to pay plan premiums, but subsequently demonstrated good cause
for failing to submit the premium payment timely. We proposed that good
cause would be established only when an individual was prevented from
submitting timely payment due to unusual and unavoidable circumstances
beyond his or her control.
Specifically, we proposed amending Sec. 422.74(d)(1) and Sec.
423.44(d)(1) regarding disenrollment for non-payment of premiums to
allow for the reinstatement of enrollment for good cause subsequent to
an involuntary disenrollment associated with the failure to pay
premiums within the grace period. A reinstatement of enrollment would
remove the involuntary disenrollment from the enrollment record,
resulting in continuous coverage as if the disenrollment never
occurred. Further, before such reinstatement could occur, we proposed
to require that the individual pay in full all premium arrearages on
which the disenrollment was based, as well as all other premiums that
would have been due since the disenrollment. Consistent with the
provision for delinquent premium payments for Supplementary Medical
Insurance (Part B of Medicare), we proposed that the disenrolled
individual would have a maximum of 3 months from the disenrollment date
in which to request the good cause reinstatement and resolve all
premium delinquencies.
Comment: The overwhelming majority of commenters expressed support
for the proposed regulatory revision. Several commenters further
requested that CMS provide additional guidance to plans regarding the
circumstances that would constitute ``good cause'' and would allow for
reinstatement of enrollment following an involuntary disenrollment for
failure to pay premiums. It was also suggested that CMS require plans
to include in their information to beneficiaries an explanation of a
grace period, including the eligibility criteria.
Response: We appreciate the support for this proposal and are
adopting it as proposed. We will provide additional guidance regarding
implementation of these new provisions in manual guidance (Chapter 2 of
the Medicare Managed Care Manual and Chapter 3 of the Medicare
Prescription Drug Benefit Manual).
Comment: A commenter favored an extension of the minimum required
grace period for nonpayment of premium from 2 months to 3 months and
supports the development of provisions for payment plans for
circumstances in which the beneficiary owes more than 1 month's
premium. Another commenter asked that CMS consider a waiver of the
grace period requirements for employer group waiver plans (EGWPs),
stating that some employers pay a portion of the beneficiary's premium
and may not be financially able to incur the cost of members not paying
their portion of the premium during a 2 month grace period.
Response: Issues involving the length and applicability of the
minimum grace period have been the subject of recent rulemaking (see
our April 2010 final rule (75 FR 19678)), and we do not believe it
would be appropriate or warranted to revisit these issues in this final
rule, given that they were not raised in the proposed rule. With
respect to the request that we require plans to establish payment plans
for premium arrearages, plans are by no means precluded from
establishing such arrangements with beneficiaries, but we do not
believe such arrangements should be mandatory.
Comment: Several commenters who supported our proposal expressed
concern about the examples in the proposed rule preamble of
circumstances that likely would not constitute good cause. They
suggested certain scenarios they believed would warrant a good cause
determination. For example, some commenters opposed the statement in
the preamble indicating that we would not expect to find good cause in
instances where an individual's legal guardian or authorized
representative was responsible for making premium payments but failed
to do so in a timely manner. The commenters indicated that
beneficiaries may be penalized for errors made by their appointed
representatives in situations when the beneficiary is unable to manage
his or her affairs and may be unaware of the delinquency or

[[Page 21512]]

pending disenrollment. It was requested that CMS direct plans to find
good cause in situations where a caregiver, authorized representative
or legal guardian is responsible for making payment, but failed to do
so timely. In addition, commenters suggested allowing for reinstatement
of enrollment if the request is supported by a physician who states
that any lapse in coverage could seriously jeopardize the beneficiary's
health due to the potential for a disruption in care or if a member of
a State Pharmaceutical Assistance Program (SPAP) is disenrolled because
the SPAP failed to provide appropriate premium payments.
Response: The examples provided in the proposed rule were intended
to be illustrative, and we do not intend to codify those principles in
regulation. Accordingly, we will take these comments into consideration
as we develop additional ``good cause'' guidance to plans in the
Medicare Managed Care and Medicare Prescription Drug Benefit Manuals.
However, we note that the fundamental basis of a good cause
determination rests on the circumstances that prevented timely payment
of the premium. Thus, a physician's statement about the health
consequences of a coverage lapse would not appear to be germane to
whether a good cause determination was warranted.
Comment: Two commenters requested clarification as to whether our
proposal applied to cost plans.
Response: Cost plans were not a part of our proposal and we did not
set forth any proposed changes to 42 CFR part 417. We may consider
expanding this policy to cost plans in future rulemaking.
9. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
Pursuant to our authority under sections 1851(d)(2)(C), 1860D-1(c),
and 1860D-4(a) of the Act, we proposed to codify existing MA and Part D
guidance for marketing materials in markets with a significant non-
English speaking population or large percentage of limited English
proficient (LEP) individuals. We proposed to include a requirement in
the regulations that plan sponsors must provide translated marketing
materials in any language that is spoken by more than 10 percent of the
general population in a plan benefit package (PBP) service area. We
proposed revisions to Sec. 422.2264(e) of Subpart V and Sec.
423.2264(e) of Subpart V to reflect this clarification.
The proposed clarification would codify existing guidance regarding
translated marketing materials. We proposed taking this step as a
result of frequent complaints to CMS from beneficiaries and advocacy
organizations that revealed plan sponsors were not providing translated
marketing materials upon request in languages spoken by more than 10
percent of the general population of a particular PBP service area. The
August 15, 2005 version of the Medicare Marketing Guidelines and every
version thereafter, included language stating, ``Organizations/plan
sponsors should make marketing materials available in any language that
is the primary language of more than 10 percent of a plan's geographic
service area.'' Nevertheless, plan sponsors have indicated they were
uncertain whether translated marketing materials were required. For
example, plan sponsors we talked to were confused about whether the 10
percent threshold applied to a specific age group (for example, only
those 65 and older, which does not take into account younger
beneficiaries who are Medicare-eligible based on disability). Other
plan sponsors assumed they did not have to conduct a language analysis
for their plan because they were not aware of any LEP enrollees in
their plans. By explicitly codifying the requirement to translate
marketing materials for LEP individuals, we are addressing the problem
of plan sponsor confusion by removing any ambiguity concerning the
translation requirement that may have been created by differences
between the language of Sec. 422.2264 and Sec. 423.2264 and the
Medicare Marketing Guidelines. Additionally, Title VI of the Civil
Rights Act of 1964 prohibits discrimination on the basis of race,
color, or national origin by recipients of Federal financial
assistance. Recipients must take reasonable steps to provide persons
with limited English proficiency meaningful access to their programs
and activities. This may require the translation or interpretation of
certain information into languages other than English. Under an
Executive Order 13166, issued in 2000 and reaffirmed in February 2011
by the Attorney General, each Federal agency must also implement a
system by which LEP persons can meaningfully access the agency's
programs. This codification is consistent with that obligation.
Comment: We received more than 100 comments regarding the proposal
to codify the 10 percent threshold standard. The majority of commenters
proposed new, more rigorous threshold standards. The most commonly
suggested threshold standard was 5 percent of the population or 500
people in a service area, whichever is lower. A small number of
commenters suggested a 1 percent threshold. None of these commenters
quantified the improvement in access that these standards, particularly
the 500 person minimum or 1 percent options, would bring. Some of the
commenters recommending this translation standard were unaware that
this regulation would only pertain to the Medicare population enrolled
in Part C or D plans or that the proposed rule was only requiring
translation of marketing materials and not lab test results or patient
instructions. Additionally, some commenters supporting the 5 percent or
500 people threshold indicated that many of the LEP individuals they
serve are illiterate in any language.
A variety of industry representatives indicated that they supported
CMS' rule. Some of these commenters further recommended, however, that
CMS base the standard on an individual's primary language in order to
focus on individuals that were proficient in only a non-English
language rather than those who were bi-lingual. One commenter from
industry suggested the standard should be based on the Medicare
population; another suggested the standard should be based on the PBP's
membership; and another suggested we should look at only individuals
age 65 and older. Industry commenters justified their suggestions for
modifying CMS' current standard based on their experience that they
only receive a few requests for hard copies of the materials each year.
The industry commenters also expressed concern about the cost of
developing and printing translated materials when they anticipate a low
demand.
Response: In response to both industry and advocacy stakeholders
that commented on the proposed rule, we will move the standard
population-based translation threshold from 10 percent to 5 percent.
Further, we will revise our methodology for calculating these
thresholds by focusing on individuals who primarily speak a non-English
language and who have a limited ability to read, write, speak, or
understand English, as opposed to also including individuals who are at
least bilingual. Specifically, we will require plan sponsors to
translate marketing materials into any non-English language that is the
primary language of at least 5 percent of the individuals who reside in
a PBP's service area.
At this time, we will continue to use the U.S. Census Bureau's
American Community Survey (ACS) data to determine the languages spoken
in each sponsor's PBP's service area. However,

[[Page 21513]]

we recognize that the ACS data may be superseded by more accurate or
timely data in the future; therefore, we will continue to monitor and
review data sources that are available to all plan sponsors. In
particular, we will continue to evaluate forthcoming data sources that
most accurately identify individuals who are unable to read English-
language materials, but are literate in non-English languages. We
prefer to use data sources that are publicly available in order to
reduce the burden on plan sponsors. We will, as we have done since
2009, continue to calculate, on behalf of all plan sponsors, the
specific languages that meet the threshold for each PBP service area.
From a public policy perspective, moving to a 5 percent threshold
and focusing on individuals' primary language produces the best outcome
because it will focus sponsor resources on individuals with the most
need for translated materials. We conducted an impact analysis of how
this standard and revised methodology would change current translated
materials offerings. The results of our analysis indicated moving to 5
percent and focusing on primary language will slightly reduce the
burden on plan sponsors because a small number of them will no longer
be required to translate materials at all. (There was a slight net
reduction, which may vary from year to year. Under the new standard,
some PBPs that did not require translation in the past will now be
required to translate.) Additionally, focusing on the primary language
spoken by individuals more closely aligns with the HHS definition of a
LEP individual. The HHS Guidance to Federal Financial Assistance
Recipients Regarding the Title VI Prohibition Against National Origin
Discrimination Affecting Limited English Proficient Persons (HHS LEP
Guidance) defines LEP individuals as those ``who do not speak English
as their primary language and who have a limited ability to read,
write, speak, or understand English.'' Focusing on individuals' primary
language is more consistent with the definition than our current
practice of looking at any languages spoken by the general population.
We disagree with the other suggested translation threshold
approaches from the commenters for several reasons. First, the
suggested standard threshold of 5 percent or 500 people, whichever is
less, would result in all PDPs and nearly all MAOs providing translated
materials in all languages captured in the ACS data because 500 is such
a small number of speakers. This would be a significant increase in the
number of plan sponsors required to translate and the number of
languages required for translation, and absent definitive evidence to
support the sharp increase, this would result in insupportable costs
and burden. The same argument holds true for the suggestion of a 1
percent standard. Second, the suggested standard of 10 percent of a
plan's membership (as opposed to population data) would be impossible
for plan sponsors or CMS to calculate because beneficiary language
preference is an optional field for beneficiaries to complete on a plan
enrollment form. There is no guarantee that all LEP beneficiaries would
be counted by the sponsor. Also, because we do not collect the
enrollment form language preference data from sponsors, we would need
to establish a reporting requirement and then wholly rely upon sponsor-
generated data when monitoring for compliance. With regard to the
suggestion to only look at language data for those age 65 and older, we
cannot lose sight of the fact that some individuals that qualify for
Medicare (and for participation in the Part C and D programs) are
younger than 65. However, we will conduct additional sensitivity
analyses in the future to assess if applying a weighted-average to
account for the age distribution of the Medicare population would
affect translation requirements. Should we ever change our data source
or methodology for calculating translation requirements, we will
publish that information in subregulatory guidance.
Comment: One industry organization suggested that plan sponsors
should not have to translate any documents, and beneficiaries should
rely on oral interpretation services available through their call
centers.
Response: We do not agree with this comment. In order to ensure
that LEP beneficiaries have access to vital information needed to make
appropriate decisions about their health care, our goal is to make
marketing materials available to beneficiaries, wherever it is
reasonable to do so. Because of the particular effort required to make
these translations available, we must balance those resource costs with
the likelihood of the documents being requested and used. As such, we
apply a threshold, and thus our rules do not require translation of
marketing materials into all languages. However, call center
interpreters, must be made available in virtually all languages spoken
in the U.S. Fulfillment of this requirement provides a safety net in
geographic areas where only a few beneficiaries speak a particular non-
English language. We reached our decision after conducting the four
factor analysis in the aforementioned HHS LAP Guidance, and, based on
this analysis, a mix of language services (that is, both oral
interpretation services and written translated materials when a
standard translation threshold has been met), is the most appropriate
solution for the population served by the Medicare Parts C and D
programs.
Comment: Several comments were outside of the scope of this
proposed rule. The comments were technical and operations oriented, and
are more appropriate as comments on the Medicare Marketing Guidelines.
Industry requested that plans should not have to have pre-printed
copies of translated materials on hand; rather, they preferred to meet
the requirement through a print-on-demand capability and provide the
translated material within a reasonable timeframe to the beneficiary.
Another comment suggested CMS require plans to provide enrollment
materials in any language that the plan was advertised in via any media
(for example, print, radio, Internet, etc.). Lastly, a commenter
requested clarification regarding which marketing materials required
translation.
Response: We agree that these comments raise valid points that
merit clarification, and we will consider them in the context of future
revisions of the Medicare Marketing Guidelines. However, we remind MA
organizations and Part D plan sponsors that, pursuant to the current
Medicare Marketing Guidelines, all Medicare marketing materials that
are required to be translated and available in print upon request are
also required to be posted on the plan's Web site. The specific
marketing materials required for translation are contained within the
Medicare Marketing Guidelines.
Comment: One industry commenter suggested that CMS provide
translations of the model evidence of coverage (EOC) in the top five
languages other than English most commonly spoken by Medicare
beneficiaries nationally.
Response: We are aware of the cost burden on plan sponsors to
produce translated marketing materials, and CMS and beneficiary
advocates have concerns about the quality and accuracy of translated
materials provided to beneficiaries. In response, for the 2012 contract
year, CMS anticipates providing a few translated versions of certain
model marketing materials. Our aim is to reduce the burden on plan
sponsors and increase the quality, consistency, and accuracy of these
marketing materials for beneficiaries. By providing translations of
some or all model materials in all languages in

[[Page 21514]]

which translation is required for at least one plan benefit package,
plan sponsors would merely need to translate their own plan-specific
inserts or modifications, in addition to required materials for which
there is no model or translation available. In future years we would
prefer to translate all required model marketing materials and will
actively pursue this goal, but we are uncertain about viability of this
practice because we cannot guarantee that we would be able to fund this
initiative annually. Additionally, we are exploring creating a 1-page
model document that would inform beneficiaries, in multiple languages,
that free interpreter services are available when beneficiaries call
the plan's customer service call center.
Comment: One commenter requested clarification as to whether the
Program of All-inclusive Care for the Elderly (PACE) program is subject
to the requirement that plan sponsors provide translated marketing
materials.
Response: We clarify that PACE programs are not subject to this
requirement.
In summary, we received numerous comments on this proposed rule. In
response to commenters, we are finalizing the proposed rule, with
modification. We factored in advocacy organizations' comments to reduce
the percentage threshold and addressed industry's concerns by refining
our methodology, which will slightly reduce sponsors' administrative
burden. Further, the revised analysis methodology is more consistent
with the HHS definition of an LEP individual than our current practice.
Our final rule will require plan sponsors to translate marketing
materials into any non-English language that is the primary language of
at least 5 percent of the individuals in a PBP's service area. This new
translation standard will go into effect for contract year 2012;
therefore, 2012 enrollment materials must be produced with this new
translation standard in mind, in keeping with all relevant deadlines
that occur in 2011 in preparation for the 2012 marketing season. As in
the past, we will continue monitoring sponsors' compliance with
translated materials requirements.

E. Strengthening Our Ability To Distinguish for Approval Stronger
Applicants for Part C and Part D Program Participation and To Remove
Consistently Poor Performers

This section addresses a number of provisions 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 program and initial implementation of the
prescription drug program in January 2006 as a result of the MMA, we
have steadily enhanced our ability to measure MA organization 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 MA organizations 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. 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 our understanding of Part C and D program operations has
deepened since implementation of the MMA, our use of our authority to
determine which organizations are qualified to offer MA and PDP sponsor
contracts, evaluate their compliance with Part C and D requirements,
and make determinations concerning intermediate sanctions, contract
non-renewals and contract terminations has evolved as well. The changes
identified in this rule will further allow us to make these
determinations more effectively. These provisions are described in
detail in Table 7.
[GRAPHIC] [TIFF OMITTED] TR15AP11.008

[[Page 21515]]

1. Expand Network Adequacy Requirements to All MA Plan Types (Sec.
422.112)
In our November 2010 proposed rule (75 FR 71236), we proposed
applying the network adequacy standards at Sec. 422.112(a)(10) to all
MA plans that meet Medicare access and availability requirements by
directly contracting with network providers, including MSA plans that
choose to use a contracted networks of providers. This proposed change
would bring MSA network adequacy requirements in line with those
applicable to MA coordinated care (CCP) plans and network private-fee-
for-service (PFFS) plans, per a provision finalized in our April 2010
final rule (75 FR 19691 through 19693). This rule established criteria
that MA CCP and PFFS plans must meet so that we can ensure that the
network availability and accessibility requirements specified in
section 1852(d)(1) of the Act are satisfied. We are finalizing this
provision without modification.
Comment: One commenter recommended that CMS require all MA plans,
including non-network PFFS and MSA plans, to meet the network adequacy
requirements at Sec. 422.112(a)(10).
Response: We do not have the statutory authority to require that
the network adequacy standards at Sec. 422.112(a)(10) be applied to
MSA plans that do not use a network of providers or to PFFS plans that
are not required to have a network that meets network adequacy
requirements. MSA plans are not required under section 1859 of the Act
to establish networks of providers, and section 1852(d)(5) of the Act
permits PFFS plans to operate without networks when fewer than two
network-based plans are operating in an area.
2. Maintaining a Fiscally Sound Operation (Sec. 422.2, Sec. 422.504,
Sec. 423.4, and Sec. 423.505)
Under the authority of sections 1857(d)(4)(A)(i) and 1860D-
12(b)(3)(C) of the Act, which establish requirements for MA
organizations and PDP sponsors to report financial information
demonstrating that the organization has a fiscally sound operation, we
proposed in Sec. 422.2 and Sec. 423.4 to define a fiscally sound
operation as one which, at the very least, maintains a positive net
worth (total assets exceed total liabilities). We noted that the
States' oversight and enforcement of financial solvency of MA
organizations and PDP sponsors provides an important protection for
Medicare beneficiaries enrolled in MA and Part D plans. However, we
also noted that the requirement for plans to report financial
information demonstrating that the organization has a fiscally sound
operation and our authority to audit and inspect any books and records,
is an indication that we have an interest in the organization
maintaining a fiscally sound operation and that this interest is
separate and apart from the State licensure and financial solvency
requirements for an organization. Additionally, under the authority of
sections 1857(e)(1) and 1860D-12(b)(3)(D) of the Act which afford the
Secretary the authority to include terms and conditions in the
contracts with MA organizations and PDP sponsors that are necessary and
appropriate, we proposed the addition of a contract provision at Sec.
422.504(a) and Sec. 423.505(b)(23), under which the MA organization or
Part D sponsor agrees to maintain a fiscally sound operation by at
least maintaining a positive net worth (total assets exceed total
liabilities).
Comment: One commenter suggested that the standard that ``total
assets exceed total liabilities'' was insufficient and that CMS should
set a higher threshold.
Response: We believe that the role of the state insurance
departments in providing oversight and enforcement of licensure and
financial solvency is the primary tool for financial oversight of
organizations and therefore it is unnecessary for CMS to modify this
standard.
Comment: One commenter asked if the fiscally sound operation
requirement applied only to the Medicare lines of business or to all
lines of business.
Response: We have not imposed any new reporting requirement and
will rely on the financial reports that are submitted for the
organization as a whole.
Comment: One commenter suggested that CMS should publish clear
guidelines for when a plan's finances will be declared ``unsound.''
Response: We have specified in the definitions that a ``fiscally
sound operation'' is one with a positive net worth. We already require
that organizations submit the same information that is submitted to
their state insurance departments under that state's requirements and
guidelines. Therefore it is not necessary for us to set specific
guidelines for calculating positive net worth.
Comment: One commenter suggested that CMS should publish its
criteria for selecting alternative plans for receiving transitioned
beneficiaries.
Response: When appropriate, we would follow all policies and
procedures specified in the current guidance in Chapter 2 of the
Medicare Managed Care Manual http://www.cms.gov/MedicareMangCareEligEnrol/Downloads/FINALMAEnrollmentandDisenrollmentGuidanceUpdateforCY2011.pdf, entitled
``Passive Enrollment by CMS which are used for the smooth transition of
beneficiaries to other plans when there are terminations for reasons
other than failure to maintain a fiscally sound operation. For
prescription drug plans, we would follow all policies and procedures
specified in the current guidance in Chapter 3 of the Medicare
Prescription Drug Benefit Manual, http://www.cms.gov/MedicarePresDrugEligEnrol/Downloads/FINALPDPEnrollmentandDisenrollmentGuidanceUpdateforCY2011.pdf, which
contains the Part D guidance on passive enrollment.
Comment: One commenter agreed with the definition for ``fiscally
sound operation'' with the understanding that ``total assets'' and
``total liabilities'' were to be as defined by the state insurance
departments.
Response: We appreciate the commenter's support for the proposal
and confirm that we have not changed our financial reporting
requirements and that we continue to use the information that is
submitted to the state based on the State's financial reporting
requirements and guidelines.
Comment: One commenter suggested that CMS should take into
consideration arrangements providing for the financial solvency of an
MAO by the parent organization consistent with the treatment of those
arrangements by the relevant State insurance department.
Response: We continue to consult regularly with state insurance
regulators to ensure that sponsoring organizations are meeting State
reserve requirements and solvency standards required for State
licensure and their input is included in any action related to fiscal
soundness.
Comment: One commenter requested that CMS clarify how the Part D
fiscally sound requirement will apply to Medicare cost organizations
that also offer Part D services.
Response: As mentioned previously, we will rely on the financial
reports that are submitted for the organization as a whole. Therefore,
the cost organization, including the Part D benefit, will be held to
the fiscally sound operation requirement.
Comment: One commenter was concerned that the fiscally sound

[[Page 21516]]

requirement adds new reporting requirements.
Response: As noted in the preamble to the November 2010 proposed
rule, a determination of whether there is a positive net worth will be
made from the financial reports submitted under the currently approved
financial reporting requirements. No additional filings will be
required.
Comment: One commenter requested that CMS explain how traditional
state regulation has not provided adequate consumer protection such
that additional Federal oversight is required and suggested that the
proposal be withdrawn to allow the states to maintain primary
supervision of plans for fiscal soundness.
Response: As noted in the preamble to the November 2010 proposed
rule, licensure does not deem an organization to meet other
requirements imposed under Part C or Part D. The requirement for an
organization to be licensed under State law and the requirement that an
organization must report financial information demonstrating that the
organization has a fiscally sound operation are separate requirements
in the Act. The authority to license an MA organization or PDP sponsor
and set solvency standards rests with the state licensing authority and
therefore the primary supervision of plans for fiscal soundness
continues to rest with the states. The proposed rule clarifies what we
expect from a fiscally sound operation. Further, as stated previously,
we consult regularly with state insurance regulators and their input is
included in any action related to fiscal soundness.
Comment: One commenter asked how the requirement to maintain a
fiscally sound operation will protect beneficiaries if the plan sponsor
has already encountered the financial difficulties.
Response: We have historically been limited in our ability to take
compliance and enforcement action against an organization solely on the
basis of financial problems if the organization is still licensed by
the state and is not otherwise out of compliance with CMS requirements.
In some cases, we have been made aware by state insurance departments
that an organization would inevitably lose its state licensure because
of its poor financial condition, but we were unable to take action to
terminate the organization's contract and ensure that beneficiaries
were smoothly transitioned to a new organization or sponsor, until the
full termination process was completed by the state. The proposed rule
will allow us to work with the state insurance department and if
appropriate, take timely contract action in order to avoid any
additional potential risk to enrollees.
After consideration of the comments received in response to the
proposed rule, in this final rule, we are adopting the provisions as
proposed.
3. Release of Part C and Part D Payment Data (Sec. 422.504, Sec.
423.505, and Sec. 423.884)
This final rule provides for the Secretary to release Part C and D
summary payment data. The Secretary believes these data should be made
available because other publicly available data are not, in and of
themselves, sufficient for the public (including policy analysts and
researchers) either to understand expenditures for the MA and Part D
programs, or to inform the public on how their tax dollars are spent.
In the proposed rule, we stated that in keeping with the
President's January 21, 2009, Memorandum on Transparency and Open
Government (74 FR 26277), we were proposing to routinely release
summary Part C and Part D payment data. We stated that additional
purposes underlying release of these data included allowing public
evaluation of the MA, prescription drug benefit, and RDS programs,
including their effectiveness, and reporting to the public regarding
expenditures and other statistics involving these programs.
In the proposed rule, we stated our belief that the availability of
the payment data would permit potential plan sponsors to better
evaluate their participation in the Part C and D programs, as well as
facilitate the entry into new markets by existing plan sponsors. As a
result, the availability of plan payment data would enhance the
competitive nature of the programs. We stated that in knowing the per
member per month payment amounts and other components of plan payment
(plan rebates and risk scores), new business partners might emerge, and
better business decisions might be made by existing partners. Thus, we
believed that including a provision in our contracts with plan sponsors
regarding the release of summary payment data was both necessary and
appropriate for the effective operation of those programs.
We proposed that these data would be routinely released on an
annual basis in the year after the year for which payments were made.
The data release would occur only after the final risk adjustment
reconciliation has been completed for the payment year in question and,
for Part D, after final payment reconciliation of the various
subsidies. Thus, we would release data for payment year 2010 in the
Fall of 2011.
We stated this proposed timeframe would not apply to the release of
RDS payment data, since we do not reconcile RDS payment amounts until
15 months following the end of the plan year. The majority of our
sponsors provide retiree drug coverage on a calendar year basis. Thus,
if an applicable RDS plan year ended December 31, 2010, the payment
reconciliation would not be due until March 31, 2012, which would be
after the Fall 2011 target for release of other Part C and D payment
data. Therefore, we proposed that we would release the most current RDS
payment data available at the time the Part C and D payment
reconciliation has been completed and at the same time those other Part
C and D payment data are compiled and released.
Specifically, as we indicated in the November 2010 proposed rule,
beginning in the Fall of 2011 we would release reconciled payment data
as follows:
Part C
++ Reconciled payment data summarized at the plan benefit package
level including average per member per month (PMPM) payment for A/B
(Medicare covered) benefits standardized to the 1.0 (average risk
score) beneficiary and average PMPM rebate amounts.
++ The average Part C risk score for each plan benefit package.
++ Reconciled aggregated Part C payment data by county including
the average PMPM payment amounts for A/B benefits standardized to the
1.0 (average risk score) beneficiary and average rebates amounts at the
plan type (including HMO, PPO, RPPO, and PFFS) for each county in which
such plan types are represented.
Part D
++ Reconciled payment data summarized at the plan benefit package
level including average PMPM payment for the direct subsidy
standardized to the 1.0 (average risk score) beneficiary, the average
low-income cost sharing subsidy, and the average Federal reinsurance
subsidy.
++ The average Part D risk score for each plan benefit package.
++ Final payment reconciliation data arrayed by parent
organization, number of plan benefit packages, the gross reconciliation
amount broken out by risk sharing reconciliation amount, reinsurance
reconciliation amount, and low income cost sharing reconciliation
amount.
++ Retiree drug subsidy (RDS) data including the gross aggregate
reconciled

[[Page 21517]]

subsidy amount paid to each eligible sponsor of qualified retiree
prescription drug coverage and the total number of unduplicated
Medicare eligible retirees for each sponsor.
We noted that because the proposed provisions would apply to all
Part C and Part D sponsors, it would apply to any entity offering
either Part C or Part D plans, including MA organizations offering and
not offering prescription drug plans, as well as all Part D drug plan
sponsors. It would also apply to sponsors entitled to Federal RDS
subsidies.
We solicited comment generally on the public release of Part C and
Part D payment data. We also specifically solicited comment on whether
commenters believed that any of the Part C and Part D payment data we
proposed to release contained proprietary information, and asked
commenters to suggest, if they believed proprietary data were
implicated, safeguards that might appropriately protect those data.
Comment: We received numerous comments on this provision of the
proposed rule from beneficiary advocacy groups, researchers, PDPs,
PBMs, associations, and MA organizations. The beneficiary advocacy
group comments supported our proposal to release payment data. One
beneficiary advocacy group supported release of all payment data, to
the extent it could be done without compromising beneficiary personally
identifiable health information, and recommended we codify release in
regulation text.
Response: We accept the comment from the beneficiary advocacy group
regarding codifying a process for release of summary payment data in
regulation text. We believe that codifying the release in the Code of
Federal Regulations will permit interested parties to have a better
understanding of exactly what summary payment data to expect CMS to
release and when to expect to be able to access it. As we indicated in
the proposed rule, the Secretary has the authority to include in MA
organization and Part D sponsor contracts any terms and conditions the
Secretary deems necessary and appropriate. (See sections 1857(e)(1) and
1860D-12(b)(3)(D) of the Act, which incorporates section 1857(e) into
Part D.) As we also stated in the proposed rule, our regulations at
sections Sec. 422.504(j) and Sec. 423.505(j) permit us to include
other terms and conditions in these contracts that we find necessary
and appropriate to implement the Part C and D programs. Similarly, we
stated that under Sec. 423.884(c)(3)(i), RDS sponsors agree to comply
with the terms and conditions for eligibility for a subsidy payment in
our regulations and in related CMS guidance. Accordingly, we are
codifying in our regulations at Sec. 422.504(n) our intent to release
Part C summary payment data as proposed, at Sec. 423.505(o) our intent
to release Part D summary payment data as proposed, and at Sec.
423.884(c)(3)(ii) our intent to release summary RDS payment data as
proposed. We will also modify MA organization and Part D sponsor
contracts as well as RDS sponsor agreements to account for the release
of summary payment data. As we discuss in more detail, below, in our
response to comments opposed to our release of summary payment data, we
believe we have the authority to promulgate these regulations providing
for the routine release of these data.
Finally, in response to the statement from a beneficiary advocacy
group that supported release only in the event that personally
identifiable beneficiary health information could be protected, we will
only release summary data to the extent individually identifiable
information is protected--consistent with existing CMS policy. Thus,
for instance, to the extent that less than 11 MA plan members of a
specific MA plan type reside in a county, we will not release summary
payment information or average Part C risk scores for that plan type in
that county.
Comment: Some MA organizations supported release of payment data as
proposed, while many of them recommended limiting data release in
varying ways. Two recommended releasing only average monthly payments
and rebates, while others suggested plans should have the right to veto
release of any payment information prior to public dissemination.
Another MA organization suggested aggregating data at a higher level,
for instance by plan type, thus masking plan-specific data. A commenter
stated that reporting or releasing payment data at the plan benefit
package level is not aggregating or summarizing payment data at all and
that such a release would be inconsistent with our stated intent to
only release summary payment data. Some Part D plan sponsors
recommended releasing Part D payment data on only an aggregate basis--
where individual plan payment data would not be revealed. Some health
plan associations also recommended releasing payment data on a more
aggregated, non-plan-specific basis--for instance, releasing only
aggregated Part C or D payment data at the county level with no plan
identifiers.
Response: We do not believe it is appropriate to provide veto power
to MA organizations regarding release of payment data. If we were to
allow some MA organizations to withhold data, the value of the
remaining, released data would be diminished and would potentially
become useless to researchers and the public. Similarly, were we to
aggregate payment data at a higher level prior to release, the public
would know very little about what payments were being received by
specific CMS contractors--which would undermine a specifically stated
goal of release which was to inform the public on how their tax dollars
are spent. Researchers would also be hampered in their ability to
conduct meaningful studies that analyze the Medicare program and
Federal expenditures. We believe we have identified the appropriate
level of aggregation such that researchers and the public will have
specific enough information to meet their needs, while we will continue
to shelter from disclosure bidding and provider contracting information
both MA organizations and Part D plan sponsors want protected.
Comment: Some MA organizations contended that proprietary plan
payment information related to providers could be deduced from the
payment data we proposed to release. Some Part D plan sponsors and
associations stated that competitors would be able to reverse engineer
bids. One commenter stated that the data we proposed to release could
be used with other Part D data currently released by CMS, such as PDP
enrollment information, plan premiums, and generic dispensing rates, to
reverse engineer bid data and other sensitive information relevant to
Part D sponsors' bidding and business strategies.
Response: We do not agree. The bid pricing tool (BPT) document that
MA organizations and Part D plan sponsors submit to CMS as part of the
annual bidding process asks the plans to provide detailed information
on their costs to furnish Part C and D services. In the case of MA
organizations, over a dozen initial values related to Part C costs are
further broken out by costs for services, administrative costs,
expected utilization and member cost sharing. These costs and others
are trended from the base year (derived from costs from the calendar
year before the bid is submitted) to the year for which plans are
bidding. Thus, the input values in the bids are already composed of
aggregated cost and utilization information. Information provided on
the BPT is aggregated in a number of ways--across providers,
beneficiaries, and sites of service. Additionally, the different
components of cost--direct

[[Page 21518]]

medical, indirect medical, administrative, profit, etc. are also
aggregated. Thus, to suggest that a competitor would be able to derive
or disaggregate specific bidding information from the aggregated
payment data we proposed to release, or, much less, that a competitor
would be able to derive payment information related to any specific
provider, is simply not credible.
A similar argument applies to Part D bid submissions in the sense
that dozens of input values representing type of drug (generic,
preferred brand, specialty, etc.), expected utilization and cost
information aggregated over a number of provider types, and a multitude
of contracting entities ensures sufficient protection for plan bidding
information. While the payment data proposed for release will be very
helpful in understanding the payments received by Part D sponsors and
their ability to estimate their revenue needs in their Part D bids, we
do not believe that this information will be sufficient for others to
determine sensitive components of the Part D bids, such as expected
manufacturer rebates and profits. The Part D data to be released do not
provide information about administrative costs and drug costs incurred
by Part D sponsors in sufficient detail for other parties to determine
the sensitive components of bid data. In the few numbers we will
release, no specific provider contractual information is in danger of
being exposed. Those viewing and using the aggregated data will have no
way to disaggregate the data since there are dozens, if not hundreds,
of individual components that are used to build up the few data
elements that will be released.
Comment: Some commenters stated that by reviewing 2 or more years
of payment data, an MA organization of Part D sponsor would be able to
determine the cost trends of their competitors. The commenters stated
that these entities would be able to determine where their competitors
are heading, which would jeopardize the fairness and competitive
dynamics of the bidding process. The commenters also stated that
competitors would gain information about business strategies that could
undermine the bidding process and the competitive nature of the Part C
and D programs. Other commenters stated that release would undermine
the integrity of the bid process and alter the competitive marketplace.
Response: We do not agree that release of summary payment data as
we proposed would affect the integrity of the bidding process in either
the Part C or D programs. First of all, as we described briefly in
response to an earlier comment, bids are built up of costs related to a
multitude of components (plan costs for health care services,
administrative activities, utilization, and profits). Further, such
costs must be trended from the base year--the calendar year before the
bid--to the year for which the bid is submitted--the year after the
year in which bids are submitted in June. Utilization, costs, and
trends must be certified by a qualified, independent actuary prior to
bid submission. Since we will continue to require actuarial
certification, integrity is unaffected. Second, the MA and Part D
programs are not competitive in the way that term is normally
understood. Although Part C and D plans do compete for members,
primarily through the benefits offered and the cost (member cost
sharing and premium) of those benefits, they do not directly compete
for the payments that CMS makes. Rather, we approve all sustainable
bids that are otherwise qualified without preference for the lowest
bidder. The fact that MA-eligible Medicare beneficiaries can, on
average, select from over 2 dozen MA and Part D plans in every county
of the nation is ample evidence that competition is robust. As we
mentioned in the preamble of the proposed rule, we believe the
availability of the summary payment data we proposed to release will
permit potential plan sponsors to better evaluate their participation
in the Part C and D programs, as well as facilitate the entry into new
markets by existing plan sponsors. In other words, we believe
competition, if anything, will be enhanced by release rather than
harmed in any way. Further, although trends from one year to the next
might be revealed through release of payment data for sequential years,
the fact remains that such trends will be stale (at least 2 years old)
and reveal little about competitive strategies in future years.
Finally, where plans are free to modify the actual competitive
components that are used to build up bids, such as benefit offerings
and member cost-sharing, little is left of the argument that revealed
cost trends will have an impact on the competitive nature of the
programs.
Comment: One commenter stated that payment data release would work
to the programs' detriment.
Response: We do not agree. We believe that a more extensive
knowledge of summary payment data will not only not harm competition in
the Part C and D programs, but rather that it will permit both existing
and potential plan sponsors to better assess the business opportunities
available to them.
Comment: Many commenters stated release of summary payment data was
prohibited under Exemption 4 of the Freedom of Information Act (FOIA),
others cited a prohibition on release based on Exemption 6, still
others cited both Exemptions 4 and 6 as prohibiting release under the
FOIA. Some provided extensive arguments, citing case law to support
their positions. These, and other commenters, also invoked the Trade
Secrets Act and argued that there was a strong potential for
compromising proprietary information of both Part C and D plan
sponsors. Still others stated that the Privacy Act is implicated
because release of risk scores might allow someone to identify the
health status of an individual enrollee or enrollees.
Response: In response to comments arguing that the Trade Secrets
Act (18 U.S.C. 1905) or FOIA exemptions prohibit release of this
information or citing past practices of this agency with respect to
FOIA requests, as noted previously, we do not believe that the release
of the data at issue necessarily would be subject to the FOIA exemption
for information protected by the Trade Secrets Act, because we do not
believe the data we would be releasing could be used to obtain
proprietary information. However, with respect to the data we are
proposing to release, we believe the merits of such arguments are moot
in light of the fact that we have decided through this rulemaking to
require the disclosure of data at issue. Section 1106(a) of the Act (42
U.S.C. 1306(a)) provides authority to enact regulations that would
enable the agency to release information filed with this agency. (See
Parkridge Hospital, Inc. v. Califano, 625 F.2d 719, 724-25 (6th Cir.
1980). We have engaged in notice-and-comment rulemaking to promulgate
regulations to enable the disclosure of the summary payment
information. The Trade Secrets Act permits government officials to
release otherwise confidential information when authorized by law. A
substantive regulation issued following notice-and-comment rulemaking,
such as this one, provides the authorization of law required by the
Trade Secrets Act. Because the Trade Secrets Act would allow
disclosure, Exemption 4 (5 U.S.C. 552(b)(4)), which is as co-extensive
with the Trade Secrets Act, would also not preclude disclosure with
respect to the information that would be released under this final
rule. This conclusion would not apply to other payment data with
respect to which a Trade Secrets Act argument might be made.

[[Page 21519]]

With respect to the commenters, who argued that FOIA Exemption 6 (5
U.S.C. 552(b)(6)) protects information that would cause a clearly
unwarranted invasion of an individual's personal privacy and argued
that releasing plan payment and risk score data could lead to the
disclosure of the name or health status of an individual enrollee, we
disagree, because the concerns expressed are too speculative to lead to
a legitimate privacy interest. Furthermore, there is a substantial
public interest in the release of this summary payment data which can
be used to shed light on the government's operation of the Part C and D
programs, outweighing the speculative privacy interest.
Finally, with regard to protection of individually identifiable
data through the release of risk scores, as we stated previously, we
will not release summary payment information or average Part C or D
risk scores when the small number of enrollees in a plan or in an area
might reasonably permit disaggregation such that individually
identifiable information could be revealed.
Comment: Some commenters stated release of payment data would harm
business partners and thus, the Part D program.
Response: We do not agree. As we have already explained, we are not
releasing payment data at a sufficient level of granularity to permit
extrapolation of specific contract terms or purchase information.
Rather, we will only be releasing summary payment and risk score data
that is sufficiently aggregated to prevent extrapolation to any
individual provider's or manufacturer's terms with any plan sponsor.
Comment: Some Part D sponsors and one association cited
Congressional Budget Office (CBO) and Federal Trade Commission (FTC)
letters warning that release of rebate information could lead low
bidders to increase their bids compared to the bids they would have
submitted without such information on competitor prices. They argued
that release of rebate data might foster collusion or otherwise
undercut vigorous competition on drug pricing.
Response: These commenters seem to be conflating the release of
summary data on the component of savings in the Part C payment
calculation known as the Part C rebate with the release of Part D drug
manufacturer rebate information. In the CBO and FTC documents we were
able to review, warnings were provided solely related to the release of
the latter. In the proposed rule we did not propose the release of any
Part D drug manufacturer rebate information. The Part C rebate
information we proposed to release is solely related to Part C and
represents 75 percent of the difference between the plan risk-adjusted
statutory non-drug monthly bid amount and the plan risk-adjusted area-
specific non-drug monthly benchmark amount--when the bid is below the
benchmark. (See Sec. 422.264(ff).) Revealing this Part C rebate
information is little different than revealing the Part C plan basic
beneficiary premium amount (see Sec. 422.262), release of which is
already required by regulation. (See Sec. 422.111(f)(6).)
Comment: Some commenters cited past practices by CMS where CMS
specifically denied release of similar data by invoking Exemptions 4
and 6 of the FOIA.
Response: As we previously indicated, the data that would be
released under this rule have been specifically limited in nature, and
as to the year involved to avoid proprietary data issues. It thus is
not necessarily the case that previous denials of FOIA requests would
apply to these data. Also, as noted previously, the issue of whether
these data would be withheld from release in response to a FOIA request
absent this final rule is moot in light of the fact that we have now
engaged in notice-and-comment rulemaking to promulgate regulations
which clearly enable the disclosure of this information regardless of
whether it would have been disclosable in the absence of this final
rule.
Comment: Some commenters stated that release of this summary
payment data would have limited value to researchers. One researcher
cited more than 20 scholarly articles that he and colleagues had
written using data on MA payments and enrollment since 2000 and urged
us to release the type of MA payment data discussed in the proposed
rule for years between 2006 and 2010. An additional commenter also
urged the release of the same payment data for years prior to 2010, and
argued that this notice and comment process would apply equally to such
prior year data.
Response: First, we would note that researchers have informed us
that they believe the data we proposed releasing does have value to
them. With respect to 2006 through 2009 payment data, while the
proposed rule referenced 2010 data in discussing the timing of our
release of payment data, we agree that the same analysis and rationale
would apply equally to data for prior years as well, and that through
our publication of a proposed rule and our response to comments, we
have satisfied the requirements in section 1106(a) of the Act (42
U.S.C. 1306(a)) for a regulation that authorizes release of this
information for any year. Given the interest of these commenters in
such prior year data, we will release data for these prior years as
well as 2010, and will release data for future years on the schedule
set forth in the proposed rule.
Comment: One commenter stated that we had not stated what public
policy goal was being served by releasing payment data at the plan
level. Another commenter stated that currently available data are
sufficient to CMS' stated purposes for release.
Response: We do not agree that currently available data are
sufficient to accomplish the broad public policy purposes supporting
release of this information, which we discussed in the proposed rule.
In the preamble of the proposed rule we explained that other publicly
available data are not, in and of themselves, sufficient for the
studies and operations that researchers want to undertake to analyze
the Medicare program and Federal expenditures, and to inform the public
on how their tax dollars are spent. This is so because currently
available data do not provide researchers a means of analyzing payment
data at a granular enough level to draw conclusions about regional
variations in CMS payment--such as rural/urban differences or the
payment variances between MSAs. We also cited the President's January
21, 2009, Memorandum on Transparency and Open Government. Finally, we
stated that additional purposes underlying release included allowing
public evaluation of the MA, prescription drug benefit, and RDS
programs, including their effectiveness, and reporting to the public
regarding expenditures and other statistics involving these programs.
Comment: Some commenters stated that release would not help
beneficiaries select the MA or Part D plan that is best for them.
Others stated that release would adversely impact beneficiaries due to
related impacts on MA and Part D plan offerings. Still others stated
that release of payment data would be misinterpreted by MA enrollees.
Response: The intent of releasing summary payment data and risk
score information is not necessarily to help Medicare beneficiaries to
select the right plan for them. When the data are published we will
provide appropriate disclaimers to ensure the greatest likelihood of
understanding by researchers, enrollees, and other interested parties.
As far as the potential for adverse impacts on beneficiary offerings,
we have already addressed the issues of competition and collusion and
explained our belief that release will

[[Page 21520]]

neither limit competition nor engender collusion.
Comment: One commenter noted that release of this information was
not authorized by the Social Security Act.
Response: We do not agree. Section 1106(a) of the Act (42 U.S.C.
1306(a)) provides authority to enact regulations that enable the agency
to release information filed with this agency.
Comment: One commenter stated that there was a unique situation in
their State where they are the largest MA organization offering MA
plans. This commenter stated that its primary competition is from
Medicare Cost HMOs/CMPs and Medigap insurers--neither of which are
impacted by this regulation. The commenter stated it was unfair that
its aggregate payment information would be released, while that of Cost
HMOs/CMPs with which it was competing would not be released.
Response: While it might be true that in some markets a single MA
organization is predominant, it is also true that a valid public policy
goal related to the release of summary payment data is to encourage
competition. Although Cost HMOs/CMPs and Medigap insurers are not
subject to this rulemaking, information on medical loss ratios for
Medigap insurers should be available from the State Insurance
Department. Thus, while the payment data we release will be available
with respect to MA plans but not Cost HMOs/CMPs or Medigap plans,
Medigap MLR data will be available with respect to Medigap plans but
not MA plans.
Comment: A commenter recommended that when CMS modifies the MA
organization contracts, as it proposed in the proposed rule, it should
modify them only to say that CMS will release the specifically
described payment data. The commenter suggested that the new
contractual language should not simply reference MA data, as this could
be construed to permit CMS to release data that was not the subject of
this notice and comment process.
Response: We agree with the commenter and when modifying MA plan
contracts, we will limit language regarding payment data disclosure to
only the items discussed in the proposed rule. In a similar manner we
have limited the regulatory language we are adding to sections Sec.
422.504(n), Sec. 422.505(o) and Sec. 423.884(c)(3)(ii) to provide for
disclosure of only those items specifically proposed in the rule.
Comment: One commenter argued that section 1860D-12(b)(3)(D) of the
Act, as amended by section 181 of the Medicare Improvement for Patients
and Providers Act of 2008 (MIPPA), specifically prohibited release of
payment data since the only authorized release would be under the
conditions enumerated in that section of the law. The commenter argued
that the law authorizes release only when one of the following
conditions is met: (1) To carry out Part D; (2) to improve public
health through research on the utilization, safety, effectiveness,
quality, and efficiency of health care services; or (3) to release the
data to Congressional support agencies for Congressional oversight
purposes.
Response: The summary payment data that CMS proposed to release are
not data that are provided by Part D sponsors--either under section
1860D-12 or under section 1860D-15 of the Act. Rather, the data that
CMS proposed to release are CMS data. The data are compiled and derived
solely from CMS internal payment files.
Further, we do not agree with the commenter's interpretation of
law. In reviewing the House Ways and Means summary of section 181 of
MIPPA, we find that Congressional intent in adding the matter after the
first sentence in section1860D-12(b)(3)(D) of the Act was to provide a
directive to the Secretary to release claims data to appropriate
Congressional support agencies. The Ways and Means summary of section
181 reads, in full: ``Clarifies the use of Part D data collected under
section 1860D-12 of the Act for research and other purposes. Requires
the Secretary to release Part D claims data to Congressional support
agencies to the extent that the agencies have authority to request the
data in their respective authorizing statutes.'' In effect, the
legislation was intended to require the Secretary to release claims
data to Congressional support agencies and not to prohibit its release
to any others. Section 1860D-12(b)(3)(D)(i) of the Act reads, in full:
``[Information provided to the Secretary] may be used for the purposes
of carrying out this part, improving public health through research on
the utilization, safety, effectiveness, quality, and efficiency of
health care services (as the Secretary determines appropriate;)'' Thus,
the law provides discretion to the Secretary to use the data broadly
for these purposes, ``as the Secretary determines appropriate.''
Although it is clear to us that the provision was narrowly intended and
meant to cover release of only PDE data--``Part D claims data''-
because that language only appears in the Ways and Means summary, and
not in the statute, we must assume broad application. However, the
statutory language, provides discretion to the Secretary, ``as the
Secretary determines appropriate,'' to use the data for the purpose of
``research on the efficiency of health care.'' In our proposed rule we
cited research and analysis of the Medicare program as one of the
reasons for our proposed disclosure of Part C and D summary payment
data and risk scores. We stated, ``the Secretary believes these data
should be made available * * * for the studies and operations that
researchers want to undertake to analyze the Medicare program and
Federal expenditures.'' We believe studies related to the efficiency of
Part D services are coextensive with our stated purposes for release.
As explained earlier, by engaging in notice-and-comment rulemaking to
promulgate regulations, proactive disclosure of summary Part C and D
payment data is now permitted.
Comment: Some commenters stated that CMS should not release retiree
drug subsidy (RDS) payment data. Some stated that RDS plans are not
public plans and therefore no payment data should be released for them.
Others stated that RDS data should not be released because data would
be based on member utilization in commercial prescription drug plans.
One commenter stated that RDS plans are private plans in the private
market and release of the subsidy amount is tantamount to release of
private payment data since the former is a simple 28 percent of the
latter. This commenter went on to say that they were unaware of any
precedent for releasing private plan data and that they knew of no
public policy data analysis that could be conducted using such data.
Finally, one commenter stated that they opposed release of RDS data
because RDS is a competitive commercial program and there is no basis
for release.
Response: We do not agree that RDS summary payment data should not
be released. In the proposed rule we stated we would release the gross
dollar amount paid to eligible sponsors and the total number of
unduplicated Medicare eligible retirees. While we agree that RDS
sponsors are private plans, we do not agree that no data should be
released. Taxpayers and interested parties should be apprised of how
their tax dollars are being spent. To the extent the RDS is a ``simple
28 percent of private payment data, ``this is merely a consequence of
the way the RDS payment is authorized in statute. Knowing that 28
percent of a specific portion of the cost of such plans is being paid
by CMS does not reveal the final cost of the plan for a number of
reasons, not the least of which is that we are not publishing member
months, but only

[[Page 21521]]

the number of unduplicated Medicare eligible retirees. There are other
factors that confound the relationship between the RDS subsidy CMS pays
and the cost of a private plan, including the fact that CMS only pays
28 percent of the allowable retiree costs--which are defined in Sec.
423.882. Further, we note that all MA and Part D plans are private
plans and the release of summary data regarding payments to RDS plan
sponsors is no different than the release of MA and Part D plan summary
payment data. As we have noted earlier in this section in our response
to other comments, having engaged in notice-and-comment rulemaking to
promulgate regulations, disclosure of summary RDS payment data is now
permitted.
Comment: Some commenters stated that the 2008 Part D Data rule
regarding the release of PDE data should be followed and that no
additional payment data should be released. They stated that CMS needs
to protect commercially sensitive data and that the threat of release
is just as great today as it was in 2008. Others stated that release of
summary Part D payment data is contrary to the 2008 Medicare Part D
Claims Data final rule regarding limited release of PDE data.
Response: We do not agree. The Part D Data rule (73 FR 30664)
published in the Federal Register on May 28, 2008, addressed limits on
release of Part D claims data--so called PDE (prescription drug event)
data. In the proposed rule, we did not propose any changes to the
process finalized in the Part D Data rule with respect to release of
PDE data. Rather, we proposed to release summary Part D payment data
and risk scores. As we have explained in our responses to previous
comments, we do not believe that the summary payment data we will be
releasing can be disaggregated in such a way as to gain granular
knowledge of PDE data. Therefore, while we will continue to follow the
guidelines we set out in the Part D Data rule with respect to PDE data,
we will also proceed with the release of summary Part D payment and
risk score data, consistent with our proposed rule.
For the reasons outlined in our responses to comments and
consistent with our proposed rule, we are finalizing our proposal to
release summary Part C and D payment data and average risk scores and
are codifying this policy in our regulations at Sec. 422.504(n), Sec.
423.505(o) and Sec. 423.884(c)(3)(ii).
4. Required Use of Electronic Transaction Standards for Multi-
Ingredient Drug Compounds; Payment for Multi-Ingredient Drug Compounds
(Sec. 423.120)
As provided under section 1860D-4(b)(2)(A) of the Act and codified
in Sec. 423.120(c) of the regulations, Part D sponsors must issue (and
reissue, as appropriate) a card or other technology that may be used by
an enrollee to assure access to negotiated prices under section 1860D-
2(d) of the Act. Under section 1860D-4(b)(2)(B) of the Act we must
provide for the development, adoption, or recognition of standards
relating to a standardized format for the card or other technology that
are compatible with the HIPAA administrative simplification
requirements of part C of Title XI of the Act and consult with the
NCPDP and other standard setting organizations, as appropriate.
In our November 2010 proposed rule, we noted that the NCPDP
Telecommunications Standard Version D.0 (Version D.0), which was
adopted as the HIPAA standard that must be used by HIPAA covered
entities for retail pharmacy drug claims on and after January 1, 2012,
standardizes claims processing for compounded drugs. Unlike the current
version, in 2012 the pharmacy claim will reflect all ingredients of a
drug compound. Since under Sec. 423.120(c)(2), Part D sponsors will be
required to adhere to the new standard, we proposed adding a new
paragraph (d) to Sec. 423.120 to clarify how Part D sponsors must
treat compounded products under the Part D program.
Our preamble observed that a compounded product as a whole
generally does not satisfy the definition of a Part D drug; only costs
associated with ingredients of a compounded product that satisfy the
definition of a Part D drug are allowable costs under Part D. Since
pharmacy transactions prior to the new standard have not captured all
ingredients of a billed compounded drug, under our current policy Part
D plans generally pay for the most expensive Part D drug ingredient in
a compound and submit that ingredient on the prescription drug event
record for Part D payment reconciliation purposes. Our guidance to date
has been limited to clarifying that the dispensing fee may include the
labor costs associated with mixing the compounded product (provided
that at least one ingredient of the compound is a Part D drug) and
providing direction regarding appropriate cost-sharing.
Given that the new standard, Version D.0, will provide plan
sponsors with access to information regarding ingredients, we thought
it appropriate to clarify the treatment under Part D of compounds in
general and, in particular, those that contain non-Part D ingredients.
We proposed to codify our existing guidance that only compounded
products that contain at least one ingredient that independently meets
the definition of a Part D drug may be covered under Part D. Consistent
with our current policy, we proposed to clarify that--subject to the
exception for compounds containing Part B ingredients--sponsors may
cover the Part D ingredients even if the compounded product as a whole
does not satisfy the definition of a Part D drug.
We further explained that the aforementioned exception for Part B
ingredients is based both on current Part B payment policy and section
1860D-2(e)(2)(B) of the Act, and proposed codifying the following: if a
compound includes a Part B drug ingredient, no ingredients of the
compound may be covered under Part D, even if one or more ingredients
of the compound would individually meet the definition of a Part D
drug.
In our November 2010 proposed rule, we proposed that Part D
sponsors determine cost-sharing for Part D ingredients of Part D
compounds and, in so doing, apply either a flat copayment amount equal
to the copayment of the tier for the most expensive Part D ingredient
or a coinsurance amount based on the tier of the most expensive Part D
ingredient. In both cases, we proposed applying cost-sharing to the
whole amount of the Part D claim. In the case of low income subsidy
(LIS) beneficiaries, we recommended that sponsors select the cost-
sharing amount based on whether the most expensive Part D ingredient is
a generic or brand-name drug.
In our preamble, we identified an underlying premise of our policy:
if a compound as a whole is considered by a Part D sponsor to be on-
formulary at the time of adjudication, for the sake of consistency,
then all Part D ingredients of that compound would be considered on-
formulary, even if any individual Part D ingredients would be
considered off-formulary as single drug claims. Accordingly, we
proposed that if a Part D sponsor considers a Part D compound as a
whole to be on-formulary, it must adjudicate the Part D ingredients as
formulary drugs.
Stating in our November 2010 proposed rule that the government
could not require Part D sponsors to reimburse pharmacies for non-Part
D drugs in Part D compounds, we

[[Page 21522]]

proposed three options for a sponsor: Contract with the pharmacy to pay
for the non-Part D ingredients without reporting these costs to us;
deny payment, but allow the pharmacy to balance bill the beneficiary;
or both deny payment and prohibit balance billing. Noting that limiting
reimbursement of ingredients in Part D compounds might deter pharmacies
from compounding services and subsequently affect beneficiary access to
drugs, we invited comment.
Comment: One commenter requested that we clarify that Part D
compounds could include certain non-Part D ingredients such as over-
the-counter (OTC) products or excluded Part D drugs that may or may not
be covered under a supplemental benefit.
Response: As proposed in Sec. 423.120(d)(1), a compound is
considered a Part D compound if it contains ``at least one Part D drug
that independently meets the definition of a Part D drug'' and does not
contain any ingredients covered under Part B as prescribed and
dispensed or administered. As long as a Part D compound satisfies these
two requirements, we clarify that it also may include other non-Part D
ingredients such as OTC products and excluded Part D drugs.
Comment: One commenter questioned if there will be additional new
reporting requirements for purposes of validating Part D coverage of
compounds.
Response: We are not proposing any new reporting requirements
specific to Part D compounds in this rule.
Comment: One commenter contended that the policy of allowing
coverage for only Part D ingredients of a Part D compound is
inconsistent with and contradicts our combination drug product policy.
It stated that the combination drug product policy provides a product
is covered under Part D if it contains at least one Part D drug
ingredient even if one of its ingredients would separately be covered
under Part B.
Response: We disagree with the commenter. The combination drug
product policy does not apply to Part D compounds. As stated in Chapter
6, section 10.3 of the Prescription Drug Benefit Manual, the
combination drug product policy applies to commercially available
combination prescription drug products. Part D compounds are
extemporaneously compounded by pharmacies and not otherwise
commercially available. Nevertheless, neither commercially available
combination prescription drug products nor extemporaneously compounded
prescription drug products can be covered under Part D if payment is
available for these products under Part B as prescribed and
administered or dispensed.
Comment: One commenter requested that CMS clarify when an
ingredient is considered covered under Medicare Part B so that the
compound cannot be covered under Part D.
Response: This rulemaking is intended to address when Part D covers
a multi-ingredient compound and is not intended to address coverage
rules under Part B. For purposes of determining Part D coverage of a
compound, we consider a compound to be covered under Part B (for
purposes of Sec. 423.120(d)(1)(i)) if, as prescribed and dispensed or
administered, it meets the definition of a drug in section 1861(t) of
the Act, fits within a Part B benefit category, and otherwise meets
Part B coverage requirements. However, the fact that a compound meets
the criteria in Sec. 423.120(d)(1)(i) does not guarantee coverage of
that compound under Part B. That stated, we will revise Sec.
423.120(d)(1)(i) to clarify that the criteria applies when an
ingredient in the compound is covered under Part B ``as prescribed and
dispensed or administered.''
Comment: One commenter asked us to waive the 60 day notice when
individual Part D ingredients within the compound change formulary or
tier status.
Response: We decline to adopt this recommendation. We do not see a
compelling reason to deny beneficiaries notice of changes in formulary
status for Part D drugs they take simply because they take those drugs
in a compounded form. However, if a Part D sponsor's formulary includes
Part D compounds (that is, identified as such rather than by Part D
ingredient), and the formulary status of the compound as a whole
remains unchanged, then it follows that there would be no formulary
change with respect to that compound about which beneficiaries would
need to be notified.
Comment: Most commenters supported the proposed policy that if a
Part D compound as a whole is considered by a Part D sponsor to be on-
formulary, then all Part D ingredients within the Part D compound must
be considered on-formulary even if a specific Part D ingredient would
be considered off-formulary if it were provided separately. However, a
few commenters recommended that CMS give Part D sponsors the option to
determine formulary status not only by the Part D compound as a whole,
but also Part D ingredient by Part D ingredient for purposes of meeting
transition fill requirements.
Response: We appreciated the comments that supported the proposed
policy to consider Part D compounds as a whole as either on-formulary
or off-formulary. However, we disagree that Part D sponsors should
determine formulary status of a compound on an ingredient-by-ingredient
basis. We believe such an approach would be confusing for
beneficiaries.
Comment: While strongly supporting the classification of compounds
as either on-formulary or off-formulary, one commenter requested that
CMS require Part D plans both to include commonly used compounds on
their formularies to ensure adequate access and to provide criteria to
pharmacy and therapeutic committees in making the formulary
classification, for instance, tailored separately for parenteral
nutrition.
Response: We did not propose to make any changes with respect to
which drugs plans must include on their formularies and, therefore, we
believe this comment is beyond the scope of this regulation.
Comment: One commenter asked that CMS clarify whether compounded
drugs would still be eligible for the generic drug cost-reduction in
the coverage gap in 2013 when, under the ACA, the brand drug cost-
sharing will be reduced in the coverage gap.
Response: We believe this commenter is asking if our existing
policy with respect to determining the cost-sharing of a compound will
change in 2013 and, therefore, we confirm that at this time we have no
plans to change the existing policy.
Comment: A few commenters stated that CMS should not require Part D
sponsors to base Part D compound cost-sharing on the most expensive
Part D ingredient and instead allow Part D sponsors to determine which
cost-sharing tier (copayment or coinsurance) under the benefit plan
applies to a Part D compound. One commenter recommended that Part D
sponsors have the option to base Part D compound cost-sharing on the
highest unit cost or a specific copayment/coinsurance that would apply
to all Part D compounds because this would allow for a more consistent
beneficiary experience since beneficiaries are not aware of the
individual ingredients within a Part D compound. Another commenter
asked us to clarify that Part D cost-sharing cannot apply to or be
based on non-Part D ingredients. One commenter supported the proposal
to base the low-income subsidy (LIS) cost-sharing on the most expensive
ingredient, while

[[Page 21523]]

another commenter recommended that the LIS cost-sharing should be brand
cost-sharing when compounds contain both generic and brand name Part D
ingredients (that is, when not all Part D ingredients are generic).
Response: We agree with the commenters' recommendation not to
require Part D sponsors to establish Part D compound cost-sharing based
upon the tier associated with the most expensive Part D drug
ingredient. We recognize that there are reasonable alternative methods
for determining which cost-sharing tier should apply to Part D
compounds and believe that each Part D sponsor should have the
discretion to determine the cost-sharing for Part D compounds within
its existing benefit design and in accordance with CMS tier
requirements (for example, specialty tier cost threshold).
While we have decided that a Part D sponsor can determine which
existing cost-sharing tier (copayment or coinsurance) applies to Part D
compounds under its benefit design, CMS maintains that the cost-sharing
for low-income subsidy (LIS) beneficiaries (as described in Sec.
423.782) must be based on whether the most expensive Part D ingredient
is a generic or brand-name drug regardless of which cost-sharing tier
the Part D compound is placed on for non-LIS beneficiaries. We believe
that this will ensure the LIS cost-sharing for Part D compounds will be
consistent across all Part D plans regardless of benefit design in the
same manner that LIS cost-sharing is consistent across Part D plans for
non-compounded Part D drugs. Therefore, based on the comments, we are
revising Sec. 423.120(d)(ii) to remove the requirement to base non-LIS
cost-sharing on the most expensive Part D drug ingredient.
Comment: Several commenters asked CMS to clarify that the most
expensive Part D ingredient refers to the highest line item computed
Part D ingredient cost (unit cost multiplied by quantity) and not the
unit cost alone.
Response: We agree with these commenters and clarify that by most
expensive Part D ingredient we mean the Part D ingredient with the
highest line item computed ingredient cost (unit cost multiplied by the
quantity) of that ingredient.
Comment: A few commenters supported the flexibility proposed for
addressing non-Part D ingredients included in a Part D compound.
However, a number of commenters did not support the proposed approach
for several reasons. Some recommended that we require Part D sponsors
to cover all Part D and non-Part D ingredients in a Part D compound or
always allow balance billing. These commenters reasoned that the
proposed approach would deter pharmacies from continuing to provide
compounding services because they might not be paid for all
ingredients. Others suggested that CMS should not allow Part D sponsor
pharmacy contracts to allow pharmacies to balance bill for non-Part D
ingredients because it could substantially increase beneficiary cost-
sharing and create access problems for beneficiaries who could not
afford the additional costs for any unpaid ingredients. Another
commenter stated that current Part D sponsor pharmacy contracts
generally do not allow member billing for anything other than what is
specified as beneficiary cost-sharing on the paid response returned by
the Part D sponsor on the pharmacy claim. These commenters also wrote
that balance billing would confuse beneficiaries because they would not
know which ingredients were not covered and the amounts listed on the
explanation of benefits would differ from what the beneficiaries
actually paid at the pharmacies. Another commenter stated that balance
billing for only some ingredients in the compound would be difficult if
secondary payers were involved.
Response: Based on the comments, we have reconsidered this issue,
and we now agree with the commenters that recommended that Part D
sponsors not allow their network pharmacies to balance bill
beneficiaries above and beyond the Part D beneficiary cost-sharing
specified on the paid response returned by the Part D sponsor on the
pharmacy claim. The proposed policy would have allowed for balance
billing based upon the premise that only a portion of some Part D
compounds are covered because non-Part D ingredients included within
the compound might not be directly paid for by the Part D sponsor and
cannot be reported as Part D ingredient costs on PDEs, and we recognize
that some commenters are concerned that pharmacies simply will stop
preparing Part D compounds if they believe they are insufficiently
compensated for that service. However, after considering the comments,
we believe a better approach to this issue is one that is more
straightforward for beneficiaries, Part D sponsors, and pharmacies.
Thus, we are amending our final regulation to prohibit balance billing
for non-Part D ingredients of Part D compounds.
Further, in response to concerns about pharmacy reimbursement, we
wish to clarify that Part D sponsors and pharmacies are able to
negotiate prices for covered Part D compounds that account for non-Part
D ingredients. We believe they can accomplish this in one of two ways:
(1) Part D sponsors can directly pay for non-Part D ingredients on the
pharmacy claim (without charging the beneficiary or reporting these
costs on the PDE to CMS); or (2) Part D sponsors can reimburse
pharmacies for these ingredients as part of the dispensing fee. In
addition, we note that, in our view, our definition of dispensing fees
supports the proposition that pharmacies already are reimbursed by the
plan for those ingredients of a Part D compound that do not
independently meet the definition of Part D drug. For these reasons, we
further do not believe that the billing and payment of specific line
items on a pharmacy claim for a Part D compound determines whether a
Part D sponsor has paid the full negotiated price for the entire Part D
compound. Instead, we believe that Part D sponsors and pharmacies have
negotiated how Part D compounds are priced in general and that such
prices adequately account for any non-Part D ingredients, which usually
account for a small portion of the overall cost, regardless of how an
individual paid claim represents payment for individual ingredients.
Consequently, because the plan's payment to the pharmacy represents
payment in full, there are no remaining unpaid amounts to be balance
billed. We believe this policy appropriately protects beneficiaries by
ensuring that they only pay Part D negotiated prices for Part D
compounds without interfering with the ability of pharmacies to
negotiate prices that provide adequate reimbursements for Part D
compounds. Based on the comments, we are revising Sec. 423.120(d) to
prohibit Part D sponsors from balance billing (or permitting pharmacies
to balance bill) beneficiaries for non-Part D ingredients in Part D
compounds.
Comment: Several commenters stated separately that the proposed
approach for covering Part D compounds might increase Medicare costs
significantly and noted that CMS did not estimate the savings, if any,
this policy would bring to the beneficiary or the Medicare Part D
program.
Response: We disagree with the commenters that the proposed
approach might significantly increase Medicare costs. The proposed
approach to allow reimbursement only for ingredients that independently
meet the definition of a Part D drug is not new policy but rather a
clarification of existing policy in light of the changing pharmacy
billing standard that makes pharmacy claims for compounded drugs more

[[Page 21524]]

transparent. We also note that Part D compounds represent significantly
less than one percent of the PDEs submitted to CMS. Additionally, as
noted previously, CMS revisited its policies in light of a new industry
standard rather than to achieve specified savings per se. For these
reasons, we do not believe any further action is necessary.
Comment: A number of commenters disagreed with the preamble
discussion on PDE reporting for compounds. Specifically, these
commenters stated that the quantity reported on the PDE should not
reflect only the quantity of the most expensive Part D ingredient
national drug code (NDC) submitted on the PDE, but rather should
reflect the total quantity of the Part D compound as a whole.
Response: We agree with the commenters that our preamble
incorrectly suggested the current PDE guidance requires Part D sponsors
to submit the quantity for the most expensive Part D ingredient NDC
only. In fact, current PDE guidance does not specify whether the PDE
should reflect the quantity of the most expensive NDC only or the total
quantity of the Part D compound as a whole. Until further PDE guidance
is issued, we will allow Part D sponsors to submit either quantity.
However, given the industry consensus for reporting total quantity as
reflected in the comments, we recommend that Part D sponsors submit the
total quantity of the Part D compounds as a whole.
The final provision, amended as discussed in this section, will
apply to plan years on and after January 1, 2012.
5. Denial of Applications Submitted by Part C and D Sponsors With Less
Than 14 Months Experience Operating Their Medicare Contracts (Sec.
422.502 and Sec. 423.503)
Each year, as part of the application evaluation process, we
conduct a comprehensive review of each Part C and D sponsor's past
performance in the operation of its Medicare contract(s). Current
regulations provide that organizations with current or prior contracts
with CMS are subject to CMS denial of any new applications for
additional or expanded Part C or D contracts if they fail during the
preceding 14 months to comply with the requirements of the Part C or D
programs, even if their applications otherwise demonstrate that they
meet all of the Part C or D sponsor qualifications. In the absence of
14 months of performance, however, this leaves a gap whereby CMS must
either assume full compliance and exempt the entity from the past
performance review, or deny additional applications from such entities
until the applicant has accumulated 14 months' experience, during which
it complied fully with the requirements of the Part C and/or Part D
programs.
Our interest in protecting Medicare beneficiaries and limiting
program participants to the best performing organizations possible
strongly suggests that we take the latter approach. Our justification
for proposing this change was two-fold. First, we would ensure that new
entrants to the Part C or Part D program could fully manage their
current contracts and books of business before further expanding.
Second, this change would require that entities rightfully focus their
attention on launching their new Medicare contracts in a compliant and
responsible manner, rather than focusing attention almost immediately
on further expansions.
Therefore, we proposed modifying Sec. 422.502(b) and Sec.
423.503(b) by adding additional language at Sec. 422.502(b)(2) and
Sec. 423.503(b)(2) that in the absence of 14 months' performance
history, we may deny an application based on a lack of information
available to determine an applicant's capacity to comply with the
requirements of the Part C or Part D program, respectively.
Comment: Several commenters requested that CMS clarify at what
organizational level this provision would apply. Specifically, to
determine whether an applying organization met the 14-month performance
history threshold, would CMS review--(1) its experience in offering a
particular plan benefit package (PBP); (2) its experience in operating
a particular Part C or D contract it holds with CMS; (3) its experience
in operating all contracts it holds with CMS; or 4) the experience of
its parent organization's operation of all of the Medicare contracts
held by its subsidiaries?
Response: These provisions only pertain to applying entities that
currently operate Part C or Part D contract(s) but have done so for
less than 14 months, and further, are unrelated (by virtue of being
subsidiaries of the same parent) to any other contracting entity with
at least 14 months' experience. So long as a contracting entity or
another subsidiary of its parent organization has operated one or more
Medicare contracts for the requisite period of time, applications for
new contracts or service area expansions submitted by a current
contracting entity will not be subject to denial under Sec.
422.502(b)(2) and Sec. 423.503(b)(2). Rather, these contracting
entities will be subject to the past performance review under Sec.
422.502(b) and Sec. 423.503(b), which CMS will conduct according to
the ``2012 Application Cycle Past Performance Review Methodology''
document CMS issued in December 2012 and expects to update each year.
Comment: One organization requested that CMS specify approval
criteria for service area expansion.
Response: We have already published our criteria for approving
applications, including service area expansions. This information can
be found within the Part C and Part D application solicitation
materials, and in the memo published on December 12, 2010 entitled,
``2012 Application Cycle Past Performance Review Methodology.'' All of
these documents are posted on CMS' Web site (http://www.cms.gov).
Comment: CMS received two comments concerning its application of
the past performance methodology generally. One organization urged CMS
to limit denials based on past performance to instances where the
extent and intent of the plan's non-compliance amounts to consistent
and willful inappropriate behavior or misrepresentation by a particular
plan to beneficiaries. Another organization expressed concern that the
past performance review CMS conducts on all applying organizations
pursuant to Sec. 422.502(b) and Sec. 423.503(b) (that is, including
those with more than 14 months' Part C or D experience) creates an
uneven playing field for existing and new sponsors, giving new carriers
a competitive advantage since they do not undergo a past performance
review.
Response: These comments concern our general authority to deny
applications based on an applicant's past Medicare contract non-
compliance pursuant to Sec. 422.502(b) and Sec. 423.503(b). The
latter comment, in particular, concerns the application of the past
performance methodology to entities with established relationships with
CMS versus those entities with no prior Part C or Part D relationship
with CMS. Neither comment addresses the issue of how CMS should treat
entities with less than 14 months experience (neither long-established
nor brand new). As such, these comments fall outside the scope of this
proposal.
In summary, for the reasons stated in the proposed rule, and after
consideration of the comments received in response to the proposal, we
are finalizing this provision without modification.

F. Other Clarifications and Technical Changes

We have identified seven technical changes in this section,
affecting as

[[Page 21525]]

noted in Table 8, cost contract plans, MA plans, or Part D plans.
[GRAPHIC] [TIFF OMITTED] TR15AP11.009

1. Clarification of the Expiration of the Authority To Waive the State
Licensure Requirement for Provider-Sponsored Organizations (Sec.
422.4)
We clarified in our November 2010 proposed rule (FR 75 71242) that
we will no longer waive the State licensure requirement for
organizations seeking to offer a provider-sponsored organization (PSO)
because, under section 1855(a)(2)(A) of the Act and Sec. 422.370 of
our regulations, we had the authority to waive the State licensure
requirement for PSOs only for requests for waivers submitted prior to
November 1, 2002. While we currently contract with organizations that
have previously met the conditions for becoming a PSO and will continue
to contract with these organizations, organizations that do not meet
State licensure requirements can no longer offer new PSOs because
waiver of State licensure laws is necessary in order to offer a PSO. A
PSO is defined in section 1855(d) of the Act, and that definition is
codified in Sec. 422.350.
Even though the authority to waive the State licensure requirement
for PSOs expired on November 1, 2002, and we have not granted waivers
of State licensure requirements since that time, we took the
opportunity to clarify this policy in our November 2010 proposed rule
because of questions we have received. Accordingly, we proposed to
revise paragraph (a) of Sec. 422.4 to clarify that we no longer have
the authority to waive the State licensure requirement for PSOs. We
received no comments on this proposal; therefore, we are finalizing
this provision without modification.
2. Cost Plan Enrollment Mechanisms (Sec. 417.430)
As part of the enrollment process, Sec. 417.430 requires that
application forms be submitted to an HMO or CMP and must include a
beneficiary's signature. The organization must provide the beneficiary
with written notice of acceptance or rejection of the application. We
proposed changes to Sec. 417.430(a)(1) to allow us to approve other
enrollment mechanisms for cost plans in addition to paper forms, such
as electronic enrollment. We also proposed to streamline Sec.
417.430(b)(3) and Sec. 417.430(b)(4)(i) to allow for notice delivery
options other than the traditional mailing of documents. These changes
take into consideration the advancement of communication technology and
comport with revisions we made with respect to the MA program under
Sec. 422.50(a)(5) and Sec. 422.60(e).
Comment: Commenters voiced support for this proposal. They believed
that alternative enrollment mechanisms provide easier access for
beneficiaries to cost plans and lower plan administrative costs.
Response: We appreciate the commenter's support of our proposal and
are finalizing this provision without modification.
3. Fast-Track Appeals of Service Terminations to Independent Review
Entities (IREs) (Sec. 422.626)
To correct a typographical error in Sec. 422.626(g)(3), we
proposed to remove the word ``to'' after the word ``may'' in the
regulation text. However, in the proposed rule, we erroneously referred
to Sec. 422.626(f)(3) as containing the typographical error rather
than Sec. 422.626(g)(3). We are correcting both of these errors in the
final rule.
Although we did not include this change in the proposed rule, we
are using this opportunity to make a technical correction to a cross-
reference in Sec. 422.622 (Requesting immediate QIO review of the
decision to discharge from the inpatient hospital). Specifically, we
are amending paragraph (g)(1) to refer to Sec. 422.626(g) rather than
Sec. 422.626(f).
We did not receive any comments on these proposed revisions and are
finalizing these technical corrections with the modifications
previously noted.

[[Page 21526]]

4. Part D Transition Requirements (Sec. 423.120)
We explained in our November 2010 proposed rule that as a result of
section 3310 of the ACA and the proposed rule at Sec. 423.154, we
proposed revising the existing transition policy for enrollees residing
in LTC facilities to be more consistent with 7-day-or-less dispensing.
We proposed a revised transition fill supply from 93 days to 91 days to
accommodate multiple dispensing events associated with 7-days-or-less
dispensing in LTC facilities whenever Sec. 423.154(a) applies to drugs
dispensed in 7-day-or-less supplies. We explained that the proposed
change to a 91-day supply will permit exactly 13 weeks of 7-day
transition fills. Under this proposed requirement, a Part D sponsor
would be required to provide a LTC resident enrolled in its Part D plan
a temporary supply of a prescription when presenting in the first 90
days of enrollment up to a 91-day supply, with supply increments
consistent with Sec. 423.154 (unless the prescription is written for
less), with refills provided, if needed.
We also proposed amending Sec. 423.120(b)(3)(iii) to clarify the
transition notice requirements. Under this requirement, notices must be
sent to beneficiaries within 3 business days of adjudication of a
temporary fill. We proposed that a written notice be sent to each
affected enrollee, and in the case of a LTC enrollee impacted by the
dispensing requirement in Sec. 423.154, the written notice be sent
within 3 business days after adjudication of the first transition fill.
We explained that we were persuaded by feedback from the LTC industry
that beneficiaries may be confused when receiving multiple transition
notices within 7 to 10 days of each 7-day-or-less dispensing event. We
solicited comments on this provision in our proposed rule.
As described earlier in this final rule, we modified the proposed
rule at Sec. 423.154 to reflect a 14-day-dispensing requirement. The
responses below reflect that modification. As a result of comments
received, in this final rule, we are modifying the proposed rule at
Sec. 423.120(b)(iii)(B) to state that the temporary supply of non-
formulary 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 at least 91
days, and up to 98 days, consistent with the dispensing increment, for
beneficiaries residing in a long-term care setting.
Comment: We received comments requesting that we change the
transition fill supply requirement in the LTC setting to 91 days across
all claims submitted in that setting. Commenters stated that two
different systems (91 days for 7-day-or-less-dispensing and 93 days for
31-day dispensing) would be confusing and add unnecessary complexity.
Response: We believe that commenters want a transition requirement
that is straightforward, and we believe a transition requirement that
is consistent with the way drugs are dispensed will address the
commenters' concerns. Therefore, we will modify the proposed rule to
require Part D sponsors provide a temporary supply of up to 91, and up
to 98 days if the plan desires to have the transition supply mirror the
dispensing increment, with refills provided, if needed, unless a lesser
amount is actually prescribed by the prescriber. For ease of
dispensing, plans can require that the temporary supply be evenly
divisible by the quantities dispensed (for example, up to 93 days for a
31-day dispensing increment, up to 91 for a 7-day dispensing increment,
or up to 98 days for a 14-day dispensing increment). As long as the
beneficiary who is receiving a transition fill can obtain at least 91
days of medication (unless a lesser amount is actually prescribed by
the prescriber), plan sponsors will have the flexibility to implement
the transition to match the dispensing increment if desired.
We encourage Part D sponsors to establish policies and procedures
that will assist in the effectuations of meaningful transitions prior
to the exhaustion of a transition fill. However, also consistent with
previous guidance, we encourage Part D sponsors to make arrangements to
continue to provide necessary drugs to an enrollee by extending the
transition supply period, on a case-by-case basis, if the enrollee's
exception request or appeal has not been processed by the end of the
minimum transition period.
Comment: Several commenters supported our proposal to send one
transition notice at the start of the transition period. Some
commenters urged us to require another transition notice prior to
conclusion of the transition period to ensure that enrollees have
access to medication beyond the transition period.
Response: As stated in the proposed rule, beneficiaries may be
confused if they were to receive multiple transition notices for a drug
dispensed in multiple increments consistent with Sec. 423.154. As
such, we believe that an additional notice sent prior to the end of the
transition period may lead to confusion.
We require Part D sponsors to send a transition notice to inform
enrollees (and their caregivers) about the options for ensuring that
the enrollee's medical needs are safely accommodated within the Part D
sponsor's formulary. We require that transition notices be sent within
3 business days of the transition fill to allow for sufficient time for
the enrollee to be switched to a therapeutically equivalent drug that
is on the formulary or for time to process an exceptions request. Based
on previous Part D experience, we believe that one notice sent within 3
business days of the first temporary fill is adequate notice to
effectuate a meaningful transition.
Comment: A commenter recommended that the transition notices be
sent to the pharmacies as well as beneficiaries residing in long-term
care facilities.
Response: Beginning in contract year 2010, we permitted Part D
sponsors the option of sending the required transition fill notices to
network LTC pharmacies. For more details, see Chapter 6 of the Medicare
Prescription Drug Benefit Manual, available at http://www.cms.gov/PrescriptionDrugCovContra/12_PartDManuals.asp#TopOfPage. We decline to
require Part D sponsors to do this, however, because the pharmacy is
not directly involved with effectuating a meaningful transition. As
stated in previous guidance, the purpose of a transition supply is to
allow the sponsor and/or the enrollee sufficient time to work out with
the prescriber an appropriate switch to a therapeutically equivalent
medication or the completion of an exception request to maintain
coverage of an existing drug based on medical necessity reasons.
Pharmacies may assist in the process, but cannot effectuate a
meaningful transition by switching the enrollee to a therapeutically
equivalent medication or by requesting an exception under Sec.
423.578(b).
As a result of comments received, in this final rule, we are
modifying the proposed rule at Sec. 423.120(b)(iii)(B) to state that
the temporary supply of non-formulary 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 at least 91 days, and up to 98 days, consistent with the
dispensing increment, for beneficiaries residing in a long-term care
setting. This provision will be effective January 1, 2012.

[[Page 21527]]

5. Revision to Limitation on Charges to Enrollees for Emergency
Department Services (Sec. 422.113)
As provided under section 1852(d)(1) of the Act and codified at
Sec. 422.113(b)(2)(v). MA organizations are financially responsible
for emergency and urgently needed services. Under Sec.
422.113(b)(2)(v), charges to enrollees for emergency department
services may not exceed $50, or what an MA organization would charge an
enrollee if he or she obtained the services through the MA
organization, whichever is less. This limit on cost sharing was first
included in the regulations at Sec. 422.112(b)(4) in the June 26, 1998
interim final rule (63 FR 35081) as the cost sharing limit for
emergency services received out-of-network. Subsequently, new section
Sec. 422.113 was added to the regulations in the June 29, 2000 final
rule (65 FR 40322) and required that same limit on cost sharing for
emergency services regardless of whether they were received in- or out-
of-network.
In our proposed rule, we explained that because we believe the
current limit on cost sharing is outdated and has constrained MA
organizations' ability to control unnecessary use of emergency
departments we proposed to revise Sec. 422.113(b)(2)(v) to remove the
$50 amount and replace it with language indicating that we will
evaluate and annually determine the appropriate enrollee cost sharing
limit for emergency department services. We would inform MA
organizations of any changes to the limit in annual guidance, such as
the Call Letter.
Comment: We received many comments expressing support for our
proposal to eliminate the $50 maximum for emergency department services
and CMS' annual evaluation and determination of the appropriate limit
on enrollee cost sharing. However, a few commenters who were generally
supportive of our proposal also expressed their interest in CMS
providing notice of the methodology that would be used annually to
determine the cost sharing limit and to specify what services are to be
included in that cost sharing. In addition, we received one comment
that supported our proposal but suggested the limit for ER services be
no more than $100.
Response: We thank the commenters for their support. CMS'
methodology for developing the cost share limit for CY 2012 would be
based on CY 2010 total costs for emergency department services visits
under Original Medicare. We would calculate a weighted average for
these visits and then determine the cost sharing limit to ensure that
MA plans would be responsible for at least 50 percent of the total cost
of the visit. Although we would not specifically limit the cost sharing
to $100 as requested by a commenter, we believe our method takes into
account plans' desire to manage utilization and beneficiary access and
protections from high out-of-pocket costs to result in appropriate and
affordable care.
After consideration of all the public comments received on this
proposal, we are finalizing our proposal to amend Sec. 422.113 by
revising paragraph (v) to replace the $50 amount with language
indicating that CMS will evaluate and determine an appropriate enrollee
cost sharing limit annually and that the enrollee would be required to
pay the lesser of that amount or the amount the plan would charge the
enrollee if he or she obtained the services through the MA
organization.
6. Clarify Language Related to Submission of a Valid Application (Sec.
422.502 and Sec. 423.503)
Since we began our contracting efforts under the MMA in 2005 in
preparation for the statute's 2006 effective date, we have established
strict deadlines for the initial submission of applications for
qualification for contracts to operate as Medicare Part C or D
sponsoring organizations and the resubmission of materials needed to
cure identified deficiencies. Consistent with that policy, we do not
review applications that are submitted after the established deadline,
meaning that an organization that misses the deadline would not receive
a Part C or D sponsor contract for the following benefit year. Because
we do not review such applications, we do not provide a notice of
intent to deny under Sec. 422.502(c)(2) or Sec. 423.503(c)(2), nor is
the organization entitled to a hearing under Sec. 422.660 or Sec.
423.650.
To avoid the consequences of missing the initial submission
deadline, some organizations have submitted applications that we
considered so lacking in required information or correct detail as to
fail to constitute a valid, timely submission. We suspect that in many
instances, these organizations expected to take advantage of our policy
of affording applicants two later opportunities during the review
process (including the 10-day cure period following the issuance of a
notice of intent to deny an application issued under Sec.
422.502(c)(2) and Sec. 423.503(c)(2)) to make their applications
complete by providing information that had been omitted from the
initial submission. Organizations that provide substantially incomplete
applications are effectively submitting ``placeholders'' designed to
save their eligibility to participate in the application review process
until they can produce all the required materials. We find this
practice to be an abuse of the application review process that defeats
the purpose of the established deadline.
We believe that confusion about our authority to enforce the
application deadline may be created by the provisions of Sec.
422.502(c)(2)(i) and Sec. 423.503(c)(2)(i), which state that we will
provide an applicant a notice of intent to deny when the organization
``has not provided enough information to evaluate the application.'' We
intended this language to afford an organization that had made a good
faith effort to complete a contract qualification application the
opportunity to provide the materials necessary to cure a discrete
application deficiency. As noted in our November 2010 proposed rule, it
appears that this language could provide an unintended protection to an
organization that circumvented our established application deadline by
submitting a ``placeholder'' application.
We believe that the language in Sec. 422.502(c)(2)(i) and Sec.
423.503(c)(2)(i), stating that the agency will issue a notice of intent
to deny if CMS finds that the applicant does not appear qualified to
contract as a Part C or D sponsor, combined with the language of Sec.
422.502(c)(2)(ii) and Sec. 423.503(c)(2)(ii) allowing the organization
to ``revise its application to remedy any defects CMS identified'' is
sufficient to authorize us to consider additional curing materials
submitted by a good faith applicant. Therefore, to remove all ambiguity
that may exist concerning our authority to decline to accept or review
substantially incomplete applications, we proposed to revise the
provisions of Sec. 422.502(c)(2)(i) and Sec. 423.503(c)(2)(i) to
delete the phrase, ``and/or has not provided enough information to
evaluate the application.''
Comment: Several commenters expressed their general opposition to
the proposed regulatory provision as they were concerned that CMS would
be arbitrary in determining whether an organization had submitted an
invalid application. They also stated that should CMS adopt the
provision in the final rule, we should create exceptions that would
require us to accept applications where the applicant had a good reason
for failing to complete the application and could demonstrate a good
faith effort to submit a valid application. Another commenter advised
that CMS should establish

[[Page 21528]]

objective criteria for determining whether an application is so
incomplete as to constitute an invalid submission.
Response: We do not believe that any modification of the proposed
regulatory provision is necessary to address the commenters' concerns.
With respect to the recommendation that we provide guidance to
applicants on our criteria for identifying an invalid application, we
already provide instructions in the annual solicitation for
applications where we make clear our expectation that organizations
submit a complete application by the established deadline and provide
guidance on how sponsors can achieve that goal. To provide guidance on
how to submit successfully something less than a complete application
would undercut our existing direction and undermine the meaning of the
application deadline. Also, we do not hold applicants to an
unreasonable standard of perfection as our regulations provide
organizations that met the deadline an opportunity to submit curing
information during the application review process.
We accept contract qualification applications in all instances
where there is evidence that the applicant made a good faith effort to
submit a substantially complete application by the established
deadline. For example, we already make exceptions to the application
deadline when there has been a technical systems error on our part that
prevented the submission of a valid application. Beyond that limited
circumstance, we cannot foresee any other legitimate reason for which
we should grant a waiver of our application deadline.
Simply put, this authority is not applicable to applications that
are missing only a few required elements but otherwise demonstrate that
the submitting organization has completed the arrangements necessary to
operate a Part C or D contract. As we noted in our proposed rule, we
intend to declare an application invalid when it is so incomplete as to
constitute little more than a placeholder submission that the applicant
is attempting to use to meet the application deadline and then use the
cure period to complete work that should have done prior to the
deadline. To illustrate our point, we provide here examples, but not an
exhaustive list, of characteristics of an invalid application.
To complete a Part C or D contract qualification application, an
organization must execute electronically a series of attestations and
provide documentation demonstrating its financial wherewithal and
relationships with first tier or downstream entities with which it has
contracted to provide required services on its behalf under its
contract with CMS. While the attestations are important to the
application process, it is the documentation concerning elements such
as the applicant's authority to operate as a risk bearing entity, its
relationships with first tier and downstream entities (including fully
executed contracts), and the extent of its contracted provider network
that most clearly substantiate an applicant's ability to administer
Medicare benefit plans. These elements also require the most effort on
the part of the applicant as each completed document represents the
culmination of extensive work with regulators and other business
partners. Failure to provide these kinds of documents would be the most
likely reason that we would determine that the organization has not
submitted a valid application by the stated deadline. Further, if these
documents are submitted but are either: (1) Blank or substantially
blank, such as a retail pharmacy network list missing data in more than
one required column; (2) a Part C document submitted for a Part D
application and vice versa, in the absence of the correct documents; or
(c) otherwise incorrect attachments, in the absence of other correct
documents, CMS may consider the application incomplete.
An example of an application we have received in past years that
would have been excluded from further consideration is one where the
applicant provided no information concerning its Part D pharmacy
network; that is, no list of contracted pharmacies, no pharmacy
contract templates, and no report demonstrating the network's
compliance with Part D pharmacy access requirements. Further, the
applicant presented no evidence of licensure as a risk bearing entity
and no executed contracts with the first tier and downstream entities
the applicant had identified in the body of its application as
providing Medicare-related services on its behalf. In this instance, it
was clear that the deficiencies were not the result of an honest
mistake on the part of the applicant, but instead indicated that it had
not finished the work necessary to submit a substantially complete
application before the deadline. We should not grant such an
organization the opportunity to continue with the application review
process when its work shows that it ignored a deadline that other
organizations made their best effort to meet.
We already have significant experience, through our administration
of the annual bid and formulary review processes, in assessing the
validity of submissions for the purposes of determining compliance with
a submission deadline. Since 2005, we have declined to accept a handful
of bid and formulary submissions that were so lacking in detail that we
could not consider the submitting organizations to have met the
deadline. None of our decisions in those cases has been successfully
challenged, and we intend to apply the same level of judgment and
analysis used in those decisions to our determinations concerning valid
contract qualification applications.
Comment: A commenter urged that CMS provide appeal rights to those
organizations whose applications CMS excludes from consideration
pursuant to this proposed regulatory provision.
Response: The point of the proposed provision is to document our
authority to determine when an organization has even qualified for
further consideration of its application, including the rights that
attach to that process, such as the opportunity to cure deficiencies
and appeal a denial, by meeting the submission deadline. To afford
appeal rights in instances where we have determined that an
organization submitted an invalid application would re-create the very
program vulnerability this provision is intended to eliminate.
Having addressed the comments in the previous discussion, we are
finalizing this provision without modification.
7. Modifying the Definition of Dispensing Fees (Sec. 423.100)
In the November 2010 proposed rule, we proposed a simplified and
clarified definition of ``dispensing fees'' under Sec. 423.100. We
explained in our proposed rule that ``dispensing fees,'' as defined in
the final rule issued January 28, 2005, implied that the salaries of
pharmacists and other pharmacy workers were reasonable pharmacy costs
only for pharmacies owned and operated by a Part D plan itself. We
proposed to clarify that the salaries of pharmacists and other pharmacy
workers may be reasonable pharmacy costs for any pharmacy. We also
proposed to modify the definition of ``dispensing fees'' under Sec.
423.100 to include costs associated with the acquisition and
maintenance of technology to maintain reasonable pharmacy costs. We
proposed adding to the definition of ``dispensing fees'' a restocking
fee associated with return for credit and reuse in long-term care
pharmacies when return for credit and reuse is permitted under State
law and is allowed under the contract between the Part D sponsor and
the pharmacy.

[[Page 21529]]

We explained in the proposed rule that it was not our intent to
include all activities that are ``reasonable costs'' in the definition
of ``dispensing fees,'' but in light of the statutory requirements
regarding LTC pharmacy dispensing, we believed that it was particularly
important to highlight the potential pharmacy costs aimed at reducing
the volume of unused Part D drugs and increasing efficiency of
dispensing. We also stated that we believe dispensing fees should
differentiate among the costs associated with different dispensing
methodologies and appropriately address costs that are incurred to
offset the amount of unused Part D drugs.
We proposed to clarify the definition of ``dispensing fees'' by
modifying Sec. 423.100 and eliminating the distinction between
pharmacies owned and operated by a Part D plan itself and all other
pharmacies. We also proposed to modify Sec. 423.100 by adding to the
definition that dispensing fees should take into consideration the
number of dispensing events in a billing cycle, the incremental costs
associated with the type of dispensing methodology, and with respect to
Part D drugs dispensed in LTC facilities, the techniques to minimize
the dispensing of drugs that go unused. Additionally, we proposed
adding that dispensing fees may also take into account restocking fees
associated with return for credit and reuse in long-term care
pharmacies, when return for credit and reuse is permitted under State
law and is allowed under the contract between the Part D sponsor and
the pharmacy. As a result of comments, in this final rule, we further
modify the definition to account for costs associated with data
collection on unused Part D drugs in LTC facilities.
Comment: Commenters supported our proposal to modify the definition
of dispensing fees. Some commenters requested that we amend the
definition of dispensing fees to include other costs associated with
the dispensing requirement under Sec. 423.154. Some of the commenters
requested that we add costs associated with the return and report
requirement described in Sec. 423.154(f)(1) and Sec. 423.154(a)(2).
Response: In the proposed rule, we modified the definition of
``dispensing fees,'' in part, to highlight the potential pharmacy costs
aimed at reducing the volume of unused Part D drugs and increasing the
efficiency of dispensing. As we stated in the proposed rule, it is not
our intent to provide a comprehensive list of all activities that are
``reasonable costs'' in the definition of ``dispensing fees.'' However,
in this final regulation, we amend the definition of ``dispensing
fees'' to include costs associated with the data collection on unused
Part D drugs.
Comment: Some commenters wanted us to provide assurances that
dispensing fees would appropriately reflect the increased costs
associated with dispensing requirements under Sec. 423.154 in LTC
facilities and to monitor dispensing fees to pharmacies dispensing to
enrollees in LTC facilities to ensure that dispensing fees are
adequate.
Response: As provided in section 1860D-11(i) of the Act, we are
prohibited from interfering with negotiations between Part D plans and
pharmacies.

III. 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 Cost Sharing for Specified Services at Original
Medicare Levels (Sec. 417.454 and Sec. 422.100)

Under Sec. 417.454(d) and Sec. 422.100(g) and (h), we clarify
that MA organizations may not impose cost sharing that exceeds that
required under Original Medicare. We evaluate the following services
annually to ensure that MA plans are charging cost sharing in the
upcoming contract year that does not exceed cost sharing in Original
Medicare. Specifically, chemotherapy administration services that
include chemotherapy drugs and radiation therapy integral to the
treatment regimen, renal dialysis as defined at section 1881(b)(14)(B)
of the Act, and skilled nursing care defined as services provided
during a covered stay in a skilled nursing facility would be subject to
this limitation. The burden associated with this requirement is the
time and effort necessary for MA organizations and section 1876 cost
contracts to submit their benefit designs, including cost-sharing
amounts, via the Plan Benefit Package (PBP) software. While this
requirement is subject to the PRA, the burden associated with it is
currently approved under OMB control number (OCN) 0938-0763 with a May
31, 2011, expiration date.

B. ICRs Regarding SNP Provisions (Sec. 422.101, Sec. 422.107, and
Sec. 422. 152)

1. Dual-Eligible SNP Contracts With State Medicaid Agencies (Sec.
422.107)
Section 422.107(d)(ii) extends the deadline for new and existing
dual-eligible SNPs (D-SNPs) to operate without a contract with their
respective State Medicaid agency(ies). New D-SNPs and D-SNPs not
seeking to expand their service areas can continue to operate without a
State contract until December 31, 2012.
For new and existing D-SNPs that are seeking to expand in contract
years 2011 through 2013, the burden associated with this requirement is
the time and effort put forth by each dual eligible SNP to confer and
develop a contract with the State Medicaid agency. While this
requirement is subject to the PRA, this burden is already approved,
under OCN 0938-0753, with a November 30, 2011, expiration date.
2. ICRs Regarding NCQA Approval of SNPs (Sec. 422.101 and Sec.
422.152)
Sections 422.101 and 422.152 provide for the approval of all SNPs,
existing and new, by NCQA beginning in 2012. The burden associated with
this requirement is the time and effort put forth by MA organizations
offering SNPs to submit their MOC to CMS for NCQA evaluation and
approval as per CMS guidance. Although the submission of the MOC
document is already part of the application process, scrutiny of these
documents by NCQA for approval is a new requirement. Previously, all
SNPs were not required to complete the SNP proposal portion of the
application each year. Under the new requirement, we require all SNPs
(that is, all of the SNP plans offered by an MA organization) must
complete the SNP proposal portion of the application. We estimate that
it will take each SNP plan 40 hours to complete the annual application.
Within those 40 hours, it will take each SNP plan 6 hours to

[[Page 21530]]

complete the SNP portion of the application. For the existing 544 SNPs,
we estimate the burden associated with completing the SNP section only
is 3,264 hours.
The number of new plans each year will vary and cannot easily be
predicted. However, based on the number of new plans that submitted SNP
Proposals during the application period in February 2010 for operation
in 2011, we estimate that approximately 15 new applications will be
submitted annually. Thus, for 15 new plans at 40 hours each, we
estimate the total annual burden hours to be 600. The burden associated
with the proposed requirement for the new plans is currently approved
under OCN 0938-0935 with a January 21, 2011 expiration date.

C. ICRs Regarding Voluntary De Minimis Policy for Subsidy Eligible
Individuals (Sec. 423.34 and Sec. 423.780)

Our regulatory modifications pursuant to section 3303 of the ACA
ensure that our regulations reflect the new statutory prohibition on
reassigning LIS beneficiaries from Part D plans that waive a de minimis
amount of their premium on the basis that the premium exceeded the low-
income premium benchmark. Further, the regulatory modifications reflect
statutory discretion for us to auto-enroll or reassign LIS
beneficiaries to Part D plans that waive the de minimis amount of the
premium. The modifications to Sec. 423.34 do not by themselves impose
any new information collection requirements on any external entity.
However, related proposals to modify Sec. 423.780 do impose new
information collection requirements. Specifically, the modifications
provide for the process for a Part D plan to volunteer to waive a de
minimis amount over the monthly beneficiary premium for certain low
income subsidy eligible (LIS) individuals. As specified in proposed
changes to Sec. 423.34, we are prohibited from reassigning LIS
beneficiaries from Part D plans that waive the de minimis amount of the
premium based on the fact that their premiums exceed the LIS benchmark
premium amount, and we may choose to auto-enroll or reassign LIS
beneficiaries to such plans.
The burden associated with this requirement is the time and effort
necessary for a Part D plan to submit data to us indicating its
decision to volunteer to waive the de minimis amount. Since we will
collect this information as part of an already established system, we
estimate that it will take an additional 10 minutes annually for plans
to read the instructions, select an online check box, and submit the
information. The de minimis amount will be established each year, and
the amount may vary among years. For purposes of estimating the burden,
we assume that the de minimis amount will be $1.00, and that all Part D
plans with premiums within the de minimis amount over the regional LIS
benchmark will volunteer to waive it. We estimate 150 Part D plans will
qualify for de minimis in a given fiscal year. For 150 plans at 10
minutes each fiscal year, we estimate the total annual burden hours to
be 25. We assume an hourly wage of $23.92 for a compliance officer,
resulting in a total annual labor cost of $598.

D. ICRs Regarding Increase in Part D Premiums Due to the Income Related
Monthly Adjustment Amount (Part D--IRMAA) (Sec. 423.44)

Section 423.44(e)(4) requires PDPs to provide Part D enrollees with
a notice of termination in a form and manner determined by CMS. We
estimate that approximately 1.05 million of the 29.2 million Medicare
beneficiaries enrolled in the Part D program will exceed the minimum
income threshold amount and will be assessed an income related monthly
adjustment amount. We also estimate that approximately 80,000
beneficiaries will be directly billed for the Part D--IRMAA because
they are not receiving monthly benefit payments from SSA, the OPM, or
the RRB, or the monthly benefit payment is not sufficient to have the
Part D--IRMAA withheld.
Of the 80,000 Part D enrollees who will be directly billed for the
Part D--IRMAA, CMS cannot estimate how many might accrue Part D--IRMAA
arrearages and be subsequently terminated. However, in the event that
the 80,000 Part D enrollees who pay the Part D--IRMAA through direct
billing become delinquent, PDPs would be required to send all 118,000
enrollees a notice of termination in accordance with Sec.
423.44(e)(4), and the burden associated with this requirement would be
the time and effort that it takes a PDP to populate the notice with a
beneficiary's information. Termination notices are generally automated;
therefore, CMS estimates that it will take 1 minute to generate a
termination notice. As such, the total maximum annual hourly burden
associated with this requirement is 1,333 hours (1 minute multiplied by
80,000 enrollees, divided by 60 minutes). We estimate that the hourly
wage paid to an individual tasked with generating the automated letters
is $40 (based on U.S. Department of Labor statistics for hourly wages
for administrative support). The associated burden amount for this work
is $53,320. Additionally, Part D plan sponsors will have to retain a
copy of the notice in the beneficiary's records. We estimate 5 minutes
multiplied by 80,000 enrollees divided by 60 minutes. This equates to
6,666 hours at approximately $40 an hour (based on U.S. Department of
Labor statistics for hourly wages for administrative support). This
associated burden amount is $266,640. We estimate the total maximum
annual burden for all Part D plan sponsors resulting from this proposed
provision to be $319,960.

E. ICRs Regarding Elimination of Medicare Part D Cost-Sharing for
Individuals Receiving Home and Community-Based Services (Sec. 423.772
and Sec. 423.782)

We are amending Sec. 423.772 and Sec. 423.782 in accordance with
section 3309 of the ACA. Specifically, the changes provide for a
definition of an individual receiving home and community based
services, and for zero cost-sharing for Medicare Part D prescriptions
filled by full-benefit dual eligible beneficiaries receiving such
services.
To carry out these provisions, we require State Medicaid Agencies
to submit data at least monthly identifying these individuals. There is
already an established data exchange for States to identify their dual
eligible individuals to CMS at least monthly. We will leverage that
data exchange by adding a new value for the existing institutional
status field, which will prompt CMS to set a zero copayment liability
for full-benefit dual eligible beneficiaries who qualify for HCBS zero
cost-sharing, as set forth under section 3309 of the ACA. The estimated
size of the population to be reported as being full benefit dual
eligible and receiving home and community-based services is 600,000.
We estimate the burden associated with the requirement for States
to provide CMS with the specified information including a one-time
development cost and ongoing annual costs. The startup development
effort is estimated at 20 hours per State, or an additional 1,020 hours
for all 51 State Medicaid Agencies (50 States and the District of
Columbia), in the fiscal year prior to the effective date of this
provision. Assuming an hourly salary of $34.10 for computer
programmers, this results in a development cost of $34,782. Once
implemented, the information collection burden is estimated to be 1
hour each month, or 612 hours in each fiscal year for 51 State

[[Page 21531]]

Medicaid Agencies. Assuming an hourly salary of $34.10 for computer
programmers, we estimate an ongoing cost of $20,862 per fiscal year.

F. ICRs Regarding Appropriate Dispensing of Prescription Drugs in Long-
Term Care Facilities Under PDPs and MA-PD Plans (Sec. 423.154) and
Dispensing Fees (Sec. 423.100)

Under Sec. 423.154 (a), we implement provisions of section 3310 of
the ACA, which require Part D sponsors to use specific, uniform
dispensing techniques such as weekly, daily, or automated dose
dispensing when dispensing covered Part D drugs to enrollees who reside
in long-term care facilities in order to reduce waste associated with
30-day fills. The collection burden associated with this proposed
provision is the reporting requirement and re-negotiation of contracts.
We are introducing a new requirement under Sec. 423.154 (a)(2) for
Part D sponsors to collect and report to CMS the method of dispensing
technique used for each dispensing event described under Sec. 423.154
(a) and on the nature and quantity of unused brand and generic drugs.
We anticipate a billing standard that incorporates the collection of
the method of dispensing technique. So, pharmacies and plans will not
have to create unique data collection processes to collect that data.
We estimate that 40 sponsors-contractors (28 drug claim processors and
12 sponsors that process their drug claims and data collection) will be
subject to this requirement. For the collection of data on unused
drugs, we estimate that it will take a total of 2400 hours for 10
vendors (software vendors plus pharmacies with proprietary systems) to
develop the programming for this requirement. The estimated total cost
associated with the software development is equal to the number of
software vendors plus the number of pharmacies with proprietary systems
(10) times an hourly rate of $145.37 (this includes $43.35 in direct
wages and an additional $102.02 in fringe benefits/overhead/general and
administrative costs/fee) times 240 (estimated number of hours to
design and program one system; the cost is $348,888. The aforementioned
burden will be included in a revision of the collection currently
approved under OMB Control No 0938-0992.
The requirements will necessitate the renegotiation of contracts
between Part D sponsors and the pharmacies servicing LTC facilities. We
anticipate dispensing fees will increase, consistent with our proposed
change in the definition of dispensing fees (Sec. 423.100), with the
relative investment in the dispensing technologies and corresponding
dispensing efficiencies associated with the dispensing technologies
used in Sec. 423.154.
We estimate that the total annual hourly burden for negotiating a
contract between the Part D sponsors and entity contracting with the
pharmacies servicing long-term care facilities (for example, PBM) to be
equal to the number of Part D sponsors (731) multiplied by the average
estimated hours per sponsor (10), equaling 7,310 hours. We estimate the
number of entities contracting with pharmacies servicing long-term care
facilities to be 40 (28 processors and 12 other entities). We estimate
the total annual hourly burden for negotiating a contract between an
entity described previously and the pharmacies servicing LTC facilities
to be the number of entities (40) multiplied by the average estimated
hours per entity (80), which is 3,200 hours. The total number of hours
for contract renegotiation is estimated to be 10,510 hours (7,310 hours
+ 3,200 hours). The estimated hourly labor cost for reporting is
$150.20. The total estimated cost associated with these contract
negotiation requirements is $1,578,602. We estimate that the total
burden cost associated with this provision is $1,927,490.
Comment: We received comments regarding the burden associated with
the reporting requirements. Many commenters believed that the
Controlled Substance Act, hazardous waste laws, and State laws would be
a barrier to LTC facilities returning unused drugs to pharmacies.
Commenters stated that manual reporting of unused drugs would create a
burden on the pharmacy and sponsor and require additional staffing to
accommodate the increased workload.
Response: In response to the comments, we will eliminate the
requirement that unused drugs be transferred to the pharmacy and
instead retain only the requirement that Part D sponsors collect
information from the network LTC pharmacies to determine the amount of
unused drugs. We believe that this information can be collected by the
pharmacies from the LTC facilities or determined by calculating the
difference between the quantity dispensed and the quantity consumed
which can be used to calculate the amount of unused medication. We are
revising the PRA package for the Part D Reporting Requirements (OMB
Control No. 0938-0992) to reflect this approach. Please comment on our
approach in the Part D Reporting Requirement PRA package.

G. ICRs Regarding Complaint System for Medicare Advantage Organizations
and PDPs (Sec. 422.504 and Sec. 423.505)

Under Sec. 422.504(a) and Sec. 423.505(b) we would require MA
organizations and Part D sponsors to address and resolve all complaints
in the CMS complaint tracking system and to include a link to the
electronic complaint form at http:[sol][sol]www.medicare.gov on their
main Web page. This requirement would allow thorough monitoring of
complaints through the tracking system by identifying how plan sponsors
resolve and close complaints and allow members to access complaint
forms electronically on http:[sol][sol]www.medicare.gov.
The burden associated with this proposed provision is the time and
effort of the MA organizations and Part D sponsors in recording
complaint closure documentation in the CTM and training staff, as well
as posting and maintaining a link from their Web site to the electronic
complaint form at the Medicare.gov Internet Web site. While this
requirement is subject to the PRA, we believe this burden is exempt as
defined in 5 CFR 1320.3(b)(2). That is, the time, effort, and financial
resources necessary to comply with the requirement would be incurred by
the Part D sponsors in the normal course of their business activities.
Comment: We received comments from one commenter expressing support
for the use of a drop-down checklist of complaint closure reasons.
However, the commenter was concerned that a new electronic complaint
form that could be accessed through the plan's Web site as well as
http://www.medicare.gov would be seen as a substitute for
beneficiaries' current avenues for issue resolution. The commenter
additionally recommended that CMS establish a strict process for
monitoring and reviewing how these complaints are resolved.
Response: Sections 422.504(a) and 423.505(b) require MA
organizations and Part D sponsors to address and resolve all complaints
in the CMS complaint tracking system and to include a link to the
electronic complaint form at http://www.medicare.gov on their main Web
page. The requirement allows complaint monitoring through the tracking
system by identifying how plan sponsors resolve and close complaints,
and allows enrollees to access complaint forms electronically on http:/
/www.medicare.gov. We are therefore not modifying the burden estimate
in our proposed rule in this final rule.

[[Page 21532]]

H. ICRs Regarding Uniform Exceptions and Appeals Process for
Prescription Drug Plans and MA-PD Plans (Sec. 423.128 and Sec.
423.562)

In accordance with the new section 1860D-4(b)(3)(H) of the Act, we
proposed revising Sec. 423.128 at paragraphs (b)(7) and (d) in our
proposed rule to specifically provide three mechanisms that plan
sponsors must have in place in order to meet the uniform appeals
requirements of 1860D-4(b)(3)(H) of the Act.
We proposed adding paragraph (i) to Sec. 423.128(b)(7) to require
that plan sponsors make available standard forms to request coverage
determinations and redeterminations (to the extent that standard
request forms have been approved for use by CMS). In this final rule,
we modify the language of the proposed rule to instead require plan
sponsors to make available uniform model forms for requesting coverage
determinations and appeals, and we clarify that we intend to revise our
existing model forms.
We also proposed adding paragraph (ii) to Sec. 423.128(b)(7),
requiring sponsors to develop a Web-based electronic interface that
allows an enrollee (or an enrollee's prescriber or representative) to
immediately request a coverage determination or redetermination via a
plan's secure Web site. The interface would be the ``electronic
equivalent'' of the paper coverage determination and appeals forms
referenced at Sec. 423.128(b)(7)(i). Based on comments we received, we
are finalizing the language related to instant access to coverage
determinations and appeals processes via the plan's Web site, but have
clarified in the preamble that we are interpreting instant access to
mean, at a minimum, the ability of Part D plan sponsors to accept e-
mail requests. Similarly, we are revising Sec. 423.128(d) to require
sponsors to provide a toll-free telephone line for requesting coverage
determinations and redeterminations. The burden associated with these
requirements involves collecting the coverage determination request
information submitted through the various processes.
We estimated that all 731 plan sponsors would receive a total of
484,468 coverage determination requests submitted by mail, with some
using the standardized coverage determination request form, if
available. We further estimated that it would take 10 minutes to enter
the information submitted from each request into a claims processing
system, for a potential total annual burden of 80,745 hours. Although
this final rule modifies the proposed language to include a reference
to a model coverage determination request form, we do not expect this
modification to impact our estimated burden for coverage determination
requests submitted by mail. In the proposed rule, we estimated that all
plan sponsors would receive a total of 52,086 coverage determination
requests submitted through secure websites, but that this process would
not create an additional burden for plan sponsors beyond that required
for requests submitted by mail because enrollees would enter
information into a claims processing system themselves. In this final
rule, we scale back the Web site requirement to mean, at a minimum, the
ability to accept requests via e-mail. We expect plan sponsors to
process the e-mail requests in the same manner as requests received by
mail, and estimate that it will take 10 minutes to enter the
information submitted from each request into a claims processing
system, for a potential total annual burden of 8,681 hours. Finally, we
estimated that all plan sponsors would receive a total of 690,064
coverage determination requests submitted by telephone, and it would
take 10 minutes to enter the information submitted by phone into the
claims processing system, for a total annual burden of 115,011 hours.
The burden associated with the redetermination process is exempt under
5 CFR 1320.4(a)(2) because a redetermination is an administrative
action. Information collected when conducting an administrative action
is not subject to the PRA.
Our final rule requires Part D sponsors to modify their electronic
transactions to pharmacies so that they can transmit codes instructing
pharmacies to distribute notices at the POS. That is, pharmacies and
processors will be required to program their systems to relay the
message at the pharmacy to distribute the POS pharmacy notice that
instructs the enrollee to contact the plan sponsor to request a
coverage determination. In cases when a prescription cannot be filled
as written, Part D sponsors would be required under Sec. 423.562(a)(3)
to arrange with their network pharmacies to distribute a pharmacy
notice that advised the enrollee of his or her right to contact the
plan to request a coverage determination. We estimate that the burden
on processors will be the programming to send the code or billing
response to the pharmacy, as well as revisions to the contract
requirement with the pharmacy. We estimate that the number of hours for
each processor (28 PBMs and 12 plan organizations) to perform these
tasks will be 40 hours per processor or plan organization, for a total
one-time burden of 1600 hours. The estimated one-time cost associated
with the processor or plan organization tasks is $64,000 (1600 hours x
$40). Each pharmacy will need to program to receive the code and print
the response. Programming by the pharmacies (40 pharmacy software
vendors) in order to receive the code will be 10 hours, for a total of
400 hours. The estimated one-time cost associated with the processor
tasks is $16,000 (400 hours x $40).
We estimate that the average time to process a coverage
determination is 10 minutes (0.167 hours), and that an average of 734
coverage determination requests received by mail or secure Web site (e-
mail) will be processed for each respondent (n=731). Therefore, we
estimate that requiring plan sponsors to process the information
submitted in model coverage determination request forms (Sec.
423.128(b)(7)(i)) will result in an annual burden of 89,605 hours (731
entities x 734 contracts per entity x .167 hours per contract to
process). At an estimated cost of $40.00 per hour, the estimated total
annual cost of this change is $3.58 million. We estimate that
processing coverage determination requests that are received by
telephone (Sec. 423.128(d)) will take an average of 10 minutes (0.167
hours) per request and that entities (n=731) would process on average
944 coverage determination requests. We expect this to result in an
annual burden of approximately 115,240 hours (731 entities x 944
determination requests per entity x 0.167 hours per determination
request). At an estimated cost of $40.00 per hour, the estimated total
annual cost of this change is $4.6 million (115,240 hours x $40.00 per
hour). We estimate that contracting entities (n=731) will distribute an
average of 2,200 pharmacy notices.
Therefore, requiring plan sponsors to arrange with their network
pharmacies to distribute pharmacy notices at the point-of-sale when
prescriptions cannot be filled as written (Sec. 423.562(a)(3)) is
estimated to result in an annual burden of 53,071 hours (2 minutes or
0.033 hours at point-of-sale x 731 contracts x 2200 pharmacy notices
per contract). At an estimated cost of $40.00 per hour, the estimated
total annual cost of this change is $2.1228 million.
Comment: One commenter believed that our estimate of $40 an hour
was too low for processing coverage determinations and
redeterminations.
Response: We disagree with the commenter. The estimated hourly rate
of $40 is a composite rate based upon

[[Page 21533]]

the Bureau of Labor Statistics National Compensation Survey.
Comment: One commenter asked CMS if the agency expects the pharmacy
to maintain a copy of the POS notice according to the 10-year record
retention requirement. If so, the commenter believed that this
requirement would increase dispensing fees and present an additional
hurdle for pharmacies and PBMs in response to CMS audit requests,
thereby increasing the burden estimate.
Response: Part D sponsors are responsible for determining which
pertinent documents they must retain. CMS does not specify which
specific records Part D sponsors must require their network pharmacies
to retain for audit purposes. Therefore, the burden estimate associated
with the POS notice does not account for record retention requirements
provided at Sec. 423.505.

I. ICRs Regarding Including Costs Incurred by AIDS Drug Assistance
Programs and the Indian Health Service toward the Annual Part D Out-of-
Pocket Threshold (Sec. 423.100 and Sec. 423.464)

Revising the definition of ``incurred cost'' at Sec. 423.100 to
include the costs associated with IHS/ADAPs towards the TrOOP does not
impose new information collection for CMS' COB contractor or ADAPs. The
COB contractor currently collects data-sharing agreements from ADAPs
under the MSP information collection process. The burden associated
with this collection is accounted for under OMB 0938-0214.

J. ICRs Regarding Improvements to Medication Therapy Management
Programs (Sec. 423.153)

This final rule amends Sec. 423.153(d)(1)(vii) to require Part D
sponsors to use a standardized format for the action plan and summary
resulting from the annual comprehensive medication review, and permit
the use of telehealth technology in the conduct of the CMR.
The burden associated with a number of the new MTM program
requirements in the ACA, including the requirement for a written
summary of the CMR, was summarized in our April 2010 final rule (75 FR
19678 through 19826) and approved under OCN 0938-0964 with an
expiration date of September 30, 2012. We believe the burden associated
with the requirement in Sec. 423.153(d)(1)(vii)(D) to provide an
action plan and summary in a standardized format is generally part of
that burden. Therefore, we do not estimate an additional burden for
this requirement in this final rule. Further, since the use of
telehealth technology to conduct the CMR is permitted but not required,
there is no burden associated with this change.
In our proposed rule, we estimated an ICR burden associated with
the proposed requirement for Part D sponsors to coordinate MTM program
quarterly medication reviews with LTC consultant pharmacist monitoring
for Part D enrollees in LTC facilities. We are not finalizing this
requirement and are eliminating this burden from our estimates. As a
result, there is no burden associated with this provision.

K. ICRs Regarding Changes to Close the Part D Coverage Gap (Sec.
423.104 and Sec. 423.884)

Section 423.104(d)(4) requires the approximately 40 pharmacy claims
processors currently responsible for adjudication of pharmacy benefits
to identify the applicable Part D covered drugs in their systems and
apply a different cost-sharing percentage when processed in the
coverage gap than the percentage applied to non-applicable drugs. We
estimate a one-time burden to be 12,000 hours per processor to make the
initial coding changes necessary to implement this requirement and an
annual burden of 250 hours per processor to perform periodic updates of
the applicable drugs in their systems. There are an estimated 40
processors. At an average labor cost of $105 per hour for a senior
computer programmer, we estimate the first fiscal year annual burden
associated with this requirement to be 480,000 hours (12,000 hours x 40
processors) at an estimated total cost of $50.4 million. After the
first fiscal year, the estimated burden associated with this
requirement would be 10,000 hours (250 hours x 40 processors) at an
estimated total annual cost of $1,050,000.

L. ICRs Regarding Medicare Advantage Benchmark, Quality Bonus Payments,
and Rebate (Sec. 422.252, Sec. 422.258 and Sec. 422.266)

Under Sec. 422.258(d)(6) we base the 5-star rating system for
quality bonus payments on a modified version of the plan ratings
published each fall on http://www.medicare.gov. The 5-star rating
system for quality bonus payment will require no additional burden. The
data collection for the 5-star rating is currently approved under the
following OCNs:
[GRAPHIC] [TIFF OMITTED] TR15AP11.010

We have included new calculations for the benchmarks and rebates in
Sec. 422.252, Sec. 422.258, and Sec. 422.266. The burden associated
with the bid data used in these calculations is included in the burden
estimate associated with the Bid Pricing Tool which is currently
approved under OCN 0938-0944 with a May 31, 2011, expiration date.

M. ICRs Regarding Quality Bonus Appeals (Sec. 422.260)

We add a new Sec. 422.260 to state that each MA organization is
afforded the right to request an administrative review of CMS'
determination concerning the organization's qualification for a quality
bonus payment. The burden associated with this proposed provision is MA
organizations' time and effort in developing and presenting their case
demonstrating that they should qualify for the quality bonus payment to
a CMS official and, ultimately, to the CMS Administrator. Eligibility
for quality bonus payments will be based largely on CMS' application of
a publicized methodology for assigning star ratings to MA
organizations. These star ratings will be calculated using a
combination of the MA organization's performance scores across a
variety of quality assessment measures. MA organizations will have the
opportunity to challenge

[[Page 21534]]

CMS' application of the methodology to their performance.
We estimate that the total hourly burden in a fiscal year for
developing and presenting a case to us for review is equal to the
number of organizations likely to request an appeal multiplied by the
number of hours for the attorneys of each appealing MA organization to
research, draft, and submit their arguments to CMS. Based on the star
rating distributions of previous contract years, out of the
approximately 350 MA contracts that are subject to star rating analysis
(that is, those not excluded from analysis because of low enrollment,
contract type not required to report data, or new contract with no
performance history), approximately 250 may receive less than a four-
star rating. We estimate that 10 percent of those contracts (25) will
request an appeal of their rating under the proposed rule. We further
estimate that one attorney working for 8 hours could complete the
documentation to be submitted to CMS for each contract, resulting in a
total burden estimate of 200 hours (8 hours x 25 contracts = 200
hours). The estimated fiscal year cost to MA organizations associated
with this provision (assuming an attorney billing rate of $250 per
hour) is $50,000 (200 hours x $250).

N. ICRs Regarding Timely Transfer of Data and Files When CMS Terminates
a Contract With a Part D Sponsor (Sec. 423.509)

In this final rule, we are amending Sec. 423.509 to state that
when CMS terminates a contract with a Part D plan sponsor, the Part D
plan sponsor must ensure the timely transfer of any data or files. Our
intent is to ensure that terminated Part D plan sponsors transfer to
CMS the necessary data to provide a smooth transition for beneficiaries
into a new Part D plan similar to when the Part D sponsor terminates
the contract or CMS and the Part D plan sponsor mutually terminate the
contract. The burden associated with this proposed provision is the
time and effort that Part D plan sponsors must undertake to transfer
the requisite data and files to CMS. We have not developed a burden
estimate for this requirement because we do not believe that we will
exceed the PRA threshold of 9 organizations per any 12-month period.

O. ICRs Regarding Agent and Broker Training Requirements (Sec.
422.2274 and Sec. 423.2274)

Sections 422.2274(b) and (c) and 423.2274(b) and (c) would require
MA organizations' and Part D sponsors' agents and brokers to receive
training and testing via a CMS endorsed or approved training program.
We are considering implementing this requirement through a RFP
competitive process. The burden associated with this requirement is the
time and effort put forth by plan sponsors and/or third party vendors
to submit their proposals for CMS review. We estimate that about 12
entities (plan sponsors and/or third party vendors) will submit a
proposal and the average estimated hours per entity to complete the
proposal is 100 hours. The total estimated hourly burden associated
with this requirement is equal to the estimated number of entities (12)
multiplied by the estimated hours per entity (100) resulting in a total
of 1200 hours. We estimate the hourly labor cost of $59.20 for the
preparer (based on hourly wages for management analysts reported by the
U.S. Department of Labor Bureau of Labor Statistics). We estimate that
the total annual labor cost of this proposal preparation is $71,040
($59.20 x 1200 hours) per fiscal year.
Also at Sec. 422.2274 and Sec. 423.2274, we clarify that the
annual agent and broker training requirements apply to all agents and
brokers selling Medicare products and not just independent agents and
brokers. The burden associated with this requirement is the time and
effort put forth by the MA organization or Part D sponsor to ensure all
agents and brokers selling Medicare products are trained and tested
annually. While this requirement is subject to the PRA, the burden is
exempt as defined in 5 CFR 1320.3(b)(2). The time, effort, and
financial resources necessary to comply with the requirement would be
incurred by persons in the normal course of their business activities.

P. ICRs Regarding Call Center and Internet Web site Requirements (Sec.
422.111 and Sec. 423.128)

At Sec. 422.111(g)(1)(2)(3) (redesignated as Sec. 422.111(h)(1)
through (3)), we require MA organizations to operate a toll-free
customer call center that is open during usual business hours and
provides customer telephone service in accordance with standard
business practices, as well as to provide current and prospective
enrollees with information via an Internet Web site and in writing
(upon request). In Sec. 422.111(g)(1)(iii) and Sec.
423.128(d)(1)(iii) (redesignated as (h)(1)(iii)) we codify provisions
from the Medicare Marketing Guidelines (August 15, 2005 version and all
subsequent versions) that require plan sponsors to provide call center
interpreters for non-English and LEP beneficiaries. The burden
associated with this requirement is the time and effort necessary to
maintain a customer call center and Internet Web site, to provide
information to beneficiaries in writing upon request, and to provide
call center interpreters. While this requirement is subject to the PRA,
we believe this burden is exempt as defined in 5 CFR 1320.3(b)(2). The
time, effort, and financial resources necessary to comply with the
requirement would be incurred by persons in the normal course of their
business activities.

Q. ICRs Regarding Requiring Plan Sponsors to Contact Beneficiaries to
Explain Enrollment by an Unqualified Agent/Broker (Sec. 422.2272 and
Sec. 423.2272)

Sections 422.2272(e) and 423.2272(e) require MA organizations and
Part D sponsors, respectively, to notify Medicare beneficiaries upon
discovery that they were enrolled in a plan by an unqualified agent.
While this requirement is subject to the PRA, the burden is exempt as
defined in 5 CFR 1320.3(b)(2). The time, effort, and financial
resources necessary to comply with the requirement would be incurred by
persons in the normal course of their business activities.

R. ICRs Regarding Customized Enrollee Data (Sec. 422.111 and Sec.
423.128)

As discussed in our November 2010 proposed rule (75 FR 71249
through 71250), proposed Sec. 422.111(b)(11) and Sec. 423.128(b)(12)
authorize CMS to require MA organizations and PDP sponsors to
periodically provide each enrollee with enrollee specific data to use
to compare utilization and out-of-pocket costs in the current plan year
to projected utilization and out-of-pocket costs for the following plan
year. Plans would disclose this information to plan enrollees in each
year in which a minimum enrollment period has been met, in conjunction
with the annual renewal materials (currently the annual notice of
change/evidence of coverage, or ANOC/EOC).
Plan sponsors already collect enrollee utilization and cost-sharing
information as part of their claims processing operations. In our
proposed rule, we stated that the burden associated with this proposed
requirement would be the time and effort necessary for a plan sponsor
to complete program development and testing, and to disclose (print and
mail) this information to each beneficiary. We anticipated that it
would take 30 hours per MA organization and 20 hours per Part D sponsor
to develop and submit the required information. This included 2 hours
for reading CMS' published

[[Page 21535]]

instructions, 20 hours per MA organization and 10 hours per Part D
sponsor generating the document or documents, and 8 hours printing and
disclosing to enrollees. We developed this burden estimate using our
burden estimates for the ANOC/EOC documents under OCN 0928-1051 as a
baseline, then expanded on that baseline, and factored in expected
programming and development costs to provide beneficiary specific
information. We estimated that 564 MA organizations and 85 Part D
sponsors would be affected annually by this requirement. We proposed
that the total annual burden associated with this requirement would be
18,620 hours in a fiscal year.
In our proposed rule, we estimated the subsequent annual burden
associated with this proposed requirement by the time and effort
necessary for a plan sponsor to disclose (print and mail) this
information to each beneficiary. We anticipated that it would take 20
hours per MA organization and 15 hours per Part D sponsor to develop
and submit the required information. This included 1 hour for reading
CMS' published instructions, 10 hours per MA organization and 5 hours
per Part D sponsor generating the document or documents, and 6 hours
printing and disclosing to beneficiary. We estimated that 564 MA
organizations and 85 Part D sponsors would be affected annually by this
requirement. We estimated the total annual burden associated with this
proposed requirement would be 12,555 hours in a fiscal year (20 hours
for each of the 564 MA organizations + 15 hours for each of the 85 Part
D sponsors). Based on the comments we received on our proposed rule, we
are modifying our burden estimate as described below.
Comment: As discussed in section II.D.4 of this final rule, we
received many comments on our proposal to authorize CMS to require MA
organizations and Part D drug sponsors to periodically provide each
enrollee with enrollee specific data to use to compare utilization and
out-of-pocket costs in the current plan year to projected utilization
and out-of-pocket costs for the following plan year. Commenters were
particularly concerned with the administrative and cost burdens
associated with providing beneficiaries with customized enrollee data
that included an estimate of future costs. Several of the commenters
stated that our analysis of the burden associated with this proposed
requirement, which we developed by expanding on the baseline burden
estimates for the ANOC/EOC documents under OCN 0928-1051, was
undervalued. One commenter stated that the estimate did not take into
account the size of organizations' memberships, sophistication of IT
systems, variances in benefit designs or delivery systems. Several
commenters stated that creating systems to compile current year
information as well as to calculate future year information would
require many more hours of IT and staff time than we estimated.
Commenters offered estimates such as ``more than 30 hours per plan
option per product'' and ``thousands of hours.''
Response: As discussed in section II.D.4 of this final rule, we are
modifying our original proposal to authorize CMS to require that MA
organizations periodically provide each enrollee with enrollee specific
data. We are finalizing Sec. 422.111(b)(12) to state that we may
require an MA organization to furnish directly to enrollees, in the
manner specified by CMS and in a form easily understandable to such
enrollees, a written explanation of benefits, when benefits are
provided under part 422. As discussed in section II.D.4 of this final
rule, we intend to work with MA organizations, Part D sponsors and
beneficiary advocates to develop an explanation of benefits for Part C
benefits modeled after the EOB currently required for Part D enrollees
at Sec. 423.128(e). We plan to continue the research and development
process through a small pilot program with volunteer organizations in
CY 2012 with the hope of implementing an EOB requirement for all MA
plans beginning in the future.
Based on the comments received, and our modified final policy, we
have recalculated our estimate of the burden, based on the annual
burden to Part D plan sponsors to furnish enrollees with an EOB for
prescription drug benefits under OMB 0938-0964. MA organizations
already collect enrollee utilization and cost-sharing information as
part of their claims processing operations. In the first year that the
pilot program is implemented, the burden associated with this proposed
requirement would be the time and effort necessary for 564 MA
organizations to complete program development and testing of an
explanation of benefits when Part C benefits are provided, and to
disclose (print and mail) this information to each beneficiary. Given
that stand alone PDPs already produce an EOB in accordance with Sec.
423.128(e), the revised burden estimate includes only MA organizations.
We estimate that in the first year it will require each entity 200
hours on an annual basis to disseminate the required materials, for a
total annual burden of 112,800 hours. We calculate the total labor cost
estimate based on the hourly rate of $34.92 for a GS-11/step 6 analyst.
This first year estimate builds from the estimated annual burden for
the Part D EOB. Our revised estimate increases the number of hours
organizations will need to initiate and complete program development
and testing of an EOB.
In subsequent years, the burden associated with this requirement
will be the time and effort necessary for about 564 MA organizations to
provide an EOB when Part C benefits are provided to enrollees. We
estimate that it will require each entity 160 hours on an annual basis
to disseminate the required materials, for a total annual burden of
90,240 hours. We calculate the total labor cost estimate based on the
hourly rate of $34.92 for a GS-11/step 6 analyst. The decreased
estimate of burden hours relative to the first year reflects the
completion of program development in the first year and brings the
estimated hours in line with the current estimated number of hours for
the Part D EOB.

S. ICRs Regarding Extending the Mandatory Maximum Out-of-Pocket (MOOP)
Amount Requirements to Regional PPOs (Sec. 422.100(f) and Sec.
422.101(d))

In this final rule, we are extending the mandatory MOOP and
catastrophic limit requirement to RPPO plans at Sec. 422.100(f) and
Sec. 422.101(d). Each RPPO plan will establish an annual MOOP limit on
total enrollee cost sharing liability for Parts A and B services. We
will set the dollar amount of the MOOP limit annually. RPPO plans'
MOOPs will include all cost sharing (that is, deductibles, coinsurance,
and copayments) for Parts A and B services. These requirements will not
result in an additional data collection burden for RPPOs since they
already collect this data to establish their own in-network MOOP and
catastrophic limits under Sec. 422.101(d)(4). While this requirement
is subject to the PRA, the burden is exempt as defined in 5 CFR
1320.3(b)(2). The time, effort, and financial resources necessary to
comply with the requirement is incurred by persons in the normal course
of their business activities.

T. ICRs Regarding Prohibition on Use of Tiered Cost Sharing by MA
Organizations (Sec. 422.100 and Sec. 422.262)

Section Sec. 422.262 clarifies that MA organizations may not
impose cost sharing that varies across enrollees for any reason,
including provider group,

[[Page 21536]]

hospital network or enrollees' utilization of services. The burden
associated with this proposed revision is the time and effort necessary
for MA organizations and section 1876 cost contracts to submit their
benefit designs, including cost-sharing amounts, via the Plan Benefit
Package (PBP) software. While this requirement is subject to the PRA,
the burden associated with it is currently approved under OCN 0938-0763
with a May 31, 2011 expiration date.

U. ICRs Regarding Translated Marketing Materials (Sec. 422.2264 and
Sec. 423.2264)

This clarification at Sec. 422.2264(e) and Sec. 423.2264(e) does
not impose any additional burden upon MA organizations because they
have been required to provide translated marketing materials pursuant
to Sec. 422.2264(e) and Sec. 423.2264(e) (previously numbered Sec.
422.80(c)(5) and Sec. 423.50(d)(5)). We believe the burden associated
with these proposed requirements is exempt from the requirements of PRA
as defined in 5 CFR 1320.3(b)(2) because the time, effort, and
financial resources necessary to comply with the requirement would be
incurred by persons in the normal course of their activities.

V. ICRs Regarding Expanding Network Adequacy Requirements to Additional
MA Plan Types (Sec. 422.112)

Our amendment to Sec. 422.112(a)(10) ensures that any MA plan that
meets Medicare access and availability requirements through direct
contracting network providers does so consistent with the requirements
at Sec. 422.112(a)(10). We do not include MA MSAs in Sec.
422.112(a)(10) because MSA plans historically have not had networks and
enrollees in MSA plans may see any provider. However, MSA plans are not
prohibited from having networks as long as enrollee access is not
restricted to network providers. While there are currently no MA MSA
network plans, we are aware of possible interest in offering such
plans.
The burden associated with this requirement is the time and effort
required by MA organizations to submit network adequacy data to CMS for
review and approval as part of the application process. This burden is
already accounted for under OCN 0938-0935. However, since this
amendment will extend the current network adequacy requirements only to
Medicare MSA plans, and there is currently only one Medicare MSA
contract (which does not use a network of providers), we believe that
fewer than 10 applications would be subject to this proposed
requirement in each fiscal year.

W. ICRs Regarding Maintaining a Fiscally Sound Operation (Sec. 422.2,
Sec. 422.504, Sec. 423.4, and Sec. 423.505)

Sections 422.504(a) and 423.505(b) add a contract term under which
an MA organization or PDP sponsor agrees to maintain a fiscally sound
operation by at least maintaining a positive net worth. A determination
of whether there is a positive net worth will be made from the
financial reports submitted under the current financial reporting
requirements. The burden associated with this requirement is the time
and effort necessary to submit these financial reports. While this
requirement is subject to the PRA, the associated burden is currently
approved under OCN 0938-0469 with an expiration date of April 30, 2013.

X. ICRs Regarding Release of Part C and Part D Payment Data (Parts 422
and 423, Subpart K)

This provision permits the Secretary to release Part C and D
summary payment data for research, analysis, and public information
functions. The Secretary believes these data should be made available
because other publicly available data are not, in and of themselves,
sufficient for the studies and operations that researchers want to
undertake to analyze the Medicare program and Federal expenditures, and
to inform the public on how their tax dollars are spent.
These data will be routinely released on an annual basis in the
year after the year for which payments were made. The data release will
occur after final risk adjustment reconciliation has been completed for
the payment year in question and, for Part D, after final payment
reconciliation of the various subsidies. Thus, we will release data for
payment year 2010 in the fall of 2011. This timeframe will not apply to
the release of RDS data, since we do not reconcile RDS payment amounts
until 15 months following the end of the plan year. The majority of our
sponsors provide retiree drug coverage on a yearly basis. If an
applicable plan year ended December 31, 2010, the payment
reconciliation is not due until March 31, 2012, which would be after
the fall 2011 target for other Part C and D payment data. We will
release the most current RDS payment data available at the time Part C
and D payment reconciliation has been completed and those data are
compiled and released.
Since we are not seeking additional information from MA
organizations or from Part D sponsors, there are no PRA implications.
Payment data are quite different than the bid data plans submit and for
which we have existing OMB authority for collection (OCN 0938-0944).
The gross payment data we are proposing to disclose are not derived
from information plans submit to us, but rather are compiled and
derived solely from CMS internal payment files.
Comment: One commenter argued that CMS should release MA payment
data in accordance with the Freedom of Information Act (FOIA) and the
current administration's FOIA policy. The commenter believed that these
data were necessary to assess the impact and operation of the MA
program, requested immediate release of 2006-2009 data, and asked CMS
to release 2010 data as soon as possible.
Response: We disagree with the commenter's argument that we must
proactively release MA payment data in accordance with FOIA.
Accordingly, we have engaged in notice and comment rulemaking pursuant
to our authority under section 1106(a) of the Social Security Act to
authorize the proactive release of data from 2010 and beyond. We are
therefore finalizing our burden estimate as proposed.

Y. ICRs Regarding Revision to Limitation on Charges to Enrollees for
EmergencyDepartment Services (Sec. 422.113)

At Sec. 422.113(b)(2)(v) we eliminate the current $50 cost-sharing
limit on emergency department services and, instead, to require CMS to
evaluate and determine the appropriate enrollee cost sharing limit for
emergency department services on an annual basis. The burden associated
with this proposed requirement is the time and effort necessary to for
MA organizations to submit their benefit designs, including cost-
sharing amounts, via the Plan Benefit Package (PBP) software. While
this proposed requirement is subject to the PRA, the associated burden
is currently approved under OCN 0938-0763 with an expiration date of
May 31, 2011.
BILLING CODE 4120-01-P

[[Page 21537]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.011

[[Page 21538]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.012

BILLING CODE 4120-01-C

[[Page 21539]]

IV. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(January 18, 2011), 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 (March 22,
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
Orders 12866 and 13563 direct 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). Executive Order 13563 emphasizes the
importance of quantifying both costs and benefits, of reducing costs,
of harmonizing rules, and of promoting flexibility. This rule has been
designated an ``economically'' significant rule under section 3(f)(1)
of Executive Order 12866, and a major rule under the Congressional
Review Act. In accordance with the provisions of Executive Order 12866,
this regulation was reviewed by the Office of Management and Budget.
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. The great majority of hospitals and most
other health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the SBA definition of a
small business (having revenues of less than $7.0 million to $34.5
million in any 1 year; for details, see the Small Business
Administration's Web site at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&view=text&node=13:1.0.1.1.16.1.266.9&idno=13). Individuals and States are not included
in the definition of a small entity.
MA organizations and Part D sponsors, the entities that will
largely 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 nonurban 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 or costs of more than 3 to 5 percent. We
do not believe that this threshold will be reached by the requirements
in this final rule because this final 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 an
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 the Secretary certifies 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 (UMRA) 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. In 2011, that threshold is approximately $136 million. This
final rule is not expected to reach this spending threshold.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a final rule that imposes
substantial direct requirement costs on State and local governments,
preempts State law, or otherwise has Federalism implications. Based on
CMS Office of the Actuary estimates, 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 note that we have estimated that our provision to
eliminate, pursuant to section 3309 of the ACA, Medicare Part D cost-
sharing for full-benefit dual eligible individuals receiving home and
community based services at Sec. 423.772 and Sec. 423.782 will have a
very small cost impact on States resulting from the need to identify
eligible individuals and provide data to CMS. As discussed elsewhere in
this RIA, we estimate the annual cost associated with the requirement
for States to provide CMS with this data to be $34,782 in the first
year and $20,869 for subsequent years.

B. Statement of Need

The purpose of this final rule is to make revisions to the Medicare
Advantage (MA) program (Part C) and Prescription Drug Benefit Program
(Part D), to implement provisions specified in the ACA and make other
changes to the regulations based on our continued experience in the
administration of the Part C and Part D programs. These latter
revisions are necessary to, (1) clarify various program participation
requirements, (2) make changes to strengthen beneficiary protections,
(3) strengthen our ability to identify strong applicants for Part C and
Part D program participation and remove consistently poor performers,
and (4) make other clarifications and technical changes.

C. Overall Impact

The CMS Office of the Actuary has estimated savings and costs to
the Federal government as a result of various provisions of this final
rule. As detailed in Table 11, we expect savings to the Federal
government of approximately $82.42 billion for fiscal years (FYs) 2011
through 2016 as a result of the implementation of the following
provisions:

[[Page 21540]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.013

In Table 10, we estimate total costs to the Federal government,
States, Part D sponsors, MA organizations, and other private sector
entities as a result of various provisions of this final rule. As
detailed in Table 10, we expect costs of approximately $5.35 billion
for FYs 2011 through 2016 as a result of the implementation of various
additional provisions of this final rule. Following are the provisions
with the most significant costs (that is, costs greater than $100
million between FY 2011 and FY 2016) in this final rule:
[GRAPHIC] [TIFF OMITTED] TR15AP11.014

Tables H2, H3, and H4 detail the breakdown of costs by cost-bearing
entity. Specifically, Table 11 describes costs and savings to the
Federal government, Table 12 describes costs to MA organizations and/or
PDP sponsors and third party entities, and Table 13 describes costs to
States.
Taking into account both costs and savings estimated in this RIA,
we estimate a net savings of $76.17 billion as a result of the
provisions in this final rule over FYs 2011 to 2016. Therefore, this
final rule is ''economically significant'' as measured by the $100
million threshold, and is a major rule under the Congressional Review
Act. Accordingly, we have prepared an RIA that details anticipated
effects (costs, savings, and expected benefits), and alternatives
considered by this requirement. For collection of information burden
associated with our requirements and the bases for our estimates, refer
to the collection of information section of this final rule.
1. Expected Impact on States, Plans and the Medicare Program
a. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.454 and Sec. 422.100)
We estimate that our implementation of section 3202 of the ACA will
result in no additional program costs. In our November 2010 proposed
rule (75 FR 71250) we had proposed cost sharing limits for in-network
home health services provided under MA plans in addition to the ACA-
required limits on cost sharing in MA plans for chemotherapy services,
renal dialysis services, and skilled nursing facility care. We are not
finalizing our proposed requirement to requiring cost sharing limits
for in-network home health services provided by MA plans. We estimate
that the Federal fiscal year 2012 (FY 2012) costs to Medicare of
limiting cost sharing in MA plans for the service categories specified
in the ACA (that is, chemotherapy and radiation services, renal
dialysis, and skilled nursing facility care) will be zero because we
already require plans to charge in-network cost sharing for these three
service categories that does not exceed cost sharing under Original
Medicare. In fact, we believe that Congressional intent was to require
that CMS maintain the limits on in-network cost sharing that we had
already implemented for SNF care, renal dialysis services, and Part B
chemotherapy services. Thus, we expect that there will be no effect on
plans or beneficiaries as a result of our implementation of the cost
sharing limits specified in section 3202 of the ACA. We believe MA
organizations will continue to have adequate flexibility to design plan
benefits that are responsive to beneficiary needs and preferences while
providing access to high quality and affordable health care.
b. Approval of SNPs by NCQA (Sec. 422.4, Sec. 422.101, and Sec.
422.152)
The burden associated with this requirement is the time and effort
put forth by MA organizations offering SNPs to submit their model of
care (MOC) to CMS for NCQA evaluation and approval as per CMS guidance.
Although the submission of the MOC is already part of the application
process, review of this document by NCQA for approval is a new
requirement. This requirement is for all new and existing SNPs. We
estimate that it will take each SNP plan 40 hours to complete the
annual application. Within those 40 hours, we estimate it will take SNP
plans 6 hours to complete the SNP proposal portion of the MA
application. Currently, there are 544 existing SNP plans. We estimate
of the 6 hours, it will take existing SNPs 2.5 hours to complete the
MOC for the SNP approval process. For the existing 544 SNPs, we
estimate the burden associated with completing the MOC for the SNP
approval process only is 1,360 hours. For the existing plans to
complete the SNP sections only, the burden associated with this new
requirement is 3,264 hours.
The number of new plans each year will vary and cannot easily be
predicted. However, based on the number of new plans that submitted SNP
Proposals during the application period in February 2010 for operation
in 2011, we estimate that approximately 15 new applications will be
submitted annually. For the estimated 15 new plan

[[Page 21541]]

applications, we estimate of the 6 hours to complete the SNP portion of
the application it will take new SNPs 2.5 hours to complete the MOC for
the SNP approval process. For the 15 new plan applications, we estimate
the burden associated with completing the MOC for the SNP approval
process only is 38 hours. Thus, for 15 new plans at 40 hours each, we
estimate the total annual burden hours to be 600.
The estimated costs associated with the burden hours are summarized
in Tables 10 through 12. Table 10 summarizes the estimated total costs
for the Federal government and MA SNP plans from FYs 2011 to 2016. The
costs in Table 11 reflect the contract award to NCQA for $1 million and
a contract award at the level of $500,000 for years 2012 to 2016. The
additional costs incurred in this table are for the Federal salaries
for two GS-13 step 10 analysts and a GS-15 manager. Table 12 contains
the projected costs to the SNPs for preparing the SNP sections of the
application. These costs are primarily labor costs for staff employed
by the plans to complete the required materials. The salaries are
equivalent to that of one GS-13 step-10 analyst at a salary of $55.46
an hour.
c. Determination of Part D Low-Income Benchmark Premium (Sec. 423.780)
Beginning in 2011, section 1860D-14(b)(3)(B)(iii) of the Act
requires CMS to calculate the LIS benchmarks using basic Part D
premiums before the application of Part C rebates each year. This final
rule updates our regulations at Sec. 423.780(b)(2)(ii)(C) to codify
this provision. This provision will decrease the number of
reassignments of low-income beneficiaries from plans that are above the
low-income benchmark because it will increase the benchmark, thereby
producing more zero-premium plans. We believe this provision will lead
to additional costs to the Federal government of approximately $90
million for FY 2011.
The estimated cost to the Federal government between FY 2011 and FY
2016 is $770 million. The year-by-year impacts in millions of dollars
are shown in Tables 10 through 12. Table 11 shows that the bulk of this
total cost is due to increased Federal premium subsidy payments, which
are the result of generally increasing the low-income benchmarks. The
higher benchmarks allow a greater number of low-income beneficiaries to
remain in their current plan, rather than reassigning them to a lower
cost plan. In each region, the low-income benchmark essentially
functions as a ceiling for the Federal premium subsidy for low-income
beneficiaries. That is, the Federal premium subsidy covers the full
cost of the plan's basic Part D premium for a full-subsidy beneficiary,
up to the low-income benchmark amount.
This approach maintains a strong incentive to bid low to keep and
possibly add LIS beneficiaries. Absent the provision, there may be a
``winner take all'' outcome in certain regions with one organization
acquiring all of the LIS beneficiaries in the region. It is difficult
to predict what will happen in the absence of this provision, but we
expect some organizations will be induced to bid even lower, while
other organizations will give up on this population and bid higher.
We expect this rule to reduce the administrative costs for plan
sponsors associated with the reassignment of LIS beneficiaries. These
costs include the production of new member informational materials by
the new plan, increased staffing of call centers to field beneficiary
questions, and costs associated with implementing transition benefits
for new enrollees. The cost estimate for the LIS benchmark methodology
change in Table 10 does not include a projection for administrative
savings.
We believe this final rule will have an effect on the number of
reassignments, and the number of zero-premium plans available to full-
subsidy eligible individuals in each region. This final rule will
reduce the number of reassignments and increase the number of zero
premium organizations available to beneficiaries. This is because,
under the higher benchmarks, more PDPs are likely to have premiums that
are equal to or less than the low-income benchmark and, as a result,
will be fully covered by the premium subsidy. Low-income subsidy
beneficiaries will be able to remain in these PDPs and will not be
reassigned to other lower-premium PDPs. Under the current framework we
would expect 1.9 million reassignments. Under the formula for
calculating benchmarks we will expect 900,000 reassignments, or
approximately one million fewer reassignments. We expect the formula to
increase the number of zero premium organizations available to
beneficiaries in 21 of the 34 PDP regions.
Although there is no quantifiable monetary value to CMS to reducing
reassignments, we believe this benefit is important, as it will
increase program stability and continuity of care.
d. Voluntary De Minimis Policy for Subsidy Eligible Individuals (Sec.
423.34 and Sec. 423.780)
The new voluntary de minimis provisions in Sec. 423.34(d) and
Sec. 423.780(f) permit Part D plans to volunteer to waive a de minimis
amount of the Part D premium above the LIS benchmark. We expect that
the only Part D plans that will volunteer to do so are those PDPs that
would otherwise lose LIS beneficiaries to reassignment. We will
establish a new de minimis amount in August of each year, and the de
minimis amount may vary by year. For purposes of illustration, if the
de minimis amount were $1.00, we would estimate 800,000 LIS
beneficiaries would have an average of $0.50 per month waived by Part D
plans, resulting in a total annual cost to all de minimis plans of $5
million per year. Table 12 shows that this would result in a total cost
of $30 million to PDPs from FY 2011 to 2016. If the de minimis amount
were $2.00, we would estimate that 1,200,000 LIS beneficiaries would
have an average of $0.93 per month waived by Part D plans, resulting in
a total annual cost to all de minimis plans of $10 million per year.
Our voluntary de minimis provisions are estimated (based on the
assumption of a $1.00 de minimis amount) to cost the Medicare Trust
Fund $140 million over the 6-year period from FY 2011 to FY 2016.
Tables 11 and 12 illustrate how these costs are borne by the Federal
government and PDPs, respectively. PDPs that volunteer to waive a de
minimis amount will not have their LIS beneficiaries reassigned to a
zero premium plan. The additional costs are attributable to low-income
beneficiaries staying in higher cost plans. The result of staying in
higher costs plans is that Medicare's low-income premium and cost-
sharing subsidy and reinsurance payments will be greater than would
have been the case if CMS reassigned these beneficiaries to lower-cost
plans.
e. Increase in Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D-IRMAA) (Sec. 423.44)
Section 423.44(e)(3) requires PDPs to provide Part D enrollees with
a notice of disenrollment in a form and manner determined by CMS. PDPs
will provide disenrollment notices to enrollees who were required to
pay the Part D--IRMAA because their modified adjusted gross income
exceeded the income threshold amounts set forth in 20 CFR 418, but
failed to pay it after a grace period and appropriate notice has been
provided.

[[Page 21542]]

Consistent with data from individuals paying the Part B IRMAA (1.8
million) and enrolled in a Part D plan, we estimate that approximately
1.05 million of the 29.2 million Medicare beneficiaries enrolled in the
Part D program will exceed the minimum income threshold amount and will
be assessed an income related monthly adjustment amount. Out of the
1.05 million affected beneficiaries, we estimate that 0.22 million will
drop the Part D coverage in 2011. Under Part B, approximately 122,000
(14.8 percent) of the 1.8 million beneficiaries assessed an IRMAA are
billed directly. This constitutes 5.17 percent of the Medicare
population. We estimate that approximately 80,000 (7.6 percent) of the
1.05 million beneficiaries enrolled in Part D who must pay the Part D--
IRMAA will be directly billed for the Part D--IRMAA either because they
are not receiving monthly benefit payments from SSA, OPM, or the RRB,
or the monthly benefit payment is not sufficient to have the Part D--
IRMAA withheld.
Of the 80,000 Part D enrollees who will be directly billed for the
Part D--IRMAA, we cannot estimate how many might accrue Part D--IRMAA
arrearages and be subsequently terminated. However, in cases where the
PDP is required to send an enrollee a notice of termination in
accordance with Sec. 423.44(e)(4), the burden associated with this
requirement would be the time and effort it takes the PDP to populate
the notice. Termination notices are generally automated; therefore,
assuming all 80,000 Part D enrollees that have a Part D--IRMAA become
delinquent, we estimate 1 minute x 80,000 enrollees divided by 60
minutes. This equates to an annual burden for PDP sponsors of 1,333
hours at approximately $40/hour (based on U.S. Department of Labor
statistics for hourly wages for administrative support). The associated
burden amount for this work is $53,320. Additionally, Part D plan
sponsors would have to retain a copy of the notice in the beneficiary's
records. We estimate 5 minutes x 80,000 enrollees divided by 60
minutes. This equates to 6,666 hours at approximately $40/hour (based
on U.S. Department of Labor statistics for hourly wages for
administrative support). This associated burden amount is $266,640. We
estimate the total maximum annual burden for all Part D plan sponsors
resulting from this provision to be $319,960. Therefore, as shown in
Table 12, we estimate this provision to result in a maximum burden
cost, to PDP sponsors, in the amount of $1.92 million for FYs 2011
through 2016. During calendar year 2011, we expect that implementation
of the Part D--IRMAA provisions, at Sec. 423.286(d)(4) and Sec.
423.293(d), will increase the Medicare Trust Fund by $270 million, with
a net Federal government savings of approximately $4.77 billion from FY
2011 through FY 2016 from increased premium payments by Medicare
beneficiaries. We describe these savings to the Federal government in
Table 11, and describe total year-by-year impact for the Federal
government and Part D sponsors in Table 10. Also, because the income
thresholds do not increase between 2011 and 2019, we anticipate that
more beneficiaries will be affected by the IRMAA provision over time
and this, in turn, will produce significant growth in the savings
associated with this program.
f. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
We are amending Sec. 423.772 and Sec. 423.782 pursuant to section
3309 of the ACA. Specifically, the changes provide for a definition of
an individual receiving home and community based services, and for zero
cost-sharing for Medicare Part D prescriptions filled by full-benefit
dual eligible beneficiaries receiving such services. As illustrated in
Table 12, this provision will not increase costs for MA organizations
or PDP sponsors. The affected beneficiaries already have LIS as full
duals and are, therefore, low-income individuals. Their Part D
copayment level is likely to be low prior to the elimination of
copayments. The elimination of copayments will allow them additional
disposable income for other expenses. The reduction in the copayments
to zero will be fully offset by increasing low income subsidy cost
sharing subsidy payments we make to their Part D plans. The formal
elimination of the fund will have little or no impact on the current
operation of the MA program. We believe the impact on the Federal
government will be minimal given that most of the impacted individuals
are already at a low copayment level and the shift from the low
copayment level to zero copayment is small.
This provision will impact States, as they will have to identify
eligible individuals and provide data to CMS. They will send the new
data on an existing monthly data exchange already used to identify dual
eligible beneficiaries. We estimate the cost for States to comply with
this requirement to include a one-time development cost of $34,782 in
FY 2011, and as well as an ongoing annual cost of $20,869 starting in
FY 2012.
g. Appropriate Dispensing of Prescription Drugs in Long-Term Care
Facilities Under PDPs and MA-PD Plans (Sec. 423.154) and Dispensing
Fees (Sec. 423.100)
We are adding a new regulation at Sec. 423.154 to require Part D
sponsors to utilize uniform dispensing techniques in increments of 14-
days-or-less when dispensing covered brand name Part D drugs to
enrollees who reside in long-term care (LTC) facilities. Based on our
discussions with industry, we estimate that 75 percent to 80 percent of
the cost related to drug waste arises from 20 percent of the drugs.
That 20 percent is made up of brand name medications. In an effort to
target the drugs resulting in the most financial waste and to lessen
burden for facilities transitioning from 30-day supplies to 14-day-or-
less supplies, we are initially limiting the requirement for 14-day-or-
less dispensing to brand name drugs as defined in Sec. 423.4.
Pharmacies servicing LTC facilities may have upfront costs
associated with software upgrades, packaging and hardware changes, and
ongoing costs of transaction fees, and additional deliveries. These
costs were not reflected in Table 10 of the proposed rule; instead, we
solicited comments on these costs. We expect some of these expenses to
be offset by an increase in dispensing fees consistent with Sec.
423.100. In addition, a decrease in volume of drugs dispensed may
result in lower revenues and rebates.
We expect most pharmacies to initially convert from a 30-day punch
card system to a 14-day punch card system. Our conversations with
manufacturers of the 30-day punch card systems have indicated that
there is minimal capital investment conversion needed for the
transition from 30-day to 14-day packaging. We expect only a relatively
small number of pharmacies will convert to an automated dose dispensing
system in the very short-term due to the acquisition costs of the
technology. We anticipate costs associated with the change in software
and training of pharmacy staff associated with the change. We also
expect a few pharmacies to incur a small additional expense related to
the number of deliveries required to service a facility with a 14-day-
or-less dispensing technique.
We anticipate that dispensing fees will be developed to take into
account the marginal costs associated with additional dispensing events
in a single billing cycle for a single prescription

[[Page 21543]]

and consider costs undertaken to acquire and maintain technology aimed
at reducing waste. We would expect dispensing fees to be greater when a
Part D drug is dispensed using automated dose dispensing technology, as
opposed to a Part D drug dispensed via a 14-day blister pack, due to
substantially greater marginal costs of acquiring and implementing
automated dose technology than in adjusting current systems and
workflows to dispense in 14-day rather than 30-day quantities. For
purposes of scoring this final rule, we project that the current
aggregate level of dispensing fees will double. It is not at all clear
that negotiated dispensing fees must or will increase directly in
proportion to the number of dispensing events per month as some, but
not all, commenters assert. Nonetheless, in order to be as conservative
as possible in projecting cost increases, we have assumed a doubling of
the current aggregate level of dispensing fees. In addition, the
information we have to work with in projecting potential savings
reflects widely divergent estimates. The variation in savings estimates
range from as low as approximately 3 percent to as high as 17 percent
for 7-day supplies, and as high as 20 to 25 percent for automated dose
dispensing. Given the divergence in estimates and the uncertainty in
the rate of conversion to the more efficient methodologies, we have
elected to be very conservative in estimating savings in this final
rule in order to ensure that savings do result from the implementation
of this provision.
We estimate the total yearly burden for negotiating a contract
between the Part D sponsor and the entity (for example, PBM)
contracting with the pharmacies servicing LTC facilities to be equal to
the number of the Part D sponsors (731) x the average estimated hours
per sponsor (10). This equals 7,310 hours. We estimate the number of
entities contracting the pharmacies servicing LTC facilities to be 40
(28 processors and 12 sponsors). We estimate the total yearly hourly
burden for negotiating a contract between the entity described
previously and the pharmacies servicing LTC facilities to be the number
of entities (40) x the average estimated hours per entity (80). This is
3200 hours. The total number of hours for contract negotiation is
estimated to be 10, 510 hours. The estimated hourly labor cost for
reporting is $150.20. Hourly rates in the RIA include fringe benefits
and overhead. This estimate is a compilation of the hourly rate for a
lawyer and support staff from the Bureau of Labor Statistics. The total
estimated cost associated with these contract negotiation requirements
is $1,578,602 ($150.20 x (3,200 + 7,310 hours) = $1,578,602) and is
described in Table 12. This is a one-time contract negotiation cost.
We are introducing a new requirement under Sec. 423.154 (a)(2) for
Part D sponsors to collect and report to CMS the method of dispensing
technique used for each dispensing event described under Sec. 423.154
(a) and on the nature and quantity of unused brand and generic drugs.
We anticipate a billing standard that incorporates the collection of
the method of dispensing technique. So, pharmacies and plans will not
have to create unique data collection processes to collect that data.
We estimate that 40 sponsors-contractors (28 drug claim processors and
12 sponsors that process their drug claims and data collection) will be
subject to this requirement. For the collection of data on unused
drugs, we estimate that it will take a total of 2,400 hours for 10
vendors (software vendors plus pharmacies with proprietary systems) to
develop the programming for this requirement. The estimated total cost
associated with the software development is equal to the number of
software vendors plus the number of pharmacies with proprietary systems
(10) times an hourly rate of $145.37 (this includes $43.35 in direct
wages and an additional $102.02 in fringe benefits/overhead/general and
administrative costs/fee) times 240 (estimated number of hours to
design and program one system; the cost is $348,888. The total cost
associated with this provision is $1,927,490 and is described in Table
12.
We anticipate that the initial upfront costs to convert to a 14-
day-or-less dispensing technique will eventually be more than offset by
the savings to the Federal government associated with dispensing (see
Table 10 for estimates of the year-by-year savings). We expect this
provision to reduce in Part D program expenses, pharmaceutical waste,
environmental disposal costs impact, and the risk of pharmaceutical
diversion associated with unused drugs in 30-day fills.
Comment: Several commenters believed that we failed to adequately
analyze the financial impact of the 7-day-or-less dispensing
requirement. Some commenters also stated that we failed to consider the
increased costs associated with hiring pharmacists and pharmacy
technicians that would be needed to keep up with the 7-day-or-less
dispensing requirement.
Response: As discussed earlier in this final rule, we modified the
proposed rule at Sec. 423.154 to reflect 14-day-or-less dispensing as
opposed to 7-day-or-less dispensing. Given that the requirement is for
14-day-or-less dispensing and is limited to brand name drugs only
(which make up only 20 percent of the drugs dispensed), we do not
believe there will be a significant increase in pharmacy staff. In
addition, this final rule modifies our proposed rule in such a way as
to reduce the burden associated with this provision. As previously
discussed, we eliminated the requirement for Part D sponsors'
pharmacies to collect unused Part D drugs the pharmacies had originally
dispensed to enrollees, and we simplified the reporting requirements
associated with this provision by allowing pharmacies to calculate the
number of doses that go unused by enrollees in LTC facilities by
utilizing the discontinuation dates of the prescription and the
quantities dispensed to the enrollee. Also, by changing the requirement
from 7-day-or-less dispensing to 14-day-or-less dispensing, we reduce
the burden associated with filling the prescriptions by the pharmacies
and checking-in prescriptions by the LTC facilities. The burden
reduction should translate into a reduction in costs associated with
this provision because, for example, fewer additional staff will be
needed to implement the requirements of Sec. 423.154. We also believe
that at least some of the costs associated with implementing this
requirement will be offset by the increase in dispensing fees. We have,
however, modified our impact estimate to reflect the assumption that
dispensing fees will double and to take into consideration that the
implementation date is January 1, 2013.
Comment: Several commenters stated that we failed to take into
consideration the costs associated with collecting unused drugs from
the LTC facilities and the costs associated with disposal of those
unused drugs.
Response: We have eliminated the requirement for Part D sponsors
contracted pharmacies to collect unused Part D drugs from LTC
facilities. Therefore, the pharmacies will not incur increased costs
associated with the collection of unused drugs or the disposal of those
drugs as a result of this final rule.
h. Complaint System for Medicare Advantage Organizations and PDPs
(Sec. 422.504 and Sec. 423.505)
The burden associated with this provision is the time and effort of
the MA organizations and Part D sponsors in training staff and
recording complaint closure documentation in the CTM, as

[[Page 21544]]

well as posting and maintenance of a link from their Web site to the
electronic complaint form at http://www.medicare.gov. We estimate that
the total annual hourly burden for training staff and recording
complaint closure in the CTM is equal to the average estimated hours
per sponsor for documentation for each complaint closure (.25) x the
average number of complaints per sponsor (102) plus the average
estimated hours per sponsor for training (8 hours), multiplied by the
average cost of a technical health care worker ($15) x the number of
Part C and D contracts (757). We also estimate that the total annual
hourly burden for posting and continued maintenance of a link is 20
hours x the average cost of a Web site developer ($34) x the number of
Part C and D contracts (757). We estimate the annual burden associated
with all these changes equals 40,500 hours. The average cost per hour
is approximately $22.10. The estimated annual cost associated with
these requirements is $895,160.
i. Uniform Exceptions and Appeals Process for Prescription Drug Plans
and MA-PD Plans (Sec. 423.128 and Sec. 423.562)
We are modifying our proposal in our November 2010 proposed rule
(75 FR 71250) to include a reference to the availability of model forms
for requesting coverage determinations and appeals, as opposed to
requiring use of a standardized form. We are finalizing the language
related to instant access to the coverage determination and appeals
process via the plan's Web site, but have clarified in the preamble
that we are interpreting instant access to mean, at a minimum, the
ability of Part D plan sponsors to accept e-mail requests. We expect
that streamlining the appeals and exceptions process will allow
beneficiaries to access appeals more quickly and will ensure
beneficiaries have access to covered medications in a timely manner. MA
organizations and Part D sponsors will be required to process coverage
determination requests submitted by mail or via an Internet Web site
(Sec. 423.128(b)(7)(i) and (ii)), which is estimated to result in an
annual burden of 80,745 hours. At an estimated cost of $40.00 per hour,
the estimated total annual cost of this requirement is $3.23 million.
Also, processing coverage determination requests that are received by
telephone (Sec. 423.128(d)) is estimated to result in an annual burden
of 115,010 hours. At an estimated cost of $40.00 per hour, the
estimated total annual cost of this requirement is $4.6 million.
In cases when a prescription cannot be filled as written, Part D
sponsors are required under Sec. 423.562(a)(3) to arrange with their
network pharmacies to distribute a pharmacy notice advising the
enrollee of his or her right to contact the plan to request a coverage
determination. Under this provision, Part D sponsors are required to
modify their electronic transactions to pharmacies so that they can
transmit codes instructing pharmacies to distribute notices at the POS.
That is, pharmacies and PBMs are required to program their systems to
relay the message at the pharmacy to distribute the POS pharmacy notice
that instructs the enrollee to contact the plan sponsor to request a
coverage determination.
We estimate the burden on plan processors will be the programming
to send the code or billing response to the pharmacy, as well as
revising the terms of their contracts with pharmacies. We estimate that
the number of hours for each processor (28 PBMs and 12 plan
organizations) to perform these tasks will be 40 hours per processor or
plan organization, for a total one-time burden of 1,600 hours. The
estimated one-time cost associated with the processor or plan
organization tasks is $64,000 (1600 hours x $40). Each pharmacy will
need to program to receive the code and print the response. Programming
by the pharmacies (40 pharmacy software vendors) in order to receive
the code by each pharmacy will be 10 hours, for a total of 400 hours.
The estimated one-time cost associated with the processor tasks is
$16,000 (400 hours x $40).
We estimate that the 731 contracting entities would distribute an
average of 2,200 pharmacy notices. Therefore, requiring plan sponsors
to arrange with their network pharmacies to distribute pharmacy notices
at the point-of-sale when prescriptions cannot be filled as written
(Sec. 423.562(2)(3)) would result in an annual burden of 53,071 hours
(2 minutes or 0.033 hours at point-of-sale x 731 contractors x 2,200
pharmacy notices per contract). At an estimated cost of $40.00 per
hour, the estimated total annual cost of this change would be $2.12
million.
Comment: One commenter believes that our estimate of $40 an hour
was too low for processing coverage determinations and
redeterminations.
Response: We disagree. The estimated hourly rate of $40 is a
composite rate based upon the Bureau of Labor statistics National
Compensation Survey.
Comment: One commenter asked CMS if we expect the pharmacy to
maintain a copy of the POS notice according to the 10 year record
retention requirement. The commenter argued that this would increase
the burden estimate since it would likely increase dispensing fees and
present an additional hurdle for pharmacies and PBMs in response to CMS
audit requests.
Response: We do not specify which specific records must be retained
by Part D sponsors for audit purposes. Part D sponsors are responsible
for determining which pertinent documents their network pharmacies must
retain. Therefore, the burden estimate associated with the POS notice
does not account for the record retention requirements provided under
Sec. 423.505.
j. Including Costs Incurred by the AIDS Drug Assistance Program (ADAP)
and the Indian Health Services (IHS) Toward the Annual Part D Out-of-
Pocket Threshold (Sec. 423.100 and Sec. 423.464)
As provided under Sec. 423.100 and Sec. 423.464, Part D sponsors
are required to count ADAP and IHS costs towards a beneficiary's TrOOP
costs, allowing the beneficiary to move through the coverage gap
portion of the benefit and into catastrophic coverage phase. There is
no burden on IHS facilities since claims will be identified as IHS
provider claims by the National Provider Identifier (NPI). However,
ADAPs will be requested to submit information to CMS Coordination of
Benefits (COB) contractor via a voluntary data sharing agreement
(VDSA), which will be sent to the TrOOP facilitator to ensure proper
calculation of the TrOOP amounts. Several ADAPs already participate in
the COB file exchange and have submitted their VDSAs. The approximate
cost associated with this submission is 30 minutes to complete the VDSA
per entity. We estimate a negligible one-time annual cost to 50 ADAPs
that require VDSAs.
The burden associated with this provision is not expected to impact
sponsor organization costs, with the exception of up-front programming
costs, which we estimate will be 1 hour per sponsor for an approximate
cost of $40 per sponsor. Including these costs toward TrOOP impacts how
fast a beneficiary will reach the catastrophic limit, triggering
Federal reinsurance payments. Sponsors will not incur additional costs
due to this requirement. The Federal cost impact is estimated at $460
million from FY 2011 to FY 2016. The additional cost to the Federal
government (Medicare program) is due to more individuals reaching the
catastrophic coverage phase under the Part D benefit. Overall, we
expect this provision to reduce the costs to ADAPs and IHS.

[[Page 21545]]

k. Cost Sharing for Medicare Covered Preventive Services (Sec. 417.454
and Sec. 422.100)
We estimate that our implementation of sections 4103, 4104, and
4105 of the ACA will result in additional program costs as
beneficiaries will pay no portion of the costs for the Personalized
Prevention Plan Services, the Initial Preventive Physical Exam and
Medicare-covered preventive services for which cost sharing is waived
under Original Medicare (Sec. 417.454 and Sec. 422.100). We estimate
that the FY 2012 costs to Medicare for increasing access to clinical
preventive services in accord with sections 4103, 4104, and 4105 of ACA
will be $410 million.
Although slightly less than 30 percent of Medicare expenditures for
Parts A and B are for MA enrollees, we estimate that the cost to the MA
program of increasing access to clinical preventive services as
described by sections 4103, 4104, and 4105 of the ACA will be
significantly less than 30 percent of the estimated cost to the
Medicare program for implementation of these provisions. In contrast to
the Original Medicare program, most MA plans already provide some in-
network preventive services without charging beneficiary cost sharing.
In contract year 2010, at least 78 percent of plans provide many, or
all, of the Medicare-covered preventive services without charging
beneficiary cost sharing. In fact, almost all MA plans currently
provide a few of the Medicare-covered preventive benefits without cost
sharing. Therefore, we estimate that our requirement for MA plans to
provide the Medicare-covered preventive services without beneficiary
cost sharing will not increase plan costs by a significant amount.
Based on our finding that 78 percent of plans provide some
preventive benefits without cost sharing in contract year 2010, we
estimate that for FY 2012 plans will incur approximately $27.1 million
in costs by providing in-network Medicare preventive services without
charging beneficiary cost sharing as provided under Sec. 417.454 and
Sec. 422.100. Over time, we estimate that the relative cost to the MA
program for provision of improved access to Medicare-covered preventive
services will be consistent with the estimated cost for Medicare, which
increases with growth in the Medicare population. We estimate the total
cost of this provision to be $147.9 million between FYs 2011 and 2016.
Further, although not included in our estimates, we believe that
the increased emphasis on provision of preventive services may also
result in improved beneficiary well-being and subsequently decrease
their need for, and utilization of, more costly medical and surgical
interventions and may decrease overall program costs.
l. Elimination of the Stabilization Fund (Sec. 422.458)
Section 10327(c) of the ACA repealed section 1858(e) of the ACA,
eliminating the stabilization fund. Therefore, we are deleting
paragraph (f) from Sec. 422.458, since the statutory basis for the
Fund no longer exists. The elimination of the stabilization fund will
have the effect of savings for the Federal government, but will also
result in a loss of financial incentives for regional plans to operate
in regions with no or low MA penetration.
We expect the Federal government to save approximately $181.2
million for the fiscal years 2011 through 2016 from the implementation
of this provision. The savings are a result of the elimination of the
national bonus payment and recruitment and retention bonus payments to
MA plans that would operate in regions with no or low MA penetration.
The fund will no longer offer a financial incentive for regional
organizations to offer plans in regions with low or no MA penetration.
The funds have never been accessible, however, because, since the
fund's inception, payments have been delayed through legislation.
Therefore, the formal elimination of the fund will have little or no
impact on the current operation of the MA program.
m. Improvements to Medication Therapy Management Programs (Sec.
423.153)
Our proposed rule estimated first year costs associated with the
requirement for Part D sponsors to contract with all LTC facilities in
which their Part D enrollees reside to provide appropriate MTM services
in coordination with independent consultant pharmacist evaluation and
monitoring was $96,709,680 ($402,957 estimated cost per parent
organization or sponsor x 240 parent organizations or stand alone
sponsors with Part D LTC residents = $96,709,680 estimated cost).
Annual costs for updating the contracts for subsequent years were
estimated to be $32,236,560 ($134,319 estimated cost per parent
organization or sponsor x 240 parent organizations or sponsors with
Part D LTC residents = $32,236,560 estimated cost). After considering
comments on our proposal, we are not finalizing the proposed
requirement that Part D sponsors contract with LTC facilities for
appropriate MTM services in coordination with LTC consultant pharmacist
evaluation and monitoring, and, therefore, are not finalizing our
original cost estimate associated with this proposal.
Comment: Two commenters requested that we include in our costs
estimate include all costs related to the provision of MTM services in
LTC settings and not merely those costs associated with Part D sponsor
contracting.
Response: We are not finalizing the proposed requirement for Part D
sponsors to coordinate MTM with LTC consultant pharmacist evaluation
and monitoring, and are, therefore, not finalizing our original impact
estimate. We plan to work with the industry to develop an alternate
proposal and a more inclusive estimate of the associated costs.
n. Changes To Close the Part D Coverage Gap (Sec. 423.104 and Sec.
423.884)
With the implementation of provisions related to closing of the
Part D coverage gap, Medicare beneficiaries will have improved access
to the prescription drugs in the coverage gap. They will likely enter
the catastrophic phase of the benefit earlier in the benefit year as a
result of our changes to close the Part D coverage gap, because they
will be more likely to obtain necessary drugs in the coverage gap,
thereby bringing them to the catastrophic phase sooner. Beneficiary
cost sharing in the coverage gap would be determined on the basis of
whether the covered Part D drug is considered an applicable drug under
the Medicare coverage gap discount program. Different cost sharing
levels will apply during the coverage gap to the drugs that are
applicable and not applicable under the coverage gap discount program.
In addition to the cost sharing changes, the rate of growth of the
annual Part D out-of-pocket threshold would be reduced from FY 2014 to
FY 2016. Further, in attesting to the actuarial equivalence of
qualified retiree prescription drug plans to the standard Medicare Part
D coverage, sponsors would not take into account the value of any
discount or coverage provided during the coverage gap.
For changes associated with closing the Part D coverage gap, we
estimate a one-time total cost of $50,400,000 (12,000 burden hours for
each processor x 40 processors x $105 for the average labor cost of a
senior programmer based on data from the Bureau of Labor Statistics) in
the first year for the 40 pharmacy claims processors to implement
systems changes. In subsequent years, the estimated total annual cost
is $1,050,000 (250 burden hours per processor x 40 processors x

[[Page 21546]]

$105 for the full cost of labor of a senior programmer) to identify
changes to the applicable drugs under the Medicare coverage gap
discount program and update systems with this information each month.
The total estimated costs to the Medicare program for the adjustments
to beneficiary cost sharing in the coverage gap are $130,400,000 in the
first year (FY 2011), increasing in subsequent years as the coverage
gap closes and the Part D enrollment increases. The estimated annual
cost to the Medicare program associated with decreasing the rate of
annual growth in the Part D out-of-pocket threshold is $40,000,000 in
FY 2014, increasing in subsequent years as the Medicare Part D
enrollment increases and the coverage gap closes.
o. Medicare Advantage Benchmark, Quality Bonus Payments, and Rebate and
Application of Coding Adjustment (Sec. 422.252, Sec. 422.258, Sec.
422.266, and Sec. 422.308)
Prior to enactment of the ACA, MA payment benchmarks (county rates)
were established only partially in relationship to average fee-for-
service costs in a county. Section 1102 of reconciliation amendments
links all county benchmarks to FFS costs, effective 2012. As a
transition, the ACA sets the 2011 MA benchmarks equal to the benchmarks
for 2010; for subsequent years it specifies that, ultimately, the
benchmarks will be equal to a percentage (95, 100, 107.5, or 115
percent) of the fee-for-service rate in each county. During a
transition period, the benchmarks will be based on a blend of the pre-
ACA and post-ACA benchmarks. The phase-in schedule for the new
benchmarks will occur over 2 to 6 years, with the longer transitions
for counties with the larger benchmark decreases under the new method.
The ACA, as amended, also introduces MA bonuses and rebate levels
that are tied to the plans' quality ratings. Beginning in 2012,
benchmarks will be increased for plans that receive a 4-star or higher
rating on a 5-star quality rating system. The bonuses will be 1.5
percent in 2012, 3.0 percent in 2013, and 5.0 percent in 2014 and
later; these bonuses increase the new benchmark portion of the blended
benchmark until all transitions are complete. An additional county
bonus, which is equal to the plan bonus, will be provided on behalf of
beneficiaries residing in specified counties. The percentage of the
``benchmark minus bid'' savings provided as a rebate, which
historically has been 75 percent, will also be tied to a plan's quality
rating. In 2014, when the provision is fully phased in, the rebate
share will be 50 percent for plans with a quality rating of less than
3.5 stars; 65 percent for a quality rating of 3.5 to 4.49; and 70
percent for a quality rating of 4.5 or greater. This provision will
provide incentives for plan quality to increase. Plans will be paid
based on quality performance rather than just the specific services
they provide. However, the rules for determining quality bonus payments
for CY 2012 through 2014 will be modified under the terms of the
national quality bonus payment demonstration project.
The ACA amended the statutory provision that requires us to make an
adjustment to MA risk scores for differences in coding patterns between
MA and FFS. The ACA made four modifications to this requirement: The
analysis must be conducted annually; the data used in the analysis is
to be updated as appropriate; the results of the analysis are to be
incorporated into risk scores on a timely basis; and the application of
an adjustment for differences in coding patterns was extended past 2010
indefinitely. Further, the ACA provides for minimum adjustments for MA
coding in future years.
Our changes to Sec. 422.252, Sec. 422.258, and Sec. 422.266
codify section 1102 of the ACA, which links county benchmarks to FFS
costs and provides eligible plans with a quality bonus. These
provisions will lower payments from us, bringing MA payments in line
with FFS payments. The new provisions will also generally reduce MA
rebates and benchmarks for plans and thereby result in less generous
benefit packages. We estimate that the Federal government will save
approximately $40.56 billion from FY 2011 to FY 2014. The Federal
government will save approximately $76.470 billion from the FY 2011 to
FY 2016. The year-by-year savings in millions of dollars are shown in
Table 10.
p. Quality Bonus Appeals (Sec. 422.260)
We estimate a minimal overall impact as a result of this provision,
as we expect only a minority of MA organizations to take advantage of
the opportunity to appeal CMS' annual quality rating. Of those
organizations that do appeal their rating, a minimal number of
professional staff working over a short period of time would be
required to prepare and present an organization's appeal.
We estimate that the total annual hourly burden for developing and
presenting a case to us for review is equal to the number of
organizations likely to request an appeal multiplied by the number of
hours for the attorneys of each appealing MA organization to research,
draft, and submit their arguments to CMS. Based on the star rating
distributions of previous contract years, out of the approximately 350
MA contracts that are subject to star rating analysis (that is, those
not excluded from analysis because of low enrollment, contract type not
required to report data, or new contract with no performance history),
approximately 250 may receive less than a four-star rating. We estimate
that 10 percent of those contracts (25) will request an appeal of their
rating under the final rule. We further estimate that one attorney
working for eight hours could complete the documentation to be
submitted to us for each contract, resulting in a total burden estimate
of 200 hours (8 hours x 25 contracts = 200 hours). The estimated annual
cost to MA organizations associated with this provision (assuming an
attorney billing rate of $250 per hour) is $50,000 (200 hours x $250 =
$50,000). Our intent in finalizing this provision is to ensure that MA
organizations are afforded the benefit of reasonable opportunity to
challenge CMS determinations that ultimately affect an organization's
payments from the Medicare Trust Fund. Granting organizations an avenue
to challenge CMS' determinations will enhance the transparency and
credibility of the process CMS uses to determine the recipients of
quality bonus payments.
q. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
We anticipate minimal financial impact from our requirement that
terminated Part D plan sponsors help to effectuate a smooth transition
for their enrollees by providing CMS with Medicare beneficiary data
including information to identify each affected beneficiary, pharmacy
claims files, true out-of-pocket (TrOOP) cost balances, and information
concerning pending grievances and appeals.
We estimate that the total annual burden for this provision to be
the cost of maintaining sufficient staff to transfer the data required
under Sec. 423.509. As a result, we estimate the total annual burden
to be the number of Part D sponsors we anticipate terminating in a
contract year (2) x the hourly rate of staff to transfer the required
data ($75/hour) x the number of hours required to provide data to us
(20 hours). Therefore, the estimated annual cost associated with these
requirements is $3,000. We do not anticipate that this provision will

[[Page 21547]]

result in a financial benefit to the terminated Part D sponsor.
r. Review of Medical Necessity Decisions by a Physician or Other Health
Care Professional and the Employment of a Medical Director (Sec.
422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
We are modifying the language in the proposed rule with respect to
the requirement for a physician or other health care professional to
review initial determinations involving medical necessity. Under this
final rule, if the plan expects to issue a partially or fully adverse
decision based on the initial review of the request, a physician or
other appropriate health care professional with sufficient medical and
other expertise, including knowledge of Medicare coverage criteria,
must review the request for medical necessity before the plan issues
its decision.
We are finalizing our modifications to Sec. 422.562, Sec.
422.566, Sec. 423.562, and Sec. 423.566 to require MA organizations
and Part D plan sponsors to employ a medical director. We estimate that
95 percent of MA organizations and Part D sponsors already have a
medical director overseeing decisions of medical necessity. Therefore,
we believe that there will be no increase in cost for the majority of
MA organizations and Part D sponsors. We anticipate that 5 percent of
MA organizations and Part D sponsors will incur a financial impact as a
result of this provision.
Of the 5 percent of MA organizations and Part D sponsors that do
not currently employ a medical director, we estimate that the total
annual burden for employing a medical director is equal to 5 percent of
the number of MA organization and Part D sponsors (757), which equals
38 organizations and sponsors, at a salary of $250,000 per year.
Therefore, the estimated annual cost associated with these requirements
is $9,500,000.
We believe this approach balances the need to ensure proper medical
review of initial coverage determinations with the ability of MA
organizations and Part D plan sponsors to manage health care
professional staff resources. We believe these provisions will enhance
medical review activities and overall coordination and accountability
of plan operations.
s. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
Sections 422.2274(b) and (c) and 423.2274(b) and (c) require MA
organizations' and Part D sponsors' agents and brokers to receive
training and testing via a CMS endorsed or approved training program.
We are considering implementing this requirement through a Request for
Proposal (RFP) competitive process. The burden associated with this
requirement is the time and effort put forth by plan sponsors and/or
third party vendors to develop and submit their proposals for CMS
review. We estimate that about 12 entities (plan sponsors and/or third
party vendors) will submit a proposal annually and that the average
estimated hours per entity to complete the proposal is 100 hours. The
total estimated hourly burden associated with this requirement is equal
to the estimated number of entities (12) multiplied by the estimated
hours per entity (100) = 1,200 hours. We estimate the hourly labor cost
for the preparer of the proposal will be $59.20 (based on the U.S.
Department of Labor statistics for hourly wages for management
analysts). The annual cost of proposal preparation is estimated to be
$71,040 ($59.20 x 1200 hours).
t. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
We estimate the cost for our call center requirements at the parent
organization level because most parent organizations have one call
center for all of their contracts. For the parent organizations that
currently and consistently provide interpreters, their costs will not
increase. Organizations that provide interpreters, but not
consistently, will need to train their CSRs on how to use the
interpreter service, which can be included in regularly scheduled
training meetings at no increased cost. Lastly, we expect the cost for
each of the two parent organizations that currently do not provide
interpreters to increase by $9,933 per year. This estimated cost is
based on 1-800-MEDICARE foreign language interpreter use, which is 4.5
percent of all calls. If 4.5 percent of calls could require an
interpreter over the course of a standard 12-hour call center day, this
would translate into using interpreter services for 33 minutes each
day. Over the course of a year for the 301 days a call center is
required to be open, and at a rate of $1.00 per minute, based on CMS
market research in for interpreter costs, the cost for each of the two
parent organizations would increase by $9,933 per year, which is
$19,866 for both in FY 2012.
u. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
In proposed rule (75 FR 71261 through 71262), proposed Sec.
422.111(b)(11) and Sec. 423.128(b)(12) would require MA organizations
and PDP sponsors to periodically provide each enrollee with enrollee-
specific data to use to compare utilization and out-of-pocket costs in
the current plan year to projected utilization and out-of-pocket costs
for the following plan year. Plans would disclose this information to
plan enrollees in each year in which a minimum enrollment period has
been met, in conjunction with the annual renewal materials (currently
the annual notice of change and evidence of coverage documents).
We estimated that the initial year burden associated with this
requirement would be the time and effort necessary for a plan sponsor
to complete program development and testing, and to disclose (print and
mail) this information to each beneficiary. We developed this burden
estimate using our experience with burden estimates for the ANOC/EOC
documents under OMB control number (OCN) 0928-1051as a baseline, then
expanding on that baseline, and factoring in expected programming and
development costs to provide beneficiary specific information. We
estimated the total annual burden hours associated with this provision
at 18,620 hours for the 564 MA organizations and 85 Part D sponsors
that would be affected annually by this requirement. Using the same
wage/cost estimate as the ANOC/EOC documents, we applied an hourly wage
cost for GS-10, step 1 analyst at an estimated cost of $27.24 per hour.
Therefore, the estimated total initial year cost of this requirement is
approximately $507,208.00.
In subsequent years, we estimated that the burden associated with
this requirement would be the time and effort necessary for a plan
sponsor to disclose (print and mail) this information to each
beneficiary. We estimated the total annual burden hours associated with
this provision at 12,555 hours for the 564 MA organizations and 85 Part
D sponsors that would be affected annually by this requirement. At an
estimated cost of $27.24 per hour, the estimated total initial year
cost of this requirement would be approximately $342,000.
After considering comments on our proposed policy, we have modified
both the final policy and our cost estimate, as described below.
Comment: Many commenters stated that a customized estimate of
future costs would create significant administrative, financial, IT
resource, and call center burdens on MA plans and Part D sponsors, much
more than CMS has anticipated. They stated that the expense and
operational burden of

[[Page 21548]]

the proposal cannot be justified economically or in value to
beneficiaries, considering the potential for beneficiary confusion and
dissatisfaction that may result from relying on estimated future costs.
One commenter suggested that the significant costs of producing and
distributing a custom statement will increase administrative costs that
in turn may increase plan bids and result in a negative impact on
benefits and or premiums. As discussed in section II.D.4 of this final
rule, we received many comments on our proposal to authorize CMS to
require MA organizations and Part D drug sponsors to periodically
provide each enrollee with enrollee specific data to use to compare
utilization and out-of-pocket costs in the current plan year to
projected utilization and out-of-pocket costs for the following plan
year.
Response: Based on the comments received, and our modified final
policy, we have also recalculated our estimate of the burden based on
the annual burden to Part D plan sponsors to furnish enrollees with an
EOB for prescription drug benefits under OMB--0938-0964. MA
organizations already collect enrollee utilization and cost-sharing
information as part of their claims processing operations. In 2012, the
burden associated with this proposed requirement would be the time and
effort necessary for 564 MA organizations to complete program
development and testing of an explanation of benefits when Part C
benefits are provided, and to disclose (print and mail) this
information to each beneficiary. Given that stand alone PDPs already
produce an EOB in accordance with Sec. 423.128(e), the revised burden
estimate includes only MA organizations. We estimate that in the first
year it will require each entity 200 hours on an annual basis to
disseminate the required materials, for a total annual burden of
112,800 hours. This first year estimate builds from the estimated
annual burden for the Part D EOB, expanding the total hour requirement
to include additional hours required to initiate and complete program
development and testing of an EOB. The estimated first year cost is
$3,938,976. This estimate is based upon the hourly rate at the GS-11/
step 6 ($34.92) multiplied by the number of burden hours (112,800).
In subsequent years, the burden associated with this requirement
will be the time and effort necessary for about 564 MA organizations to
provide an explanation of benefits when Part C benefits are provided to
enrollees. We estimate that it will require each entity 160 hours on an
annual basis to disseminate the required materials, for a total annual
burden of 90,240 hours. The decreased estimate of burden hours relative
to the first year reflects the completion of program development in the
first year and brings the estimated hours in line with the current
estimated number of hours for the Part D EOB. The estimated annual cost
is $3,151,181. This estimate is based upon the hourly rate at the GS-
11/step 6 ($34.92) multiplied by the number of burden hours (90,240).
The anticipated effect of our modified provision to require MA
organizations to provide an explanation of Part C benefits would be
greater access to individualized information for beneficiaries to track
their own utilization of services and to use in making decisions about
their enrollment and their health care options. While this new EOB
requirement will result in less of a cost burden for MA plans than the
burden of calculating out-of-pocket costs including an estimate of
costs in the next plan year, we continue to believe that plans should
already have the systems in place to collect the required out-of-pocket
cost information as part of their claims processing operations and for
calculating MOOP limits. Therefore, over time, we anticipate that plans
would continue to refine and work to make their processes for
disclosing this information as well as the annual notice of change,
evidence of coverage, and other plan documents more efficient, thereby
mitigating the burden in future years.
v. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
Sections 422.100(f) and 422.101(d) extend the mandatory MOOP and
catastrophic limit requirements to RPPO plans. Each RPPO plan must
establish an annual MOOP limit on total enrollee cost sharing liability
for Parts A and B services, the dollar amount of which would be set
annually by CMS. All cost sharing (that is, deductibles, coinsurance,
and copayments) for Parts A and B services will be included in RPPO
plans' MOOPs. While this change is significant in that it will help
beneficiaries to understand and anticipate their possible health care
expenditures, as with the requirement to establish a mandatory MOOP for
local MA plans, we do not believe that this change would by itself have
a significant cost impact on RPPO plan participation or plan costs.
We estimate that any impact on enrollee premiums will be very
limited for several reasons. First, since implementation of the MMA,
RPPOs have been required to establish a MOOP for in-network cost
sharing and a catastrophic limit; however those amounts are currently
at the discretion of MA organizations offering RPPO plans. For FY 2011,
we encouraged RPPO plans to adopt either the mandatory or voluntary
MOOPs established in CMS guidance. For FY 2011, the voluntary MOOP
limits for local PPO plans were set at $3,400 in-network and $5,100
catastrophic (in- and out-of-network), and the mandatory MOOP limits
for local PPO plans were set for FY 2011 at $6,700 in-network and
$10,000 catastrophic (in- and out-of-network). Based on data for FY
2011 approved bids, we found that only 3 regional PPO plans (4 percent
of all RPPOs) did not meet or exceed our voluntary or mandatory in-
network or catastrophic maximum out-of-pocket limits. Based on this
information, it is our expectation that the impact on RPPO plans will
be very small.
Second, it is our intention to continue setting 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. Given a competitive marketplace and
Medicare beneficiary sensitivity to premium amounts, we believe that MA
plans may choose instead to modify their benefit packages to reduce
costs elsewhere. Furthermore, we estimated that beneficiaries in
regional PPO plans that currently offer the FY 2011 voluntary or
mandatory MOOP limits (about 92 percent of RPPO plans) would experience
no cost increases as a result of these provisions. In our April 2010
final rule, we estimated that the maximum impact of these requirements
on beneficiary premiums for those plans that currently have no MOOP
limit of any kind (8 percent of all prospective FY 2011 RPPO plans)
would average $5 in the absence of other adjustments to benefit
packages to account for the annual MOOP requirements. However, in this
case, the RPPO plans already offer MOOP and catastrophic limits, so we
estimated that any premium impact would be less than $5.
By setting the parameters for the annual mandatory MOOP limit, we
believe that we will make it easier for plans to compete on a level
playing field.

[[Page 21549]]

w. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
Our final rule slightly modifies existing subregulatory guidance,
so the impact to plan sponsors (MA organizations and PDP sponsors)
depends upon whether, and to what extent, they are currently
translating marketing materials. In the preamble, we indicate that
moving to a 5 percent translation standard (from 10 percent) and
focusing on the primary language spoken by individuals in the service
area who have limited ability to read, write, speak, or understand
English will result in a slight burden reduction. For 2011, 321
contract sponsors are required to translate marketing materials at the
10 percent translation standard. Under the 5 percent primary language
translation standard, we used 2011 data to determine that sponsors
would be required to translate marketing materials for only 305
contracts, which is 16 contracts fewer than under the 10 percent
standard. In 2010, sponsors were required to provide translated
marketing materials for 307 contracts. Because the number of contracts
(307) from 2010 is extremely close to the revised number of contracts
(305) that we estimate for 2011, we are not changing our impact
estimate from the 2010 estimate. We acknowledge that the original
estimates would have been higher if we had used 2011 data when
originally compiling these estimates. At the beginning of 2010, we
conducted a translated marketing material monitoring study in which
preliminary findings revealed that some sponsors had produced a few
materials. However, we do not yet know the specific number of sponsors
that are providing all translated materials. Our research indicates
that the average translation cost is 20 cents per word, and that will
cost approximately $18,325 for a sponsor to produce all of the required
plan materials in one language for the first year because there are
approximately 17 documents containing 91,623 words for translation. In
subsequent years, sponsors will only need to edit existing documents
with the new data and any changes required by CMS, which could result
in approximately 5 percent of the documents being changed. As a result,
after the first year of translating all required documents, plan
sponsors will need to spend $916 updating translated materials. Because
we do not have final data from our translated materials study, we do
not know what proportion of sponsors would have to develop a complete
set of translated materials for the first year and what proportion
would only need to update existing documents. Because not all required
translated marketing materials are plan benefit package (PBP) specific,
if a plan sponsor translates the document for one PBP, it could use the
document for all PBPs offered that year. For the purpose of this
analysis, we assume that the sponsors of all 307 contracts would have
to translate all materials for the first year at a total cost of
$5,625,775. In subsequent years, sponsors will only need to edit
existing translated documents, which we estimate will cost a total of
$281,212 annually for all sponsors. As mentioned in the preamble, CMS
hopes to further reduce burden in the future by providing pretranslated
model materials. However, as we do not have funding committed for this
effort at this time, we have not changed the burden estimates to
reflect this goal.
Comment: One industry commenter identified that this impact
analysis did not include the cost of an employee's time involved with
coordinating the translated materials effort.
Response: We did not include employee time because, as stated in
the Collection of Information Requirements section of this final rule,
the requirement to provide translated materials is not a new
responsibility for Medicare Part C and D plans. We do not have complete
data on which plan sponsors are providing translated materials, and
which ones are not. The number of employees that would be involved with
coordinating this effort is also unknown. Therefore, to err on the side
of caution, we presumed all sponsors would have to develop first year
translations. Thus, we believe the overall cost is an over estimate
that would more than compensate for not including employee coordination
time. We are therefore finalizing our proposed impact estimate without
modification.
BILLING CODE 4120-01-P

[[Page 21550]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.015

[[Page 21551]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.016

[[Page 21552]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.017

[[Page 21553]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.018

[[Page 21554]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.019

[[Page 21555]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.020

BILLING CODE 4120-01-C

[[Page 21556]]

2. Expected Effects on Beneficiaries
a. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.454 and 422.100)
We believe that the requirement that MA plan cost sharing may not
exceed that required under Original Medicare for chemotherapy services,
renal dialysis services, and skilled nursing facility care will provide
additional transparency and cost sharing and predictability for
beneficiaries as they evaluate their health plan options, and also will
strengthen our beneficiary protections against discriminatory cost
sharing and benefit designs.
b. Approval of SNPs by NCQA (Sec. 422.4, Sec. 422.101, and Sec.
422.152)
We believe that our requirement that all SNPs be approved by NCQA
based on evaluation of each plan's model of care (MOC) will result in
SNP options that are appropriate for special needs beneficiaries and
address their targeted populations' particular health care needs. SNP
MOCs provide the structure for care management processes and systems
that enable SNPs to provide coordinated care for special needs
individuals. By ensuring that these documents provide an adequate
framework for coordinated care for the vulnerable beneficiaries
eligible to enroll in SNPs through the NCQA SNP approval process, we
believe the quality of care under SNPs will be positively impacted.
c. Determination of Part D Low-Income Benchmark Premium (Sec. 423.780)
This final rule supports pharmacy and formulary consistency for the
beneficiary. Particularly in regions with high MA-PD penetration, this
final rule will reduce the year-to-year volatility in reassignments of
LIS beneficiaries and would help avoid the disruption that is inherent
anytime a beneficiary is switched from one plan to another.
d. Voluntary De Minimis Policy for Subsidy Eligible Individuals (Sec.
423.34 and Sec. 423.780)
The voluntary de minimis provisions permit Part D plans to
volunteer to waive a de minimis amount of the Part D premium above the
low income benchmark and, thus, avoid losing LIS beneficiaries to
reassignment. We perform reassignments to ensure that beneficiaries
whom we originally assigned to a zero premium plan will not incur a new
premium liability when their current plan's premium goes above the LIS
benchmark in the following year. The number of reassignments has ranged
between 1 and 2 million over each of the past 4 years. While
reassignments are effective at avoiding new premium liabilities, they
can create confusion and disrupt continuity of care. We expect that the
de minimis provisions will reduce reassignments.
e. Increase in Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D-IRMAA) (Sec. 423.44, Sec. 423.286, Sec.
423.293)
Beginning in CY 2011, we estimate that approximately 1.05 million
of the 29.2 million Medicare beneficiaries enrolled in the Part D
program will exceed the minimum income threshold amount and will be
assessed an income related monthly adjustment amount. During calendar
year 2011, we expect that implementation of the Part D--IRMAA
provisions, at Sec. 423.286(d)(4) and Sec. 423.293(d), will increase
the Medicare Trust Fund by $270 million, with a net increase to the
Medicare Trust Fund over a 5-year period from FY 2011 through FY 2016
of $4.77 billion. The Part D--IRMAA 2011 income levels and premium
adjustment amounts are as follows:
[GRAPHIC] [TIFF OMITTED] TR15AP11.021

[[Page 21557]]

Approximately 3.6 percent of Medicare beneficiaries will be
impacted. We estimate that the number of beneficiaries impacted per
tier will be as follows:
[GRAPHIC] [TIFF OMITTED] TR15AP11.022

f. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
The expected benefit of the elimination of the Medicare Part D
cost-sharing for individuals receiving home and community based
services provision is greater access to prescription drug coverage for
a population that traditionally has high medical needs. These
individuals are already eligible for the full low income subsidy, and
likely qualify for the $1.10/$3.30 copayment level now. The elimination
of the copayment will provide financial relief for those who are able
to pay at that level and greater access for those who are not.
g. Appropriate Dispensing of Prescription Drugs in Long-Term Care
Facilities under PDPs and MA-PD Plans (Sec. 423.154) and Dispensing
Fees (Sec. 423.100)
We expect that Part D enrollees who use a 14-day supply (or less)
of Part D drugs described in the requirements under section 423.154 (a)
will benefit from the savings resulting from a reduction in cost
sharing that would be associated with a full 30-day supply whenever a
Part D drug is discontinued within the first 2 weeks from the start
date of the drug. We would expect that many drugs discontinued due to
adverse drug reactions or side effects will be discontinued within the
first 2 weeks. In addition, Part D enrollees residing in LTC facilities
that elect to use more efficient dispensing systems, such as automated
dose dispensing, may also benefit from additional interactions with
nursing staff a result of decreased medication preparation time
associated with automated dose dispensing. Over time, we expect a
decrease in drug expenditures in the Part D program will be reflected
by a reduction in Part D premiums.
h. Complaint System for Medicare Advantage Organizations and PDPs
(Sec. 422.504(a) and Sec. 423.505(b))
We expect this provision to reduce the volume of calls using 1-800-
MEDICARE as members will have online access to the complaint tracking
system to file complaints regarding their MA or prescription drug
benefit plan. We also expect the provision will benefit Medicare
beneficiaries by offering another means for them to file their
complaints. Electronic complaint filing should also save time for those
beneficiaries who choose to use this method.
i. Uniform Exceptions and Appeals Process for Prescription Drug Plans
and MA-PD Plans (Sec. 423.128, and Sec. 423.562)
We expect that as a result of implementation of this provision,
beneficiaries and the health care providers or representatives that
assist them will benefit from a more streamlined approach to the
exceptions and appeals process than what is in place currently. They
will have access to the appeals process via a Web site or a customer
call center, if their plan sponsor has not already adopted this
approach.
j. Including Costs Incurred by the AIDS Drug Assistance Program (ADAP)
and the Indian Health Services (IHS) Toward the Annual Part D Out-of-
Pocket Threshold (Sec. 423.100 and Sec. 423.464)
Prior to implementation of this provision, beneficiaries in both
programs had difficulty reaching the catastrophic phase of the Part D
benefit. This provision will not only enable beneficiaries to reach the
catastrophic limit where they will experience significant reductions to
their drug costs, but will relieve the ADAPs and IHS from incurring
excessive prescription costs.
k. Cost Sharing for Medicare Covered Preventive Service (Sec. 417.454
and Sec. 422.100)
We believe that our requirement for MA organizations and section
1876 cost plans to provide in-network Medicare-covered preventive
benefits at zero cost sharing puts MA enrollees on a level playing
field with enrollees in Original Medicare. Furthermore, we believe that
the increased emphasis on provision of preventives services will result
in improved beneficiary well-being and subsequently decrease their need
for, and utilization of, more costly medical and surgical
interventions, and possibly in decreased overall program costs.
l. Elimination of the Stabilization Fund (Sec. 422.458)
As previously stated, the formal elimination of the fund will have
little or no impact on the current operation of the MA program. Thus,
we do not believe this provision will have any impact on beneficiaries.
m. Improvements to Medication Therapy Management Programs (Sec.
423.153)
We expect that beneficiaries will benefit from this provision.
Standardized formats for the action plan and summary resulting from
annual Comprehensive Medication Reviews (CMR) will enable beneficiaries
to have a better understanding of the CMR review findings and
recommendations. Also, the opportunity for sponsors to use telehealth
technology will improve access to MTM services for beneficiaries,
particularly those in remote locations or unable to travel.
n. Changes To Close the Part D Coverage Gap (Sec. 423.104 and Sec.
423.884)
Under these provisions to close the Part D coverage gap,
beneficiaries would pay less for drugs in the coverage gap, and would
reach the out-of-pocket threshold earlier in the benefit year. We
expect that, because beneficiaries should find their prescription drugs

[[Page 21558]]

more affordable, there would be greater adherence to drug therapies and
fewer instances of adverse health outcomes arising from failure to take
medications as prescribed.
o. Medicare Advantage Benchmark, Quality Bonus Payments, and Rebate and
Application of Coding Adjustment (Sec. 422.252, Sec. 422.258 and
Sec. 422.266, and Sec. 422.308)
We have not determined an impact on beneficiaries as a result of
this provision.
p. Quality Bonus Appeals (Sec. 422.260)
While we expect the QBP system will encourage and incentivize MA
plans to transform their delivery systems and processes to provide
beneficiaries with high-quality and efficient care, we do not
anticipate the QBP appeals process will have any effect on
beneficiaries.
q. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
Our intent in implementing this provision is to ensure that
terminated Part D plan sponsors transfer to CMS the necessary data to
provide a smooth transition for beneficiaries into a new Part D plan
similar to when the Part D sponsor terminates the contract or CMS and
the Part D plan sponsor mutually terminate the contract. We anticipate
that this provision will benefit beneficiaries by ensuring that TrOOP
and gross covered drug cost data are transferred from the terminated
plan to the beneficiaries' new plan, enabling the members to be
correctly positioned in the new plan's benefit.
r. Review of Medical Necessity Decisions by a Physician or other Health
Care Professional and the Employment of a Medical Director (Sec.
422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
We are modifying the language in the proposed rule with respect to
the requirement for a physician or other health care professional to
review initial determinations involving medical necessity. Under this
final rule, if the plan expects to issue a partially or fully adverse
decision based on the initial review of the request, a physician or
other appropriate health care professional with sufficient medical and
other expertise, including knowledge of Medicare coverage criteria,
must review the request for medical necessity before the plan issues
its decision. This requirement will favorably impact beneficiaries by
ensuring their requests for coverage receive medical review by an
individual with appropriate clinical expertise, without imposing any
burden on beneficiaries because the requirements for requesting an
organization or coverage determination are not modified by this
requirement.
s. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
Requiring all agents and brokers to receive training and testing
via a CMS endorsed or approved training program will further ensure
that beneficiaries are educated about Medicare health plan options by
plan agents and brokers who are thoroughly and consistently trained on
the fundamentals of Medicare regulations. We believe that such thorough
and consistent training will help ensure that beneficiaries receive
accurate information about their Medicare health care options and make
the best choices about their health care coverage options for their
particular health care needs.
t. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
The expected benefit of our call center interpreter requirements is
that all beneficiaries, regardless of language spoken, will have access
to all the information they need to make appropriate decisions about
their health care to utilize their Medicare benefits most effectively.
u. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
We believe that our requirement that MA organizations send
enrollees an explanation of benefits will ensure that the beneficiaries
periodically receive information about their Part C utilization and
out-of-pocket costs to help them make the best choices about their
health care coverage options for their particular health care needs.
v. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
We believe extending the mandatory MOOP requirement to RPPOs will
provide significant protection for MA enrollees from out-of-pocket
costs so that beneficiaries will better understand and anticipate their
out-of-pocket expenditures. This requirement increases transparency for
beneficiaries, and will ensure all RPPO plan enrollees are protected
against high out-of-pocket costs and are better able to compare plans
by focusing on differences in premium and plan quality.
w. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
The expected benefit of our requirement to codify existing
subregulatory guidance with respect to translated marketing materials
is to help limited-English proficient beneficiaries obtain access to
the information they need to make appropriate decisions about their
health care to utilize their Medicare benefits most effectively.
Comment: One commenter indicated that the impact analysis in the
proposed rule improperly indicated that we would be helping all
beneficiaries have access to translated materials.
Response: We agree with the commenter, and have revised the impact
discussion in this final rule to remove language insinuating that all
beneficiaries speaking all languages will have access to translated
materials.

E. Alternatives Considered

The alternatives that were considered are summarized as follows.
1. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.454 and Sec. 422.100)
We considered using the authority granted to the Secretary by
section 3202 to limit MA cost sharing for service categories in
addition to those specified in the ACA. However, we decided that it is
preferable to restrict our implementation of section 3202 of the ACA to
the specified service categories, allowing ourselves time to evaluate
the effects of those provisions, as well as other recently-established
policies before using the new authority to adopt those cost sharing
limits for an expanded list of service categories.
Although we proposed to use our authority under sections 1856(b)(1)
and 1857(e)(1) of the Act to limit the cost sharing for home health
services to Original Medicare levels we have decided not to finalize
our proposal, as discussed elsewhere in this final rule.
2. Cost Sharing for Medicare-Covered Preventive Services (Sec. 417.454
and Sec. 422.100)
We are proposing to implement regulations to require MA
organizations and 1876 cost plans to provide in-network Medicare-
covered preventive benefits at zero cost sharing, consistent with the
new regulations for Original Medicare-covered preventive benefits. More
specifically, we are requiring that all MA organizations provide
Medicare-covered preventive services, as specified by CMS, without
enrollee cost sharing charges.
We considered allowing plans to charge cost sharing for Medicare-

[[Page 21559]]

covered preventive services or to voluntarily adopt zero cost sharing
for the specified preventive services. We determined that in light of
the importance of preventive services in managed and coordinated care,
and the requirements at section 1852(a)(1)(A) of the Act (except as
provided in section 1859(b)(3) of the Act for MSA plans and in section
1852(a)(6) of the Act for MA regional plans) that each MA plan must
provide to its members all Parts A and B benefits included under the
Original Medicare fee-for-service program as defined at section
1852(a)(1)(B) of the Act, that requiring the same level of cost sharing
for the specified preventive services for enrollees of Medicare health
plans as required under Original Medicare would be the more appropriate
policy.
3. Quality Bonus Appeals (Sec. 422.260)
We considered not affording bonus payment appeal rights to MA
organizations. We rejected this option partly in recognition of the
obligation the law generally imposes on us to afford entities affected
by CMS determinations concerning contract performance or payment to
have an opportunity to challenge such determinations. We also believe,
as noted previously, that the appeals process promotes fairness in and
enhances the credibility of the bonus payment determination process.
4. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
We did not consider alternatives to our provision regarding the
timely transfer of data and files following the CMS termination of a
Part D sponsor's contract. These data are necessary for the proper
adjudication of all Part D benefits when a beneficiary changes plans,
such as calculating the true out-of-pocket cost and determining whether
the beneficiary has any outstanding claims for which the terminating
contract is responsible. Because of these important beneficiary
protections, we did not consider alternatives to these requirements.
5. Review of Medical Necessity Decisions by a Physician or Other Health
Care Professional and the Employment of a Medical Director (Sec.
422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
We did not consider alternatives regarding review of medical
necessity decisions by a physician or other health care professional
and employment of a medical director, as a majority of MA organizations
and Part D sponsors already employ a medical director to oversee
decisions of medical necessity. As noted previously, we are modifying
our proposed rule language on the requirement for a physician or other
health care professional to review initial determinations involving
medical necessity. Under this final rule, if the plan expects to issue
a partially or fully adverse decision based on the initial review of
the request, a physician or other appropriate health care professional
with sufficient medical and other expertise, including knowledge of
Medicare coverage criteria, must review the request for medical
necessity before the plan issues its decision.
6. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
Sections 422.2274(b) and (c) and 423.2274(b) and (c) require MA
organizations' and Part D sponsors' agents and brokers to receive
training and testing via a CMS-endorsed or -approved training program.
The alternative we considered was to continue to allow plans to conduct
training and testing on their own or through third party vendor(s) and
for CMS to continue to review some of these training programs upon
request by third party vendors for comprehensiveness and accuracy.
However, we believe that it is in the best interest of beneficiaries
who are educated about Medicare health plan options by plan agents and
brokers that those agents and brokers be consistently and thoroughly
trained on the fundamentals of Medicare regulations. We believe the
best method to achieve this end is to require agents and brokers to
receive training and testing through one or more CMS-endorsed or -
approved training programs.
7. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
Compliance with Title VI of the Civil Rights Act of 1964 to serve
all individuals regardless of national origin is a contractual
requirement for MA and Part D sponsors; therefore, we did not consider
any other alternatives to our call center interpreter requirements.
8. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
In our November 2010 proposed rule (75 FR 71249 through 71250), we
considered an alternative to require MA organizations and PDP sponsors
to provide each enrollee with specific data to use to compare
utilization and out-of-pocket costs in the current plan year to
projected utilization and out-of-pocket costs for the following plan
year. We further considered requiring plans to disclose this
information to plan enrollees in each year in which a minimum
enrollment period has been met, in conjunction with the annual renewal
materials (currently the annual notice of change/evidence of coverage,
or ANOC/EOC). However, we are not finalizing this policy alternative in
our final rule. Instead, as discussed in section II.D.4 of this final
rule, we intend to work with MA organizations, Part D sponsors and
beneficiary advocates to develop an explanation of benefits for Part C
benefits modeled after the EOB currently required for Part D enrollees
at Sec. 423.128(e).
9. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
The alternative we considered was not extending the mandatory MOOP
and catastrophic limit requirements to RPPO plans, but instead to
permit plans to continue to establish their own in-network MOOP and
catastrophic limits without a maximum limit set by CMS while
encouraging them to adopt either the mandatory or voluntary MOOPs
established in CMS guidance. However, as we discussed in our April 2010
final rule, (75 FR 19711), we believe RPPOs should be subject to the
same requirements with respect to a MOOP as local PPO plans. As
discussed elsewhere in this preamble, we believe that the alternative
chosen will make it easier for beneficiaries to understand and compare
MA plans and will provide significant protection for MA enrollees from
out of pocket costs.
10. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
Compliance with Title VI of the Civil Rights Act of 1964 to serve
all individuals regardless of national origin is a contractual
requirement for MA and Part D sponsors. Therefore, we did not consider
any other alternatives to our translated marketing materials
requirements.
Comment: One commenter was concerned that we did not consider any
alternatives to codifying the existing population-based translation
threshold stated in our subregulatory guidance (that is, the 10 percent
translation standard).
Response: In response to numerous comments regarding the
translation standard itself, we conducted several analyses using 2011
plan service area data and the most recent American Community Survey
datasets. We analyzed the effect of keeping our standard at 10 percent,
the effect of

[[Page 21560]]

moving to a 10 percent standard focusing on primary language, the
effect of moving to 5 percent standard focusing on primary language,
the effect of moving to a simple 5 percent standard, and the effect of
using a 5 percent or 500 person standard. After reviewing the results
from these sensitivity analyses, we determined that a 5 percent
threshold that focuses on primary language spoken would be the most
appropriate approach for beneficiaries and plans. We are therefore
maintaining this 5 percent threshold in the final rule.
11. Increases to the Applicable Percentage for Quality (Sec.
422.258(d))
The ACA requires a 5-star rating system. We considered whether the
5-star rating system should be consistent with the current 5-star
rating system in place for beneficiary choice or should be a separate
system. We believe that plans should be rated the same for consumer
choice and payment. There should not be two different systems to rate
the quality and performance of MA plans. Thus, the plan ratings are the
basis for the star rating system for quality bonus payments.

F. Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 14, we have
prepared an accounting statement showing the classification of the
costs, benefits, and transfers associated with the provisions of this
final rule. The accounting statement is based on estimates provided in
Tables H10 through 13, (our best estimate of the costs, savings, and
transfers as a result of the changes) and discounted at the 7 percent
and 3 percent for the time period of FY 2011 through FY 2016.
[GRAPHIC] [TIFF OMITTED] TR15AP11.023

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, and Reporting and
recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services announces the effective date of June 6, 2011 for
amendments to 42 CFR 422.564, 422.624, and 422.626 published April 4,
2003 at 68 FR 16652 and further 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: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public
Health Service Act (42 U.S.C., 300e, 300e-5, and 300e-9), and 31
U.S.C. 9701.

Subpart J--Qualifying Conditions for Medicare Contracts

0
2. Section 417.402 is amended by revising paragraph (c) introductory
text to read as follows:

Sec. 417.402 Effective date of initial regulations.

* * * * *
(c) Mandatory HMO or CMP and contract non-renewal or service area
reduction. CMS will non-renew all or a portion of an HMO's or CMP's
contracted service area using procedures in Sec. 417.492(b) and Sec.
417.494(a) for any period beginning on or after January 1, 2013,
where--
* * * * *

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

0
3. Section 417.430 is amended as follows:
0
A. Revising the paragraph heading for paragraph (a).
0
B. Revising paragraphs (a)(1), (b)(3), and (b)(4).

Sec. 417.430 Application procedures.

(a) Application forms and other enrollment mechanisms. (1) The
application form must comply with CMS instructions regarding content
and format and be approved by CMS. The application must be completed by
an HMO or CMP eligible (or soon to become eligible) individual and
include authorization for disclosure between the HHS and its designees
and the HMO or CMP.
* * * * *
(b) * * *

[[Page 21561]]

(3) The HMO or CMP gives the beneficiary prompt notice of
acceptance or denial in a format specified by CMS.
(4) The notice of acceptance. If the HMO or CMP is currently
enrolled to capacity, explains the procedures that will be followed
when vacancies occur.
* * * * *
4. Section 417.454 is amended by adding paragraphs (d) and (e) to
read as follows.

Sec. 417.454 Charges to Medicare enrollees.

* * * * *
(d) Limit on charges for specified preventive services. An HMO may
not charge deductibles, copayments, or coinsurance for in-network
Medicare-covered preventive services (as defined in Sec. 410.152(l)).
(e) Services for which cost sharing may not exceed cost sharing
under original Medicare. On an annual basis, CMS will evaluate whether
there are service categories for which HMOs' cost sharing may not
exceed that required under original Medicare and specify in regulation
which services are subject to that cost sharing limit. The following
services are subject to this limit on cost sharing:
(1) Chemotherapy administration services to include chemotherapy
drugs and radiation therapy integral to the treatment regimen.
(2) Renal dialysis services as defined at section 1881(b)(14)(B) of
the Act.
(3) Skilled nursing care defined as services provided during a
covered stay in a skilled nursing facility during the period for which
cost sharing would apply under Original Medicare.

PART 422--MEDICARE ADVANTAGE PROGRAM

0
5. 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
6. Section 422.2 is amended by adding the definitions of ``fiscally
sound operation,'' ``fully integrated dual eligible special needs
plan,'' and ``senior housing facility plan'' in alphabetical order to
read as follows:

Sec. 422.2 Definitions.

* * * * *
Fiscally sound operation means an operation which at least
maintains a positive net worth (total assets exceed total liabilities).
* * * * *
Fully integrated dual eligible special needs plan means a CMS
approved MA-PD dual eligible special needs plan that--
(1) Enrolls special needs individuals entitled to medical
assistance under a Medicaid State plan, as defined in section
1859(b)(6)(B)(ii) of the Act and Sec. 422.2;
(2) Provides dual eligible beneficiaries access to Medicare and
Medicaid benefits under a single managed care organization;
(3) Has a capitated contract with a State Medicaid agency that
includes coverage of specified primary, acute, and long-term care
benefits and services, consistent with State policy;
(4) Coordinates the delivery of covered Medicare and Medicaid
health and long-term care services using aligned care management and
specialty care network methods for high-risk beneficiaries; and
(5) Employs policies and procedures approved by CMS and the State
to coordinate or integrate member materials, enrollment,
communications, grievance and appeals, and quality improvement.
* * * * *
Senior housing facility plan means an MA coordinated care plan
that--
(1) Restricts enrollment to individuals who reside in a continuing
care retirement community as defined in Sec. 422.133(b)(2);
(2) Provides primary care services onsite and has a ratio of
accessible physicians to beneficiaries that CMS determines is adequate
consistent with prevailing patterns of community health care referenced
at Sec. 422.112(a)(10);
(3) Provides transportation services for beneficiaries to specialty
providers outside of the facility; and
(4) Was participating as of December 31, 2009 in a demonstration
established by CMS for not less than 1 year.
* * * * *

0
7. Section 422.4 is amended as follows:
0
A. Revising paragraphs (a)(1)(iii) and (iv).
0
B. Adding paragraph (a)(1)(vi).
The revisions and additions read as follows:

Sec. 422.4 Types of MA plans.

* * * * *
(a) * * *
(1) * * *
(iii) Coordinated care plans include plans offered by any of the
following:
(A) Health maintenance organizations (HMOs);
(B) Provider-sponsored organizations (PSOs), subject to paragraph
(a)(1)(vi) of this section.
(C) Regional or local preferred provider organizations (PPOs) as
specified in paragraph (a)(1)(v) of this section.
(D) Other network plans (except PFFS plans).
(iv) A specialized MA plan for special needs individuals (SNP)
includes any type of coordinated care plan that meets CMS's SNP
requirements and exclusively enrolls special needs individuals as
defined by Sec. 422.2 of this subpart. All MA plans wishing to offer a
SNP will be required to be approved by the National Commission on
Quality Assurance (NCQA) effective January 1, 2012. This approval
process applies to existing SNPs as well as new SNPs joining the
program. All SNPs must submit their model of care (MOC) to CMS for NCQA
evaluation and approval as per CMS guidance.
* * * * *
(vi) In accordance with Sec. 422.370, CMS does not waive the State
licensure requirement for organizations seeking to offer a PSO.
* * * * *

Subpart B--Eligibility, Election, and Enrollment

0
8. Add Sec. 422.53 to read as follows:

Sec. 422.53 Eligibility to elect an MA plan for senior housing
facility residents.

(a) Basic eligibility requirements. To be eligible to elect an MA
senior housing facility plan, the individual must meet both of the
following:
(1) Be a resident of an MA senior housing facility defined in Sec.
422.2.
(2) Be eligible to elect an MA plan under Sec. 422.50.
(b) Restricting enrollment. An MA senior housing facility plan must
restrict enrollment to only those individuals who reside in a
continuing care retirement community as defined at Sec. 422.133(b)(2).
(c) Establishing eligibility for enrollment. An MA senior housing
facility plan must verify the eligibility of each individual enrolling
in its plan using a CMS approved process.

0
9. Section 422.62 is amended as follows:
0
A. Revising paragraphs (a)(2)(i), (a)(2)(iii), and (a)(5).
0
B. Adding paragraphs (a)(2)(iv) and (a)(7).
The revisions and additions read as follows:

Sec. 422.62 Election of coverage under an MA plan.

(a) * * *
(2) * * **
(i) For 2002 through 2010, except for 2006, the annual coordinated
election

[[Page 21562]]

period for the following calendar year is November 15 through December
31.
* * * * *
(iii) Beginning in 2011, the annual coordinated election period for
the following calendar year is October 15 through December 7.
(iv) During the annual coordinated election period, an individual
eligible to enroll in an MA plan may change his or her election from an
MA plan to Original Medicare or to a different MA plan, or from
Original Medicare to an MA plan. If an individual changes his or her
election to Original Medicare, he or she may also elect a PDP.
* * * * *
(5) Open enrollment and disenrollment from 2007 through 2010. (i)
Open enrollment period. For 2007 through 2010, except as provided in
paragraphs (a)(5)(ii), (iii), and (a)(6) of this section, an individual
who is not enrolled in an MA plan but is eligible to elect an MA plan
may make an election into an MA plan once during the first 3 months of
the year.
(ii) Newly eligible MA individual. An individual who becomes MA
eligible in 2007 through 2010 may elect an MA plan or change his or her
election once during the period that begins the month the individual is
entitled to both Part A and Part B and ends on the last day of the
third month of the entitlement, or on December 31, whichever is
earlier, subject to the limitations in paragraphs (a)(5)(i)(A) and
(a)(5)(i)(B) of this section.
(iii) Single election limitation. The limitation to one election or
change in paragraphs (a)(5)(i) and (a)(5)(ii) of this section does not
apply to elections or changes made during the annual coordinated
election period specified in paragraph (a)(2) of this section, or
during a special election period specified in paragraph (b) of this
section.
* * * * *
(7) Annual 45-day period for disenrollment from MA plans to
Original Medicare. For 2011 and subsequent years, at any time from
January 1 through February 14, an individual who is enrolled in an MA
plan may elect Original Medicare once during this 45-day period. An
individual who chooses to exercise this election may also make a
coordinating election to enroll in a PDP as specified in Sec.
423.38(d).
* * * * *

0
10. Section 422.68 is amended by adding paragraph (f) to read as
follows:

Sec. 422.68 Effective dates of coverage and change from coverage.

* * * * *
(f) Annual 45-day period for disenrollment from MA plans to
Original Medicare. Beginning in 2011, an election made from January 1
through February 14 to disenroll from an MA plan to Original Medicare,
as described in Sec. 422.62(a)(7), is effective the first day of the
first month following the month in which the election is made.

0
11. Section 422.74 is amended by adding paragraphs (d)(1)(v) and (vi)
to read as follows:

Sec. 422.74 Disenrollment by the MA organization.

* * * * *
(d) * * *
(1) * * *
(v) Extension of grace period for good cause and reinstatement.
When an individual is disenrolled for failure to pay the plan premium,
CMS may reinstate enrollment in the MA plan, without interruption of
coverage, if the individual shows good cause for failure to pay within
the initial grace period, and pays all overdue premiums within 3
calendar months after the disenrollment date. The individual must
establish by a credible statement that failure to pay premiums within
the initial grace period was due to circumstances for which the
individual had no control, or which the individual could not reasonably
have been expected to foresee.
(vi) No extension of grace period. A beneficiary's enrollment in
the MA plan may not be reinstated if the only basis for such
reinstatement is a change in the individual's circumstances subsequent
to the involuntary disenrollment for non-payment of premiums.
* * * * *

Subpart C--Benefits and Beneficiary Protections

0
12. Section 422.100 is amended by adding paragraphs (j) and (k) to read
as follows.

Sec. 422.100 General requirements.

* * * * *
(j) Services for which cost sharing may not exceed cost sharing
under Original Medicare. On an annual basis, CMS will evaluate whether
there are service categories for which MA plans' in-network cost
sharing may not exceed that required under Original Medicare and
specify in regulation which services are subject to that cost sharing
limit. The following services are subject to this limit on cost
sharing:
(1) Chemotherapy administration services to include chemotherapy
drugs and radiation therapy integral to the treatment regimen.
(2) Renal dialysis services as defined at section 1881(b)(14)(B) of
the Act.
(3) Skilled nursing care defined as services provided during a
covered stay in a skilled nursing facility during the period for which
cost sharing would apply under Original Medicare.
(k) Cost sharing for in-network preventive services. MA
organizations may not charge deductibles, copayments, or coinsurance
for in-network Medicare-covered preventive services (as defined in
Sec. 410.152(l)).

0
13. Section 422.101 is amended as follows:
A. Revising paragraphs (d)(2) and (3).
B. Adding paragraph (f)(2)(vi).
The revisions and addition read as follows.

Sec. 422.101 Requirements relating to basic benefits.

* * * * *
(d) * * *
(2) Catastrophic limit. MA regional plans are required to establish
a catastrophic limit on beneficiary out-of-pocket expenditures for in-
network benefits under the Original Medicare fee-for-service program
(Part A and Part B benefits) that is no greater than the annual limit
set by CMS.
(3) Total catastrophic limit. MA regional plans are required to
establish a total catastrophic limit on beneficiary out-of-pocket
expenditures for in-network and out-of-network benefits under the
Original Medicare fee-for-service program. This total out-of-pocket
catastrophic limit, which would apply to both in-network and out-of-
network benefits under Original Medicare, may be higher than the in-
network catastrophic limit in paragraph (d)(2) of this section, but may
not increase the limit described in paragraph (d)(2) of this section
and may be no greater than the annual limit set by CMS.
* * * * *
(f) * * *
(2) * * *
(vi) All MAOs wishing to offer or continue to offer a SNP will be
required to be approved by the National Committee for Quality Assurance
(NCQA) effective January 1, 2012 and subsequent years. All SNPs must
submit their model of care (MOC) to CMS for NCQA evaluation and
approval in accordance with CMS guidance.

0
14. Section 422.106 is amended as follows:
0
A. Revising paragraph (d)(1).
0
B. Adding paragraphs (d)(4) through (d)(6).

[[Page 21563]]

The revision and additions read as follows.

Sec. 422.106 Coordination of benefits with employer or union group
health plans and Medicaid.

* * * * *
(d) * * *
(1) CMS may waive or modify any requirement in this part or Part D
that hinders the design of, the offering of, or the enrollment in, an
employer-sponsored group MA plan (including an MA-PD plan) offered by
one or more employers, labor organizations, or the trustees of a fund
established by one or more employers or labor organizations (or
combination thereof), or that is offered, sponsored or administered by
an entity on behalf of one or more employers or labor organizations, to
furnish benefits to the employers' employees, former employees (or
combination thereof) or members or former members (or combination
thereof) of the labor organizations. Any entity seeking to offer,
sponsor, or administer such an MA plan described in this paragraph may
request, in writing, from CMS, a waiver or modification of requirements
in this part that hinder the design of, the offering of, or the
enrollment in, such MA plan.
* * * * *
(4) An employer-sponsored group MA plan means MA coverage offered
to retirees who are Medicare eligible individuals under employment-
based retiree health coverage, as defined in paragraph (d)(5) of this
section, approved by CMS as an MA plan.
(5) Employment-based retiree coverage means coverage of health care
costs under a group health plan, as defined in paragraph (d)(6) of this
section, based on an individual's status as a retired participant in
the plan, or as the spouse or dependent of a retired participant. The
term includes coverage provided by voluntary insurance coverage, or
coverage as a result of a statutory or contractual obligation.
(6) Group health plans include plans as defined in section 607(1)
of ERISA, (29 U.S.C. 1167(1)). They also include the following plans:
(i) A Federal or State governmental plan, which is a plan providing
medical care that is established or maintained for its employees by the
Government of the United States, by the government of any State or
political subdivision of a State (including a county or local
government), or by any agency or instrumentality or any of the
foregoing, including a health benefits plan offered under 5 U.S.C. 89
(the Federal Employee Health Benefit Plan (FEHBP)).
(ii) A collectively bargained plan, which is a plan providing
medical care that is established or maintained under or by one or more
collective bargaining agreements.
(iii) A church plan, which is a plan providing medical care that is
established and maintained for its employees or their beneficiaries by
a church or by a convention or association of churches that is exempt
from tax under section 501 of the Internal Revenue Code of 1986 (26
U.S.C. 501).
(iv) Any of the following plans:
(A) An account-based medical plan such as a Health Reimbursement
Arrangement (HRA) as defined in Internal Revenue Service Notice 2002-
45, 2002-28 I.R.B. 93.
(B) A health Flexible Spending Arrangement (FSA) as defined in
Internal Revenue Code (Code) section 106(c)(2).
(C) A health savings account (HSA) as defined in Code section 223.
(D) An Archer MSA as defined in Code section 220, to the extent
they are subject to ERISA as employee welfare benefit plans providing
medical care (or would be subject to ERISA but for the exclusion in
ERISA section 4(b), 29 U.S.C.1003(b), for governmental plans or church
plans).

0
15. Section 422.107 is amended by revising paragraph (d)(1)(ii) to read
as follows:

Sec. 422.107 Special needs plans and dual-eligibles: Contract with
State Medicaid Agency.

* * * * *
(d) * * *
(1) * * *
(ii) Existing dual-eligible SNPs that do not have a State Medicaid
agency contract--
(A) May continue to operate through the 2012 contract year provided
they meet all other statutory and regulatory requirements.
(B) May not expand their service areas during contract years 2010
through 2012.
* * * * *

0
16. Amend Sec. 422.111 as follows:
0
A. Adding paragraph (b)(12).
0
B. Removing paragraph (f)(12).
0
C. Adding paragraph (h).
The additions read as follows.

Sec. 422.111 Disclosure requirements.

* * * * *
(b) * * *
(12) Claims information. CMS may require an MA organization to
furnish directly to enrollees, in the manner specified by CMS and in a
form easily understandable to such enrollees, a written explanation of
benefits, when benefits are provided under this part.
* * * * *
(h) Provision of specific information. Each MA organization must
have mechanisms for providing specific information on a timely basis to
current and prospective enrollees upon request. These mechanisms must
include all of the following:
(1) A toll-free customer service call center that meets all of the
following:
(i) Is open during usual business hours.
(ii) Provides customer telephone service in accordance with
standard business practices.
(iii) Provides interpreters for non-English speaking and limited
English proficient (LEP) individuals.
(2) An Internet Web site that includes, at a minimum the following:
(i) The information required in paragraph (b) of this section.
(ii) Copies of its evidence of coverage, summary of benefits, and
information (names, addresses, phone numbers, and specialty) on the
network of contracted providers. Such posting does not relieve the MA
organization of its responsibility under Sec. 422.111(a) to provide
hard copies to enrollees.
(3) The provision of information in writing, upon request.

0
17. Section 422.112 is amended by revising paragraph (a)(10)
introductory text to read as follows:

Sec. 422.112 Access to services.

(a) * * *
(10) Prevailing patterns of community health care delivery. 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:
* * * * *

0
18. Amend Sec. 422.113 by revising paragraph (b)(2)(v) to read as
follows:

Sec. 422.113 Special rules for ambulance services, emergency and
urgently needed services, and maintenance and post-stabilization care
services.

(b) * * *
(2) * * *
(v) With a limit on charges to enrollees for emergency department
services that CMS will determine annually, or what it would charge the
enrollee if he or she obtained the

[[Page 21564]]

services through the MA organization, whichever is less.
* * * * *

Subpart D--Quality Improvement

0
19. Amend Sec. 422.152 by revising paragraph (g) introductory text to
read as follows:

Sec. 422.152 Quality improvement program.

* * * * *
(g) Special requirements for specialized MA plans for special needs
individuals. All special needs plans (SNPs) must be approved by the
National Committee for Quality Assurance (NCQA) effective January 1,
2012 and subsequent years. SNPs must submit their model of care (MOC)
to CMS for NCQA evaluation and approval, in accordance with CMS
guidance. A SNP must conduct a quality improvement program that--
* * * * *

0
20. Amend Sec. 422.156 by revising paragraph (b)(1) to read as
follows:

Sec. 422.156 Compliance deemed on the basis of accreditation.

* * * * *
(b) * * *
(1) Quality improvement. The deeming process should focus on
evaluating and assessing the overall quality improvement (QI) program.
However, the quality improvement projects (QIPs) and the chronic care
improvement programs (CCIPs) will be excluded from the deeming process.
* * * * *

Subpart E--Relationships With Providers

0
21. Amend Sec. 422.214 by adding paragraphs (c) and (d) to read as
follows:

Sec. 422.214 Special rules for services furnished by noncontract
providers.

* * * * *
(c) Deemed request for Medicare payment rate. A noncontract section
1861(u) of the Act provider of services that furnishes services to MA
enrollees and submits the same information that it would submit for
payment under Original Medicare is deemed to be seeking to be paid the
amount it would be paid under Original Medicare unless the provider
expressly notifies the MA organization in writing that it is billing an
amount less than such amount.
(d) Regional PPO payments in non-network areas. An MA Regional PPO
must pay non-contract providers the Original Medicare payment rate in
those portions of its service area where it is providing access to
services by non-network means under Sec. 422.111(b)(3)(ii) of this
part.

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

0
22. Section 422.252 is amended as follows:
0
A. Adding the definitions ``low enrollment contract'' and ``new MA
plan.''
0
B. Revising the definition of ``unadjusted MA area-specific non-drug
monthly benchmark amount.''
The additions and revision read as follows:

Sec. 422.252 Terminology.

* * * * *
Low enrollment contract means a contract that could not undertake
Healthcare Effectiveness Data and Information Set (HEDIS) and Health
Outcome Survey (HOS) data collections because of a lack of a sufficient
number of enrollees to reliably measure the performance of the health
plan.
* * * * *
New MA plan means a MA contract offered by a parent organization
that has not had another MA contract in the previous 3 years.
* * * * *
Unadjusted MA area-specific non-drug monthly benchmark amount
means, for local MA plans serving one county, the county capitation
rate CMS publishes annually that reflects the nationally average risk
profile for the risk factors CMS applies to payment calculations as set
forth at Sec. 422.308(c) of this part, (that is, a standardized
benchmark). For local MA plans serving multiple counties it is the
weighted average of county rates in a plan's service area, weighted by
the plan's projected enrollment per county. The rules for determining
county capitation rates are specific to a time period, as set forth at
Sec. 422.258(a). Effective 2012, the MA area-specific non-drug monthly
benchmark amount is called the blended benchmark amount, and is
determined according to the rules set forth under Sec. 422.258(d) of
this part.
* * * * *

0
23. Section 422.254 is amended by adding paragraph (a)(5) to read as
follows:

Sec. 422.254 Submission of bids.

(a) * * *
(5) CMS may decline to accept any or every otherwise qualified bid
submitted by an MA organization or potential MA organization.
* * * * *

0
24. Section 422.256 is amended by revising paragraph (a) introductory
text to read as follows:

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

(a) Authority. Subject to paragraphs (a)(2), (d), and (e) of this
section, CMS has the authority to review the aggregate bid amounts
submitted under Sec. 422.252 and conduct negotiations with MA
organizations regarding these bids (including the supplemental
benefits) and the proportions of the aggregate bid attributable to
basic benefits, supplemental benefits, and prescription drug benefits
and may decline to approve a bid if the plan sponsor proposes
significant increases in cost sharing or decreases in benefits offered
under the plan.
* * * * *

0
25. Section 422.258 is amended as follows:
0
A. Revising paragraphs (a)(1) and (2).
0
B. In paragraph (c)(3)(i), removing the phrase ``county capitation
rate'' and adding the phrase ``amount determined under paragraph (a) of
this section for the year'' in its place.
0
C. Adding paragraph (d).
The revisions and additions read as follows:

Sec. 422.258 Calculation of benchmarks.

(a) * * *
(1) For MA local plans with service areas entirely within a single
MA local area:
(i) For years before 2007, one-twelfth of the annual MA capitation
rate (described at Sec. 422.306) for the area, adjusted as appropriate
for the purpose of risk adjustment.
(ii) For years 2007 through 2010, one-twelfth of the applicable
amount determined under section 1853(k)(1) of the Act for the area for
the year, adjusted as appropriate for the purpose of risk adjustment.
(iii) For 2011, one-twelfth of the applicable amount determined
under 1853(k)(1) for the area for 2010.
(iv) Beginning with 2012, one-twelfth of the blended benchmark
amount described in paragraph (d) of this section, subject to paragraph
(d)(8) of this section and adjusted as appropriate for the purpose of
risk adjustment.
(2) For MA local plans with service areas including more than one
MA local area, an amount equal to the weighted average of amounts
described in paragraph (a)(1) of this section for the year for each
local area (county) in the plan's service area, using as weights the
projected number of enrollees in each MA local area that the plan used
to calculate the bid amount, and adjusted

[[Page 21565]]

as appropriate for the purpose of risk adjustment.
* * * * *
(d) Determination of the blended benchmark amount--(1) General
rules. For the purpose of paragraphs (a) and (b) of this section, the
term blended benchmark amount for an area for a year means the sum of
two components: the applicable amount determined under section
1853(k)(1) of the Act and the specified amount determined under section
1853(n)(2) of Act. The weights for each component are based on the
phase-in period assigned each area, as described in paragraphs (d)(8)
and (d)(9) of this section. At the conclusion of an area's phase-in
period, the blended benchmark for an area for a year equals the section
1853(n)(2) of the Act specified amount described in paragraph (d)(2) of
this section. The blended benchmark amount for an area for a year
(which takes into account paragraph (d)(8) of this section), cannot
exceed the applicable amount described in paragraph (d)(2) of this
section that would be in effect but for the application of this
paragraph.
(2) Applicable amount. For the purpose of paragraphs (a) and (b) of
this section, the applicable amount determined under section 1853(k)(1)
of the Act for a year is--
(i) In a rebasing year (described at Sec. 422.306(b)(2), an amount
equal to the greater of the average FFS expenditure amount at Sec.
422.306(b)(2) for an area for a year and the minimum percentage
increase rate at Sec. 422.306(a) for an area for a year.
(ii) In a year when the amounts at Sec. 422.306(b)(2) are not
rebased, the minimum percentage increase rate at Sec. 422.306(a) for
the area for the year.
(iii) In no case the blended benchmark amount for an area for a
year, determined taking into account paragraph (d)(8) of this section,
be greater than the applicable amount at paragraph (d)(2) of this
section for an area for a year.
(iv) Paragraph (d) of this section does not apply to the PACE
program under section 1894 of Act.
(3) Specified amount. For the purpose of paragraphs (a) and (b) of
this section, the specified amount under section 1853(n)(2) of the Act
is the product of the base payment amount for an area for a year
(adjusted as required under Sec. 422.306(c)) multiplied by the
applicable percentage described in paragraph (d)(5) of this section for
an area for a year.
(4) Base payment amount. The base payment amount is as follows:
(i) For 2012, the average FFS expenditure amount specified in Sec.
422.306(b)(2), determined for 2012.
(ii) For subsequent years, the average FFS expenditure amount
specified in Sec. 422.306(b)(2).
(5) Applicable percentage. Subject to paragraph (d)(7) of this
section, the applicable percentage is one of four values assigned to an
area based on Secretary's determination of the quartile ranking of the
area's average FFS expenditure amount (described at Sec. 422.306(b)(2)
and adjusted as required at Sec. 422.306(c)), relative to this amount
for all areas.
(i) For the 50 States or the District of Columbia, a county with an
average FFS expenditure amount adjusted under Sec. 422.306(c) that
falls in the--
(A) Highest quartile of such rates for all areas for the previous
year receives an applicable percentage of 95 percent;
(B) Second highest quartile of such rates for all areas for the
previous year receives an applicable percentage of 100 percent;
(C) Third highest quartile of such rates for all areas for the
previous year receives an applicable percentage of 107.5 percent; or
(D) Lowest quartile of such rates for all areas for the previous
year receives an applicable percentage of 115 percent.
(ii) To determine the applicable percentages for a territory, the
Secretary ranks such areas for a year based on the level of the area's
Sec. 422.306(b)(2) amount adjusted under Sec. 422.306(c), relative to
the quartile rankings computed under paragraph (d)(5)(i) of this
section.
(6) Additional rules for determining the applicable percentage. (i)
In a contract year when the average FFS expenditure amounts from the
previous year were rebased (according to the periodic rebasing
requirement at Sec. 422.306(b)(2)), the Secretary must determine an
area's applicable percentage based on a quartile ranking of the
previous year's rebased FFS amounts adjusted under Sec. 422.306(c).
(ii) If, for a year after 2012, there is a change in the quartile
in which an area is ranked compared to the previous year's ranking, the
applicable percentage for the area in the year must be the average of
the applicable percentage for the previous year and the applicable
percentage that would otherwise apply for the area for the year in the
absence of this transitional provision.
(7) Increases to the applicable percentage for quality. Beginning
with 2012, the blended benchmark under paragraphs (a) and (b) of this
section will reflect the level of quality rating at the plan or
contract level, as determined by the Secretary. The quality rating for
a plan is determined by the Secretary according to a 5-star rating
system (based on the data collected under section 1852(e) of the Act).
Specifically, the applicable percentage under paragraph (d)(5) of this
section must be increased according to criteria in paragraphs (d)(7)(i)
through (v) of this section if the plan or contract is determined to be
a qualifying plan or a qualifying plan in a qualifying county for the
year.
(i) Qualifying plan. Beginning with 2012, a qualifying plan means a
plan that had a quality rating of 4 stars or higher based on the most
recent data available for such year. For a qualifying plan, the
applicable percentage at paragraph (d)(5) of this section must be
increased as follows:
(A) For 2012, by 1.5 percentage points.
(B) For 2013, by 3.0 percentage points.
(C) For 2014 and subsequent years, by 5.0 percentage points.
(ii) Qualifying county. (A) A qualifying county means a county that
meets the following three criteria:
(1) Has an MA capitation rate that, in 2004, was based on the
amount specified in section 1853(c)(1)(B) of the Act for a Metropolitan
Statistical Area with a population of more than 250,000.
(2) Of the MA-eligible individuals residing in the county, at least
25 percent of such individuals were enrolled in MA plans as of December
2009.
(3) Has per capita fee-for-service spending that is lower than the
national monthly per capita cost for expenditures for individuals
enrolled under the Original Medicare fee-for-service program for the
year.
(B) Beginning with 2012, for a qualifying plan serving a qualifying
county, the increase to the applicable percentage described at
paragraph (d)(7)(i) of this section must be doubled for the qualifying
county.
(iii) MA organizations that fail to report data as required by the
Secretary must be counted as having a rating of fewer than 3.5 stars at
the plan or contract level, as determined by the Secretary.
(iv) Application of applicable percentage increases to low
enrollment contracts. (A) For 2012, for an MA plan that the Secretary
determines is unable to have a quality rating because of low
enrollment, the Secretary treats this plan as a qualifying plan under
paragraph (d)(7)(i) of this section.
(B) For 2013 and subsequent years, the Secretary develops a
methodology to apply to MA plans with low enrollment

[[Page 21566]]

(as defined by the Secretary) to determine whether a low enrollment
contract is a qualifying plan.
(v) Application of increases in applicable percentage to new MA
plans. A new MA plan (as defined at Sec. 422.252) that meets criteria
specified by the Secretary must be treated as a qualifying plan under
paragraph (d)(7)(i) of this section, except that the applicable
percentage must be increased as follows:
(A) For 2012, by 1.5 percentage points.
(B) For 2013, by 2.5 percentage points.
(C) For 2014 and subsequent years, by 3.5 percentage points.
(8) Determination of phase-in period for the blended benchmark
amount. For 2012 through 2016, the blended benchmark amount for an area
for a year depends on the phase-in period assigned to that area. The
Secretary assigns one of three phase-in periods to each area: 2-year, 4
year, or 6 year. The phase-in period assigned to an area is based on
the size of the difference between the 2010 applicable amount at
paragraph (d)(2) of this section and the projected 2010 benchmark
amount defined at paragraph (d)(8)(i) of this section.
(i) The projected 2010 benchmark amount is calculated once for the
purpose of determining the phase-in period for an area. It is equal to
one-half of the 2010 applicable amount at paragraph (d)(2) of this
section and one-half of the specified amount at paragraph (d)(3)
modified to apply to 2010 (as described in (d)(8)(ii) of this section).
(ii) To assign a phase-in period to an area, the specified amount
is modified as if it applies to 2010, and is the product of--
(A) The 2010 base payment amount adjusted as required under Sec.
422.306(c) of this part; and
(B) The applicable percentage determined as if the reference to the
``previous year'' at paragraph (d)(5) of this section were deemed a
reference to 2010 and increased as follows:
(1) The increase at paragraph (d)(7)(i) of this section for a
qualifying plan in the area is applied as if the reference to a
qualifying plan for 2012 were deemed a reference for 2010; and
(2) The increase at paragraph (d)(7)(ii) of this section is applied
as if the determination of a qualifying county were made for 2010.
(iii) Two-year phase-in. An area is assigned the 2-year phase-in
period if the difference between the applicable amount at paragraph
(d)(2) of this section and the projected 2010 benchmark amount at
paragraph (d)(8)(i) of this section is less than $30.
(iv) Four-year phase-in. An area is assigned the 4-year phase-in
period if the difference between the applicable amount at paragraph
(d)(2) of this section and the projected 2010 benchmark amount at
paragraph (d)(8)(i) of this section is at least $30 but less than $50.
(v) Six-year phase-in. An area is assigned the 6-year phase-in
period if the difference between the applicable amount at paragraph
(d)(2) of this section and the projected 2010 benchmark amount at
paragraph (d)(8)(i) of this section is at least $50.
(9) Impact of phase-in period on calculation of the blended
benchmark amount. (i) Weighting for the 2-year phase-in. (A) For 2012,
the blended benchmark is the sum of one-half of the applicable amount
at paragraph (d)(2) of this section and one-half of the specified
amount at paragraph (d)(3) of this section.
(B) For 2013 and subsequent years, the blended benchmark equals the
specified amount.
(ii) Weighting for the 4-year phase-in. The blended benchmark is
the sum of the applicable amount at paragraph (d)(2) of this section
and the specified amount at paragraph (d)(2) of this section in the
following proportions:
(A) For 2012, three-fourths of the applicable amount for the area
for the year and one-fourth of the specified amount for the area and
year.
(B) For 2013, one-half of the applicable amount for the area for
the year and one-half of the specified amount for the area and year.
(C) For 2014, one-fourth of the applicable amount for the area for
the year and three-fourths of the specified amount for the area and
year.
(D) For 2015 and subsequent years, the blended benchmark equals the
specified amount for the area and year.
(iii) Weighting for the 6-year phase-in. The blended benchmark is
the sum of the applicable amount at paragraph (d)(2) and the specified
amount at paragraph (d)(3) of this section in the following
proportions:
(A) For 2012, five-sixths of the applicable amount for the area and
year and one-sixth of the specified amount for the area and year.
(B) For 2013, two-thirds of the applicable amount for the area and
year and one-third of the specified amount for the area and year.
(C) For 2014, one-half of the applicable amount for the area and
year and one-half of the specified amount for the area and for year.
(D) For 2015, one-third of the applicable amount for the area and
year and two-thirds of the specified amount for the area and for year.
(E) For 2016, one-sixth of the applicable amount for the area and
year and five-sixths of the specified amount for the area and for year.
(F) For 2017 and subsequent years, the blended benchmark equals the
specified amount for the area and year.

0
26. Section 422.260 is added to read as follows:

Sec. 422.260 Appeals of quality bonus payment determinations.

(a) Scope. The provisions of this section pertain to the
administrative review process to appeal quality bonus payment status
determinations based on section 1853(o) of the Act.
(b) Definitions. The following definitions apply to this section:
Quality bonus payment (QBP) means--
(i) Enhanced CMS payments to MA organizations based on the
organization's demonstrated quality of its Medicare contract
operations; or
(ii) Increased beneficiary rebate retention allowances based on the
organization's demonstrated quality of its Medicare contract
operations.
Quality bonus payment (QBP) determination methodology means the
formula CMS adopts for evaluating whether MA organizations qualify for
a QBP.
Quality bonus payment (QBP) status means a MA organization's
standing with respect to its qualification to--
(i) Receive a quality bonus payment, as determined by CMS; or
(ii) Retain a portion of its beneficiary rebates based on its
quality rating, as determined by CMS.
(c) Administrative review process for QBP status appeals. (1)
Reconsideration request. An MA organization may request reconsideration
of its QBP status.
(i) The MA organization requesting reconsideration of its QBP
status must do so by providing written notice to CMS within 10 business
days of the release of its QBP status. The request must specify the
given measure(s) in question and the basis for reconsideration such as
a calculation error or incorrect data was used to determine the QBP
status. The error could impact an individual measure's value or the
overall star rating.
(ii) The reconsideration official's decision is final and binding
unless a request for an informal hearing is filed in accordance with
paragraph (2) of this section.

[[Page 21567]]

(2) Informal hearing request. An MA organization may request an
informal hearing on the record following the reconsideration official's
decision regarding its QBP status.
(i) The MA organization seeking an appeal of the reconsideration
official's decision regarding its QBP status must do so by providing
written notice to CMS within 10 business days of the issuance of the
reconsideration decision. The notice must specify the errors the MA
organization asserts that CMS made in making the QBP determination and
how correction of those errors could result in the organization's
qualification for a QBP or a higher QBP.
(ii) The MA organization may not request an informal hearing of its
QBP status unless it has already requested and received a
reconsideration decision in accordance with paragraph (c)(1) of this
section.
(iii) The informal hearing request must pertain only to the
measure(s) and value(s) in question that precipitated the request for
reconsideration.
(iv) The informal hearing is conducted by a CMS hearing officer on
the record. The hearing officer receives no testimony, but may accept
written statements with exhibits from each party in support of their
position in the matter.
(v) The MA organization must provide clear and convincing evidence
that CMS' calculations of the measure(s) and value(s) in question were
incorrect.
(vi) The hearing officer issues the decision by electronic mail to
the MA organization.
(vii) The hearing officer's decision is final and binding.
(3) Limits to requesting an administrative review. (i) CMS may
limit the measures or bases for which a contract may request an
administrative review of its QBP status.
(ii) An administrative review cannot be requested for the
following: the methodology for calculating the star ratings (including
the calculation of the overall star ratings); cut-off points for
determining measure thresholds; the set of measures included in the
star rating system; and the methodology for determining QBP
determinations for low enrollment contracts and new MA plans.
(4) Designation of a hearing officer. CMS designates a hearing
officer to conduct the appeal of the QBP status. The officer must be an
individual who did not directly participate in the initial QBP
determination.
(d) Reopening of QBP determinations. CMS may, on its own
initiative, revise an MA organization's QBP status at any time after
the initial release of the QBP determinations through April 1 of each
year. CMS may take this action on the basis of any credible
information, including the information provided during the
administrative review process that demonstrates that the initial QBP
determination was incorrect.

0
27. Amend Sec. 422.266 by revising paragraph (a) to read as follows:

Sec. 422.266 Beneficiary rebates.

(a) Calculation of rebate. (1) For 2006 through 2011, an MA
organization must provide to the enrollee a monthly rebate equal to 75
percent of the average per capita savings (if any) described in Sec.
422.264(b) for MA local plans and Sec. 422.264(d) for MA regional
plans.
(2) For 2012 and subsequent years, an MA organization must provide
to the enrollee a monthly rebate equal to a specified percentage of the
average per capita savings (if any) at Sec. 422.264(b) for MA local
plans and Sec. 422.264(d) for MA regional plans. For 2012 and 2013,
this percentage is based on a combination of the (a)(1) rule of 75
percent and the (a)(2)(ii) rules that set the percentage based on the
plan's quality rating under a 5 star rating system, as determined by
the Secretary under Sec. 422.258(d)(7). For 2014 and subsequent years,
this percentage is determined based only on the paragraph (a)(2)(ii) of
this section.
(i) Applicable rebate percentage for 2012 and 2013. Subject to
paragraphs (a)(2)(iii) and (iv) of this section, the transitional
applicable rebate percentage is, for a year, the sum of two amounts as
follows:
(A) For 2012. Two-thirds of the old proportion of 75 percent of the
average per capita savings; and one-third of the new proportion
assigned the plan under paragraph (a)(2)(ii) of this section, based on
the quality rating specified in Sec. 422.258(d)(7).
(B) For 2013. One-third of the old proportion of 75 percent of the
average per capita savings; and two-thirds of the new proportion
assigned the plan under paragraph (d)(2)(ii) of this section, based on
the quality rating at Sec. 422.258(d)(7).
(ii) Final applicable rebate percentage. For 2014 and subsequent
years, and subject to paragraphs (a)(2)(iii) and (iv) of this section,
the final applicable rebate percentage is as follows:
(A) In the case of a plan with a quality rating under such system
of at least 4.5 stars, 70 percent of the average per capita savings;
(B) In the case of a plan with a quality rating under such system
of at least 3.5 stars and less than 4.5 stars, 65 percent of the
average per capita savings.
(C) In the case of a plan with a quality rating under such system
of less than 3.5 stars, 50 percent of the average per capita savings.
(iii) Treatment of low enrollment contracts. For 2012, in the case
of a plan described at Sec. 422.258(d)(7)(iv), the plan must be
treated as having a rating of 4.5 stars for the purpose of determining
the beneficiary rebate amount.
(iv) Treatment of new MA plans. For 2012 or a subsequent year, a
new MA plan defined at Sec. 422.252 that meets the criteria specified
by the Secretary for purposes of Sec. 422.258(d)(7)(v) must be treated
as a qualifying plan under Sec. 422.258(d)(7)(i), except that plan
must be treated as having a rating of 3.5 stars for purposes of
determining the beneficiary rebate amount.
* * * * *

Subpart G--Payments to Medicare Advantage Organizations

0
28. Amend Sec. 422.308 by adding paragraphs (c)(4) through (6) to read
as follows:
* * * * *
(c) * * *
(4) Authority to apply frailty adjustment under PACE payment rules
for certain specialized MA plans for special needs individuals. (i)
Application of payment rules. For plan year 2011 and subsequent plan
years, in the case of a plan described in paragraph (c)(4)(ii) of this
section, the Secretary may apply the payment rules under section
1894(d) of the Act (other than paragraph (3) of that section) rather
than the payment rules that would otherwise apply under this part, but
only to the extent necessary to reflect the costs of treating high
concentrations of frail individuals.
(ii) Plan described. A plan described in this paragraph is a fully
integrated dual-eligible special needs plan, as defined at Sec. 422.2,
and has a similar average level of frailty (as determined by the
Secretary) as the PACE program.
(5) Application of coding adjustment. (i) In applying the
adjustment under paragraph (c)(1) of this section for health status to
payment amounts, the Secretary ensures that such adjustment reflects
changes in treatment and coding practices in the fee-for-service sector
and reflects differences in coding patterns between MA plans and
providers under Part A and B to the extent that the Secretary has
identified such differences.
(ii) In order to ensure payment accuracy, the Secretary annually
conducts an analysis of the differences described in paragraph
(c)(5)(i) of this section.

[[Page 21568]]

(A) The Secretary completes such analysis by a date necessary to
ensure that the results of such analysis are incorporated on a timely
basis into the risk scores for 2008 and subsequent years.
(B) In conducting such analysis, the Secretary uses data submitted
with respect to 2004 and subsequent years, as available and updated as
appropriate.
(iii) In calculating each year's adjustment, the adjustment factor
is as follows:
(A) For 2014, not less than the adjustment factor applied for 2010,
plus 1.3 percentage points.
(B) For each of the years 2015 through 2018, not less than the
adjustment factor applied for the previous year, plus 0.25 percentage
points.
(C) For 2019 and each subsequent year, not less than 5.7 percent.
(iv) Such adjustment is applied to risk scores until the Secretary
implements risk adjustment using MA diagnostic, cost, and use data.
(6) Improvements to risk adjustment for special needs individuals
with chronic health conditions--(i) General rule. For 2011 and
subsequent years, for purposes of the adjustment under paragraph (c)(1)
of this section with respect to individuals described in paragraph
(c)(6)(ii) of the section, the Secretary uses a risk score that
reflects the known underlying risk profile and chronic health status of
similar individuals. Such risk score is used instead of the default
risk score for new enrollees in MA plans that are not specialized MA
plans for special needs individuals (as defined in section 1859(b)(6)
of the Act).
(ii) Individuals described. An individual described in this clause
is a special needs individual described in section 1859(b)(6)(B)(iii)
of the Act who enrolls in a specialized MA plan for special needs
individuals on or after January 1, 2011.
(iii) Evaluation. For 2011 and periodically thereafter, the
Secretary evaluates and revises the risk adjustment system under this
paragraph in order to, as accurately as possible, account for--
(A) Higher medical and care coordination costs associated with
frailty, individuals with multiple, comorbid chronic conditions, and
individuals with a diagnosis of mental illness; and
(B) Costs that may be associated with higher concentrations of
beneficiaries with the conditions specified in paragraph (c)(6)(iii)(A)
of this section.
(iv) Publication of evaluation and revisions. The Secretary
publishes, as part of an announcement under section 1853(b) of the Act,
a description of any evaluation conducted under paragraph (c)(6)(iii)
of this section during the preceding year and any revisions made under
paragraph (c)(6)(iii) of this section as a result of such evaluation.
* * * * *

Subpart J--Special Rules for MA Regional Plans

Sec. 422.458 [Amended]

0
29. In Sec. 422.458, paragraph (f) is removed.

Subpart K--Application Procedures and Contracts for Medicare
Advantage Organizations

0
30. Amend Sec. 422.502 as follows:
0
A. Redesignating paragraph (b) as paragraph (b)(1).
0
B. Adding paragraph (b)(2).
0
C. Revising paragraph (c)(2)(i).
The revisions read as follows:

Sec. 422.502 Evaluation and determination procedures.

* * * * *
(b) * * *
(2) In the absence of 14 months of performance history, CMS may
deny an application based on a lack of information available to
determine an applicant's capacity to comply with the requirements of
the MA program.
(c) * * *
(2) * * *
(i) If CMS finds that the applicant does not appear to be able to
meet the requirements for an MA organization, CMS gives the applicant
notice of intent to deny the application and a summary of the basis for
this preliminary finding.
* * * * *

0
32. Amend Sec. 422.504 as follows:
0
A. Redesignating paragraph (a)(14) as paragraph (a)(16).
0
B. Adding new paragraphs (a)(14) and (a)(15).
0
C. Revising newly redesignated paragraph (a)(16).
0
D. Adding paragraph (n).
The additions and revision read as follows.

Sec. 422.504 Contract provisions.

* * * * *
(a) * * *
(14) Maintain a fiscally sound operation by at least maintaining a
positive net worth (total assets exceed total liabilities).
(15) Address complaints received by CMS against the MAO by--
(i) Addressing and resolving complaints in the CMS complaint
tracking system.
(ii) Displaying a link to the electronic complaint form on the
Medicare.gov Internet Web site on the MA plan's main Web page.
(16) An MA organization's compliance with paragraphs (a)(1) through
(15) and (c) of this section is material to performance of the
contract.
* * * * *
(n) Release of summary CMS payment data. The contract must provide
that the MA organization acknowledges that CMS releases to the public
summary reconciled CMS payment data after the reconciliation of Part C
and Part D payments for the contract year as follows:
(1) For Part C, the following data--
(i) Average per member per month CMS payment amount for A/B
(original Medicare) benefits for each MA plan offered, standardized to
the 1.0 (average risk score) beneficiary.
(ii) Average per member per month CMS rebate payment amount for
each MA plan offered (or, in the case of MSA plans, the monthly MSA
deposit amount).
(iii) Average Part C risk score for each MA plan offered.
(iv) County level average per member per month CMS payment amount
for each plan type in that county, weighted by enrollment and
standardized to the 1.0 (average risk score) beneficiary in that
county.
(2) For Part D plan sponsors, plan payment data in accordance with
Sec. 423.505(o) of this subchapter.

0
33. Amend Sec. 422.506 by adding paragraph (a)(5) to read as follows:

Sec. 422.506 Nonrenewal of contract.

(a) * * *
(5) During the same 2-year period as specified in paragraph (a)(4)
of this section, CMS will not contract with an organization whose
covered persons also served as covered persons for the non-renewing
sponsor. A ``covered person'' as used in this paragraph means one of
the following:
(i) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who have an ownership interest
of less than 5 percent.
(ii) An owner in whole or part interest in any mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property or assets thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property,
and assets of the organization.
(iii) A member of the board of directors or board of trustees of
the entity, if the organization is organized as a corporation.
* * * * *

[[Page 21569]]

0
34. Amend Sec. 422.508 by adding paragraph (d) to read as follows:

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

* * * * *
(d) Prohibition against Part C program participation by
organizations whose owners, directors, or management employees served
in a similar capacity with another organization that mutually
terminated its Medicare contract within the previous 2 years. During
the same 2-year period, CMS will not contract with an organization
whose covered persons also served as covered persons for the mutually
terminating sponsor. A ``covered person'' as used in this paragraph
means one of the following:
(1) All owners of nonrenewal or terminated organizations who are
natural persons, other than shareholders who have an ownership interest
of less than 5 percent.
(2) An owner in whole or part interest in any mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property or assets thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property,
and assets of the organization.
(3) A member of the board of directors of the entity, if the
organization is organized as a corporation.

0
35. Amend Sec. 422.512 as follows:
A. Redesignating paragraph (e) as (e)(1).
B. Adding a new paragraph (e)(2).

Sec. 422.512 Termination of contract by the MA organization.

* * * * *
(e) * * *
(2) During the same 2-year period specified in paragraph (e)(1) of
this section, CMS will not contract with an organization whose covered
persons also served as covered persons for the terminating sponsor. A
``covered person'' as used in this paragraph means one of the
following:
(i) All owners of nonrenewal or terminated organizations who are
natural persons, other than shareholders who have an ownership interest
of less than 5 percent.
(ii) An owner in whole or part interest in any mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property or assets thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property
and assets of the organization.
(iii) A member of the board of directors of the entity, if the
organization is organized as a corporation.

Subpart M--Grievances, Organization Determinations, and Appeals

0
36. Amend Sec. 422.562 by adding paragraph (a)(4) to read as follows:

Sec. 422.562 General provisions.

* * * * *
(a) * * *
(4) An MA organization must employ a medical director who is
responsible for ensuring the clinical accuracy of all organization
determinations and reconsiderations involving medical necessity. The
medical director must be a physician with a current and unrestricted
license to practice medicine in a State, Territory, Commonwealth of the
United States (that is, Puerto Rico), or the District of Columbia.
* * * * *

0
37. Amend Sec. 422.566 by adding paragraph (d) to read as follows:

Sec. 422.566 Organization determinations.

* * * * *
(d) Who must review organization determinations. If the MA
organization expects to issue a partially or fully adverse medical
necessity (or any substantively equivalent term used to describe the
concept of medical necessity) decision based on the initial review of
the request, the organization determination must be reviewed by a
physician or other appropriate health care professional with sufficient
medical and other expertise, including knowledge of Medicare coverage
criteria, before the MA organization issues the organization
determination decision. The physician or other health care professional
must have a current and unrestricted license to practice within the
scope of his or her profession in a State, Territory, Commonwealth of
the United States (that is, Puerto Rico), or the District of Columbia.

0
38. Amend Sec. 422.622 by revising paragraph (g)(1) to read as
follows:

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

* * * * *
(g) * * *
(1) Right to request a reconsideration. If the enrollee is still an
inpatient in the hospital and is dissatisfied with the determination,
he or she may request a reconsideration according to the procedures
described in Sec. 422.626(g).
* * * * *

0
39. Amend Sec. 422.626 by revising paragraph (g)(3) to read as
follows:

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

(g) * * *
(3) If the IRE reaffirms its decision, in whole or in part, the
enrollee may appeal the IRE's reconsidered determination to an ALJ, the
MAC, or a Federal court, as provided for under this subpart.
* * * * *

Subpart V--Medicare Advantage Marketing Requirements

0
40. Amend Sec. 422.2264 by revising paragraph (e) to read as follows:

Sec. 422.2264 Guidelines for CMS review.

* * * * *
(e) For markets with a significant non-English speaking population,
provide materials in the language of these individuals. Specifically,
MA organizations must translate marketing materials into any non-
English language that is the primary language of at least 5 percent of
the individuals in a plan benefit package (PBP) service area.

0
41. Amend Sec. 422.2272 by adding paragraph (e) to read as follows:

Sec. 422.2272 Licensing of marketing representatives and confirmation
of marketing resources.

* * * * *
(e) Terminate upon discovery any unlicensed agent or broker
employed as a marketing representative and notify any beneficiaries
enrolled by an unqualified agent or broker of the agent's or broker's
status and, if requested, of their options to confirm enrollment or
make a plan change (including a special election period, as described
in Sec. 422.62(b)(3)(ii)).

0
42. Amend Sec. 422.2274 by revising the introductory text and
paragraphs (b) and (c) to read as follows:

Sec. 422.2274 Broker and agent requirements.

[[Page 21570]]

independent (that is, non-employee) brokers or agents, the requirements
in paragraph (a) of this section must be met. The requirements in
paragraphs (b) through (e) of this section must be met if a MA
organization markets through any broker or agent, whether independent
(that is, non-employee) or employed.
* * * * *
(b) It must ensure that all agents selling Medicare products are
trained annually through a CMS endorsed or approved training program or
as specified by CMS, on Medicare rules and regulations specific to the
plan products they intend to sell.
(c) It must ensure agents selling Medicare products are tested
annually by CMS endorsed or approved training program or as specified
by CMS.
* * * * *

PART 423--MEDICARE PROGRAM; MEDICARE PRESCRIPTION DRUG PROGRAM

0
43. The authority citation for part 423 continues to read as follows:

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

Subpart A--General Provisions

0
44. Amend Sec. 423.4 by adding the definitions of ``fiscally sound
operation'' and ``pharmacist'' to read as follows:

Sec. 423.4 Definitions.

* * * * *
Fiscally sound operation means an operation which at least
maintains a positive net worth (total assets exceed total liabilities).
* * * * *
Pharmacist means any individual who holds a current valid license
to practice pharmacy in a State or territory of the United States or
the District of Columbia.
* * * * *

Subpart B--Eligibility and Enrollment

0
45. Amend Sec. 423.34 as follows:
0
A. Revising paragraphs (c) and (d)(1).
0
B. Adding paragraph (d)(4).
The revisions and addition read as follows:

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

* * * * *
(c) Reassigning low income subsidy eligible individuals--(1)
General rule. 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, except as specified in
paragraph (c)(2) of this section.
(2) Part D prescription drug plans that waive a de minimis premium
amount. If a Part D plan offering basic prescription drug coverage in
the area where the beneficiary resides has a monthly beneficiary
premium amount that exceeds the low-income subsidy amount by a de
minimis amount, and the Part D plan volunteers to waive that de minimis
amount in accordance with Sec. 423.780, then CMS does not reassign low
income subsidy individuals who would otherwise be enrolled under
paragraph (d)(1) of this section on the basis that the monthly
beneficiary premium exceeds the low-income subsidy by a de minimis
amount. A Part D plan that volunteers to waive such a de minimis amount
agrees to do so for each month during the contract year for which a
beneficiary qualifies for 100 percent low-income premium subsidy as
provided in Sec. 423.780(f).
(d) Automatic 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.
* * * * *
(4) Enrollment in PDP plans that voluntarily waive a de minimis
premium amount. CMS may include in the process specified in paragraph
(d)(1) of this section that PDPs that voluntarily waive a de minimis
amount as specified in Sec. 423.780, if CMS determines that such
inclusion is warranted.
* * * * *

0
46. Amend Sec. 423.38 as by revising paragraph (b) and adding
paragraph (d) to read as follows:

Sec. 423.38 Enrollment periods.

* * * * *
(b) Annual coordinated election period--(1) For 2006. This period
begins on November 15, 2005 and ends on May 15, 2006.
(2) For 2007 through 2010. The annual coordinated election period
for the following calendar year is November 15 through December 31.
(3) For 2011 and subsequent years. Beginning with 2011, the annual
coordinated election period for the following calendar year is October
15 through December 7.
* * * * *
(d) Enrollment period to coordinate with MA annual 45-day
disenrollment period. Beginning in 2011, an individual enrolled in an
MA plan who elects Original Medicare from January 1 through February
14, as described in Sec. 422.62(a)(7), may also elect a PDP during
this time.

0
47. Amend Sec. 423.40 by adding paragraph (d) to read as follows:

Sec. 423.40 Effective dates.

* * * * *
(d) PDP enrollment period to coordinate with the MA annual
disenrollment period. Beginning in 2011, an enrollment made from
January 1 through February 14 by an individual who has disenrolled from
an MA plan as described in Sec. 422.62(a)(7) will be effective the
first day of the month following the month in which the enrollment in
the PDP is made.

0
48. Amend Sec. 423.44 by revising the section heading and adding
paragraphs (d)(1)(vi), (d)(1)(vii), and (e) as follows:

Sec. 423.44 Involuntary disenrollment from Part D coverage.

* * * * *
(d) * * *
(1) * * *
(vi) Extension of grace period for good cause and reinstatement.
When an individual is disenrolled for failure to pay the plan premium,
CMS may reinstate enrollment in the PDP, without interruption of
coverage, if the individual shows good cause for failure to pay within
the initial grace period, and pays all overdue premiums within 3
calendar months after the disenrollment date. The individual must
establish by a credible statement that failure to pay premiums within
the initial grace period was due to circumstances for which the
individual had no control, or which the individual could not reasonably
have been expected to foresee.
(vii) No extension of grace period. A beneficiary's enrollment in
the PDP may not be reinstated if the only basis for such reinstatement
is a change in the individual's circumstances subsequent to the
involuntary disenrollment for non-payment of premiums.
* * * * *

[[Page 21571]]

(e) Involuntary disenrollment by CMS--(1) General rule. CMS will
disenroll individuals who fail to pay the Part D income related monthly
adjustment amount (Part D--IRMAA) specified in Sec. 423.286(d)(4) and
Sec. 423.293(d) of this part.
(2) Initial grace period. For all Part D--IRMAA amounts directly
billed to an enrollee in accordance with Sec. 423.293(d)(2), the grace
period ends with the last day of the third month after the billing
month.
(3) Extension of grace period for good cause and reinstatement.
When an individual is disenrolled for failing to pay the Part D--IRMAA
within the initial grace period specified in paragraph (e)(2) of this
section, CMS (or an entity acting on behalf of CMS) may reinstate
enrollment, without interruption of coverage, if the individual shows
good cause as specified in Sec. 423.44(d)(1)(vi), pays all Part D--
IRMAA arrearages, and any overdue premiums due the Part D plan sponsor
within 3 calendar months after the disenrollment date.
(4) Notice of termination. Where CMS has disenrolled an individual
in accordance with paragraph (e)(1) of this section, the Part D plan
sponsor must provide notice of termination in a form and manner
determined by CMS.
(5) Effective date of disenrollment. After a grace period and
notice of termination has been provided in accordance with paragraphs
(e)(2) and (4) of this section, the effective date of disenrollment is
the first day following the last day of the initial grace period.

Subpart C--Benefits and Beneficiary Protections

0
49. Amend Sec. 423.100 as follows:
0
A. Adding the definitions of ``Applicable beneficiary,'' ``Applicable
drug under the Medicare coverage gap discount program,'' and ``Coverage
gap.''
0
B. Revising paragraph (2) of the definition of ``Dispensing fees'' and
paragraph (2)(ii) of the definition of ``Incurred costs.''
The additions and revisions read as follows:

Sec. 423.100 Definitions.

* * * * *
Applicable beneficiary means an individual who, on the date of
dispensing a covered Part D drug--
(1) Is enrolled in a prescription drug plan or an MA-PD plan;
(2) Is not enrolled in a qualified retiree prescription drug plan;
(3) Is not entitled to an income-related subsidy under section
1860D-14(a) of the Act;
(4) Has reached or exceeded the initial coverage limit under
section 1860D-2(b)(3) of the Act during the year;
(5) Has not incurred costs for covered part D drugs in the year
equal to the annual out-of-pocket threshold specified in section 1860D-
2(b)(4)(B) of the Act; and
(6) Has a claim that--
(i) Is within the coverage gap;
(ii) Straddles the initial coverage period and the coverage gap;
(iii) Straddles the coverage gap and the annual out-of-pocket
threshold; or
(iv) Spans the coverage gap from the initial coverage period and
exceeds the annual out-of-pocket threshold.
Applicable drug means a Part D drug that is--
(1)(i) Approved under a new drug application under section 505(b)
of the Federal Food, Drug, and Cosmetic Act (FDCA); or
(ii) In the case of a biological product, licensed under section
351 of the Public Health Service Act (other than a product licensed
under subsection (k) of such section 351); and
(2)(i) If the PDP sponsor of the prescription drug plan or the MA
organization offering the MA-PD plan uses a formulary, which is on the
formulary of the prescription drug plan or MA-PD plan that the
applicable beneficiary is enrolled in;
(ii) If the PDP sponsor of the prescription drug plan or the MA
organization offering the MA-PD plan does not use a formulary, for
which benefits are available under the prescription drug plan or MA-PD
plan that the applicable beneficiary is enrolled in; or
(iii) Is provided to a particular applicable beneficiary through an
exception or appeal for that particular applicable beneficiary.
* * * * *
Coverage gap means the period in prescription drug coverage that
occurs between the initial coverage limit and the out-of-pocket
threshold. For purposes of applying the initial coverage limit, Part D
sponsors must apply their plan specific initial coverage limit under
basic alternative, enhanced alternative or actuarially equivalent Part
D benefit designs.
* * * * *
Dispensing fees * * *
(2) Include only pharmacy costs associated with ensuring that
possession of the appropriate covered Part D drug is transferred to a
Part D enrollee. Pharmacy costs include, but are not limited to, any
reasonable costs associated with a pharmacist's time in checking the
computer for information about an individual's coverage, performing
quality assurance activities consistent with Sec. 423.153(c)(2),
measurement or mixing of the covered Part D drug, filling the
container, physically providing the completed prescription to the Part
D enrollee, delivery, special packaging, and salaries of pharmacists
and other pharmacy workers as well as the costs associated with
maintaining the pharmacy facility and acquiring and maintaining
technology and equipment necessary to operate the pharmacy. Dispensing
fees should take into consideration the number of dispensing events in
a billing cycle, the incremental costs associated with the type of
dispensing methodology, and with respect to Part D drugs dispensed in
LTC facilities, the techniques to minimize the dispensing of unused
drugs. Dispensing fees may also take into account costs associated with
data collection on unused Part D drugs and restocking fees associated
with return for credit and reuse in long-term care pharmacies, when
return for credit and reuse is permitted under the State in law and is
allowed under the contract between the Part D sponsor and the pharmacy.
* * * * *
Incurred costs * * *
(2) * * *
(ii) Under a State Pharmaceutical Assistance Program (as defined in
Sec. 423.464); by the Indian Health Service, an Indian tribe or tribal
organization, or an urban Indian organization (as defined in section 4
of the Indian Health Care Improvement Act) or under an AIDS Drug
Assistance Program (as defined in part B of title XXVI of the Public
Health Service); or
* * * * *

0
50. Amend Sec. 423.104 as follows:
0
A. Revising paragraphs (d)(2)(i) introductory text, (d)(2)(ii), (d)(3)
introductory text, and (d)(4).
0
B. Redesignating paragraph (d)(5)(iii)(B) as (d)(5)(iii)(F).
0
C. Adding new paragraphs (d) (5)(iii)(B) through (E).
0
D. Revising newly redesignated paragraph (d)(5)(iii)(F).
0
E. Adding paragraph (d)(5)(v).
The revisions and additions read as follows:

Sec. 423.104 Requirements related to qualified prescription drug
coverage.

* * * * *
(d) * * *
(2) * * *
(i) Subject to paragraph (d)(4) of this section, coinsurance for
actual costs for covered Part D drugs covered under the Part D plan
above the annual deductible

[[Page 21572]]

specified in paragraph (d)(1) of this section, and up to the initial
coverage limit under paragraph (d)(3) of this section, that is--
* * * * *
(ii) Tiered copayments. A Part D plan providing actuarially
equivalent standard coverage may apply tiered copayments, provided that
any tiered copayments are consistent with paragraphs (d)(2)(i)(B) and
(d)(4) of this section and are approved as described in Sec.
423.272(b)(2).
(3) Initial coverage limit. Except as provided in paragraphs (d)(4)
and (d)(5) of this section, the initial coverage limit is equal to--
* * * * *
(4) Cost-sharing in the coverage gap for applicable beneficiaries.
(i) Coinsurance in the coverage gap (as defined in Sec. 423.100) for
costs for covered Part D drugs that are not applicable drugs (as
defined in Sec. 423.100) under the Medicare coverage gap discount
program that is--
(A) Equal to the generic gap coinsurance percentage described in
paragraph (d)(4)(iii) of this section; or
(B) Actuarially equivalent to an average expected coinsurance for
covered Part D drugs that are not applicable drugs under the Medicare
coverage gap discount program, as determined through processes and
methods established under Sec. 423.265 (c) and (d).
(ii) Coinsurance in the coverage gap for the actual cost minus the
dispensing fee and any vaccine administration fee for covered Part D
drugs that are applicable drugs under the Medicare coverage gap
discount program that is--
(A) Equal to the difference between the applicable gap coinsurance
percentage described in paragraph (d)(4)(iv) of this section and the
discount percentage determined under the Medicare coverage gap discount
program; or
(B) Actuarially equivalent to an average expected coinsurance for
covered Part D drugs that are applicable drugs under the Medicare
coverage gap discount program, as determined through processes and
methods established under Sec. 423.265 (c) and (d).
(iii) Generic gap coinsurance percentage. The generic gap
coinsurance percentage is equal to--
(A) For 2011, 93 percent.
(B) For years 2012 through 2019, the amount specified in this
paragraph for the previous year, decreased by 7 percentage points.
(C) For 2020 and each subsequent year, 25 percent.
(iv) Applicable gap coinsurance percentage. The applicable gap
coinsurance percentage is equal to--
(A) For 2013 and 2014, 97.5 percent.
(B) For 2015 and 2016, 95 percent.
(C) For 2017, 90 percent.
(D) For 2018, 85 percent.
(E) For 2019, 80 percent.
(F) For 2020 and subsequent years, 75 percent.
(5) * * *
(iii) * * *
(B) For each year 2007 through 2013. The amount specified in this
paragraph for the previous year, increased by the annual percentage
increase specified in paragraph (d)(5)(iv) of this section, and rounded
to the nearest multiple of $50.
(C) For years 2014 and 2015. The amount specified in this paragraph
for the previous year, increased by the annual percentage increase
specified in paragraph (d)(5)(iv) of this section, minus 0.25
percentage point.
(D) For each year 2016 through 2019. The amount specified in this
paragraph for the previous year, increased by the lesser of--
(1) The annual percentage increase specified in (d)(5)(v) of this
section plus 2 percentage points; or
(2) The annual percentage increase specified in (d)(5)(iv) of this
section.
(E) For 2020. The amount specified in this paragraph for 2013
increased by the annual percentage increases specified in paragraph
(d)(5)(iv) of this section for 2014 through 2020, and rounded to the
nearest $50.
(F) For 2021 and subsequent years. The amount specified in this
paragraph for the previous year, increased by the annual percentage
increase specified in paragraph (d)(5)(iv) of this section, and rounded
to the nearest $50.
* * * * *
(v) Additional annual percentage increase. The annual percentage
increase for each year is equal to the annual percentage increase in
the consumer price index for all urban consumers (United States city
average) for the 12-month period ending in July of the previous year.
* * * * *

0
51. Section 423.120 is amended as follows:
0
A. Revising paragraphs (b)(3)(iii)(B) and (b)(3)(iv).
0
B. Adding paragraph (d).
The revisions and addition read as follows.

Sec. 423.120 Access to covered Part D drugs.

* * * * *
(b) * * *
(iii) * * *
(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 at least 91
days and may be up to at least 98 days, consistent with the dispensing
increment, with refills provided, if needed, unless a 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. For
long-term care residents dispensed multiple supplies of a Part D drug,
in increments of 14-days-or-less, consistent with the requirements
under Sec. 423.154, the written notice must be provided within 3
business days after adjudication of the first temporary fill.
* * * * *
(d) Treatment of compounded drug products. With respect to multi-
ingredient compounds, a Part D sponsor must--
(1) Make a determination as to whether the compound is covered
under Part D.
(i) A compound that contains at least one ingredient covered under
Part B as prescribed and dispensed or administered is considered a Part
B compound, regardless of whether other ingredients in the compound are
covered under Part B as prescribed and dispensed or administered.
(ii) Only compounds that contain at least one ingredient that
independently meets the definition of a Part D drug, and that do not
meet the criteria under paragraph (d)(1)(i) of this section, may be
covered under Part D. For purposes of this paragraph (d) these
compounds are referred to as Part D compounds.
(iii) For a Part D compound to be considered on-formulary, all
ingredients that independently meet the definition of a Part D drug
must be considered on-formulary (even if the particular Part D drug
would be considered off-formulary if it were provided separately--that
is, not as part of the Part D compound).
(iv) For a Part D compound that is considered off-formulary--
(A) Transition rules apply such that all ingredients in the Part D
compound that independently meet the definition of a Part D drug must
become payable in the event of a transition fill under Sec.
423.120(b)(3); and
(B) All ingredients that independently meet the definition of a
Part D drug must be covered if an exception under Sec. 423.578(b) is
approved for coverage of the compound.
(2) Establish consistent rules for beneficiary payment liabilities
for both ingredients of the Part D compound that

[[Page 21573]]

independently meet the definition of a Part D drug and non-Part D
ingredients.
(i) For low income subsidy beneficiaries the copayment amount is
based on whether the most expensive ingredient that independently meets
the definition of a Part D drug in the Part D compound is a generic or
brand name drug (as described under Sec. 423.782).
(ii) For any non-Part D ingredient of the Part D compound
(including drugs described under Sec. 423.104(f)(1)(ii)(A)), the Part
D sponsor's contract with the pharmacy must prohibit balance billing
the beneficiary for the cost of any such ingredients.

0
52. Amend Sec. 423.128 as follows:
0
A. Revising paragraph (b)(7).
0
B. Adding paragraphs (d)(1)(iii) and (d)(1)(iv).
The revision and additions read as follows:

Sec. 423.128 Dissemination of Part D plan information.

* * * * *
(b) * * *
(7) Grievance, coverage determination, and appeal procedures. All
grievance, coverage determination, and appeal rights and procedures
required under Sec. 423.562 et. seq., including--
(i) Access to a uniform model form used to request a coverage
determination under Sec. 423.568 or Sec. 423.570, and a uniform model
form used to request a redetermination under Sec. 423.582 or Sec.
423.584, to the extent such uniform model forms have been approved for
use by CMS;
(ii) Immediate access to the coverage determination and
redetermination processes via an Internet Web site; and
(iii) A system that transmits codes to network pharmacies so that
the network pharmacy is notified to populate and/or provide a printed
notice at the point-of-sale to an enrollee explaining how the enrollee
can request a coverage determination by contacting the plan sponsor's
toll free customer service line or by accessing the plan sponsor's
internet Web site.
* * * * *
(d) * * *
(1) * * *
(iii) Provides interpreters for non-English speaking and limited
English proficient (LEP) individuals.
(iv) Provides immediate access to the coverage determination and
redetermination processes.
* * * * *

Subpart D--Cost Control and Quality Improvement Requirements

0
53. Amend Sec. 423.150 as follows:
0
A. Redesignating paragraphs (b) through (g) as paragraphs (c) through
(h).
0
B. Adding a new paragraph (b) to read as follows:

Sec. 423.150 Scope.

* * * * *
(b) Appropriate dispensing of prescription drugs in long-term care
facilities under PDPs and MA-PD plans.
* * * * *

0
54. Amending Sec. 423.153 as follows:
0
A. Revising paragraph (d)(1)(vii)(B).
0
B. Adding paragraph (d)(1)(vii)(D).
The revision and addition read as follows:

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

* * * * *
(d) * * *
(1) * * *
(vii) * * *
(B) Annual comprehensive medication review with written summaries.
The comprehensive medication review must include an interactive,
person-to-person, or telehealth consultation performed by a pharmacist
or other qualified provider unless the beneficiary is in a long-term
care setting and may result in a recommended medication action plan.
* * * * *
(D) Standardized action plans and summaries that comply with
requirements as specified by CMS for the standardized format.
* * * * *

0
55. Section 423.154 is added to read as follows:

Sec. 423.154 Appropriate dispensing of prescription drugs in long-
term care facilities under PDPs and MA-PD plans.

(a) In general. Except as provided in paragraph (b) of this
section, when dispensing covered Part D drugs to enrollees who reside
in long-term care facilities, a Part D sponsor must--
(1) Require all pharmacies servicing long-term care facilities, as
defined in Sec. 423.100 to--
(i) Dispense solid oral doses of brand-name drugs, as defined in
Sec. 423.4, to enrollees in such facilities in no greater than 14-day
increments at a time;
(ii) Permit the use of uniform dispensing techniques for Part D
drugs dispensed to enrollees in long-term care facilities under
paragraph (a)(1)(i) of this section as defined by each of the long-term
care facilities in which such enrollees reside; and
(2) Collect and report information, in a form and manner specified
by CMS, on the dispensing methodology used for each dispensing event
described by paragraph (a)(1) of this section, and on the nature and
quantity of unused brand and generic drugs, as defined in Sec. 423.4,
dispensed by the pharmacy to enrollees residing in a LTC facility.
Reporting on unused drugs is waived for Part D sponsors for drugs
dispensed by pharmacies that dispense both brand and generic drugs, as
defined in Sec. 423.4, in no greater than 7-day increments.
(b) Exclusions. CMS excludes from the requirements under paragraph
(a) of this section--
(1) Solid oral doses of antibiotics; or
(2) Solid oral doses that are dispensed in their original container
as indicated in the Food and Drug Administration Prescribing
Information or are customarily dispensed in their original packaging to
assist patients with compliance (for example, oral contraceptives).
(c) Waivers. CMS waives the requirements under paragraph (a) of
this section for pharmacies when they service intermediate care
facilities for the mentally retarded (ICFs/MR) and institutes for
mental disease (IMDs) as defined in Sec. 435.1010 and for I/T/U
pharmacies (as defined in Sec. 423.100).
(d) Applicability date. The applicability date for this section is
January 1, 2013. Nothing precludes a Part D sponsor and pharmacy from
mutually agreeing to an earlier implementation date.
(e) Copayments. Regardless of the number of incremental dispensing
events, the total cost sharing for a Part D drug to which the
dispensing requirements under this paragraph (a) apply must be no
greater than the total cost sharing that would be imposed for such Part
D drug if the requirements under paragraph (a) of this section did not
apply.
(f) Unused drugs returned to the pharmacy. The terms and conditions
that must be offered by a Part D sponsor under Sec. 423.120(a)(5) must
include provisions that address the disposal of drugs that have been
dispensed to an enrollee in a long-term care facility but not used and
which have been returned to the pharmacy, in accordance with Federal
and State regulations, as well as whether return for credit and reuse
is authorized where permitted under State law.

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

0
56. Amend Sec. 423.265 by adding paragraph (b)(3) to read as follows:

[[Page 21574]]

Sec. 423.265 Submission of bids and related information.

* * * * *
(b) * * *
(3) CMS may decline to accept any or every bid submitted by a Part
D sponsor or potential Part D sponsor.
* * * * *
0
57. Amend Sec. 423.272 by adding paragraph (b)(4) to read as follows:

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

* * * * *
(b) * * *
(4) CMS may decline to approve a bid if the Part D sponsor proposes
significant increases in cost sharing or decreases in benefits offered
under the plan.
* * * * *

0
58. Amend Sec. 423.286 as follows:
0
A. Revising paragraph (a).
0
B. Adding paragraph (d)(4).
The revision and addition read as follows:

Sec. 423.286 Rules regarding premiums.

(a) General rule. Except as provided in paragraphs (d)(3), (d)(4),
and (e) of this section, and with regard to employer group waivers, the
monthly beneficiary premium for a Part D plan in a PDP region is the
same for all Part D eligible individuals enrolled in the plan. The
monthly beneficiary premium for a Part D plan is the base beneficiary
premium, as determined in paragraph (c) of this section, adjusted as
described in paragraph (d) of this section for the difference between
the bid and the national average monthly bid amount, any supplemental
benefits and for any late enrollment penalties.
* * * * *
(d) * * *
(4) Increase for income-related monthly adjustment amount (Part D--
IRMAA). Beginning January 1, 2011, Medicare beneficiaries enrolled in a
Medicare Part D plan must pay an income-related monthly adjustment
amount in addition to the Part D premium as determined under paragraph
(c) of this section and adjusted under paragraph (d) of this section,
if the enrollee's modified adjusted gross income exceeds the threshold
amounts specified in 20 CFR 418.2115.
(i) Social Security Administration determination. (A) SSA
determines which Part D enrollees are subject to the Part D--IRMAA and
the amount each enrollee will have to pay.
(B) If an individual disagrees with SSA's determination that such
individual is subject to the Part D--IRMAA, or about the amount the
individual must pay, an individual may file an appeal or request a new
initial determination consistent with 20 CFR part 418.
(ii) Calculating the income-related monthly adjustment amount. The
income-related monthly adjustment is equal to the product of the
quotient obtained by dividing the applicable premium percentage
specified in Sec. 418.2120 (35, 50, 65, or 80 percent) that is based
on the level of the Part D enrollee's modified adjusted gross income
for the calendar year reduced by 25.5 percent; and the base beneficiary
premium as determined under paragraph (c) of this section.
* * * * *

0
59. Amend Sec. 423.293 as follows:
0
A. Redesignating paragraphs (d) and (e) as (e) and (f), respectively.
0
B. Add new paragraph (d).

Sec. 423.293 Collection of monthly beneficiary premium.

* * * * *
(d) Collection of the income-related monthly adjustment amount
(Part D--IRMAA). (1) Collection through withholding. Where the Social
Security Administration has determined the income-related monthly
adjustment amount for an individual whose income exceeds the income
threshold amounts specified at 20 CFR 418.2115, the Part D--IRMAA must
be paid through withholding from the enrollee's Social Security benefit
payments, or benefit payments by the Railroad Retirement Board (RRB) or
the Office of Personnel Management (OPM) in the manner that the Part B
premium is withheld.
(2) Collection through direct billing. In cases where an enrollee's
benefit payment check is not sufficient to have the Part D--IRMAA
withheld, or if an enrollee is not receiving such benefits, the
beneficiary must be billed directly for the Part D--IRMAA. The
beneficiary will have the option of paying the amount through an
electronic funds transfer mechanism (such as automatic charges of an
account at a financial institution or a credit or debit card account)
or according to other means that CMS may specify.
(3) Failure to pay the income-related monthly adjustment amount:
General rule. CMS will terminate Part D coverage for any individual who
fails to pay the Part D--IRMAA as determined by the Social Security
Administration. CMS will terminate an enrollee's Part D coverage as
specified in Sec. 423.44(e).
* * * * *

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

0
60. Amend Sec. 423.464 by revising paragraph (f)(2) to read as
follows:

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

* * * * *
(f) * * *
(2) Treatment under out-of-pocket rule. (i) For purposes of
determining whether a Part D plan enrollee has satisfied the out-of-
pocket threshold provided under Sec. 423.104(d)(5)(iii), a Part D plan
must--
(A) Include the enrollee's incurred costs (as defined in Sec.
423.100); and
(B) Exclude expenditures for covered Part D drugs made by insurance
or otherwise, a group health plan, or other third party payment
arrangements, including expenditures by plans offering other
prescription drug coverage.
(ii) A Part D enrollee must disclose all these expenditures to a
Part D plan in accordance with requirements under Sec. 423.32(b)(ii).
* * * * *

Subpart K--Application Procedures and Contracts With PDP Sponsors

0
61. Amend Sec. 423.503 as follows:
0
A. Redesignating paragraph (b) as paragraph (b)(1).
0
B. Adding paragraph (b)(2).
0
C. Revising paragraph (c)(2)(i).
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.

* * * * *
(b) * * *
(2) In the absence of 14 months of performance history, CMS may
deny an application based on a lack of information available to
determine an applicant's capacity to comply with the requirements of
the Part D program.
* * * * *
(c) * * *
(2) * * *
(i) If CMS finds that the applicant does not appear qualified to
contract as a Part D sponsor, it gives the applicant notice of intent
to deny the application and a summary of the basis for this preliminary
finding.
* * * * *

0
62. Amend Sec. 423.505 as follows:
0
A. Adding paragraphs (b)(22) and (b)(23).
0
B. Adding paragraph (o).

[[Page 21575]]

The additions read as follows:

Sec. 423.505 Contract provisions.

* * * * *
(b) * * *
(22) Address complaints received by CMS against the Part D sponsor
by--
(i) Addressing and resolving complaints in the CMS complaint
tracking system.
(ii) Displaying a link to the electronic complaint form on the
Medicare.gov Internet Web site on the Part D plan's main Web page.
(23) Maintain a fiscally sound operation by at least maintaining a
positive net worth (total assets exceed total liabilities).
* * * * *
(o) Release of summary CMS payment data. The contract must provide
that the Part D sponsor acknowledges that CMS releases to the public
summary reconciled Part D payment data after the reconciliation of Part
D payments for the contract year as follows:
(1) The average per member per month Part D direct subsidy
standardized to the 1.0 (average risk score) beneficiary for each Part
D plan offered.
(2) The average Part D risk score for each Part D plan offered.
(3) The average per member per month Part D plan low-income cost
sharing subsidy for each Part D plan offered.
(4) The average per member per month Part D Federal reinsurance
subsidy for each Part D plan offered.
(5) The actual Part D reconciliation payment data summarized at the
Parent Organization level including breakouts of risk sharing,
reinsurance, and low income cost sharing reconciliation amounts.

0
63. Amend Sec. 423.507 as follows:
0
A. Redesignating paragraph (a)(4) as paragraph (a)(5).
0
B. Adding a new paragraph (a)(4) to read as follows:

Sec. 423.507 Nonrenewal of contract.

(a) * * *
(4) During the same 2-year period specified under paragraph (a)(3)
of this section, CMS will not contract with an organization whose
covered persons also served as covered persons for the non-renewing
sponsor. A ``covered person'' as used in this paragraph means one of
the following:
(i) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who have an ownership interest
of less than 5 percent.
(ii) An owner of a whole or part interest in a mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or by any of the property or assets thereof, which whole
or part interest is equal to or exceeds 5 percent of the total property
and assets of the organization.
(iii) A member of the board of directors or board of trustees of
the entity, if the organization is organized as a corporation.
* * * * *

0
64. Amend Sec. 423.508 by adding paragraph (f) to read as follows:

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

* * * * *
(f) Prohibition against Part D program participation by
organizations whose owners, directors, or management employees served
in a similar capacity with another organization that mutually
terminated its Medicare contract within the previous 2 years. During
the 2-year period specified in paragraph (e) of this section, CMS will
not contract with an organization whose covered persons also served as
covered persons for the mutually terminating sponsor. A ``covered
person'' as used in this paragraph means one of the following:
(1) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who have an ownership interest
of less than 5 percent.
(2) An owner of a whole or part interest in a mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property or assets thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property,
and assets of the organization.
(3) A member of the board of directors or board of trustees of the
entity, if the organization is organized as a corporation.
0
65. Amend Sec. 423.509 by adding paragraph (e) to read as follows:

Sec. 423.509 Termination of contract by CMS.

* * * * *
(e) Timely transfer of data and files. If a contract is terminated
under paragraph (a) of this section, the Part D plan sponsor must
ensure the timely transfer of any data or files.

0
66. Amend Sec. 423.510 as follows:
0
A. Redesignating paragraph (e) as (e)(1).
0
B. Adding a new paragraph (e)(2).
The addition reads as follows:

Sec. 423.510 Termination of contract by Part D sponsor.

* * * * *
(e) * * *
(2) During the same 2-year period specified in (e)(1) of this
section, CMS will not contract with an organization whose covered
persons also served as covered persons for the terminating sponsor. A
``covered person'' as used in this paragraph means one of the
following:
(i) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who have an ownership interest
of less than 5 percent.
(ii) An owner of a whole or part interest in a mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property or assets thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property
and assets of the organization.
(iii) A member of the board of directors or board of trustees of
the entity, if the organization is organized as a corporation.
* * * * *

Subpart M--Grievances, Coverage Determinations, and Appeals

0
67. Amend Sec. 423.562 as follows:
0
A. Redesignating paragraphs (a)(1)(ii) and (iii) as paragraphs
(a)(1)(iii) and (iv), respectively.
0
B. Adding new paragraph (a)(1)(ii).
0
C. Revising paragraph (a)(3).
0
D. Adding paragraph (a)(5).
The revision and additions read as follows:

Sec. 423.562 General provisions.

(a) * * *
(1) * * *
(ii) Use a single, uniform exceptions and appeals process which
includes, procedures for accepting oral and written requests for
coverage determinations and redeterminations that are in accordance
with Sec. 423.128 (b)(7) and (d)(1)(iii).
* * * * *
(3) A Part D plan sponsor must arrange with its network pharmacies
to distribute notices instructing enrollees how to contact their plans
to obtain a coverage determination or request an exception if they
disagree with the information provided by the pharmacist. These notices
must comply with the standards established in Sec. 423.128(b)(7)(iii).
* * * * *
(5) A Part D plan sponsor must employ a medical director who is
responsible for ensuring the clinical accuracy of all coverage
determinations and redeterminations involving medical necessity. The
medical director must be a physician with a current and unrestricted
license to practice medicine in a State, Territory,

[[Page 21576]]

Commonwealth of the United States (that is, Puerto Rico), or the
District of Columbia.
* * * * *

0
68. Amend Sec. 423.566 by adding paragraph (d) to read as follows:

Sec. 423.566 Coverage determinations.

* * * * *
(d) Who must review coverage determinations. If the Part D plan
sponsor expects to issue a partially or fully adverse medical necessity
(or any substantively equivalent term used to describe the concept of
medical necessity) decision based on the initial review of the request,
the coverage determination must be reviewed by a physician or other
appropriate health care professional with sufficient medical and other
expertise, including knowledge of Medicare coverage criteria, before
the Part D plan sponsor issues the coverage determination decision. The
physician or other health care professional must have a current and
unrestricted license to practice within the scope of his or her
profession in a State, Territory, Commonwealth of the United States
(that is, Puerto Rico), or the District of Columbia.

0
69. Amend Sec. 423.568 by revising paragraph (f) to read as follows:

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

* * * * *
(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. The initial
notice may be provided orally, so long as a written follow-up notice is
mailed to the enrollee within 3 calendar days of the oral notification.
* * * * *

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

0
70. Section 423.772 is amended by adding the definition of ``Individual
receiving home and community-based services'' to read as follows:

Sec. 423.772 Definitions.

* * * * *
Individual receiving home and community-based services means a
full-benefit dual-eligible individual who is receiving services under a
home and community-based program authorized for a State in accordance
with one of the following:
(1) Section 1115 of the Act.
(2) Section 1915(c) or (d) of the Act.
(3) State plan amendment under section 1915(i) of the Act.
(4) Services are provided through enrollment in a Medicaid managed
care organization with a contract under section 1903(m) of the Act or
section 1932 of the Act.
* * * * *

0
71. Amend Sec. 423.780 as follows:
0
A. Revising paragraph (b)(2)(ii)(C).
0
B. Adding paragraph (f).
The revision and addition read as follows:

Sec. 423.780 Premium subsidy.

* * * * *
(b) * * *
(2) * * *
(ii) * * *
(C) The MA monthly prescription drug beneficiary premium (as
defined under section 1854(b)(2)(B) of the Act) for a MA-PD plan and
determined before the application of the monthly rebate computed under
section 1854(b)(1)(C)(i) of the Act for that plan and year involved.
* * * * *
(f) Waiver of de minimis premium amounts. CMS will permit a Part D
plan to waive a de minimis amount that is above the monthly beneficiary
premium defined in Sec. 423.780(b)(2)(ii)(A) or (B) for full subsidy
individuals as defined in Sec. 423.780(a) or Sec. 423.780(d)(1),
provided waiving the de minimis amount results in a monthly beneficiary
premium that is equal to the established low income benchmark as
defined in Sec. 423.780(b)(2).

0
72. In Sec. 423.782, revise paragraph (a)(2)(ii) to read as follows:

Sec. 423.782 Cost-sharing subsidy.

* * * * *
(a) * * *
(2) * * *
(ii) Full-benefit dual-eligible individuals who are
institutionalized or who are receiving home and community-based
services have no cost-sharing for Part D drugs covered under their PDP
or MA-PD plans.
* * * * *

Subpart R--Payments to Sponsors of Retiree Prescription Drug Plans

0
73. Amend Sec. 423.884 as follows:
0
A. Redesignating paragraph (c)(3)(ii) and (c)(3)(iii) as paragraphs
(c)(3)(iii) and (c)(3)(iv), respectively.
0
B. Adding a new subparagraph (c)(3)(ii).
0
C. Revising paragraphs (d) introductory text, (d)(1)(i) and (ii), and
(d)(5)(iii)(C).
The addition and revisions read as follows:

Sec. 423.884 Requirements for qualified retiree prescription drug
plans.

* * * * *
(c) * * *
(3) * * *
(ii) Acknowledge that at the same time CMS releases Part C and Part
D summary payment data in accordance with Sec. 422.504(n) and Sec.
423.505(o) CMS will also release Part D retiree drug subsidy payment
data for the most recently reconciled year including the name of the
eligible sponsor, the total gross aggregate dollar amount of the CMS
subsidy, and the number of eligible retirees;
* * * * *
(d) Actuarial attestation--general. The sponsor of the plan must
provide to CMS an attestation in a form and manner specified by CMS
that the actuarial value of the retiree prescription drug coverage
under the plan is at least equal to the actuarial value of the defined
standard prescription coverage (as defined at Sec. 423.100), not
taking into account the value of any discount or coverage provided
during the coverage gap (as defined at Sec. 423.100). The attestation
must meet all of the following standards:
(1) * * *
(i) The actuarial gross value of the retiree prescription drug
coverage under the plan for the plan year is at least equal to the
actuarial gross value of the defined standard prescription drug
coverage under Part D for the plan year in question, not taking into
account the value of any discount or coverage provided during the
coverage gap.
(ii) The actuarial net value of the retiree prescription drug
coverage under the plan for that plan year is at least equal to the
actuarial net value of the defined standard prescription drug coverage
under Part D for that plan year in question, not taking into account
the value of any discount or coverage provided during the coverage gap.
* * * * *
(5) * * *
(iii) * * *
(C) The valuation of defined standard prescription drug coverage
for a given plan year is based on the initial coverage limit cost-
sharing and out-of-pocket threshold for defined standard prescription
drug coverage under Part D in effect at the start of such plan year,
not taking into account the value of any discount or coverage provided
during the coverage gap.

[[Page 21577]]

Subpart V--Part D Marketing Requirements

0
74. In Sec. 423.2264, revise paragraph (e) to read as follows:

Sec. 423.2264 Guidelines for CMS review.

* * * * *
(e) For markets with a significant non-English speaking population,
provide materials in the language of these individuals. Specifically,
Part D plan sponsors must translate marketing materials into any non-
English language that is the primary language of at least 5 percent of
the individuals in a plan benefit package (PBP) service area.

0
75. Amend Sec. 423.2272 by adding paragraph (e) to read as follows:

Sec. 423.2272 Licensing of marketing representatives and confirmation
of marketing resources.

0
76. Amend Sec. 423.2274 by revising the introductory text and
paragraphs (b) and (c) to read as follows:

Sec. 423.2274 Broker and agent requirements.

For purposes of this section ``compensation'' includes pecuniary or
nonpecuniary remuneration of any kind relating to the sale or renewal
of a policy including, but not limited to, commissions, bonuses, gifts,
prizes, awards, and finder's fees. ``Compensation'' does not include
the payment of fees to comply with State appointment laws, training,
certification, and testing costs; reimbursement for mileage to, and
from, appointments with beneficiaries; or reimbursement for actual
costs associated with beneficiary sales appointments such as venue
rent, snacks, and materials. If a Part D sponsor markets through
independent (that is, non-employee) brokers or agents, the requirements
in paragraph (a) of this section must be met. The requirements in
paragraphs (b) through (e) of this section must be met if a Part D
sponsor markets through any broker or agent, whether independent (that
is, non-employee) or employed.
* * * * *
(b) It must ensure that all agents selling Medicare products are
trained annually, through a CMS endorsed or approved training program
or as specified by CMS, on Medicare rules and regulations specific to
the plan products they intend to sell.
(c) It must ensure agents selling Medicare products are tested
annually by CMS endorsed or approved training program or as specified
by CMS.
* * * * *

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 16, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Approved: March 31, 2011.
Kathleen Sebelius,
Secretary.
[FR Doc. 2011-8274 Filed 4-5-11; 4:15 pm]
BILLING CODE 4120-01-P