Federal Register, Volume 79 Issue 7 (Friday, January 10, 2014)

[Federal Register Volume 79, Number 7 (Friday, January 10, 2014)]
[Proposed Rules]
[Pages 1918-2073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-31497]

[[Page 1917]]

Vol. 79

Friday,

No. 7

January 10, 2014

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 409, 417, 422, et al.

Medicare Program; Contract Year 2015 Policy and Technical Changes to
the Medicare Advantage and the Medicare Prescription Drug Benefit
Programs; Proposed Rule

Federal Register / Vol. 79 , No. 7 / Friday, January 10, 2014 /
Proposed Rules

[[Page 1918]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 417, 422, 423, and 424

[CMS-4159-P]
RIN 0938-AR37

Medicare Program; Contract Year 2015 Policy and Technical Changes
to the Medicare Advantage and the Medicare Prescription Drug Benefit
Programs

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

ACTION: Proposed rule.

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SUMMARY: The proposed rule would revise the Medicare Advantage (MA)
program (Part C) regulations and prescription drug benefit program
(Part D) regulations to implement statutory requirements; strengthen
beneficiary protections; exclude plans that perform poorly; improve
program efficiencies; and clarify program requirements. The proposed
rule also includes several provisions designed to improve payment
accuracy.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on March 7, 2014.

ADDRESSES: In commenting, please refer to file code CMS-4159-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-4159-P, P.O. Box 8013,
Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-4159-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments ONLY to the following addresses prior to
the close of the comment period: a. For delivery in Washington, DC--
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Room 445-G, Hubert H. Humphrey Building, 200
Independence Avenue SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.) b. For delivery in Baltimore, MD--Centers for Medicare &
Medicaid Services, Department of Health and Human Services, 7500
Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
call telephone number (410) 786-9994 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Christopher McClintick, (410) 786-
4682, Part C issues. Marie Manteuffel, (410) 786-3447, Part D issues.
Kristy Nishimoto, (206) 615-2367, Part C and D enrollment and appeals
issues. Whitney Johnson, (410) 786-0490, Part C and D payment issues.
Clarisse Owens, (410) 786-0880, Part C and D compliance issues. Frank
Whelan, (410) 786-1302, Part D improper prescribing issues.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments
received before the close of the comment period are available for
viewing by the public, including any personally identifiable or
confidential business information that is included in a comment. We
post all comments received before the close of the comment period on
the following Web site as soon as possible after they have been
received: http://www.regulations.gov. Follow the search instructions on
that Web site to view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Table of Contents

I. Executive Summary
A. Purpose
B. Summary of the Major Provisions
1. Eligibility of Enrollment for Individuals Not Lawfully
Present in the United States
2. Modifying the Agent/Broker Requirements, Specifically Agent/
Broker Compensation
3. Drug Categories or Classes of Clinical Concern
4. Improving Payment Accuracy
5. Risk Adjustment Data Requirements (Sec. 422.310)
C. Summary of Costs and Benefits
II. Background
III. Provisions of the Proposed Regulations
A. Clarifying Various Program Participation Requirements
1. Closing Cost Contract Plans to New Enrollment (Sec. 422.2
and Sec. 422.503)
2. Two-Year Limitation on Submitting a New Bid in an Area Where
an MA has been Required To Terminate a Low-Enrollment MA Plan (Sec.
422.504(a)(19))
3. Authority To Impose Intermediate Sanctions and Civil Money
Penalties (Sec. 422.752, Sec. 423.752, Sec. 422.760 and Sec.
423.760)
4. Contract Termination Notification Requirements and Contract
Termination Basis (Sec. 422.510 and Sec. 423.509)
5. Reducing the Burden of the Compliance Program Training
Requirements (Sec. 422.503(b)(4)(vi)(C) and Sec.
423.504(b)(4)(vi)(C))
6. Changes To Audit and Inspection Authority (Sec.
422.503(d)(2) and Sec. 423.504(d)(2))
7. Procedures for Imposing Intermediate Sanctions and Civil
Money Penalties Under Parts C and D (Sec. 422.756 and Sec.
423.756)
8. Timely Access to Mail Order Services (Sec. 423.120)
9. Collections of Premiums and Cost Sharing (Sec. 423.294)
10. Enrollment Eligibility for Individuals Not Lawfully Present
in the United States (Sec. Sec. 417.2, 417.420, 417.422, 417.460,
422.1, 422.50, 422.74, 423.1, 423.30, and 423.44)
a. Basic Enrollment Requirements
b. Medicare Eligibility and Lawful Presence
c. Alignment of MA, PDP, and Cost Plan Eligibility With FFS
Payment Exclusion Policy
11. Part D Notice of Changes (Sec. 423.128(g))
12. Separating the Annual Notice of Change (ANOC) From the
Evidence of Coverage (EOC) (Sec. 422.111(a)(3) and Sec.
423.128(a)(3))

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13. Agent/Broker Requirements, Particularly Compensation (Sec.
422.2274 and Sec. 423.2274).
14. Drug Categories or Classes of Clinical Concern and
Exceptions (Sec. 423.120(b)(2)(v) and (vi))
a Categories or Classes of Clinical Concern
b. Criteria Necessary To Identify Categories and Classes of
Clinical Concern
c. Exceptions
d. Analysis and Identification of the Categories or Classes of
Clinical Concern
15. Medication Therapy Management Program (MTMP) Under Part D
(Sec. 423.153(d))
a. Multiple Chronic Diseases
b. Multiple Part D Drugs
c. Annual Cost Threshold
16. Business Continuity for MA Organizations and PDP Sponsors
(Sec. 422.504(o) and Sec. 423.505(p))
17. Requirement for Applicants or Their Contracted First Tier,
Downstream, or Related Entities To Have Experience in the Part D
Program Providing Key Part D Functions
18. Requirement for Applicants for Stand Alone Part D Plan
Sponsor Contracts to Be Actively Engaged in the Business of the
Administration of Health Insurance Benefits (Sec. 423.504(b)(9))
19. Limit Parent Organizations to One Prescription Drug Plan
(PDP) Sponsor Contract Per PDP Region
20. Limit Stand-Alone Prescription Drug Plan Sponsors to
Offering No More Than Two Plans Per PDP Region
21. Efficient Dispensing in Long Term Care Facilities and Other
Changes (Sec. 423.154)
a. Prohibition on Payment Arrangements That Penalize the
Offering and Adoption of More Efficient LTC Dispensing Techniques
(Sec. 423.154)
b. Misinterpretation of Language as Requiring the Proration of
Dispensing Fees (Sec. 423.154)
c. Additional Waiver for LTC Pharmacies Using Restock and Reuse
Dispensing Methodologies Under Certain Conditions (Sec. 423.154)
d. Technical Change To Eliminate Requirement That PDP Sponsors
Report on the Nature and Quantity of Unused Brand and Generic Drugs
(Sec. 423.154)
22. Applicable Cost-Sharing for Transition Supplies: Transition
Process Under Part D Sec. 423.120(b)(3)
23. Medicare Coverage Gap Discount Program and Employer Group
Waiver Plans (Sec. 423.2325)
24. Interpreting Non Interference Provision (Sec. 423.10)
25. Pharmacy Price Concessions in Negotiated Prices (Sec.
423.100)
26. Payments to PDP Plan Sponsors For Qualified Prescription
Drug Coverage (Sec. 423.308) and Payments to Sponsors of Retiree
Prescription Drug Plans (Sec. 423.882)
27. Preferred Cost Sharing (Sec. 423.100 and Sec. 423.120)
28. Prescription Drug Pricing Standards and Maximum Allowable
Cost (Sec. 423.505(b)(21))
29. Any Willing Pharmacy Standard Terms & Conditions (Sec.
423.120(a)(8))
a. Preferred Cost Sharing
b. Extended Days' Supply
c. Mail Order Cost Sharing
30. Enrollment Requirements for the Prescribers of Part D
Covered Drugs (Sec. 423.120(c)(5) and (6))
31. Improper Prescribing Practices and Patterns
a. Background and Program Integrity Concerns
b. Drug Enforcement Administration (DEA) Certification of
Registration
c. Proposed Provisions
(1) DEA Certificate and State Authority
(2) Patterns or Practices of Prescribing
(a) Grounds for Revocation
(b) Criteria To Be Considered
32. Transfer of TrOOP Between PDP Sponsors Due to Enrollment
Changes During the Coverage Year (Sec. 423.464)
a. Exclusion From TrOOP of Increased Cost Sharing Amounts
Incurred Due to Secondary COB (Sec. 423.100)
b. Transfer of TrOOP Between PDP Sponsors Due to Enrollment
Changes During the Coverage Year (Sec. 423.464)
33. Broadening the Release of Part D Data
34. Establish Authority to Directly Request Information From
First Tier, Downstream, and Related Entities (Sec. 422.504(i)(2)(i)
and Sec. 423.505(i)(2)(i))
35. Eligibility of Enrollment for Incarcerated Individuals
(Sec. 417.422, Sec. 417.460, Sec. 422.74, and Sec. 423.44)
a. Changes in Definition of Service Area for Cost Plans (Sec.
417.422(b))
b. Involuntary Disenrollment for Incarcerated Individuals
Enrolled in MA, PDP and Cost Plans (Sec. 417.460, Sec. 422.74, and
Sec. 423.44)
36. Rewards and Incentives Program Regulations for Part C
Enrollees (Sec. 422.134)
37. Expand Quality Improvement Program Regulations (Sec.
422.152)
38. Authorization of Expansion of Automatic or Passive
Enrollment Non-Renewing Dual Eligible SNPs (D-SNPs) to Another D-SNP
to Support Alignment Procedures (Sec. 422.60)
B. Improving Payment Accuracy
1. Implementing Overpayment Provisions of Section 1128J(d) of
the Social Security Act (Sec. 422.326 and Sec. 423.360)
a. Terminology (Sec. 422.326(a) and Sec. 423.360(a))
b. General Rules for Overpayments (Sec. 422.326(a) Through (c)
and Sec. 423.360(a) Through (c))
c. Look-Back Period for Reporting and Returning Overpayments
2. Determination of Payments (Sec. 423.329)
3. Reopening (Sec. 423.346)
a. Part D Plan Payments Reopening
b. Coverage Gap Discount Reconciliation Reopening
4. Payment Appeals (Sec. 423.350)
5. Payment Processes for Part D Sponsors (Sec. 423.2320)
6. Risk Adjustment Data Requirements (Sec. 422.310)
7. RADV Appeals
a. Background
b. RADV Definitions
c. Publication of RADV Methodology
d. Proposal To Update RADV Appeals Terminology (Sec. 422.311)
e. Proposal To Simplify the RADV Appeals Process
(1) Issues Eligible for RADV Appeal
(2) Issues Not Eligible for RADV Appeals
(3) Manner and Timing of a Request for RADV Appeal
(4) Reconsideration Stage
(5) Hearing Stage
(6) CMS Administrator Review Stage
f. Proposal To Expand Scope of RADV Audits
g. Proposal To Clarify the RADV Medical Record Review
Determination Appeal Burden of Proof Standard
h. Proposal To Change RADV Audit Compliance Date
8. Recovery Audit Contractor (RAC) Determination Appeals
(Proposed Part 422 Subpart Z and Part 423 Subpart Z)
a. Background
b. Proposed RAC Appeals Process
(1) Reconsiderations (Sec. 422.2605 and Sec. 423.2605)
(2) Hearing Official Determinations (Sec. 422.2610 and Sec.
423.2610)
(3) Administrator Review (Sec. 422.2615 and Sec. 423.2615)
C. Strengthening Beneficiary Protections
1. Providing High Quality Health Care (Sec. 422.504(a)(3) and
Sec. 423.505(b)(27))
2. MA-PD Coordination Requirements for Drugs Covered Under Parts
A, B, and D (Sec. 422.112)
3. Good Cause Processes (Sec. 417.460, Sec. 422.74 and Sec.
423.44)
4. Definition of Organization Determination (Sec. 422.566)
5. MA Organizations May Extend Adjudication Timeframes for
Organization Determinations and Reconsiderations (Sec. 422.568,
Sec. 422.572, Sec. 422.590, Sec. 422.618, and Sec. 422.619)
D. Strengthening Our Ability To Distinguish Stronger Applicants
for Part C and D Program Participation and To Remove Consistently
Poor Performers
1. Two-Year Prohibition When Organizations Terminate Their
Contracts (Sec. 422.502, Sec. 422.503, Sec. 422.506, Sec.
422.508, and Sec. 422.512)
2. Withdrawal of Stand-Alone Prescription Drug Plan Bid Prior to
Contract Execution (Sec. 423.503)
3. Essential Operations Test Requirement for Part D (Sec.
423.503(a) and (c), Sec. 423.504(b)(10), Sec. 423.505(b)(28), and
Sec. 423.509)
a. Failing Essential Operations Test as Cause for Immediate
Termination
b. Failing Essential Operations Test as Failure of a
Qualification to Contract and Grounds for Nullification of Approval
4. Termination of the Contracts of Medicare Advantage
Organizations Offering Part D for Failure for Three Consecutive
Years To Achieve Three Stars on Both Part C and Part D Summary Star
Ratings in the Same Contract Year (Sec. 422.510)
E. Implementing Other Technical Changes
1. Requirements for Urgently Needed Services (Sec. 422.113)
2. Skilled Nursing Facility Stays (Sec. 422.101 and Sec.
422.102)
3. Agent and Broker Training and Testing Requirements (Sec.
422.2274 and Sec. 423.2274)

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4. Deemed Approval of Marketing Materials (Sec. 422.2266 and
Sec. 423.2266)
5. Cross-Reference Change in the Part C Disclosure Requirements
(Sec. 422.111)
6. Managing Disclosure and Recusal in P&T Conflicts of Interest:
[Formulary] Development and Revision by a Pharmacy and Therapeutics
Committee Under PDP (Sec. 423.120(b)(1))
7. Definition of a Part D Drug (Sec. 423.100)
a. Combination Products
b. Barbiturates and Benzodiazepines
c. Medical Foods
8. Thirty-Six-Month Coordination of Benefits (COB) Limit (Sec.
423.466(b))
9. Application and Calculation of Daily Cost-Sharing Rates
(Sec. 423.153)
10. Technical Change To Align Regulatory Requirements for
Delivery of the Standardized Pharmacy Notice (Sec. 423.562)
11. Special Part D Access Rules During Disasters or Emergencies
(Sec. 423.126)
12. MA Organization Responsibilities in Disasters and
Emergencies (Sec. 422.100)
13. Termination of a Contract Under Parts C and D (Sec. 422.510
and Sec. 423.509)
a. Cross-reference Change (Sec. 423.509(d))
b. Terminology Changes (Sec. 422.510 and Sec. 423.509)
c. Technical Change To Align Paragraph Headings (Sec.
422.510(b)(2))
d. Terminology Change (Sec. 423.509(b)(2)(C)(ii))
14. Technical Changes To Align Part C and Part D Contract
Determination Appeal Provisions (Sec. 422.641 and Sec. 422.644)
a. Technical Changes (Sec. 422.641)
b. Technical Changes (Sec. 422.644(a) and (b))
15. Technical Changes To Align Parts C and D Appeal Provisions
(Sec. 422.660 and Sec. 423.650)
16. Technical Changes Regarding Intermediate Sanctions and Civil
Money Penalties (Sec. 422.756 and Sec. 423.756)
a. Technical Changes to Intermediate Sanctions Notice Receipt
Provisions (Sec. 422.756(a)(2) and Sec. 423.756(a)(2))
b. Cross-reference Changes (Sec. 422.756(b)(4) and Sec.
423.756(b)(4))
c. Technical Changes (Sec. 422.756(d) and Sec. 423.756(d))
d. Technical Changes To Align the Civil Money Penalty Provision
With the Authorizing Statute (Sec. 422.760(a)(3) and Sec.
423.760(a)(3))
e. Technical Changes To Align the Civil Money Penalty Notice
Receipt Provisions (Sec. 422.1020(a)(2), Sec. 423.1020(a)(2),
Sec. 422.1016(b)(1), and Sec. 423.1016(b)(1))
17. Technical Change to the Restrictions on use of Information
Under Part D (Sec. 423.322)
IV. Collection of Information Requirements
A. ICRs Related to Eligibility of Enrollment for Individuals Not
Lawfully Present in the United States (Sec. 417.2, Sec. 417.420,
Sec. 417.422, Sec. 417.460, Sec. 422.1, Sec. 422.50, Sec.
422.74, Sec. 423.1, Sec. 423.30, and Sec. 423.44)
B. ICRs Related to Improper Prescribing Practices and Patterns
(Sec. 424.535(a)(13) and (14))
C. ICRs Related to Applicants or Their Contracted First Tier,
Downstream, or Related Entities To Have Experience in the Part D
Program Providing Key Part D Functions (Sec. 423.504(b)(8)(i)
through (iii))
D. ICRs Related to Eligibility of Enrollment for Incarcerated
Individuals
E. ICRs Related to Rewards and Incentives Program Regulations
for Part C Enrollees (Sec. 422.134)
F. ICRs Related to Expanding Quality Improvement Program
Regulations (Sec. 422.152)
G. ICRs Related to Good Cause Processes (Sec. 417.460, Sec.
422.74 and Sec. 423.44)
H. ICRs Related to the Definition of Organization Determination
(Sec. 422.566)
I. ICRs Related to Skilled Nursing Facility Stays (Sec. 422.101
and Sec. 422.102)
J. ICRs Related to MA Organization Responsibilities in Disasters
and Emergencies (Sec. 422.100)
K. ICR Related to Recovery Audit Contractor Determinations (Part
422, Subpart Z and Part 423, Subpart Z)
V. Response to Comments
VI. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Anticipated Effects
1. Effects of Closing Cost Contract Plans to New Enrollment
2. Effects of the Two-Year Limitation on Submitting a New Bid in
an Area Where an MA Has Been Required To Terminate a Low-Enrollment
MA Plan
3. Effects of the Authority To Impose Intermediate Sanctions and
Civil Money Penalties
4. Effects of Contract Termination Notification Requirements and
Contract Termination Basis
5. Effects of Reducing the Burden of the Compliance Program
Training Requirements
6. Effects of Audit and Inspection Authority
7. Effects of the Procedures for Imposing Intermediate Sanctions
and Civil Money Penalties Under Parts C and D
8. Effects of Timely Access to Mail Order Services
9. Effects of the Collections of Premiums and Cost Sharing
10. Effects of Enrollment Eligibility for Individuals Not
Lawfully Present in the United States
11. Effects of Part D Notice of Changes
12. Effects of Separating the Annual Notice of Change (ANOC)
From the Evidence of Coverage (EOC)
13. Effects of the Modification of the Agent/Broker Compensation
Requirements
14. Effects of Drug Categories or Classes of Clinical Concern
and Exceptions
15. Effects of the Medication Therapy Management Program (MTMP)
Under Part D
16. Effects of the Business Continuity for MA Organizations and
Part D Sponsors
17. Effects of the Requirement for Applicants or Their
Contracted First Tier, Downstream, or Related Entities To Have
Experience in the Part D Program Providing Key Part D Functions
18. Effects of Requirement for Applicants for Stand Alone Part D
Plan Sponsor Contracts To Be Actively Engaged in the Business of the
Administration of Health Insurance Benefits
19. Effects of Limit Parent Organizations to One Prescription
Drug Plan (PDP) Sponsor Contract per PDP Region
20. Effects of Limit Stand-Alone Prescription Drug Plan Sponsors
to Offering No More Than Two Plans per PDP Region
21. Effects of Efficient Dispensing and in Long Term Care
Facilities and Other Changes
22. Effects of Applicable Cost-Sharing for Transition Supplies:
Transition Process Under Part D
23. Effects of Medicare Coverage Gap Discount Program and
Employer Group Waiver Plans
24. Effects of Interpreting the Non-Interference Provision
25. Effects of Pharmacy Price Concessions in Negotiated Prices
26. Effects of Payments to PDP Plan Sponsors for Qualified
Prescription Drug Coverage and Payments to Sponsors of Retiree
Prescription Drug Plans
27. Effects of Preferred Cost Sharing
28. Effects of Maximum Allowable Cost Pricing Standard
29. Effects of Any Willing Pharmacy Standard Terms & Conditions
30. Effects of Enrollment Requirements for the Prescribers of
Part D Covered Drugs
31. Effects of Improper Prescribing Practices and Patterns
32. Effects of the Transfer of TrOOP Between Part D Sponsors Due
to Enrollment Changes During the Coverage Year
33. Effects of Broadening the Release of Part D Data
35. Effects of Eligibility of Enrollment for Incarcerated
Individuals
36. Effects of Rewards and Incentives Program Regulations for
Part C Enrollees
37. Effects of Expand Quality Improvement Program Regulations
38. Effects of Authorization of Expansion of Automatic or
Passive Enrollment Non-Renewing Dual-Eligible SNPs (D-SNPs) to
Another D-SNP To Support Alignment Procedures
39. Effects of Improving Payment Accuracy: Reporting
Overpayments, RADV Appeals, Part D Payment Reopening, LIS Cost
Sharing, and Coverage Gap Discount Program
40. Effects of Part C and Part D RAC Determination Appeals
41. Effects of Requirement To Provide High Quality Health Care
42. Effects of MA-PD Coordination Requirements for Drugs Covered
Under Part D
43. Effects of Revisions to Good Cause Processes
44. Effects of the Definition of Organization Determination
45. Effects of MA Organization Extension of Adjudication
Timeframes for Organization Determinations and Reconsiderations
46. Effects of the Two-Year Prohibition When Organizations
Terminate Their Contracts

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47. Effects of the Withdrawal of Stand Alone Prescription Drug
Plan Bid Prior to Contract Execution
48. Effects of Essential Operations Test Requirement for Part D
50. Effects of the Requirements for Urgently Needed Services
51. Effects of Skilled Nursing Facility Stays
52. Effects of Agent and Broker Training and Testing
Requirements
53. Effects of Deemed Approval of Marketing Materials
54. Effects of Part C Disclosure Requirements
55. Effects of Managing Disclosure and Recusal in P&T Conflicts
of Interest: Formulary Development and Revision by a Pharmacy and
Therapeutics Committee Under Part D
56. Effects of the Technical Changes to the Definition of a Part
D Drug
57. Effects of the Thirty-Sixth Month Coordination of Benefits
(COB) Limit
58. Effects of Application and Calculation of Daily Cost-Sharing
Rates
59. Effects of the Technical Change To Align Regulatory
Requirements for Delivery of the Standardized Pharmacy Notice
60. Effects of the Special Part D Access Rules During Disasters
61. Effects of the MA Organization Responsibilities in Disasters
and Emergencies
62. Effects of the Technical Changes Regarding the Termination
of a Contract, Contract Determination and Other Appeals, and
Intermediate Sanctions and Civil Money Penalties Under Parts C and D
63. Effects of the Technical Change to the Restrictions on Use
of Information Under Part D
D. Expected Benefits
1. Drug Categories or Classes of Clinical Concerns and
Exceptions
2. Medication Therapy Management Program Under Part D
E. Alternatives Considered
1. Separating the Annual Notice of Change From the Evidence of
Coverage
2. Modifying the Agent/Broker Compensation Requirements
3. Medicare Coverage Gap Discount Program and Employer Group
Waiver Plans
4. Prescription Drug Pricing Standards and Maximum Allowable
Cost
5. Access to Covered Part D Drugs: Use of Standardized
Technology
6. Any Willing Pharmacy Standard Terms and Conditions
7. Negotiated Prices
8. Preferred Cost Sharing
9. Transfer of TrOOP Between Part D Sponsors Due to Enrollment
Changes During the Coverage Year
10. Part D Notice of Changes
11. Special Part D Access Rules During Disasters or Emergencies
12. Business Continuity for MAOs and Part D Sponsors
13. Drug Categories or Classes of Clinical Concerns and
Exceptions
14. Medication Therapy Management Program (MTM) Under Part D
15. Requirement for Applicants or Their Contracted First Tier,
Downstream, or Related Entities to Have Experience in the Part D
Program Providing Key Part D Functions
F. Accounting Statement and Table
G. Conclusion
H pages
Regulations Text

Acronyms

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
AO Accrediting Organization
AOR Appointment of Representative
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)
BLA Biologics License Application
CAHPS Consumer Assessment Health Providers Survey
CAP Corrective Action Plan
CCIP Chronic Care Improvement Program
CC/MCC Complication/Comorbidity and Major Complication/Comorbidity
CCS Certified Coding Specialist
CDC Centers for Disease Control
CHIP Children's Health Insurance Programs
CMP Civil Money Penalty
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
DAB Departmental Appeals Board
DEA Drug Enforcement Administration
DIR Direct and Indirect Remuneration
DME Durable Medical Equipment
DMEPOS Durable Medical Equipment, Prosthetic, Orthotics, and
Supplies
D-SNPs Dual Eligible SNPs
DOL U.S. Department of Labor
DUM Drug Utilization Management
EAJR Expedited Access to Judicial Review
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
FEHBP Federal Employees Health Benefits Plan
FFS Fee-For-Service
FIDE Fully-integrated Dual Eligible
FIDE SNPs Fully-integrated Dual Eligible Special Needs Plans
FMV Fair Market Value
FY Fiscal year
GAO Government Accountability Office
HAC Hospital-Acquired Conditions
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
ICEP Initial Coverage Enrollment Period
ICL Initial Coverage Limit
ICR Information Collection Requirement
ID Identification
IRE Independent Review Entity
IRMAA Income-Related Monthly Adjustment Amount
IVC Initial Validation Contractor
LCD Local Coverage Determination
LEP Late Enrollment Penalty
LIS Low Income Subsidy
LPPO Local Preferred Provider Organization
LTC Long Term Care
MA Medicare Advantage
MAAA Member of the American Academy of Actuaries
MA-PD Medicare Advantage-Prescription Drug Plan
MAC Medicare Appeals Council
MIPPA Medicare Improvements for Patients and Providers Act of 2008
(Pub. L. 110-275)
MOC Medicare Options Compare
MOOP Maximum Out-of-Pocket
MPDPF Medicare Prescription Drug Plan Finder
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (Pub. L. 108-173)
MS-DRG Medicare Severity Diagnosis Related Group
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
NCD National Coverage Determination
NCPDP National Council for Prescription Drug Programs
NCQA National Committee for Quality Assurance
NDA New Drug Application
NDC National Drug Code
NGC National Guideline Clearinghouse
NIH National Institutes of Health
NOMNC Notice of Medicare Non-Coverage
NPI National Provider Identifier
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 Program
PBM Pharmacy Benefit Manager

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PDE Prescription Drug Event
PDP Prescription Drug Plan
PFFS Private Fee For Service Plan
POA Present on Admission (Indicator)
POS Point-of-Sale
PPO Preferred Provider Organization
PPS Prospective Payment System
P&T Pharmacy & Therapeutics
QIC Qualified Independent Contractor
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
RPPO Regional Preferred Provider Organization
SEP Special Enrollment Period
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
T&C Terms and Conditions
TPA Third Party Administrator
TrOOP True Out-Of-Pocket
U&C Usual and Customary
UPIN Uniform Provider Identification Number
USP U.S. Pharmacopoeia

I. Executive Summary

A. Purpose

The purpose of this proposed rule is to make revisions to the
Medicare Advantage (MA) program (Part C) and Prescription Drug Benefit
Program (Part D) regulations based on our continued experience in the
administration of the Part C and Part D programs and to implement
certain provisions of the Affordable Care Act. The proposed changes 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.

B. Summary of the Major Provisions

1. Eligibility of Enrollment for Individuals Not Lawfully Present in
the United States
The Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 makes individuals not lawfully present in the United States
ineligible to receive federal benefits (such as Medicare), even if they
are otherwise entitled to benefits. While we would not pay FFS claims
for unlawfully present beneficiaries, MA, and Part D enrollment rules
currently do not prevent the payment of capitation rates for these
individuals. We are proposing to establish U.S. citizenship and lawful
presence as an eligibility requirement for enrollment in MA and Part D
plans.
2. Modifying the Agent/Broker Requirements, Specifically Agent/Broker
Compensation
The current compensation structure is comprised of a 6-year cycle
and is scheduled to end December 31, 2013. MA organizations and PDP
sponsors provide an initial compensation payment to independent agents
for new enrollees (Year 1), and pay a renewal rate (equal to 50 percent
of the initial year compensation) for Years 2 through 6. This structure
has proved to be complicated to implement and monitor, and the current
structure creates an incentive for agents to move beneficiaries as long
as the fair market value (FMV) continues to increase each year. To
simplify the administration of these payments and reduce incentives for
agents and brokers to encourage beneficiaries to enroll in plans
without regard to ensuring plan benefits would meet the beneficiaries'
health care needs, we are proposing to revise the existing compensation
structure. Under our proposal, MA organizations and PDP sponsors would
continue to have the discretion to decide, on an annual basis, whether
to pay initial and/or renewal compensation payments to their
independent agents. Also, for new enrollments, MA organizations and
sponsors could make an initial payment that is no greater than the FMV
amount, which we would set annually in our guidance that interprets
these regulations. For renewals in Year 2 and subsequent years, the MA
organization or sponsor could pay up to 35 percent of the FMV amount
for that year. We believe that revising the existing compensation
structure to allow MA organizations or Part D sponsors to pay up to 35
percent of the FMV for year 2 and subsequent years is appropriate based
on a couple of factors. First, we believe that a 2 tiered payment
system (that is, initial and renewal) would be significantly less
complicated than a 3-tiered system (that is, initial, 50 percent
renewal for years 2 through 6, and 25 percent residual for years 7 and
subsequent years), and would reduce administrative burden and confusion
for plan sponsors. Second, our analysis determined that 35 percent is
the renewal compensation level at which the present value of overall
payments under a 2-tiered system would be relatively equal to the
present value of overall payments under a 3-tiered system (taking into
account the estimated life expectancy for several beneficiary age
cohorts). In addition to revising the agent and broker compensation
structures, we propose to amend the training and testing requirements
as well as setting limits on referral fees for agents and brokers.
3. Drug Categories or Classes of Clinical Concern
This proposed provision would interpret the Affordable Care Act
authority to limit protected classes to those for which access to all
drugs in a category or class for a typical individual with a disease or
condition treated by the drugs in the class is required within 7 days
and more specific formulary requirements would not suffice to meet
multitude of specific applications of the drugs within the category or
class. Instead of mandating coverage of all drug products in a
particular class on all Part D formularies, we can save costs by
identifying more efficient formulary requirements or other beneficiary
protections in most cases.
4. Improving Payment Accuracy
The proposed regulatory provisions would implement the Affordable
Care Act requirement that MA organizations and Part D sponsors report
and return identified Medicare overpayments. We would adopt the
statutory definition of overpayment for both Part C and Part D.
5. Risk Adjustment Data Requirements
The proposed rule would strengthen existing regulations at Sec.
422.310 on MA plan sponsors' accountability for valid risk adjustment
data prior to submission.

C. Summary of Costs and Benefits

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Table 1--Summary of Costs and Benefits
------------------------------------------------------------------------
Provision description Total costs Transfers
------------------------------------------------------------------------
Changes to Audit and We estimate that
Inspection. this change would
require an annual
cost of $7.95
million (total cost
of $39.75 million)
for the time and
effort for all
auditing
organizations to
perform the program
audit.
Additionally, we
estimate an annual
cost of $950,000
(total cost of 4.75
million) for MA
organizations or
Part D sponsors
with audit results
that reveal
non[dash]compliance
to hire an
independent auditor
to validate that
correction has
occurred.
Eligibility of enrollment N/A................. We estimate that
for individuals not this change could
lawfully present in the U.S. save the MA program
up to $5 million in
2015, increasing to
$8 million in 2019
(total of $32
million over this
period), and could
save the Part D
program (includes
the Part D portion
of MA[dash]PD
plans) up to $5
million in 2015,
increasing to $9
million in 2019
(total of $35
million over this
period).
Modifying the agent/broker N/A.................
requirements, specifically
agent/broker compensation.
Drug Categories or Classes N/A................. We estimate that
of Clinical Concern. this change could
save the Part D
program (includes
the Part D portion
of MA-PD plans)
approximately $30
million in 2016,
increasing to $420
million in 2019
(total of $720*
million over this
period).
Improving Payment Accuracy.. N/A.................
Risk Adjustment Data N/A.................
Requirements.
Transfer of TrOOP Between N/A.................
Part D Sponsors Due to
Enrollment Changes during
the Coverage Year.
Eligibility of Enrollment .................... We estimate that
for Incarcerated this change could
Individuals. save the MA program
up to $27 million
in 2015, increasing
to $62 million in
2019 (total of $219
million over this
period), and could
save the Part D
program (includes
the Part D portion
of MA[dash]PD
plans) up to $46
million in 2015,
increasing to $90
million in 2019
(total of $333
million over this
period).
------------------------------------------------------------------------
* Projected savings are based upon full implementation of the criteria
and do not reflect that changes for the antipsychotic class of drugs
are deferred at this time.

II. Background

The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) created a
new ``Part C'' in the Medicare statute (sections 1851 through 1859 of
the Social Security Act (the Act)) which established what is now known
as the Medicare Advantage (MA) program. The Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173),
enacted on December 8, 2003, added a new ``Part D'' to the Medicare
statute (sections 1860D-1 through 42 of the Act) entitled the Medicare
Prescription Drug Benefit Program (PDP), and made significant changes
to the existing Part C program, which it named 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).
Since the inception of both Parts C and D, we have periodically
revised our regulations either to implement statutory directives or to
incorporate knowledge obtained through experience with both programs.
For instance, on the September 18, 2008 and January 12, 2009 Federal
Register (73 FR 54226 and 74 FR 1494, respectively), we issued Part C
and D regulations to implement provisions in the Medicare Improvement
for Patients and Providers Act (MIPPA) (Pub. L. 110-275). We
promulgated a separate interim final rule in January 16, 2009 (74 FR
2881) to address MIPPA provisions related to Part D plan formularies.
In the final rule that appeared in the April 15, 2010 Federal Register
(75 FR 19678), we made changes to the Part C and D regulations which
strengthened various program participation and exit requirements;
strengthened beneficiary protections; ensured that plan offerings to
beneficiaries included meaningful differences; improved plan payment
rules and processes; improved data collection for oversight and quality
assessment; implemented new policies; and clarified existing program
policy.
In a final rule that appeared in the April 15, 2011 Federal
Register (76 FR 21432), we continued our process of implementing
improvements in policy consistent with those included in the April 2010
final rule, and also implemented 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.

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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 Care and Education Reconciliation Act (Pub. L.
111-152) are collectively referred to as the Affordable Care Act. The
Affordable Care Act included significant reforms to both the private
health insurance industry and the Medicare and Medicaid programs.
Provisions in the Affordable Care Act concerning the Part C and D
programs largely focused on beneficiary protections, MA payments, and
simplification of MA and Part D program processes. These provisions
affected implementation of our policies regarding beneficiary cost-
sharing, assessing bids for meaningful differences, and ensuring that
cost-sharing structures in a plan are transparent to beneficiaries and
not excessive. In the April 2011 final rule, we revised regulations on
a variety of issues based on the Affordable Care Act and our experience
in administering the MA and Part D programs. The rule covered areas
such as 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.
In a final rule that appeared in the April 12, 2012 Federal
Register (77 FR 22072 through 22175), we made several changes to the
Part C and Part D programs required by statute, including the
Affordable Care Act, as well as made improvements to both programs
through modifications reflecting experience we have obtained
administering the Part C and Part D programs. Key provisions of that
final rule implemented changes closing the Part D coverage gap, or
``donut hole,'' for Medicare beneficiaries who do not already receive
low-income subsidies from us by establishing the Medicare Coverage Gap
Discount Program. We also included provisions providing new benefit
flexibility for fully-integrated dual eligible special needs plans,
clarifying coverage of durable medical equipment, and combatting
possible fraudulent activity by requiring Part D sponsors to include an
active and valid prescriber National Provider Identifier on
prescription drug event records.

III. Provisions of the Proposed Regulations

A. Clarifying Various Program Participation Requirements

1. Closing Cost Contract Plans to New Enrollment (Sec. 422.2 and Sec.
422.503(b)(5))
In implementing the original Part C requirements in our June 26,
1998 final rule, entitled, ``Medicare Program; Establishment of the
Medicare+Choice Program'' (63 FR 34968 through 35116), we established a
requirement in 42 CFR 422.501(b)(4) that an ``entity seeking to
contract as [an Medicare Advantage (MA)] organization must not accept
new enrollees under a section 1876 reasonable cost contract in any area
in which it seeks to offer [an MA] plan.'' We stated our reasons for
the policy, specifying in the preamble of the interim final rule that,
``[o]ur reason for establishing this rule is to eliminate the potential
for an organization to encourage higher-cost enrollees to enroll under
its cost contract while healthy enrollees are enrolled in its risk-
based [MA] plan. This [final] rule is consistent with our long-standing
policy that entities not have both a risk and cost contract under
section 1876 [of the Act] in the same area.'' (63 FR 35014 through
35015).
This provision was recodified at 42 CFR 422.503(b)(5) in
regulations implementing the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, but the requirement, as well as the
rationale for the requirement, remained intact.
Since this requirement only precludes ``the entity'' contracting as
an MA organization from having a cost contract open to new enrollment,
the prohibition does not apply to another separate legal entity owned
by the same parent organization, such that two legal entities owned by
the same parent could offer a competing cost contract and MA plan. We
do not believe that this result is consistent with the original intent
of the prohibition because it permits legal entities that are related
to each other under a common parent organization to offer a cost
contract and MA plan in the same service area, creating the same
potential for the entities to move higher risk enrollees from one plan
to another in order to take advantage of the differing Medicare payment
rules for the two plan types or for other reasons that are not related
to the enrollees' best interests.
To ensure that our original intent is realized and to eliminate the
potential for organizations to move enrollees from one of their plans
to another based on financial or some other interest, we propose to
revise paragraph Sec. 422.503(b)(5) so that an, ``entity seeking to
contract as an MA organization must [n]ot accept, or share a corporate
parent organization with an entity that accepts, new enrollees under a
section 1876 reasonable cost contract in any area in which it seeks to
offer an MA plan.''
In making the proposed revision to paragraph Sec. 422.503(b), we
also propose to add the definition of ``parent organization'' to Sec.
422.2 of the MA program definitions. We would specify that, ``Parent
organization means a legal entity that owns one or more other
subsidiary legal entities.'' We are requesting comments on whether a
parent organization with less than a 100-percent interest in a
subsidiary legal entity should trigger the prohibition we propose with
the amendment at Sec. 422.503(b)(5). Although the MA program
regulations do not currently define the term ``parent organization,''
our proposed definition is consistent with the way the term is
currently used in the context of the MA program, for example, when
assessing an organization's business structure.
2. Two Year Limitation on Submitting a New Bid in an Area Where an MA
Has Been Required To Terminate a Low Enrollment MA Plan (Sec.
422.504(a)(19))
Under Sec. 422.506(b)(1)(iv), we must non-renew an MA plan that
does not have a sufficient number of enrollees to establish that it is
a viable independent plan option. We have currently interpreted the
standard of whether the MA plan has a ``sufficient number of enrollees
to establish that it is a viable independent plan option'' as meaning
that the MA plan has fewer than 500 enrollees for non-SNPs and fewer
than 100 enrollees for SNPs over a specified time period of 3 years. As
we determine adjustments are appropriate, we will revisit this
interpretation as part of annual plan guidance. In cases in which an MA
plan has been non-renewed on this basis, it would defeat the intent and
purpose of this rule if the MA organization could simply submit a new
bid for the next year in the same area for the same type of plan that
failed to attract enrollment over a number of years. Indeed, the
problem addressed in Sec. 422.506(b)(1)(iv) would be exacerbated, as
the new plan would start out with no MA enrollees.
In section 3209 of the Affordable Care Act, the Congress added a
new section

[[Page 1925]]

1854(a)(5)(C)(1) of the Act that clarified that CMS is not ``require[d]
. . . to accept any or every bid submitted by an MA organization. . .
.'' Section 1856(b)(1) of the Act further provides authority for CMS to
establish MA standards by regulation, and section 1857(e)(1) of the Act
also provides authority to impose contract requirements that CMS finds
``necessary and appropriate.'' Under the foregoing authority, we
propose to revise Sec. 422.504(a) to add a new contract requirement
that stipulates that the Medicare Advantage Organization (MA
organization) agrees not to submit a new bid of the same type of plan
that has been non-renewed under Sec. 422.506(b)(1)(iv) in the same
service area as the non-renewed plan for 2 years after such a non-
renewal.
We believe this requirement will enhance our ongoing efforts to
ensure that MA organization offerings in a service area present
beneficiaries with viable plans that are responsive to their needs.
3. Authority To Impose Intermediate Sanctions and Civil Money Penalties
(Sec. 422.752, Sec. 423.752, Sec. 422.760 and Sec. 423.760)
Section 1857(a) of the Social Security Act (the Act) provides the
Secretary with the authority to enter into contracts with MA
organizations, and section 1860D-12(b)(1) of the Act provides the
Secretary with the authority to enter into contracts with Part D
sponsors. Section 1857(g)(1) of the Act provides a list of contract
violations for which the potential enforcement response under section
1857(g)(2) of the Act is the imposition of intermediate sanctions
(sanctions) and/or civil money penalties (CMPs). Section 1860D-
12(b)(3)(E) of the Act applies these provisions to Part D contracts. We
codified this authority in the June 28, 2000 final rule with comment
period entitled, ``Medicare Program; Medicare+Choice Program (65 FR
40170) for Part C, and the January 28, 2005 final rule entitled,
``Medicare Program; Medicare Prescription Drug Benefit'' (70 FR 4194)
for Part D. The authority was codified at Sec. 422.752 (Part C) and
Sec. 423.752 (Part D). We are proposing two changes to our existing
authority to impose sanctions and CMPs.
First, section 6408 of the Affordable Care Act (Pub. L. 111-148)
provided the Secretary with new authorities to impose sanctions or CMPs
for violations of the Part C and D marketing and enrollment
requirements. Section 6408 amended 1857(g)(1) of the Act by adding new
sections (H) through (K). These provisions provide CMS with the
authority to impose intermediate sanctions on an organization that
enrolls an individual without prior consent (except in certain limited
circumstances) or transfers an individual to a new plan without prior
consent. They also specifically make it a contract violation to violate
the Part C and D marketing requirements, and specify that it is a
violation of the sponsor's Part C or D agreement with CMS for the
sponsoring organization to employ or contract with any individual or
entity who engages in the conduct described in paragraphs (A) through
(J) of 1857(g)(1) of the Act.
We are proposing to revise our regulations to codify the
aforementioned authorities at Sec. 422.752 (Part C) and Sec. 423.752
(Part D), following the statutory language with little modification.
Second, we are proposing changes to the regulations intended to
clarify CMS' authority to impose CMPs for the violations contained in
section 1857(g)(1) of the Act and corresponding regulations at Sec.
422.752 (Part C) and Sec. 423.752 (Part D). Existing regulations
provide the government with authority to impose CMPs for the listed
violations. The existing regulations, however, designate the Office of
Inspector General (OIG) as the sole government agency with the
authority to impose CMPs for the violations contained in Sec. 422.752
and Sec. 423.752. We are proposing to revise the language of these
provisions to clarify that either CMS or the OIG may impose CMPs for
the violations listed at Sec. 422.752(a) and Sec. 423.752(a), except
Sec. 422.752(a)(5) and Sec. 423.752(a)(5). Only the OIG will continue
to have the authority to impose CMPs for the violations at Sec.
422.752(a)(5) and Sec. 423.752(a)(5), regarding the misrepresentation
and/or falsification of information furnished to CMS, an individual or
other entity. CMS or the OIG will impose the CMPs in accordance with
the amounts specified in section 1857(g)(2) of the Act and Sec.
422.760 and Sec. 423.760 of the corresponding regulations.
We are proposing to revise the existing regulations at Sec.
422.752, Sec. 423.752, Sec. 422.760, and Sec. 423.760 to effectuate
this change.
4. Contract Termination Notification Requirements and Contract
Termination Basis (Sec. 422.510 and Sec. 423.509)
Sections 1857(c) and 1860D-12(b)(3)(B) of the Act provide us with
the authority to terminate a Part C or D sponsoring organization's
contract at any time if we make a determination that the contracting
organization is substantially failing to meet contract requirements and
expectations. Sections 1857(h)(1)(B) and 1860D-12(b)(3)(F) of the Act
provide us with the procedures necessary to facilitate the termination
of contracts held between CMS and MA organizations and Part D sponsors,
respectively. The Part C contract termination authorities and
procedures were codified into regulations in the June 29, 2000 final
rule entitled, ``Medicare Program; Medicare+Choice Program'' (65 FR
40170) at Sec. 422.510. Likewise, the Part D authorities and
procedures were codified into regulations in the January 28, 2005 final
rule entitled, ``Medicare Program; Medicare Prescription Drug Benefit''
(70 FR 4194) at Sec. 423.509.
We are proposing three revisions to our existing regulations that
relate to contract termination. First, we are proposing clarification
of the scope of our authority to terminate Part C and D contracts under
Sec. 422.510(a) and Sec. 423.509(a). Section 1857(c)(2) of the Act
provides us with authority to terminate a Part C or D contract if we
make a determination that the organization--
Has failed substantially to carry out the contract;
Is carrying out the contract in a manner inconsistent with
the efficient and effective administration of this part; or
No longer substantially meets the applicable conditions of
this part.
Existing regulations at Sec. 422.510 and Sec. 423.509 reiterate
the three bases for termination set forth in the statute, however, over
time CMS has also included in regulation a number of specific
violations within the scope of our statutory authority, that is,
violations which meet the standard established by the statute. In the
June 26, 1998 proposed rule (63 FR 34968, at 35018), we stated that
``[i]n addition to repeating the above statutory language, we are
implementing this language by identifying specific circumstances that
we believe constitute examples of [an MA] organization substantially
failing to carry out either its contract, or carrying out its contract
in a manner that is inconsistent with the effective and efficient
administration.''
However, we have come to believe over time that the inclusion of
our broad statutory authorities in the regulations, along with the more
specific violations, has the potential to lead to confusion regarding
the scope of our termination authority. Terminating a contract is the
strongest action that CMS may take in response to an MA organization or
Part D sponsor's noncompliance. It is imperative that both CMS and
affected organization understand the standard

[[Page 1926]]

we apply when CMS has made a determination to end the contractual
relationship. Therefore, we are proposing to modify the language at
Sec. 422.510(a) and Sec. 423.509(a) to clarify our contract
termination authority by separating the statutory bases from the
examples. To effectuate this change we will need to renumber the lists
of bases contained in Sec. 422.510(a) and Sec. 423.509. Because there
are cross references using the current numbering scheme, we are also
proposing to make several corresponding reference changes to reflect
the renumbering of this section throughout parts 422 and 423. We
believe that by making these changes, we will improve the clarity of
this regulation.
Second, we are proposing revisions to our contract termination
notification procedures contained at Sec. 422.510(b)(1) and Sec.
423.509(b)(1). Current regulations state that if CMS decides to
terminate a Part C or D sponsoring organization's contract, we must
notify the MA organization/Part D sponsor in writing 90 days before the
intended date of the termination. We believe that the 90-day timeframe
is not in the best interest of Medicare beneficiaries, in light of the
fact that CMS terminates contracts in circumstances where an
organization is significantly out of compliance with Part C and D
requirements. We also think that the 90-day timeframe is unnecessarily
long given the existing procedural protections and appeal rights
provided for MA organizations and Part D sponsors.
The authorizing statute for Part C, at section 1857(h)(1)(B) of the
Act (applicable to Part D pursuant to section 1860D-12(b)(3)(F) of the
Act), states that the Secretary must provide reasonable notice and
opportunity for hearing regarding the termination (including the right
to appeal the initial determination); during this hearing process, the
termination is effectively stayed pursuant to Sec. 422.664 and Sec.
423.652. Therefore, we believe that a 45-day timeframe better balances
the need to provide contracting organizations with reasonable notice of
the impending contract termination with the interests of the Medicare
beneficiaries who are enrolled in a plan that is deficient enough in
its adherence to Part C and/or D requirements that contract termination
is necessary. We also propose to make necessary cross-reference changes
in parts 422 and 423 at Sec. 422.644(c)(1) and Sec. 423.642(c)(1).
Additionally, in an effort to respond to changes in the media and
information technology landscape, we are proposing a slight
modification to the termination notification provision for the general
public at Sec. 422.510(b)(1)(iii) and Sec. 423.509(b)(1)(iii) by
proposing that contracting organizations now release a press statement
to news media serving the affected community or county and posting the
press statement prominently on the organization's Web site instead of
publishing the notice in applicable newspapers.
Third, we are proposing minor revisions to the wording of our
regulations at Sec. 422.510 and Sec. 423.509 to reflect the
authorizing language contained in sections 1857(c)(2) and 1860D-12 of
the Act. Specifically, we are proposing to replace the word ``fails''
with ``failed'' in the applicable provisions of Sec. 422.510 and Sec.
423.509. In current regulations both of the terms failed and fails are
used when describing contract violations that may be the basis for a
contract termination. We would like for this list to read consistently,
therefore, we are proposing to revise the language as such. The purpose
of this change is merely to ensure that consistent language is used
throughout Sec. 422.510 and Sec. 423.509 and in no way changes the
meaning or policy encompassed in these provisions.
5. Reducing the Burden of the Compliance Program Training Requirements
(Sec. 422.503(b)(4)(vi)(C) and Sec. 423.504(b)(4)(vi)(C))
Section 1857(a) of the Act provides the Secretary with the
authority to enter into contracts with MA Organizations, and section
1860D-12(b)(1) of the Act provides the Secretary with the authority to
enter into contracts with Part D sponsors. Sections 1860D-
12(b)(3)(D)(i) and 1857(e)(1) of the Act, specify that these contracts
shall contain other terms and conditions that the Secretary may find
necessary and appropriate. When we implemented the Part C program, we
determined that all Part C contracts (and subsequently Part D
contracts) would require that the Part C or D organization has the
necessary administrative and management arrangements to have an
effective compliance program, as reflected in Sec. 422.503(b)(4)(vi)
and Sec. 423.504(b)(4)(iv).
In the December 5, 2007 Federal Register, we published the
``Medicare Program; Revisions to the Medicare Advantage and Part D
Prescription Drug Contract Determinations, Appeals and Intermediate
Sanctions Process'' final rule (72 FR 68700). In that final rule, we
established that compliance plans for sponsoring organizations must
include training and education and effective lines of communication
between the compliance officer and the sponsoring organization's
employees, managers, and directors as well as their first-tier,
downstream and related entities (FDRs). We reiterated the importance of
this requirement in the October 22, 2009 proposed rule entitled,
``Medicare Program; Policy and Technical Changes to the Medicare
Advantage and the Medicare Prescription Drug Benefit Programs'' (74 FR
53634).
In the 2009 proposed rule, entitled, ``Medicare Program; Policy and
Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs,'' we addressed concerns about the
burden on FDRs such as pharmacies, hospitals and physicians as a result
of this requirement, given the likelihood that many of these entities
and individuals contract with multiple contracting organizations. We
were concerned that these FDRs would potentially have to participate in
(largely duplicative) training for each organization with whom they
contract. We requested public comments on how best to ensure that the
training requirement continues to be met while not overly burdening the
contracting organization or its FDRs. In response, we received numerous
comments suggesting that CMS develop its own web-based trainings to
lessen this burden on sponsors and FDRs (75 FR 19678 at 19688).
In response to these requests, we have created the CMS Standardized
General Compliance Program Training and Education Module. Until now, we
have offered this as an optional training. In this rule, we propose to
require that all contracting organizations accept a certificate of
completion of the CMS training as satisfaction of this general
compliance program training requirement. We anticipate that this
proposal will greatly reduce the burden on various sectors of the
industry, including, but not limited to, insurance providers,
hospitals, suppliers, pharmacists, and physicians.
Under this proposed change, Part D sponsors and Part C
organizations would not be permitted to develop or implement sponsor
specific training or provide supplemental training materials to fulfill
the general compliance program training requirement; only CMS training
would suffice.
We understand that sponsors often include sponsor specific
information (such as compliance officer's contact information,
compliance reporting processes and expectations, hotline number or
email address for compliance questions, Web site information for
accessing the sponsor's compliance policies and procedures) in the
training materials provided to the FDRs and will need an appropriate
mechanism for

[[Page 1927]]

conveying this information given that the training vehicle will no
longer be available. To address this issue, a sponsor may choose to
include such information in the contract held between the sponsor and
the FDR. Alternatively, we would allow each sponsor to develop a one
page information sheet containing this material, to be distributed by
the sponsor to each of its FDRs. We seek comments concerning this
portion of our proposal and suggestions on other options we could
implement to accomplish the desired outcome.
We are proposing to modify the regulation text by adding a new
Sec. 422.503(b)(vi)(C)(3) and Sec. 423.504(b)(vi)(C)(4) to permit
only this CMS training for satisfaction of the requirement to train
FDRs.
6. Changes to Audit and Inspection Authority (Sec. 422.503(d)(2) and
Sec. 423.504(d)(2))
Sections 1857(d)(2)(A) and 1860D-12(b)(3)(C) of the Act specify
that each contract under these sections must state that CMS has the
right to audit and inspect the facilities and records of each
organization. We are proposing three changes to our audit and
inspection authority. First, under section 6408 of the Affordable Care
Act new authority was provided to the Secretary that now requires that
each contract provide the right to ``timely'': (1) Inspect or otherwise
evaluate the quality, appropriateness, and timeliness of services
performed under the contract; (2) inspect or otherwise evaluate the
facilities of the organization when there is reasonable evidence of
some need for such inspection; and (3) audit and inspect any books,
contracts, and records of the organization that pertain to (a) the
ability of the organization or its first tier or downstream providers
to bear the risk of potential financial losses; or (b) services
performed or determinations of amounts payable under the contract.
Therefore, we are proposing to revise both Sec. 422.503(d)(2) and
Sec. 423.504(d)(2) to reflect this change. Specifically, we are
proposing to insert the word ``timely'' at the end of both of the
introductory paragraphs for Sec. 422.503(d)(2) and Sec.
423.504(d)(2).
Second, we are proposing to add authority that will allow CMS to
require MA organizations and Part D sponsors to hire an independent
auditor to perform full or partial program audits to determine
compliance with CMS requirements.
MA organizations and Part D sponsors must adhere to CMS
requirements to properly administer Part C and Part D benefits. These
requirements are contained in statute, regulations and in the Part C
and Part D sponsor agreements themselves. CMS needs assurance that MA
organizations and Part D sponsors are substantially adhering to Part C
and/or D requirements, and that Medicare beneficiaries are receiving
the benefits to which they are entitled. To determine the extent of MA
organization and Part D sponsor compliance with program requirements,
CMS uses a variety of oversight and monitoring tools including CMS-
conducted program audits.
CMS conducts a program audit by examining core operational areas
and functions and determining the sponsors' level of compliance with
these Part C and Part D program requirements. CMS may audit any program
requirement, but in recent years we have focused on Part C and Part D
coverage decisions, appeals, grievances, compliance program
effectiveness, and formulary administration. CMS reviews a number of
targeted samples to evaluate MA organizations and Part D sponsors'
processes and systems. Targeting samples is an efficient way to
highlight deficiencies and ensure that they are quickly and
successfully remediated. The process is primarily designed to be
educational for the MA organization and/or Part D sponsor as it expands
the sponsor's understanding of CMS' expectations, and how program
requirements are to be applied. It also identifies areas of risk or
actual non-compliance so sponsors can quickly correct the deficiency.
This understanding allows the MA organization and/or Part D sponsor to
develop and implement a robust internal auditing and monitoring program
to identify deficiencies before they reach a level of substantial non-
compliance in the future. An effective monitoring program should result
in early detection of system and process failures and should lead to
problems being fixed quickly and steps being implemented to prevent
future failures.
Organizations that are chosen for audit fall into at least one of
the five following categories: High Star rated plans; sponsors with a
Low Performing Icon (LPI); high risk plans (based on a data driven risk
assessment); sponsors not audited in last 3 years, and CMS Regional or
Central Office referrals. Annually, CMS conducts a risk assessment to
determine which high-risk organizations to audit. Many of the program
audits currently being conducted are with organizations whose contract
performance or data indicators demonstrate the potential risk of
failing to perform core program functions that, if not complied with,
may result in potential beneficiary harm. These audits are a useful
tool to help identify systemic deficiencies and failures in meeting CMS
requirements and they help to promote compliance with those
requirements. While these types of audits are necessary because these
organizations pose the most risk, not all organizations are receiving
the benefit of having an independent audit of their organization on a
regular basis.
CMS is constrained in the number of program audits we can conduct
each year, due to limited resources. Currently, CMS has close to 300
parent organizations that perform MA and/or Part D functions. CMS is
only able to audit approximately 30 parent organizations per year; or
roughly 10 percent of all MA organizations and/or Part D sponsors. CMS
believes that MA organizations and/or Part D sponsors, their enrollees,
and the Medicare program all benefit from a regular cycle of
independent auditing. Therefore, we are proposing to revise our
regulations to allow CMS to require MA organizations and/or Part D
sponsors to hire an independent auditor to conduct regularly scheduled
program audits in accordance with CMS specifications.
We currently make all of our program audit protocols available to
MA organizations and/or Part D sponsors through our Web site. Pursuant
to the proposed new regulatory provision, CMS would notify the MA
organization and/or Part D sponsor that it has been selected to perform
a full or partial program audit. The MA organization and/or Part D
sponsor would then be required to engage an independent auditor to
perform a full or partial program audit as directed by CMS using the
CMS published protocols, methodologies, and methods of evaluation. At
the conclusion of the audit, at the direction of the MA organization
and/or Part D sponsor, the independent auditor will provide a draft
copy of its findings to CMS and the MA organization and/or Part D
sponsor. Once the MA organization and/or Part D sponsor has had an
opportunity to rebut any findings, the independent auditor will provide
its final report of findings to CMS and the MA organization and/or Part
D sponsor. CMS anticipates that additional instruction will be
necessary to interpret and implement this audit requirement of a
complete and full independent review. Therefore, we intend to develop
and release sub regulatory guidance to address, among other things,
language and specifications which should be included in the contract
between the sponsoring

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organization and the independent auditor conducting the audit. The
proposed authority will allow CMS to better evaluate MA organizations'
and Part D plan sponsor's performance. With the proposed approach, each
MA organization and/or Part D sponsor will be required to undergo an
independent program audit at least every 3 years. Under this proposal,
more organizations will be audited each year, which will provide CMS
with substantially more data to evaluate program-wide performance,
improve industry performance and protect beneficiaries enrolled in the
Medicare Advantage and Prescription Drug Benefit programs. This will
enhance CMS's oversight and provide us with information that enables us
to focus our time and resources in the areas most needed to ensure
compliance with Part C and Part D program requirements.
CMS will continue to perform program audits in limited scenarios,
such as when indicated by a risk analysis; and will perform limited
``look back'' audits to ensure the integrity of the independent audit
process proposed here. The latter audits will focus on reviewing the
program audit findings that we receive from the independent auditors
engaged by the Part C and Part D organizations, to ensure that the
independent auditor conducted the audit in accordance with CMS
specifications. We think that this additional authority will
significantly strengthen the Medicare Parts C and D audit and oversight
program.
Therefore, we are proposing to add language to Sec. 422.503(d)(2)
and Sec. 423.504(d)(2) that will allow us to require a MA organization
or Part D sponsor to hire an independent auditor, working in accordance
with CMS specifications, to perform program audits to determine
compliance with CMS requirements and provide to CMS an attestation
affirming that the audit has been completed as required.
Third and finally, we are proposing to revise our regulations to
specifically permit CMS to require MA organizations or Part D sponsors
with audit results that reveal non-compliance with CMS requirements to
hire an independent auditor to validate that correction has occurred.
We may invoke this authority regardless of whether an independent
auditor or CMS conducted the program audit that identified the
programmatic deficiencies.
When program audits are conducted, non-compliance with CMS
requirements is often found. When CMS finds these deficiencies, it
notifies the MA organization or Part D sponsor of its non-compliance
and requires correction. We do not close out audits until we have
validated that correction has occurred. While we firmly believe in the
value of such validation, these efforts are also limited by resources.
In order to assist us in making the determination that the deficiencies
found during the audit have been corrected and are not likely to recur,
we need to have greater flexibilities in performing validation
activities. Therefore, we are proposing that we may require a MA
organization or Part D sponsor to hire an independent auditor to
provide us with additional information to determine if the deficiencies
found during the course of the audit have actually been corrected and
are not likely to recur. The independent auditor would be hired by the
MA organization and/or Part D sponsor and work in accordance with our
specifications in order to provide accurate and reliable information to
CMS.
CMS often relies on self-disclosed information from the MA
organization or Part D sponsor, CMS and plan data; in the alternative,
we must attempt to engage in a process to independently verify that
deficiencies have been corrected. Given the nature and extent of some
compliance deficiencies and the level of skill and experience required
to conduct an exhaustive verification of correction, we have concluded
that an independent auditor hired by the MA organization or Part D
sponsor would be beneficial for both the organization and CMS.
This proposal is also consistent with our regulatory authority at
42 CFR 422.756 and 423.756 which permits us to require a sanctioned
organization to hire an independent auditor to help us determine if a
sanction should be lifted. Program experience has demonstrated other
situations when the expertise of an independent auditor would be
helpful in determining correction. For example, an independent auditor
who specializes in complex information technology systems and who has
specialized knowledge of how those systems interact with each other, in
order to be compliant with our requirements, may be helpful in ensuring
timely and successful correction of complex claims processing
deficiencies. This is one example of a situation where we may require
the MA organization or Part D sponsor to hire an independent auditor in
order to assist in making the determination that the deficiencies found
during the program audit have been corrected.
Therefore, we are proposing to add language to Sec. 422.503(d)(2)
and Sec. 423.504(d)(2) that will allow us to require that a sponsoring
organization hire an independent auditor, working in accordance with
CMS specifications, to provide us with additional information to
determine if the deficiencies that were found during a program audit
have been corrected.
7. Procedures for Imposing Intermediate Sanctions and Civil Money
Penalties Under Parts C and D (Sec. 422.756 and Sec. 423.756)
Sections 1857(g) and 1860D-12(b)(3)(E) of the Act provide the
Secretary the ability to impose intermediate sanctions on MA
organizations and PDP sponsors. Intermediate sanctions consist of
suspension of enrollment, suspension of marketing and suspension of
payment. Current regulations governing intermediate sanctions are
contained in subparts O of part 422 and part 423. Sections 422.756 and
423.756 provide specific procedures for imposing intermediate
sanctions, and include provisions which address the duration of the
sanction and the standard that we apply when determining if a sanction
should be lifted. As specified in the Act and regulations, when
intermediate sanctions are imposed on sponsoring organizations, the
sanctions remain in place until we are satisfied that the basis for the
sanction determination has been corrected and is not likely to recur.
Because sanctions remain in place until the deficiencies have been
corrected and we are assured that they are not likely to recur, we are
unable to fully test the contracting organization's compliance with
certain requirements until the sanction is lifted. Therefore, in the
October 2009 proposed rule, entitled ``Medicare Program; Policy and
Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs'' (74 FR 54634), we proposed a rule,
later finalized in the April 15, 2010 ``Medicare Program; Policy and
Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs'' (75 FR 19678), that allows us to
require a plan under a marketing and/or enrollment sanction to engage
in a test period of marketing or accepting enrollments or both for a
limited period of time. As we explained in that proposed rule, the
purpose of the test period is to assist us in making a determination as
to whether the deficiencies that are the bases for the intermediate
sanctions have been corrected and are not likely to recur. The test
period provides us with the opportunity to observe a sanctioned plan's
ability to enroll or market to Medicare beneficiaries prior to lifting

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the sanction. Since finalizing that rule in April 2010 (75 FR 19678),
we have further considered its utility as a result of compliance issues
that we have encountered over the past 2 years. We are proposing two
modifications to this existing rule. First, we are proposing to expand
the potential applicability of the test period requirement to all types
of all intermediate sanctions. The existing regulation would only allow
CMS to require this test period in instances where CMS has imposed a
marketing and/or enrollment sanction. However, the type of intermediate
sanction imposed is not necessarily related to the particular
violations that form the basis for the sanction. Therefore, we are
proposing to modify the existing rule to clarify that CMS may require a
test period for a sponsoring organization that has had any of the three
types of intermediate sanctions imposed: marketing, enrollment and/or
payment.
We also want to clarify that our ability to require this test
period is not limited to sanctions stemming from marketing or
enrollment violations. In the preamble language for the October 2009
proposed rule, (74 FR 54634), we stated that ``[t]he basis for this
proposal is that we have found that there is often not a satisfactory
way to determine if marketing and/or enrollment problems have been
corrected while a sanction is in place and no such activities are
permitted.'' Upon reflection, we are concerned that this statement may
have given the impression that the test period would only be used in
instances where the underlying bases for the sanction are marketing
and/or enrollment deficiencies. Therefore, we are clarifying here that
the purpose of the test period is to assist us in making a
determination as to whether the deficiencies that are the bases for the
intermediate sanction have been corrected and are not likely to recur.
The aforementioned deficiencies may be in any operational area, and are
not limited or restricted to enrollment and/or marketing deficiencies.
Second, we are proposing to clarify the enrollment parameters for
Part D contracting organizations that are under the benchmark and would
normally participate in the annual and monthly auto enrollment process
for beneficiaries who receive a low income subsidy (LIS) during a test
period. During a test period, sanctioned Part D plans may not be
allowed to receive or process these types of enrollments.
LIS beneficiaries are a vulnerable population who are particularly
sensitive to financial instability. It is critical that Part D sponsors
correctly identify a beneficiary's LIS status. Our goal when enrolling
this particular population is to ensure that these vulnerable
beneficiaries are best able to access their drugs and services in the
manner to which they are entitled under the Part D program. We believe
that if we allow auto-enrollments into a plan that has recently
demonstrated substantial non-compliance with our regulations as
evidenced by the imposition of an intermediate sanction, these
vulnerable beneficiaries may experience difficulties in accessing
prescription drugs. Therefore, we are proposing to make clear that we
may determine that a sanctioned plan is not available to receive
automatically assigned beneficiaries for the entire duration or a
portion of the testing period.
We are proposing to modify the regulation text at Sec. 422.756 and
Sec. 423.756 to reflect these changes.
8. Timely Access to Mail Order Services (Sec. 423.120)
Section 1860D 12(b)(3) of the Act authorizes the Secretary to
include contract terms for Part D sponsors, not inconsistent with the
Part C and D statutes, as necessary and appropriate. Section
423.120(a)(3) specifies that a Part D sponsor's contracted network may
include non-retail pharmacies, including mail order pharmacies, so long
as the network access requirements are met. Part D plans are
increasingly entering into contracts with mail order pharmacies to
offer beneficiaries an alternative way to fill prescriptions under the
Part D benefit, often at much lower cost sharing than is available at
network retail pharmacies. While mail order pharmacies make up a
relatively small percentage of total prescriptions filled under the
Part D program, we are committed to ensuring consistent and reliable
beneficiary access to medications, regardless of what type of pharmacy
fills the prescriptions.
Section 1860D-4 of the Act describes the various beneficiary
protections in place in the Part D program. It is the industry standard
in retail and institutional pharmacies to fill almost all prescriptions
on the same day the prescription is presented. We have established a 24
hour fulfillment standard for home infusion drugs covered under Part D
(Sec. 423.120(a)(4)(iv)). For mail order pharmacies, the industry
standard for delivery times appears to range from 7 to 10 business days
from the date the prescription was received, and Part D sponsors'
marketing materials often specify this time frame to beneficiaries.
Beneficiaries generally choose to fill prescriptions through a mail
order pharmacy, for lower cost sharing, when it is feasible to wait 7
to 10 days to receive their medications. However, if this time frame is
disrupted, beneficiaries may experience gaps in therapy.
We are aware of a specific instance in which significant incentives
(for example, zero cost sharing) caused increased demand for mail order
prescriptions sufficient to disrupt the delivery time frame, and we are
concerned about the adverse effect such incentives might have on
beneficiaries. When issues with filling a prescription arise in a
retail setting, the beneficiary often is notified of the problem in
real time, or within hours of discovery. When issues arise in a mail
order setting, the delays in finding, communicating, and making the
appropriate contacts to resolve the problem may add days onto the
ultimate delivery date, resulting in a potentially more significant
concern for mail order beneficiaries if these delays result in gaps in
therapy. For this reason, we believe it is necessary and appropriate to
establish fulfillment requirements for mail order pharmacies as well as
home delivery services offered by retail pharmacies, to set consistent
expectations for beneficiary access to drugs in this growing segment.
Many beneficiaries may be very well served by this type of pharmacy
access, but only if they can rely upon efficient processing and
turnaround times. Mail order pharmacies contracted by Part D sponsors
can reasonably be expected to meet minimum performance standards for
order fulfillment, including convenient order turnaround times, as a
beneficiary protection and as a component of providing good customer
service. Clearly stating in beneficiary materials the expected
turnaround time for delivery allows the beneficiary to better control
when they need to reorder to ensure no gaps in medication supply.
Clarity in expected turnaround times also can prevent needing to
address customer inquiries into the status of a pending order, setting
parameters for when an order is or is not delayed and what options
become available at that point. We believe that established companies
that have been providing these services for years have generally been
meeting these standards in practice already, and that the proposed
turnaround times are in line with current practices followed by mail
order pharmacies today. Establishing mail order fulfillment
requirements as a contract term would require plan sponsors to require
that all pharmacies in its network meet the same minimum

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level of service. This would underscore the importance of consistent
and reliable access to medications, protecting beneficiaries from
inconsistent or unreliable practices that may otherwise jeopardize
timely access to prescriptions.
Therefore, we are proposing to amend Sec. 423.120(a)(3) to specify
mail order fulfillment requirements in line with what we have observed
in other markets: 5 business days (from when the pharmacy receives the
prescription order to when it is shipped) for those prescriptions
requiring intervention beyond filling (such as clarifying illegible
orders, resolving third party rejections, and coordinating with
multiple providers as part of drug utilization management); and 3
business days (from when the pharmacy receives the prescription order
to when it is shipped) for those prescriptions not requiring
intervention. We recognize that some prescription orders may require
clarification or additional steps to be taken by the provider or
beneficiary that will extend beyond the proposed period of 5 days. We
believe that such cases represent a minority of mail order
prescriptions, and as such we would anticipate that more than 99
percent of all mail order prescriptions processed are filled in
compliance with either the 3- or 5-day standard. We believe our
proposed standards are in alignment with fulfillment requirements
already in place in the market and as such do not create a new burden
or new standard for mail order pharmacies to meet. We are soliciting
comments not only on the proposed time frames, but also on whether
there are instances (in addition to those discussed previously) in
which the proposed 5-day time frame should apply.
We additionally are soliciting comments on whether we should
establish additional requirements for beneficiary materials relating to
mail order services, such as: clear definitions of processing time and
delivery time; how to access customer support; how to submit a
complaint via 1 800 MEDICARE; and beneficiary options for accessing
medications when a delivery is lost or delayed.
We also welcome comments on any other requirements we should
consider for mail order or other home delivery options. For example,
also potentially affecting consistent access to medication is the use
of mail order to fill initial prescriptions of new drugs or to fill 30-
day supplies of chronically used medications. The need to order a
refill early, allowing sufficient time for processing and delivery, can
result in refill too soon edits based upon retail 30 day standards.
Resolving inappropriate or inapplicable edits increases burden on the
beneficiary and the mail order pharmacy and essentially creates a
disincentive for beneficiaries who are planning ahead and attempting to
order early enough to ensure un-interrupted supplies of chronic
medications. In general, we believe that filling initial prescriptions
or routine 30-day supplies at mail order is not good practice. We
recognize that there may be a small minority of beneficiaries who
successfully depend solely upon mail order or other home delivery
options for access to prescription drugs due to particular
circumstances of geography or mobility. We have no reason to discourage
their continued use of these services. However, due to the difficulties
reported to CMS with consistently and effectively filling short time
frame supplies through mail order, we do not believe that Medicare
beneficiaries in general should be incentivized through lower cost
sharing to utilize mail order pharmacies for initial prescriptions or
30-day supplies.
9. Collections of Premiums and Cost Sharing (Sec. 423.294)
Since the beginning of the Part D program, when asked whether Part
D sponsors could waive premiums and cost sharing we have responded that
reducing or waiving either of these amounts would be inconsistent with
the approved bid. The bid requirements, specified in section 1860D-
11(e)(2)((C) of the Act, state the bid must reasonably and equitably
reflect the revenue requirements of the expected population for the
benefits provided under the plan. Waiving or reducing the cost sharing
and/or premiums that are reflected in the approved bid would indicate
that the plan bid was overstated and the amounts were not necessary for
the provision of coverage. However, recently we have received reports
of sponsors reducing or waiving cost-sharing and/or premiums. As a
result, we propose to codify requirements for sponsor collection of
cost sharing and premiums in regulation.
In addition to violating the bid requirements, as we noted in the
preamble of the October 22, 2009 proposed rule entitled, ``Medicare
Program; Policy and Technical Changes to the Medicare Advantage and the
Medicare Prescription Drug Benefit Programs'' (74 FR 54690), waiving
cost sharing or premiums also violates the uniform benefit requirements
because doing so results in the plan's not providing the same coverage
to all eligible beneficiaries within its service area. Section 1860D-
2(a) of the Act defines qualified prescription drug coverage to mean
access to standard or actuarially equivalent prescription drug coverage
and access to negotiated prices (in accordance with section 1860D-2(d)
of the Act). Thus, a Part D sponsor must offer its plan to all eligible
beneficiaries residing in the plan's service area. We further interpret
section 1860D-2(a) of the Act as requiring the provision of uniform
premium and benefits and have codified these requirements in our
regulations at Sec. 423.104(b).
Once CMS has approved a sponsor's Part D benefit package, it cannot
be varied for some or all of the plan's Part D enrollees. Thus,
sponsors must commit to providing the level of benefits described in
the sponsor's benefit package and cannot waive or reduce cost sharing,
as that would violate the uniform benefit provisions set forth in Sec.
423.104(b). This is true regardless of whether the Part D sponsor
waives the copayment directly or indirectly through an affiliate, and
regardless of whether such a waiver is prohibited by other laws. Some
Part D sponsors are related to pharmacies through common ownership or
control, and we note that an exception to the anti-kickback statute,
set forth in section 1128B(b)(3)(G) of the Act, permits a pharmacy to
waive cost sharing (that is, coinsurance and deductibles) imposed under
Part D, if the conditions described in clauses (i) through (iii) of
section 1128A(i)(6)(A) of the Act are met. These conditions include
that the waiver is not advertised (through media outlets, telemarketing
or otherwise) and is not routine, and the cost sharing is waived after
a good faith determination that the individual is in financial need \1\
or reasonable efforts to collect the cost sharing have failed. This
exception may protect from sanctions under the anti-kickback statute
the waiver of cost sharing by pharmacies owned by Part D sponsors.
However, as noted in the proposed rule, entitled ``Medicare Program;
Policy and Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs'' (74 FR 54690), sponsor failure to
collect or attempt to collect cost sharing at the time the service is
provided or to bill cost sharing to the appropriate party (either a
beneficiary or another payer) after the fact, is a violation of the
uniform benefit provisions set forth in the current regulation at Sec.
423.104(b). The fact that cost sharing is waived by a pharmacy

[[Page 1931]]

that is related to a Part D sponsor by common ownership, rather than
the Part D sponsor itself, and that it may be protected from sanctions
under the anti-kickback statute, does not relieve the Part D sponsor of
responsibility for this violation of the uniform benefit provisions. If
a pharmacy is unrelated to a Part D sponsor and waives cost sharing
under the conditions previously described, the pharmacy is making an
independent business decision to which the Part D sponsor is
indifferent. However, if an affiliated pharmacy waives cost sharing for
a beneficiary enrolled in the sponsor's Part D plan, the sponsor is not
indifferent because the cost-sharing waiver is more likely to be a
strategic decision by the sponsoring organization to move market share
to the related-party pharmacy and increase profits to the sponsor.
Thus, the sponsor is altering the level of cost sharing in the approved
bid in violation of the uniform benefit provisions in Sec. 423.104(b).
To clarify this for all parties, we propose to codify the prohibition
of the waiver or reduction of premiums and cost sharing by adding a new
section at Sec. 423.294. We propose to specify that Part D sponsors
either directly, or indirectly through related party pharmacies, as
defined in regulation at Sec. 423.501, are prohibited from reducing or
waiving collection of premiums and cost sharing. In contrast, a
pharmacy affiliated with one Part D sponsor may waive Part D cost
sharing for beneficiaries enrolled Part D plans offered by other
sponsors without violating the uniform benefit provisions.
---------------------------------------------------------------------------

\1\ Under section 1128B(b)(3)(G) of the Act, an individual
determination of financial need is not required for Part D
beneficiaries eligible for the low-income subsidy under section
1860D-14 of the Act.
---------------------------------------------------------------------------

Additionally, we have become aware that the regulations in Part 423
do not address Part D sponsor requirements for refunding incorrect
collections of premiums and cost sharing or for retroactively
collecting underpayments of cost sharing. Therefore, we also propose to
codify requirements at Sec. 423.294 that mirror the language at Sec.
422.270. We propose to apply the timeframe in Sec. 423.466(a) to these
refunds and recoveries. In other words, whenever a sponsor receives
information that necessitates a retroactive refund of incorrect
collections of premiums and/or cost sharing or collection of
underpayments of cost sharing, the sponsor would be required to issue
refunds or recovery notices within 45 days. For incorrect collections,
we propose to duplicate the language at Sec. 422.270 with one
exception. That is, in the absence of authority to do so, we are not
proposing to reduce Part D sponsor premiums for failure to refund
amounts incorrectly collected from Part D enrollees. Instead, we
propose that sponsors that fail to meet these requirements may receive
compliance notices from CMS or, depending on the significance of the
non-compliance, be the subject of an intermediate sanction (for
example, suspension of marketing and enrollment activities) pursuant to
Part 423, Subpart O.
10. Enrollment Eligibility for Individuals Not Lawfully Present in the
United States (Sec. 417.2, Sec. 417.420, Sec. 417.422, Sec.
417.460, Sec. 422.1, Sec. 422.50, Sec. 422.74, Sec. 423.1, Sec.
423.30, and Sec. 423.44)
a. Basic Enrollment Requirements
Sections 226 and 226A of the Act establish the conditions for
Medicare Part A entitlement for individuals who have attained age 65,
are disabled or have end-stage renal disease (ESRD), and are entitled
to monthly Social Security benefits under section 202 of the Act.
Individuals entitled to Part A under these sections do not have to pay
premiums for such coverage, and they may, but are not required to,
enroll in Medicare Part B. Section 1818 of the Act establishes the
conditions for Medicare enrollment for individuals who are not entitled
to monthly Social Security benefits under section 202 of the Act.
Individuals covered under section 1818 of the Act must meet citizenship
or alien status requirements, in addition to other requirements, in
order to enroll in Part B. Individuals must have Part B in order to
purchase Part A hospital insurance.
Sections 1851(a)(3)(B), 1860D-1(a)(3)(A), and 1876(a)(1)(A) of the
Act outline the eligibility requirements to enroll in MA (Part C),
Medicare prescription drug coverage (Part D), and Medicare cost plans.
Under all options, individuals must have active Medicare coverage.
Specifically, to enroll in MA, an individual must be entitled to
benefits under Part A and be enrolled in Part B; to enroll in Part D,
an individual must be entitled to Part A and/or enrolled in Part B; to
enroll in a Medicare cost plan, an individual must be enrolled in Part
B (Part A entitlement is not required).
b. Medicare Eligibility and Lawful Presence
Section 401 of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (PRWORA), amended by section 5561 of the
BBA, mandates that qualified aliens not lawfully present in the United
States are not eligible to receive any federal benefit. This is
outlined in 8 U.S.C. 1611 (Aliens who are not qualified aliens
ineligible for federal public benefits) and 8 U.S.C. 1641
(Definitions). The definition of qualified alien is codified in 8 CFR
1.3 (Lawfully present aliens for purposes of applying for Social
Security benefits).
The aforementioned provisions affect eligibility to receive
benefits that would otherwise be payable under provisions in the Act.
For example, aliens meeting certain criteria are able to earn qualified
credits towards Social Security retirement benefits as outlined in 8
U.S.C. 1631 (Federal attribution of sponsor's income and resources to
alien) and 8 U.S.C. 1645 (Qualifying quarters). Such individuals may
earn the total number of qualified credits to be eligible under the Act
to receive retirement benefits under sections 226 and 226A of the Act.
However, should such individuals be unlawfully present in the United
States under the previously mentioned PRWORA provisions, they are not
eligible to receive the Social Security benefits they have earned for
as long as they remain unlawfully present. At such time as they are
lawfully present in the United States, or live outside the United
States, they would again become eligible to receive Social Security
payments.
Similarly, when aliens become eligible for Medicare based on age or
disability under the terms of the Act, they would also automatically be
entitled to premium free Part A benefits and be eligible to enroll in
Part B during a valid enrollment period. Furthermore, aliens receiving
Social Security retirement benefits 4 months prior to turning 65, or
are in their 21st month of receiving Social Security disability
benefits, would, under the terms of the Act, also automatically be
enrolled into both Part A and Part B consistent with section 1837 of
the Act and the enrollment process outlined in Sec. 407.17. Again,
however, under PRWORA, these individuals are not eligible to receive
payment of Medicare benefits for so long as they are unlawfully present
in the United States. Only upon becoming lawfully present would they
become eligible to receive the Medicare benefits to which they would
otherwise be entitled by paying into Social Security for the requisite
number of quarters or paying premiums.
We note that current regulations at Sec. 406.28 and Sec. 407.27
outline the reasons for loss of premium Part A and Part B enrollment,
and do not include the absence of lawful presence or citizenship as a
reason for loss of entitlement. Individuals who are entitled to Part A
and enrolled in Part B based on eligibility of Social Security benefits
currently may be enrolled in

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Medicare even if they are not lawfully present in the United States.
When PRWORA was enacted, the Act was not amended to include the
additional eligibility criteria for entitlement to either Social
Security benefits or for Medicare Part A entitlement, nor were new
provisions put into place regarding termination of entitlement or
establishment of a special enrollment period to account for situations
in which individuals reestablished lawful presence. As a result,
individuals who meet the current statutory eligibility criteria have
been reflected in CMS records as entitled to both Social Security
benefits and Medicare coverage.
c. Alignment of MA, Part D, and Cost Plan Eligibility With Fee-For-
Service (FFS) Payment Exclusion Policy
In order to implement 8 U.S.C. 1611 and ensure that individuals who
are present in the United States unlawfully do not receive benefits,
the Social Security Administration (SSA) established internal policies
and procedures to suspend Social Security benefits during periods for
which individuals are unlawfully present in the United States. Because
Medicare entitlement flows from entitlement to Social Security
retirement and disability benefits, Medicare also has implemented this
provision through a payment exclusion process.
Under Medicare's payment exclusion process, data on lawful presence
is transmitted to CMS from the Department of Homeland Security via
regular data exchanges from SSA. Once the data is received by us, the
lawful presence status is noted on an individual's record and is
retained in the FFS claims processing systems. As a result, we deny
payment of both Part A and Part B claims for non-citizens where lawful
presence is not established on their record, and do so until
individuals regain their lawful presence status. Although payment is
being denied for claims, individuals who are ``fully insured'' per
section 226 of the Act, maintain Part A entitlement and remain enrolled
in Part B on CMS records as long as premiums are paid. Similarly,
individuals who are enrolled in premium Part A and/or Part B, maintain
their enrollment status as long as premiums are paid.
Although CMS implementation of the lawful presence criteria in the
FFS program achieved the intent of PRWORA by preventing FFS payments
for services rendered to individuals who are not lawfully present, this
policy was not adopted in regulations for Part A and Part B eligibility
in 42 CFR parts 406 and 407 or addressed in regulations or
subregulatory guidance for MA, Part D, and Medicare cost plans. Thus,
individuals who are not lawfully present, but are nevertheless shown on
CMS records to be entitled to Medicare Part A and/or enrolled in Part
B, have been able to enroll in MA, Part D, and Medicare cost plans and
obtain Medicare coverage for which they should not be eligible under 8
U.S.C. 1611. By permitting these MA, Part D and cost plan enrollments
to remain in place, we are allowing improper payments to be made to
plans on behalf of these individuals, which in turn impacts the
Medicare Trust Funds. In addition, MA organizations, PDP sponsors and
cost plans are making benefit payments under the Medicare program on
behalf of these enrollees that are similarly prohibited under PRWORA.
Therefore, we are proposing to align eligibility for enrollment in
MA, Part D, and cost plans (and resulting Medicare payments to plans
and by plans that violate PRWORA) with the FFS payment exclusion policy
to ensure that Medicare is only paying for services rendered to
individuals who are eligible to receive them. These steps are
consistent with recommendations made by the Office of Inspector General
in its January 2013 report (A-07-12-01116) regarding the need for CMS
to maintain adequate controls to prevent and detect improper payments
for Medicare services rendered to unlawfully present beneficiaries.
Accordingly, we are proposing to revise the regulations to establish
U.S. citizenship and lawful presence as eligibility requirements for
enrollment in MA, Part D, and cost plans. Further, we propose that
individuals who are not lawfully present in the United States would be
involuntarily disenrolled from MA, Part D, and cost plans, based on the
date on which they lose their lawful presence status. Disenrollments
would be effective the first of the month following the loss of
eligibility, and the disenrollment process would follow that currently
set forth in the regulations when an individual is no longer eligible
to be enrolled in a plan.
These regulatory changes would prevent an individual from enrolling
in a plan and/or remaining enrolled in a plan if they are not lawfully
present in the United States. Affected individuals will retain their
Medicare entitlement and remain enrolled in FFS, as long as premiums
continue to be paid, but MA, Part D and cost plan payments would be
denied for time periods during which the individuals are not lawfully
present in the United States. We must ensure that in administering the
Medicare program, all programs are compliant with 8 U.S.C. 161l.
Specifically, we are proposing the following to address the eligibility
and disenrollment of individuals not lawfully present in the United
States:
Sections 417.420, 417.422, 422.50, and 423.30 would be
amended to add lawful presence or United States citizenship as
eligibility criteria for enrollment in a cost, MA, or Part D plan,
respectively.
Sections 417.460, 422.74, and 423.44 would be amended to
require the involuntarily disenrollment of individuals from cost, MA or
Part D plans when they lose lawful presence status.
Conforming changes would be made to Sec. 417.2, Sec. 422.1, and
Sec. 423.1 to outline the authority for the aforementioned
requirements, in 8 U.S.C. 1611 (Aliens who are not qualified aliens
ineligible for Federal public benefits).
11. Part D Notice of Changes (Sec. 423.128(g))
Section 1860D 4(a) of the Act requires Part D sponsors to disclose
to beneficiaries information about their Part D drug plans in
standardized form. The Act further directs Part D sponsors to include,
as appropriate, information that MA organizations must disclose under
section 1852(c)(1) of the Act, which includes a detailed description of
benefits. (In guidance, we refer to the document containing this
information and delivered to beneficiaries as the Evidence of Coverage
(EOC).) To make informed decisions, enrollees need to understand how
their benefits, including premiums and cost sharing, would change from
one year to the next, should they reenroll in the same plan. (In
guidance, we refer to the documents containing this information and
delivered to beneficiaries as the Annual Notice of Change (ANOC).) And
enrollees also need to be aware of changes that may take place during
the course of the year as well. Part D regulations currently do not
include language found in the Part C regulations at Sec. 422.111(d)
requiring notice of changes to the plan to be provided to CMS for
review pursuant to procedures for marketing material review and to all
enrollees at least 15 days prior to the annual coordinated election
period. Given that guidance applicable to both programs discusses
notice of changes, we propose to require, for Part D, delivery of an
ANOC.
Specifically, we propose to adopt in Part D, with modifications,
the language contained in Sec. 422.111(d). As is the case with the
Medicare Advantage

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regulation, proposed Sec. 423.128(g) would require that Part D
sponsors submit their changes to us under the procedures contained in
subpart V of part 423, and, for those changes taking effect on January
1, provide a notice of changes to all enrollees 15 days before the
beginning of the annual election period. While part 422 requires a
minimum of 30 days' notice before the effective date for all other
changes, proposed Sec. 423.128 would not impose that standard, but
rather would state that Part D sponsors remain subject to all other
notice requirements specified elsewhere in the Part D regulations. Our
proposal reflects a programmatic difference between Parts C and D:
Under Part D it is not unusual for access to drugs listed on a plan's
formulary to change during the course of a year. Changes can include
changes to formulary status, tier placement, and utilization management
or other restrictions. It is vital that beneficiaries currently taking
a drug receive timely notice before such changes take place in order
that they can decide whether to, for instance, change drugs or request
an exception to cover the drug. Accordingly, our regulations currently
specify when sponsors must provide notice of these kinds of changes.
Our proposal to require the delivery of an ANOC is not intended to
disrupt or change those existing notice requirements.
We would also like to take this opportunity to comment on the
particular importance for Part D sponsors to provide notice in the ANOC
of any changes they are making that will affect the amount of cost
sharing which enrollees must pay for each drug belonging to a specific
tier. As has been articulated in guidance, we continue to expect that
sponsors will provide notice of such changes to all enrollees,
including enrollees moved to a consolidated plan. Generally, sponsors
compare numbers for the same plan from one year to the next in the
ANOC. However, comparing numbers for the same plan would not benefit
individuals moved from one plan to another. For instance, when a
sponsor crosswalks members from a non-renewing plan to a consolidated
renewal plan from one year to the next, cost sharing may change at the
drug-tier level. For example, an enrollee who previously had zero cost
sharing for all covered Part D drugs within the preferred generic tier
may find that the consolidated plan now requires copays for drugs in
that tier depending on how many months' supplies he or she orders, and
whether he or she obtains those drugs at a retail level pharmacy or
through mail order. We continue to expect that enrollees will receive
ANOCs that clearly compare the non-renewed and consolidated plans'
copayments or coinsurance for all drugs within each tier.
12. Separating the Evidence of Coverage (EOC) From the Annual Notice of
Change (ANOC) (Sec. 422.111(a)(3) and Sec. 423.128(a)(3))
As provided in sections 1852(c)(1) and 1860D-4(a) of the Act, MA
organizations and Part D sponsors must disclose detailed information
about the plans they offer to their enrollees. This detailed
information is specified in section 1852(c)(1) of the Act and Sec.
422.111(b) and Sec. 423.128(b) of the Part C and Part D program
regulations, respectively.
Under Sec. 422.111(a)(3), we require MA plans to disclose a
detailed plan description to each enrollee ``at the time of enrollment
and at least annually thereafter, 15 days before the annual coordinated
election period.'' A similar rule for Part D sponsors is found at Sec.
423.128(a)(3). The content of the annual plan description is provided
in paragraph (b) of the respective regulations. This is commonly
referred to as the EOC. In addition, under Sec. 422.111(d), we require
MA organizations to notify all enrollees ``at least 15 days before the
beginning of the Annual Coordinated Election Period'' of any changes
that will take effect on January 1 of the next plan year. This
notification is commonly referred to as the ANOC. Although our Part D
guidance calls for Part D sponsors to provide an ANOC, there currently
is not a regulatory requirement that they do so. Therefore, in the
previous section of this proposed rule, we have proposed to codify such
a requirement.
Prior to the 2009 contract year, these regulations required the
provision of the EOC at the time of enrollment and at least annually
thereafter but did not specify a deadline for the annual provision of
the EOC. We permitted MA organizations and Part D sponsors to provide
the EOC as late as January 31 of the applicable contract year.
Therefore, prior to the annual coordinated election period (AEP) for
the 2009 contract year, MA organizations and Part D sponsors may have
provided the EOC and ANOC at different times. In the final rule
entitled, ``Medicare Program, Medicare Advantage and Prescription Drug
Programs; Final Marketing Provisions'' (73 FR 54220 and 54222), we
required MA organizations to send the EOC at the same time as the ANOC
(that is, 15 days before the AEP), with the result that the EOC was
sent about 4 months earlier. Our rationale for this requirement was to
provide beneficiaries with comprehensive information prior to the AEP.
In addition, the consolidated mailing reduced the number of mailings to
enrollees and eliminated duplicative information. However, we have
found through consumer testing that beneficiaries receive multiple
documents from their plans and CMS during the AEP that address similar
topics, which at times beneficiaries find confusing or overwhelming.
The ANOC, which is much shorter than the EOC, is intended to convey all
of the information essential to a beneficiary's decision to remain
enrolled in the plan or choose another plan during the AEP. Research
based on the consumer testing suggests that participants were more
likely to review the ANOC if it was not included with the EOC. For
example, when asked about the utility of each document, many
participants stated that they would read the ANOC as soon as they
received it, and use it more often than a combined ANOC/EOC because the
combined document is too much to worry about, too wordy, and/or too
difficult to find information in compared to just the ANOC.
We have also found that sending the EOC months earlier has led to
some unintended consequences. Specifically, the earlier deadline
shortens the production time and affects the MA organization's or Part
D sponsor's ability to produce an EOC that provides accurate benefit
information in accordance with CMS required timeframes, which results
in plans sending and beneficiaries receiving additional mailings
containing errata sheets. We have reviewed plan ANOC/EOC documents for
errors and found that, of the total number errors found, EOCs contain
significantly more errors (86 percent) than the ANOCs (14 percent),
which leads us to believe that allowing plans to have additional time
to prepare EOCs would allow them to produce EOCs with fewer errors.
Additionally, resources are wasted when beneficiaries are sent a
combined ANOC and EOC, but ultimately decide to enroll in a different
plan, and have no need for the EOC.
In order to help current members make timely and informed decisions
about plan choices for the next year while ensuring that they continue
to receive all the post-enrollment information necessary in a timely
manner, we believe it would be more effective for them to receive an
ANOC before the AEP, and then receive the EOC from the plan he or she
chooses for

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the next year after enrollment is effective. Therefore, we propose to
require MA organizations and Part D sponsors to ensure that their
current members receive the ANOC 15 days prior to the AEP, and receive
the EOC no later than December 31st, for the contract year taking
effect the following January 1st. To accomplish this, we propose to
amend Sec. 422.111(a)(3) and Sec. 423.128(c)(3) to remove the current
deadline and insert ``by December 31 for the following contract year.''
The deadline established by Sec. 422.111(d)(2) for provision of the
ANOC would continue to be 15 days prior to the beginning of the AEP. In
addition, as mentioned previously, we are proposing to amend Sec.
423.128 to require Part D sponsors to provide a separate ANOC and to
adjust the time frames for delivery accordingly.
13. Agent/Broker Compensation Requirements (Sec. 422.2274 and Sec.
423.2274)
Section 103(b)(1)(B) of MIPPA revised the Act to charge the
Secretary with establishing guidelines to ''ensure that the use of
compensation creates incentives for agents and brokers to enroll
individuals in the MA plan that is intended to best meet their health
care needs.'' Section 103(b)(2) of MIPPA revised the Act to apply these
same guidelines to Part D sponsors. Our program experience indicates
that some agents may encourage beneficiaries to enroll in plans that
offer higher commissions without regard to whether plan benefits meet
the beneficiaries' health needs. In recognition that agents and brokers
play a significant role in providing guidance and advice to
beneficiaries and are in a unique position to influence beneficiary
choice, we had proposed, prior to the enactment of MIPPA, a rule to
regulate agent and broker compensation. To implement the MIPAA
provisions and relying in part on comments in response to our
previously proposed rule, we adopted an interim final rule on September
18, 2008, entitled ``Medicare Program; Medicare Advantage and
Prescription Drug Benefit Programs: Final Marketing Provisions'' (73 FR
54208, at 54226), which, among other things, established the current
compensation structure for agents and brokers in connection with Parts
C and D. That rule remains significantly in place at Sec. 422.2274 and
Sec. 423.2274, and our experience since then indicates that revision
of the compensation requirements is appropriate to ensure that we
continue to meet our statutory mandate.
The current compensation structure is comprised of a 6-year
compensation cycle that began in contract year 2009. MA organizations
and Part D sponsors were to provide an initial compensation payment to
independent agents for new enrollees (year 1) and pay a renewal rate
(equal to 50 percent of the initial year compensation) to independent
agents for years 2 through 6. These rates were to be adjusted annually
based on changes to the MA payment rates or Part D parameters as
established by CMS. We later amended the regulations to allow MA
organizations and Part D sponsors to compensate independent agents and
brokers annually using an amount at or below the fair market value.
(See the final rule with comment period entitled, ``Medicare Program;
Changes to the Medicare Advantage and the Medicare Prescription Drug
Benefit Programs for Contract Year 2013 and Other Changes'' (77 FR
22072) published in the April 12, 2012 Federal Register.)
The 6-year cycle is scheduled to end at the end of CY 2013, on
December 31, 2013. The first year, 2009, was considered to be the first
renewal year, effectively making 2009 the second full year of
compensation. Because our regulations were silent regarding
compensation amounts for Year 7 and beyond, we stated in our Final Call
Letter for Contract Year 2014, issued on April 1, 2013, that MA
organizations and Part D sponsors could, at their discretion, pay
agents and brokers the renewal amount for Year 7 and beyond. However,
this subregulatory guidance was intended to be a temporary measure,
pending changes to our regulations.
Under the current structure MA organizations and Part D sponsors
pay an initial rate for the first year, and then a renewal payment of
50 percent of the initial compensation paid to the agent for years 2
through 6. This structure has proven to be complicated to implement and
monitor as it requires the MA organization or Part D sponsor to track
the compensation paid for every enrollee's initial enrollment, and
calculate the renewal rate based on that initial payment. For example,
assume that the same agent enrolls three beneficiaries; one in each of
the 2012, 2013, and 2014 contract years. Beneficiary A is a new,
initial enrollee in MA plan XYZ for CY2012. Assume that the fair market
value (FMV) cut-off amount for agent services for CY 2012 is $400. Plan
XYZ has decided that its initial compensation will be equal to the full
FMV, resulting in a payment to the agent of $400. Beneficiary B is a
new, initial enrollee in MA plan XYZ for CY2013. In CY2013, assume the
FMV has increased to $420. Plan XYZ has again decided that its initial
compensation will be equal to the full FMV for Beneficiary B, resulting
in a payment to the agent of $420. Also in CY2013, Plan XYZ is required
to pay a renewal amount of 50 percent of initial enrollment to the
agent for Beneficiary A. Since the initial payment for Beneficiary A
was $400, Plan XYZ will pay a renewal amount of $200. Beneficiary C is
a new, initial enrollee in MA plan XYZ for CY2014. In CY2014, assume
the FMV value has again increased to $430. The Plan's initial
compensation is, again, equal to the full FMV. Plan XYZ's payments to
the agent would be as follows: $430 for Beneficiary C (new, initial),
$210 for Beneficiary B (renewal, 50 percent of the initial payment of
the CY2013 FMV of $420), and $200 for Beneficiary A (50 percent of the
initial payment of the CY2012 FMV of $400). Thus, Plan XYZ has to know,
at any given time, the amount of the initial compensation for each plan
year--going back as far as 2009--in which the member enrolled in order
to pay the correct compensation amount to the agent. Moreover, MA
organizations and Part D sponsors must first review CMS' reports to
determine whether an initial or renewal payment should be made, and
then combine that information with the FMV, or, if applicable, the
plan's compensation set at less than the FMV, for each plan year to
ensure the correct payments are made to agents. When these simple
examples are multiplied by tens or thousands of members, the complexity
and challenges associated with implementing the current compensation
requirements becomes clear.
In addition to its complexity, we are concerned that the current
structure creates an incentive for agents and brokers to move enrollees
from a plan of one parent organization to a plan of another parent
organization, even for like plan type changes. Currently, in these
cases, the new parent organization would pay the agent 50 percent of
the current initial rate of the new parent organization; not 50 percent
of the original initial rate paid by the other parent organization.
Thus, in cases where the FMV has increased, or the other parent
organization pays a higher commission, the incentive exists for the
agent to move beneficiaries from one parent organization to another.
(See Sec. 422.2274(a)(3) and Sec. 423.2274(a)(3)). So, in the example
provided previously, if Beneficiary A switched to Plan ABC for CY2014,
Plan ABC would pay the same agent $215 (50 percent of the 2014 initial
rate of $430), instead of the $200 renewal payment the agent would have
received if Beneficiary A remained in

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Plan XYZ. Although the mere $15 increase in the payment to the agent
may not appear to be much of an incentive to move one enrollee, an
agent would receive considerably more income by moving tens of
enrollees to another plan.
Since 2008, we have received inquiries from MA organizations and
Part D sponsors regarding the correct calculation of agent/broker
compensation, and found it necessary to take compliance actions against
MA organizations and Part D sponsors for failure to comply with the
compensation requirements. To the extent that there is confusion about
the exact levels or timing of compensation required, there could be an
un-level playing field for MA organizations and Part D sponsors
operating in the same geographic area. In addition, CMS' audit findings
and monitoring efforts have shown that MA organizations and Part D
sponsors are having difficulty correctly administering the compensation
requirements. Therefore, we believe that simpler agent/broker
compensation regulations that are easier to understand will better
ensure that plan payments are correct and establish a level playing
field that will further limit incentives for agents and brokers to move
enrollees for financial gain.
We are proposing to revise the existing compensation structure for
agents and brokers so that, for new enrollments, MA organizations and
Part D sponsors could make an initial payment that is no greater than
the FMV amount for renewals in Year 2 and beyond, the MA organization
or Part D sponsor could pay up to 35 percent of the FMV amount for the
renewal year, resulting in the renewal year payment changing each year
if the MA organization or Part D sponsor chooses to pay 35 percent of
the current FMV (that is, the renewal year FMV threshold). As we do
now, we would interpret the FMV threshold in our annual guidance to MA
organizations and Part D sponsors. This flexibility would enable MA
organizations and Part D sponsors to better react to changes in the
marketplace and adjust their compensation structures accordingly.
Under the proposed compensation structure, the calculations would
be simpler than those required under the current rule, as shown in the
following example:
Assume again that Beneficiary A is a new, initial enrollee in MA
plan XYZ for CY2015. Assume the FMV for CY 2015 is $400. Plan XYZ has
decided to pay the full FMV, resulting in a payment to the agent of
$400. In CY2016, assume the FMV is $420. Again, Plan XYZ has decided to
pay the maximum FMV for initial enrollments, so it pays the agent $420
for Beneficiary B, who is an initial enrollee. Plan XYZ has also
decided to pay the maximum renewal payment (35 percent of the FMV),
resulting in a payment of $147 ($420 x .35) to the agent for
Beneficiary A. Thus, Plan XYZ's payments to its agents are based on the
FMV for the contract year in question, regardless of when the
beneficiary enrolled in the plan. That is, when making the renewal
payment, Plan XYZ doesn't have to determine what the FMV was in the
initial year, but only looks to the FMV for the current year and pays
the chosen percentage up to the maximum 35 percent of the FMV
established by CMS.
In order to implement these changes in the identical Part C and
Part D regulations at, Sec. 422.2274 and Sec. 423.2274, we first
propose to designate the definition of ``compensation'' as paragraph
(a)(1) and to restate the fair market value limit on compensation for
the initial year as paragraph (b)(1)(i). Second, we propose to combine
the current (a)(1)(i)(B), which addresses payments for renewals, and
(a)(1)(iii), which addresses the length of time that renewals should be
paid, and designate the revisions as a new (b)(1)(ii). Thus, the new
paragraph (b)(1)(ii) would state that plans may pay up to 35 percent of
the current FMV and that renewal payments may be made for the second
year of enrollment and beyond.
In addition, we propose to modify paragraph (a)(3) to remove the 6-
year cap on the compensation cycle. Currently, paragraph (a)(3) refers
to policies that are replaced with a like plan during the first year or
the subsequent 5 renewal years. Since we are proposing to eliminate the
6-year cycle, our revised paragraph (b)(2) deletes the reference to the
initial year and the 5 renewal years. By tying renewal compensation to
the FMV for the renewal year, rather than the initial year of
enrollment, our proposal reduces the financial incentives for an agent
or broker to encourage Medicare beneficiaries to change plans,
especially from one parent organization to another parent organization.
As with the current regulation, we propose in paragraph (b)(2)(iii)
that a change in enrollment to a new plan type be payable under the
same rules that apply to an initial enrollment, regardless of whether
the change is to an unlike plan type in the same parent organization or
an unlike plan type in another parent organization. Note that, as with
the current rule, our proposal only addresses compensation paid to
independent agents and does not address compensation payable by an MA
organization or Part D sponsor to its employees that perform services
similar to agents and brokers.
For our proposed regulations, we considered several different
alternatives, including prohibiting compensation payments entirely
beyond year 6, permitting MA organizations and Part D sponsors to pay a
residual payment for year 7 and subsequent years, and permitting
existing renewal payments to continue. We also evaluated different
renewal amounts, including a 50 percent renewal payment for years 2
through 6 with a continuing 25 percent residual payment for years 7 and
beyond. The evaluation took into account different ages for an initial
enrollment, as well as the life expectancy of beneficiaries. In the
analysis, a continual renewal payment of 35 percent was similar in
payout to the combination of a 50 percent payment for years 2 through 6
and a residual payment of 25 percent for year 7 and beyond. We believe
that revising the existing compensation structure to allow MA
organizations or Part D sponsors to pay up to 35 percent of the FMV for
year 2 and beyond is appropriate based on a couple of factors. First,
we believe that a two-tiered payment system (that is, initial and
renewal) would be significantly less complicated than a three-tiered
system (that is, initial, 50 percent renewal for years 2 through 6, and
25 percent residual for years 7 and beyond), and would reduce
administrative burden and confusion for plan sponsors. Second, our
analysis determined that 35 percent is the renewal compensation level
at which the present value of overall payments under a two-tiered
system would be relatively equal to the present value of overall
payments under a three-tiered system (taking into account the estimated
mortality rates for several beneficiary age cohorts). This analysis is
based on the existing commission structure basing renewal commissions
on the starting year initial commission amount and not the current year
FMV amount. We welcome comments on both the amount of the renewal
payment as well as the proposed indefinite time frame.
Current regulations at Sec. 422.2274(a)(4) and Sec.
423.2274(a)(4) address the timing of plan payments, as well as recovery
of payments when a beneficiary disenrolls from a plan. Specifically,
(a)(4) states that compensation may only be paid for the beneficiary's
months of enrollment during the year (January through December). We
propose to revise (a)(4) to define more clearly a plan year for

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purposes of compensation. The annual compensation amount covers January
1 through December 31 of each year. We have learned that some plans
have been paying compensation based on an annual cycle, rather than a
calendar year cycle. We have taken appropriate compliance actions in
those instances where we have evidence that an MA organization or Part
D sponsor is paying compensation incorrectly, and issued sub-regulatory
guidance on August 14, 2013 reminding organizations and sponsors that
compensation is to be paid based on a calendar year cycle. Along the
same lines, we propose to revise the language at Sec. 422.2274(a)(4)
to clarify that the payment made to an agent must be for January 1
through December 31 of the year and may not cross calendar years. For
example, a renewal payment cannot be made for the period of November 1,
2013 through October 31, 2014. Rather, the renewal payment must cover
January 1, 2013through December 31, 2013.
Currently, the regulation text at Sec. 422.2274(a)(4) (i) permit
payments to be made at one time or in installments and at any time. CMS
proposes to change the timing of payments to require that payments may
not be made until January 1 of the compensation year, and must be paid
in full by December 31 of the compensation year. CMS believes this
proposal is appropriate given the ability of beneficiaries to change
plans during the annual coordinated election period (AEP), which runs
from October 15 through December 7. That is, beneficiaries can choose a
new plan during the AEP, and then revise that choice as many times as
they desire during the AEP; the last enrollment choice made is the one
that becomes effective on January 1 of the following year. Under CMS'
current requirements, each MA organization or Part D sponsor would have
to recoup compensation, if already paid, for every beneficiary that
initially enrolled in their plan but later decided to enroll in a
different parent organization prior to January 1. Under the proposed
rule, MA organizations and Part D sponsors would not be allowed to pay
compensation until the beginning of the calendar year, when the final
AEP enrollment becomes effective. Thus, the proposed rule would
simplify MA organizations' and sponsors' compensation processes and
enable them to make more accurate payments. We welcome comments on this
proposal.
Current regulations at Sec. 422.2274(4)(ii)(A) and Sec.
423.2274(4)(ii)(A) require MA organizations and Part D sponsors to
recover compensation paid to agents when a beneficiary disenrolls from
a plan within the first three months of enrollment. However, in sub-
regulatory guidance, we have recognized several circumstances (for
example, death of the beneficiary, the beneficiary moves out of the
service area, the beneficiary becomes eligible to receive LIS, or the
beneficiary loses Medicaid benefits) in which plans should not recover
compensation even though the beneficiary was enrolled in the plan for
less than 3 months. In circumstances such as these, since the
disenrollment decision could not be based on agent or broker behavior,
we believe it to be appropriate for the agent to receive the
compensation associated with the months that beneficiary was a member
of the plan. While the plan would not recover the compensation for
those months, it would recover any compensation paid for the months
after the disenrollment. Therefore, CMS is proposing to combine
paragraphs (a)(4)(ii)(A) and (a)(4)(ii)(B) into a revised paragraph
(b)(3)(iii),which would include new text to clarify that plans should
recover compensation for only the months that the beneficiary is not
enrolled, unless the disenrollment took place within the first 3
months. Under our proposal, we would require disenrollments that are
the result of agent or broker behavior to trigger recoupment of any
compensation that has been paid for that period. In cases where
disenrollment took place within the first 3 months and the
disenrollment did not result from or could not have resulted from an
agent's behavior, we would not require that compensation be recovered
under our proposal. We would provide more specific information in sub-
regulatory guidance, and welcome comments regarding possible examples
to include in that guidance.
CMS also proposes here, in Sec. 422.2274(h) and Sec. 423.2274(h)
to codify existing sub-regulatory guidance regarding referral
(finder's) fees. CMS released a memorandum on October 19, 2011
addressing excessive referral fees, noting that referral fees should
not exceed $100. CMS has long been concerned that some MA organizations
or Part D sponsors can offer the entire amount of compensation an agent
or broker receives through only a referral, while others must combine
any compensation for referrals with other agent marketing activities
while meeting the same total cap on compensation, thereby creating an
un-level playing field within the marketplace and a clear financial
incentive for the referring agent to steer beneficiaries to MA
organizations or Part D sponsors that offer the higher amount, without
regard to whether plan benefits meet the beneficiaries' health care
needs. Therefore, we are proposing to limit the amount that can be paid
as a referral fee to independent, captive, and employed agents and
brokers, regardless of who completes the enrollment, to a reasonable
amount specified by CMS, which is currently, for CY 2013, and CY 2014,
$100. Furthermore, note that, under Sec. 422.2274(a) and Sec.
423.2274(a), CMS requires that referral fees paid to independent agents
and brokers must be part of total compensation not to exceed the FMV
for that calendar year.
14. Drug Categories or Classes of Clinical Concern and Exceptions
(Sec. 423.120(b)(2)(v) and (vi))
Section 3307 of the Affordable Care Act amended section 1860D-
4(b)(3)(G) of the Act by replacing the specific criteria established
under MIPPA in 2008 to identify categories or classes of Part D drugs
for which all Part D drugs therein shall be included on Part D sponsor
formularies. The specified criteria were replaced with the requirement
that the Secretary establish criteria through notice and comment
rulemaking to identify drug categories or classes of clinical concern.
In addition, section 3307 of the Affordable Care Act requires the
Secretary to engage in rulemaking to establish any exceptions that
permit a Part D sponsor to exclude from its formulary a particular Part
D drug (or otherwise limit access to such drug through utilization
management or prior authorization restrictions) within the drug
categories or classes that meet the criteria established by the
Secretary. The Affordable Care Act amendments to section 1860D-
4(b)(3)(G) of the Act specified that until such time as the Secretary
establishes the criteria to identify drug categories or classes of
clinical concern through rulemaking, the following categories or
classes shall be identified as categories or classes of clinical
concern: anticonvulsants, antidepressants, antineoplastics,
antipsychotics, antiretrovirals, and immunosuppressants for the
treatment of transplant rejection. We now propose to implement the
Affordable Care Act requirements set forth in section 1860D-4(b)(3)(G)
of the Act by revising Sec. 423.120(b)(2)(v) and (vi) as follows: (1)
the criteria the Secretary will use to identify drug categories or
classes of clinical concern; and (2) the exceptions that permit Part D
sponsors to exclude certain Part D drugs from within an identified drug
category or class from

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their formularies (or otherwise limit access to such drugs, including
through utilization management or prior authorization restrictions). We
also propose to specify drug categories or classes that would meet the
proposed criteria and explain the process we used for making these
determinations.
a. Categories or Classes of Clinical Concern
In 2005, well before the passage of MIPPA, and before the start
date of the Part D program, we directed Part D sponsors through
guidance to include on their formularies all or substantially all drugs
in six categories or classes (antidepressants; antipsychotics;
anticonvulsants; immunosuppressants for transplant rejection;
antiretrovirals; and antineoplastics). Our authority for this policy
arises from section 1860D-11(e)(2)(D)(i) of the Act, which requires
that in order to approve a plan, we must not find that the design of
the plan and its benefits (including any formulary and tiered formulary
structure) are likely to substantially discourage enrollment by certain
Part D eligible individuals. We refer to this as our ``non-
discrimination'' policy. This statutory directive helped to ensure a
smooth transition of the approximately 6 million Medicare-Medicaid
beneficiaries who were converting from Medicaid drug coverage to
Medicare drug coverage at the start of the Part D program. Under the
existing circumstances, any formularies that did not have all or
substantially all drugs in these categories or classes potentially
would have been discriminatory for the Medicare-Medicaid beneficiary
population because state Medicaid program formularies were generally
open compared to the Part D formularies that we were anticipating prior
to the beginning of the Part D program. Thus, it stood to reason that
Medicare-Medicaid beneficiaries and many of their providers were
largely unaccustomed to drug utilization management techniques. That
is, for the most part they had little experience dealing with the
rejection of a drug claim at the point of sale because the drug was
either not on formulary, or another drug needed to be tried first, or
because more information was required to determine whether the drug
could be covered under the plan. Moreover, since the majority of the
Medicare-Medicaid beneficiaries did not make a decision to elect their
new plan, but were instead auto-enrolled, these individuals may not
have understood whether their current medications would continue to be
covered under their new Medicare plan. Since the Part D program would
be administered by private plans with extensive experience managing
prescription drug costs through tighter formularies and a variety of
utilization management techniques, we anticipated the need for a
learning curve and delays in negotiating appeals processes that might
endanger the beneficiaries who needed access to drugs in these
particular categories or classes. In order to mitigate the risks and
complications associated with an interruption of therapy for vulnerable
beneficiaries, who would be trying to navigate a new drug benefit when
they attempted to fill or refill their first prescriptions under the
Part D program on or after January 1, 2006, we created the special
requirements for coverage of the six drug classes. However, the
circumstances that existed when this policy was originally implemented
have changed dramatically in the more than seven years the program has
been in operation. CMS, Part D sponsors, our partners who assist
beneficiaries with making enrollment choices, and particularly our
Medicare-Medicaid beneficiaries and their advocates have had a great
deal of experience working with Part D plans since 2005.
Section 176 of MIPPA added a new section 1860D-4(b)(3)(G)(i) to the
Act requiring, effective with plan year 2010, that the Secretary
identify certain categories or classes of drugs that meet two statutory
specifications: (1) Restricted access to the drugs in the category or
class would have major or life-threatening clinical consequences for
individuals who have a disease or condition treated by drugs in such
category or class; and (2) There is a significant need for such
individuals to have access to multiple drugs within a category or class
due to unique chemical actions and pharmacological effects of the drugs
within a category or class, such as drugs used in the treatment of
cancer. In addition, MIPPA provided the Secretary with the discretion
to establish exceptions permitting Part D sponsors to exclude from
their formularies, or to otherwise limit access to (including
utilization management or prior authorization restrictions), certain
Part D drugs in the protected categories or classes.
In the January 16, 2009 Federal Register (74 FR 2881), we published
an interim final rule with comment period (IFC) entitled, ``MIPPA Drug
Formulary and Protected Classes Policies.'' This rule revised the
regulations governing the Medicare Part D formularies to reflect the
MIPPA requirements. We codified at Sec. 423.120(b)(2)(v) the MIPPA
provision requiring the inclusion of all Part D drugs in categories or
classes that we identified as meeting the two conditions set forth in
section 1860D-4(b)(3)(G)(i) of the Act. Given the limited timeframe
then available for establishing and implementing a process to identify
such drug categories or classes due to formulary submission deadlines,
we maintained the existing six drug categories and classes of clinical
concern for 2010 with the intention to propose and finalize a new
process through rulemaking that would be used to identify drug
categories or classes that met the MIPPA criteria for CY2011. After
receiving comments in response to the January 16, 2009 IFC, entitled,
``Medicare Advantage and Prescription Drug Programs MIPPA Drug
Formulary Protected Classes Policies'' that persuaded us that the
further interpretative rulemaking was necessary, we published a notice
of proposed rulemaking (NPRM) on October 22, 2009, entitled, ``Policy
and Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs'' (74 FR 54634) to further refine
the MIPPA criteria and establish a process that met MIPPA requirements.
However, between the issuance of the October 22, 2009 proposed rule and
the April 15, 2010 final rule (75 FR 19766), the Affordable Care Act
was enacted. Section 3307 of the Affordable Care Act amended section
1860D-4(b)(3)(G) of the Act to specify that the existing drug
categories or classes of clinical concern would remain so until such
time as the Secretary establishes new criteria to identify drug
categories or classes of clinical concern under section 1860D-
4(b)(3)(G) of the Act through notice and comment rulemaking.
We are concerned that requiring essentially open coverage of
certain categories and classes of drugs presents both financial
disadvantages and patient welfare concerns for the Part D program as a
result of increased drug prices and overutilization. The principal
disadvantage is that an open coverage policy substantially limits Part
D sponsors' ability to negotiate price concessions in exchange for
formulary placement of drugs in these categories or classes. Since the
beginning of the Part D program we have heard from stakeholders that
this policy--frequently referred to as the ``protected classes''
policy--significantly reduces any leverage the sponsor has in price
negotiations and results in higher Part D costs. A report by the OIG in
March 2011 documented similar assertions from selected Part D sponsors,
including assertions that ``they received either no or minimal rebates
for the drugs in these

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six classes,'' that ``there is little incentive for drug manufacturers
to offer rebates for these six classes of drugs because they do not
need to compete for formulary placement,'' and that ``if [a rebate] is
provided, it's probably at a lower percentage than [the rebate for the
drugs] that had some competition.'' (HHS Office of Inspector General,
``Concerns with Rebates in the Medicare Part D Program'', March 2011,
OEI-02-08-00050)
We are aware of other analyses that support these findings. A 2008
study conducted by the actuarial and consulting firm Milliman found
that the six protected drug classes disproportionately accounted for
between 16.8 percent and 33.2 percent of total drug spend among
sponsors surveyed (Kipp RA, Ko C). (See ``Potential cost impacts
resulting from CMS guidance on `Special Protections for Six Protected
Drug Classifications' and Section 176 of the Medicare Improvements for
Patients and Providers Act of 2008 (MIPPA) (PL 110-275)'' available at:
http://amcp.org/WorkArea/DownloadAsset.aspx?id=9279). Milliman reported
that the Part D program administrators (plan sponsors and PBMs)
commented that the protected status of these drug classes limited plan
sponsors' ability to effectively negotiate lower costs with
manufacturers since it is known that these drugs must be included on
the formulary. The Milliman report estimated that affected drug costs
were on average 10 percent higher than they would be in the absence of
the protected class policy and that this represented $511 million per
year in excess costs to beneficiaries and the Part D program. We note
that numerous brand drug patents expire between now and 2015 which
might reduce future cost projections. Another 2008 study from the
National Bureau of Economic Research (NBER) suggested that while
Medicare Part D led to a substantial decline in average pharmaceutical
prices, Medicare-intensive drugs in protected classes did not
experience price declines as did their counterparts not in protected
classes and may have actually experienced price increases (Duggan M,
Morton FS. 2010. ``The Effect of Medicare Part D on Pharmaceutical
Prices and Utilization,'' American Economic Review, American Economic
Association, vol. 100(1), pages 590-607). Plan sponsors can still
negotiate with manufacturers for preferred or non-preferred tier
placement of protected class drugs, but CMS does not have any
information on the justification for the relative magnitude of these
rebates. However, it can reasonably be anticipated that such rebates
would vary widely for individual manufacturers and sponsors, and
anecdotal evidence would suggest the leverage these options provide
sponsors may be minimal when compared to leverage available in
connection with an initial decision regarding formulary inclusion,
especially since tier placement has no impact on statutory LIS cost
sharing levels. Consequently, we would predict future savings for both
beneficiaries and the Part D program from both increased price
competition as newly approved drugs come onto the market and more
immediate savings if plans were able to remove some currently covered
agents from their formularies.
In addition to our concerns about increased Part D costs resulting
from higher drug prices, we are also concerned that the policy
potentially facilitates the overutilization of drugs within the
protected classes. By limiting the ability of Part D sponsors to
implement utilization management tools (for example, prior
authorization or step therapy requirements) for an entire category or
class, we also limit their ability to prevent the misuse or abuse of
drugs that are not medically necessary. Not only can this increase Part
D costs, but inappropriate use can also lead to adverse effects that
can harm the beneficiary and require medical treatment that would
otherwise not have been necessary. We believe the profitability of
products not subject to normal price negotiations as the result of
protected class status is a strong incentive for the promotion of
overutilization, particularly off-label overutilization, of some of
these drugs.
Given the findings in these reports and our expertise with the Part
D program, we believe it is appropriate to revisit our original policy
for the six drug categories and classes of clinical concern--
particularly to assess whether it remains appropriate to require this
additional level of protection for these categories or classes of drugs
in order to ensure that Part D plans offer nondiscriminatory benefit
designs and sufficient beneficiary access to medically necessary
therapies. In considering the balance among beneficiary access, quality
assurance, cost containment, and patient welfare in light of our
existing beneficiary protections, we believe that drug categories and
classes should be subject to normal formulary and price competition
unless we cannot ensure clinically appropriate access (and thus non-
discriminatory benefit design) to our Medicare beneficiaries in any
less anticompetitive way than requiring the inclusion on all Part D
formularies of all drugs in that category or class. Moreover, we
believe that our consideration of how to implement section 3307 of the
Affordable Care Act must take into account both the purpose of the Part
D benefit and the context in which it is offered. Part D does not
typically involve access to medications on an emergency basis. In cases
where an emergency may arise, the Part D program has some protections
to address this--for example, our long term care emergency first fill
requirement requires plans to cover an emergency supply of non-
formulary Part D drugs for long term care residents as part of their
transition process. Moreover, the Part D benefit must be considered in
light of the fact that urgently needed and emergency care is generally
covered by Medicare Parts A and B.
To that end, we believe that criteria for identifying drug
categories and classes of clinical concern should identify only those
drug categories or classes for which access cannot be adequately
ensured by beneficiary protections that otherwise apply. Consequently,
as we take this opportunity to propose to codify criteria for
identifying categories or classes of drugs that are of clinical
concern, we believe that the requirements of section 3307 of the
Affordable Care Act should be implemented taking into consideration the
other protections available to beneficiaries. Otherwise, section 3307
of the Affordable Care Act would establish duplicative, and thus
unnecessary, protections that would serve only to increase Part D
costs--without any added benefit and with the possibility of added harm
from misuse. Therefore, in considering whether additional protections
continue to be needed under this section, we need to take the other
beneficiary access protections into account. There are five such
protections and these are formulary transparency, formulary
requirements, reassignment formulary coverage notices, transition
supplies and notices, and the coverage determination and appeals
processes.
The first protection is our requirement for full transparency to
beneficiaries. Sponsors are required to provide comprehensive formulary
drug listings to the public through their own Web sites and printed
materials, as well as to CMS for access through the online automated
drug plan comparison tool, the Medicare Plan Finder (Plan Finder).
Beneficiaries or their representatives can complete a personalized
search on

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Plan Finder to locate and select a Part D plan that covers their drugs.
With our more than 7 years of experience with the Part D program, we
are not aware of any Part D drug that is not included on at least one
Part D formulary. Thus, beneficiaries who review plan formularies can
select plans that cover all of their current medications.
The second type of protection is the Part D formulary requirements.
Our annual formulary review and approval process includes extensive
checks to ensure adequate representation of all necessary Part D drug
categories or classes for the Medicare population and includes the
following:
Discrimination Review (Sec. 423.272(b)(2)). Formularies
are reviewed to ensure inclusion of drug categories and classes that
are used to treat all disease states. CMS evaluates the sufficiency of
a Part D sponsor's formulary drug categories and classes in conjunction
with the plan's formulary drug list to ensure that the formulary
provides access to an acceptable range of Part D drug choices.
Two Drugs Requirement (Sec. 423.120(b)(2)(i)). Each
submitted formulary is reviewed for the inclusion of at least two
distinct drugs from each of the submitted categories and classes,
except as provided in Sec. 423.120(b)(2)(ii).
Formulary Tier Review (Medicare Prescription Drug Benefit
Manual, Chapter 6, 30.2.7). The tiering structure of each formulary is
reviewed to ensure that each category and class has at least one drug
in a preferred tier.
Common Medicare Drugs Review (Sec. 423.120(b)(2)(iii)).
Formularies are reviewed for inclusion of the drugs or drug classes
that are most commonly utilized by the Medicare population. We use
prior years' data to identify the drugs or drug classes with the
highest utilization in Medicare Part D, and use these drugs and drug
classes as the basis for our review in this area. We also review
formularies for the alternative dosage forms of the drugs that are most
commonly utilized by the long-term care (LTC) population.
Treatment Guidelines Review (Sec. 423.120(b)(2)(iii)).
The World Health Organization (WHO) defines a standard treatment
guideline as a systematically developed statement designed to assist
practitioners and patients in making decisions about appropriate health
care for specific clinical circumstances (available at http://www.who.int/medicines/technical_briefing/tbs/10-PG_Standard-Treatment-Guidelines_final-08.pdf). We analyze formularies to
determine whether appropriate access is afforded to drugs or drug
classes included in widely accepted treatment guidelines. In general,
although sponsors have some flexibility in determining the
classification system they will use to identify categories or classes
of drugs, if a treatment guideline speaks to a specific category or
class of drugs, we look for representation from that drug category or
class of drugs on the formulary. Moreover, if the treatment guidelines
address specific drugs, we would expand this requirement to review
formularies for those specific drugs, and not just the drug category or
class to which they belong.
Common Home Infusion Drugs (Sec. 423.120(a)(4)). We
review formularies for the drugs most commonly utilized in the home
infusion setting in order to help facilitate rapid access to these
drugs for beneficiaries.
Vaccines Review (Sec. 423.100). Each formulary submission
is reviewed to ensure the formulary includes Part D vaccines.
Insulin Supplies Review (Sec. 423.100). Formularies are
reviewed for the supplies associated with the administration of
insulin: insulin syringes, alcohol swabs, and gauze pads.
Specialty Tier Review (Sec. 423.578(a)(7)). For
formularies using a specialty tier, we perform an extensive review of
the composition of each tier. We apply a standard outlined in the
annual Call Letter to determine whether drugs placed in specialty tiers
meet the relevant cost criteria.
Quantity Limits Outlier Review (Sec. 423.153(b)). All
formulary submissions are compared to analyze the use of quantity limit
(QL) edits. Formularies that are outliers with respect to the
application of QL edits are asked to remove edits or provide a
reasonable justification for the applicable QL.
Quantity Limits Amount Review (Sec. 423.153(b)). QL
restrictions are reviewed for appropriateness. The standard for the
review is generally based on the Food and Drug Administration (FDA)-
approved maximum doses, when such dose limits are identified in the
label.
Restricted Access Review (Sec. 423.153(b)). Formularies
are reviewed for use of Prior Authorization (PA) and Step Therapy (ST)
edits across drug categories and classes. We decline to approve
utilization management (UM) for entire drug classes, other than those
considered to be best practices, for example, for erythropoietin
stimulating agents (ESAs).
Step Therapy Criteria Review (Sec. 423.153(b)). The ST
requirements are reviewed to ensure that the algorithms are consistent
with best practices.
Prior Authorization Outlier Review (Sec. 423.153(b)). All
formulary submissions are compared to analyze the use of PA edits.
Formularies that are outliers with respect to the application of PA
edits are asked to remove edits or provide a reasonable justification
for such PA edits.
Prior Authorization Criteria Review (Sec. 423.153(b)). We
then review the criteria for focused drugs requiring PA on the initial
formulary submissions. We look to existing best practices, including
prerequisite drugs, current industry standards and appropriate
treatment guidelines, to check that the Part D plans' use of PA is
consistent with such practices. Submitted criteria are also compared to
compendia and FDA-approved label indications.
Mid-year formulary change restrictions (Sec.
423.120(b)(5)); Chapter 6 of the Medicare Prescription Drug Benefit
Manual, 30.3.3). Except when the Food and Drug Administration deems a
Part D drug unsafe or a manufacturer removes a Part D drug from the
market, a Part D sponsor may not remove a covered Part D drug from its
formulary, or make any adverse change in preferred or tiered cost-
sharing status of a covered Part D drug, between the beginning of the
annual coordinated election period described in section Sec. 423.38(b)
and 60 days after the beginning of the contract year associated with
the annual coordinated election period. However, prescription drug
therapies are constantly evolving, and new drug availability, medical
knowledge, and opportunities for improving safety and quality in
prescription drug use at a lower cost will inevitably occur over the
course of the year. As recognized in regulation, these new developments
may require formulary changes during the year in order to provide high-
quality, affordable prescription drug coverage. To address such
developments our negative formulary change policy requires that
beneficiaries retain ``grandfathered'' coverage for the remainder of
the coverage year if we permit an adverse change in the formulary
status of any drug without a generic equivalent. Thus, in summary, our
formulary rules both ensure that all Part D formularies contain
sufficient drugs to treat all disease states in the Medicare population
and protect beneficiaries from significant changes in formularies
during the course of a coverage year.
The third type of beneficiary protection is the annual notice to
reassigned enrollees required under section 3305 of the Affordable Care
Act. Effective January 1, 2011, we provide LIS individuals who are
reassigned to

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another Part D plan with information on the differences under the new
plan formulary, as well as information on the beneficiary's grievance
and appeal rights in the new plan. Thus, any individual who has his or
her plan selection decision made through our reassignment process (in
order to maintain access to a $0 premium) receives detailed coverage
status information for each drug for which he or she filled a
prescription between January and August of the previous year. With
regard to the new plan, this notice describes for each drug whether it
is on the formulary, whether the brand or generic version is covered,
and whether or not utilization management tools may be applied.
Moreover, the notice also provides a list of other plans that are
available to the beneficiary to enroll in with no premium if they would
prefer not to remain in the plan where they were reassigned. We send
notices after the individual's reassignment and in time to allow for
another voluntary plan selection effective January 1. Thus, any
reassigned LIS individual receives advance notice of any change in
formulary coverage of their medications in plenty of time to work with
their prescribers if they wish to remain in the new plan, or to select
a different Part D plan.
The fourth type of beneficiary protection is our unique transition
supply and notice requirements. A Part D sponsor must provide for an
appropriate transition process for Part D drugs that are not on its
formulary with respect to: (1) The transition of new enrollees into
prescription drug plans following the annual coordinated election
period; (2) the transition of newly eligible Medicare beneficiaries
from other coverage; (3) the transition of individuals who switch from
one plan to another after the start of the contract year; and (4) in
some cases, current enrollees affected by formulary changes from one
contract year to the next (see Sec. 423.120(b)(3); Chapter 6 of the
Medicare Prescription Drug Benefit Manual, 30.4). Within the first 90
days of a beneficiary's enrollment in a new plan, plans must provide a
temporary fill when the beneficiary requests a refill of a non-
formulary drug (including Part D drugs that are on a plan's formulary
but require prior authorization or step therapy under a plan's
utilization management rules). Since certain enrollees may join a plan
at any time during the year, this requirement applies beginning on an
enrollee's first effective date of coverage, regardless of whether this
is within the first 90 days of the contract year.
A successful transition process is contingent not only upon
providing the transitional drug supply, but also upon informing
affected enrollees, their caregivers, and their providers about the
beneficiary's options for ensuring that his or her medical needs are
safely accommodated within a Part D sponsor's formulary. For this
reason, when providing a temporary supply of non-formulary Part D drugs
(including Part D drugs that are on a sponsor's formulary but require
prior authorization or step therapy under a sponsor's utilization
management rules), sponsors must provide enrollees and their providers
with written notice within 3 business days after adjudication of the
temporary fill that they are receiving a transition supply of a non-
formulary Part D drug and that they must take action. The temporary
fill and notice provides beneficiaries with a reasonable amount of time
during which they and their providers can address the issue (by
requesting a formulary exception or transitioning to a formulary drug)
and prevents them from having to abruptly change or go without their
medication (see Transition notice requirements (to beneficiaries and
providers) [Sec. 423.120(b)(3)(iv and v); Chapter 6 of the Medicare
Prescription Drug Benefit Manual, 30.4.10]). Thus all beneficiaries and
their prescribers have advance notice of any issue with continued
coverage of a previously initiated therapy and sufficient time to
resolve those issues without any lapse in appropriate therapy. The
preceding formulary review and transition requirements are described in
Chapter 6 of the Medicare Prescription Drug Benefit Manual (located at
http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Chapter6.pdf).
The fifth beneficiary protection we take into account is the
requirement for a robust coverage determination and appeal process,
including the right of an enrollee or his or her prescriber to request
an exception to the plan's utilization management criteria, tiered
cost-sharing structure, or formulary. Part D plan sponsors are required
to issue a coverage decision and notify the enrollee (and the
prescriber, as appropriate) in writing in accordance with strict
regulatory timeframes. A plan must grant a tiering or formulary
exception (for example, provide coverage for a non-formulary drug or an
exception to the UM criteria) when it determines that the requested
drug is medically necessary, consistent with the prescriber's
supporting statement indicating that preferred alternatives(s) would
not be as effective and/or would have adverse effects. We have
established by regulation both an expedited adjudication timeframe if
the plan or prescriber believes that applying the standard timeframe
may jeopardize the enrollee's health, and a requirement that plans must
issue all coverage decisions as expeditiously as the enrollee's health
condition requires. Any initial coverage request that the plan expects
to deny based on a lack of medical necessity must be reviewed by a
physician. If the Part D sponsor makes an adverse coverage
determination, the required written notice must explain the specific
reason(s) for the denial and include a description of the enrollee's
right to a standard or expedited redetermination by the plan, and the
rest of the five-level appeals process, including the right to request
independent review. We require plans to conduct all redeterminations
(first level appeals) using a physician or other appropriate health
care professional with sufficient medical and other expertise,
including knowledge of Medicare criteria, if the initial denial was
based on a lack of medical necessity. If a plan fails to make a
coverage decision and notify the enrollee within the required
timeframe, the request must be forwarded to the independent review
entity to be adjudicated.
Moreover, while we do not treat a claim transaction as a coverage
determination, we do require Part D sponsors to arrange with network
pharmacies to provide enrollees with a written copy of the Office of
Management and Budget (OMB)-approved standardized pharmacy notice
(``Notice of Denial of Medicare Prescription Drug Coverage,'' CMS-
10146) when the enrollee's prescription cannot be filled under the Part
D benefit and the issue cannot be resolved at the POS. The notice
instructs the enrollee on how to contact his or her plan and explains
the enrollee's right to request a coverage determination. Thus, all
beneficiaries immediately receive clear concise instructions on how to
pursue their appeal rights whenever a prescription cannot be filled.
For additional information on the coverage determination, appeals and
grievance process, including information about the pharmacy notice, see
42 CFR Part 423, subparts M and U, and Chapter 18 of the Medicare
Prescription Drug Benefit Manual.
As the preceding discussion demonstrates, we have implemented
extensive beneficiary protections in the

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form of formulary review checks, reassignment formulary coverage
notices, drug therapy transition policies and notices for both new
enrollees and continuously enrolled members experiencing changes in
formulary benefits between coverage years, and robust exceptions and
appeals processes that generally will assure appropriate access without
having to guarantee formulary placement. Additionally, the formulary
exceptions and appeals requirements facilitate obtaining any medically
necessary Part D drug that is not on the formulary or that is otherwise
subject to utilization management requirements. Taken together, we
believe these requirements are comprehensive enough that additional
access safeguards are needed only in those situations where a Part D
beneficiary's clinical needs cannot be more efficiently met.
b. Criteria Necessary To Identify Categories and Classes of Clinical
Concern
In developing our proposed criteria to identify drug classes of
clinical concern, we considered all of the existing beneficiary
protections described previously in section III.A.14.a. of this
proposed rule, particularly our coverage determination and appeals
process, which requires plans and other adjudicators to make all
coverage decisions as expeditiously as the enrollee's health condition
requires. Given our existing protections, we believe clinical concern
would arise only if access to drugs within a category or class for the
typical individual who is initiating therapy must be obtained in less
than 7 days because the coverage determination and appeals process
generally does not provide for independent review and determination,
when necessary, within such timeframe. We believe this would be the
case only when failure to initiate the therapy within that time period
would be likely to lead to hospitalization, incapacity, disability or
death as a result of the exacerbation of the disease or condition to be
treated. We do not believe it is necessary to require all Part D drugs
within a drug category or class to be included on the formulary if
access within 7 days is likely sufficient to allow for initiation of
therapy without putting beneficiaries at risk of hospitalization,
incapacity, disability, or death. In other words, we believe that
inconvenience associated with a delay that is unlikely to pose these
serious consequences for the typical individual initiating a new
therapy does not warrant requiring all Part D drugs from within the
category or class to be included on the formulary because in such an
instance, the beneficiary would have other protections to ensure that
he or she has appropriate access to the drug. Moreover, we do not
believe it is necessary to require all Part D drugs within a drug
category or class to be included on the formulary when, for a typical
individual who already is taking the drug, interruption in existing
drug therapy might have adverse health consequences. Specifically, we
believe that existing protections such as the Part D formulary change
restrictions (for example, prohibition on midyear implementation of new
PA, ST, or QL restrictions on existing therapies) and the transition
requirements under Sec. 423.120, which provide for temporary fills and
require beneficiary notification of the need to request a coverage
determination (including an exception or prior authorization approval)
for future fills ensure sufficient protection for beneficiaries who may
face an interruption in their ongoing therapies as a result of a change
in their plan or formulary. Thus, our transition and negative formulary
change requirements afford strong protections to individuals with
ongoing therapy. However, this is in contrast to individuals who are
initiating therapy. These individuals do not get an initial fill to try
a medication while they petition for an exception, and thus the
transition protections do not apply. Finally, we note that when we
refer to a beneficiary's having ``access'' to a drug within 7 days, we
mean that the beneficiary must need to ingest or otherwise use or
consume the drug within that time period in order to avoid the adverse
consequences. Thus, ``access'' means administration, which may include
self-administration, of drugs. To illustrate this last point,
initiation of therapy with drugs used to treat HIV/AIDS generally
should not be delayed because initiation of therapy has rapid effects
on viral load. Conversely, a minor delay with the initiation of therapy
with HMG-CoA reductase inhibitors (also known as ``statins'') for
patients with hyperlipidemia, even when transitioning among medications
in the category or class in response to lipid profiles, liver or kidney
function, or adverse events, is not as critical because it usually
takes several weeks to detect measurable effects on serum lipid
concentrations.
Thus, for all of these reasons, we propose to specify at Sec.
423.120(b)(2)(v)(A) a first criterion under section 1860D-
4(b)(1)(G)(ii)(II) of the Act as follows: In the case of a typical
beneficiary who has a disease or condition treated by drugs in the
following category or class, hospitalization, persistent or significant
incapacity or disability, or death likely will result if initial
administration (including self-administration) of a drug in the
category or class does not occur within 7 days of the date the
prescription for the drug was presented to the pharmacy to be filled.
By typical beneficiary, we mean, for a given disease or condition, an
individual who has the average clinical presentation of the relevant
disease or condition.
While this first criterion would establish the critical need to
promptly initiate drug therapy with a drug from an identified drug
category or class, we believe that, standing alone, it may be overly
inclusive and, as such, would fail to appropriately balance the need
for beneficiary protection with the need to allow plans to take
appropriate steps to control costs and overutilization. If the drug
category or class consists of many similar drugs that are often
considered to be therapeutically interchangeable with one another when
initiating drug therapy, a requirement to include on the formulary all
drugs in that category or class would undermine the important place
that formularies, due to their ability to control costs, hold within
the Part D program without providing any additional beneficiary
protection. According to the Academy of Managed Care Pharmacy (AMCP),
therapeutic interchange is the practice of replacing, with the
prescribing provider's approval, a prescription medication originally
prescribed for a patient with a chemically different medication;
medications used in therapeutic interchange programs are expected to
produce similar levels of clinical effectiveness and sound medical
outcomes, based on available scientific evidence. Moreover, in the
absence of any specific treatment guidelines to the contrary, inclusion
of all drugs in that category or class would be unnecessary. For
example, some drugs in the nitrate class of drugs likely would meet our
first proposed criterion, but because there are many therapeutically
interchangeable options among nitrates, it is not necessary to require
that all nitrate products be included on every Part D formulary.
Indeed, under our current formulary treatment guideline reviews, while
we require that sublingual nitroglycerin be included on all formularies
because beneficiaries often need it on an urgent basis, we do not
require inclusion of all other nitrates (for example, isosorbide
dinitrate, isosorbide mononitrate, and transdermal nitroglycerin)
because these dosage

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forms are long-acting and typically are not needed on an urgent basis.
(However, current treatment guidelines require the inclusion of
isosorbide dinitrate for congestive heart failure.) Similarly, the
typical diabetic patient who needs insulin could reasonably be
anticipated to require two insulin products as part of his or her
treatment regimen: Specifically, one shorter-acting, and one longer-
acting insulin. Among the insulins, there are four sub-classes: Rapid
acting, short acting, intermediate acting, and long acting. Within each
of the sub-classes, there are alternatives from which to choose. In
accordance with treatment guidelines, in most cases a patient's regimen
is comprised of one selection from either the rapid acting or short
acting sub-classes, and one selection from either the intermediate
acting or long acting sub-classes. While the beneficiary would require
access to multiple drugs within the class (insulins), which at times
could certainly be considered urgent enough to risk dire consequences
as discussed in the first criterion, they would not need access to all
of the options within that class because there are many alternative
products on the market within those sub-classes that are largely
therapeutically interchangeable, and any one of these products will
generally meet the patient's needs. Thus, our formulary checks for
insulin require some products in each sub-class to ensure that access
through each plan is clinically appropriate.
These examples illustrate the principle that it is both feasible
and appropriate to permit plan sponsors to develop formularies that
exclude certain products when adequate access to an appropriate
alternative is assured by way of our existing formulary requirements
and review process. Moreover, the transition and coverage determination
and appeal processes are available in those situations when a non-
formulary drug is medically necessary for a specific individual.
For these reasons, we believe it is important to include a second
criterion that must be met in order for us to consider a drug category
or class to be one of clinical concern for the purposes of section 3307
of the Affordable Care Act. Specifically, we believe a drug category or
class would be of clinical concern if CMS cannot establish that a
formulary that includes fewer than all Part D drugs from within that
category or class would include sufficient drugs needed to treat the
diseases or conditions generally treated by such drugs. In other words,
CMS cannot reasonably establish more specific CMS formulary
requirements because there are too many potential drug-and-disease-
specific scenarios that require specific drugs from within a category
or class, even within sub-classes. This would be the case when the
different drugs within a category or class are uniquely associated with
specific clinical applications because of the unique effects of such
drugs or the variable nature of the disease or condition treated by
such drugs. For example, a cancer patient whose clinical picture is
rapidly changing must immediately initiate very specific changes in
antineoplastic therapy when the new disease target is identified. While
perhaps possible, it would not be practical to establish a multitude of
more class-specific formulary requirements for every current or future
combination or sequence of such drugs simply to possibly exclude a few
drugs. Thus, we propose to add Sec. 423.120(b)(2)(v)(B) specifying a
second criterion to identify a clinical concern as follows: More
specific CMS formulary requirements will not suffice to meet the
universe of clinical drug-and-disease-specific applications due to the
diversity of disease or condition manifestations and associated
specificity or variability of drug therapies necessary to treat such
manifestations.
In summary, we propose to modify Sec. 423.120(b)(2)(v) to require
that (unless an exception applies) all Part D drugs within a drug
category or class be included on the formulary if a the drug category
or class of drugs for a typical individual with a disease or condition
treated by the drugs in the category or class meets both of the
following criteria (as determined by CMS):
Hospitalization, persistent or significant disability or
incapacity, or death likely will result if initial administration
(including self-administration) of a drug in the category or class does
not occur within 7 days of the date the prescription for the drug was
presented to the pharmacy to be filled; and
More specific CMS formulary requirements will not suffice
to meet the universe of clinical drug-and-disease-specific applications
due to the diversity of disease or condition manifestations and
associated specificity or variability of drug therapies necessary to
treat such manifestations.
c. Exceptions
Section 1860D-4(b)(3)(G)(i)(II) of the Act provides us with the
authority to establish exceptions to the requirement that a Part D
sponsor must include all Part D drugs on its formulary in the drug
categories or classes identified by us as drug categories or classes of
clinical concern under section1860D-4(b)(3)(G)(ii)(I) of the Act.
Despite the narrow scope of applicability defined by the proposed
criteria, we believe it is necessary to identify exceptions to help
ensure Part D coverage is limited to Part D drugs, minimize duplicative
protections within a drug category or class of clinical concern, and
assure beneficiary safety while curbing potential abuse and misuse as a
result of the added protection.
First, we propose to retain Sec. 423.120(b)(2)(vi)(A) as currently
codified. This provision makes an exception for drug products that are
rated as therapeutically equivalent (under the Food and Drug
Administration's most recent publication of ``Approved Drug Products
with Therapeutic Equivalence Evaluations,'' also known as the Orange
Book). Thus, two drug products that are determined to be therapeutic
equivalents by the FDA and identified in the FDA's Orange Book are
considered to be the same Part D ``drug'' solely for purposes of this
requirement, and sponsors would not be required to include all
therapeutic equivalents on their formularies. Rather, the inclusion of
one such drug product would satisfy the formulary requirement with
respect to all therapeutically equivalent products.
We also propose to amend and renumber (as paragraph (F)) existing
Sec. 423.120(b)(2)(vi)(B) to make an exception for point-of-sale
utilization management safety edits that are based on maximum daily
doses and black-box warnings specified on the FDA-approved label,
potential drug interactions, or duplication of therapy. In fact, we
believe that this exception is consistent with the requirement under
section 1860D-4(c)(1)(B) of the Act that requires Part D sponsors to
have in place quality assurance measures and systems to reduce
medication errors and adverse drug interactions and improve medication
use. As noted previously, although we believe that section 3307 of the
Affordable Care Act is intended to provide additional beneficiary
protections, we also believe that it would be imprudent to interpret
these protections in such a way that they interfere with existing
protections intended to promote safety and efficacy. We believe that it
is appropriate for Part D sponsors to establish edits for safety and
that our policies should not interfere with basic drug utilization
management edits that sponsors apply at point of sale to ensure that
adverse events do not occur. For example, we

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would expect that a claim for a 90 days supply of Atripla[supreg] for
180 tablets, when the drug is only approved for use once a day, would
trigger a point-of-sale safety edit. Such edits must be consistent with
FDA labeling to ensure that they are based on scientific evidence and
medical standards of practice. However, the use of safety edits should
not create a significant opening for plans to establish restrictive
policies, because safety edits need to conform to FDA labeling.
Next, we propose to add new language at Sec. 423.120(b)(2)(vi)(B)
to make an exception for drug products that are almost always covered
under Medicare Parts A or B. In order to minimize confusion about the
scope of the protections under section 3307 of the Affordable Care Act,
we specify that the formulary requirements set forth in section 1860D-
4(b)(3)(G)(i) of the Act do not apply to drugs almost always covered by
Medicare Part A or B. We do not currently require, and would not
require under the authority of section 3307 of the Affordable Care Act,
the inclusion of drugs that have been historically paid for under Part
B (for example, ``incident to'' drugs supplied and administered by
physicians during a patient visit and paid for under Part B). Given the
fact that these drugs are generally covered under Medicare Part B and
are not required under our existing policy, we believe their absence
from plan formularies would not disrupt access. We further believe that
requiring the inclusion of these drugs on the formulary would lead to
beneficiary confusion. For these reasons, we are proposing to exclude
drug products almost always covered under Medicare Part A or B.
We also propose to add an exception at Sec. 423.120(b)(2)(vi)(G)
to permit prior authorization for purposes of determining whether a
drug is a Part D drug being used for a medically-accepted indication as
defined in section 1860D-2(e)(4) of the Act or to verify a drug is not
covered under Medicare Parts A or B as prescribed and dispensed or
administered. Coverage under Part D is not available for drugs that are
not used for a medically-accepted indication, and section 3307 of the
Affordable Care Act does not change any Part D coverage rules.
Moreover, we believe that this exception, like the exception for
Medicare Part A or B drugs described in proposed paragraph (B), would
not cause disruption because it merely reflects existing limits on Part
D coverage.
Thus, we also propose that prior authorization in the drug
categories or classes of clinical concern is appropriate when used to
confirm the presence of a medically-accepted indication or that
coverage is not available under Medicare Parts A or B as prescribed and
dispensed or administered. Prior authorization requirements to
determine medically-accepted indications should be limited to those
drugs for which it is reasonably foreseeable that use for non-
medically-accepted indications are likely to occur. For example, when
only narrow indications are supported (for example, pain medications
indicated only for cancer pain, supported by the FDA label or
compendia), we would expect Part D sponsors to use prior authorizations
to ensure that such agents are being used for the narrowly-supported
indications only. Similarly, sponsors must apply prior authorizations
for Medicare Parts A/B versus D determinations in a manner consistent
how those determinations are made in all other categories or classes
(that is, based upon likelihood of coverage under Medicare Part A or
B), and thus, we would not expect to see a disproportionate amount of
prior authorization requirements for the categories or classes of
clinical concern compared to other formulary categories or classes. We
expect that the plan sponsor's medical director is involved in
establishment and oversight of plan policies related to prior
authorization requirements. As with all PA requirements, these would
require CMS review and approval. Consistent with current guidance, in
Parts A or B versus D situations, CMS expects Part D sponsors will work
aggressively to eliminate any interruptions of current therapy.
In addition, we propose to amend Sec. 423.120(b)(2)(vi)(C) to make
an exception for Part D compounds. As noted in previous rulemaking,
Part D only covers those ingredients in a compound that independently
meet the definition of a Part D drug (see Sec. 423.120(d)). Since the
Part D compound as a whole is not FDA approved, we do not believe that
such compounded products reasonably can be classified as being included
in a specific category or class that meets the criteria proposed in new
Sec. 423.120(2)(v)(A). Currently, Part D compounds that include
ingredients that fall within a protected category or class are not
required to be included on formularies, and we do not interpret section
3307 of the Affordable Care Act as requiring their inclusion now. Thus,
we believe their continued absence from plan formularies would not
disrupt access.
We also propose to add Sec. 423.120(b)(2)(vi)(D) to make an
exception for drugs (other than antiretrovirals) that are FDA approved
and that are fixed-combination dosage form prescription drug products
as defined in 21 CFR 300.50, that contain at least one Part D drug in
the category or class of clinical concern. Because all drugs in the
category or class of clinical concern would be on the formulary as
single entity products, we do not believe it is necessary, in most
cases, to require inclusion of the fixed dose combination or co-
packaged products. However, we would propose to carve out from this
exception fixed dose combinations and co-packaged antiretrovirals, as
discussed in FDA guidance found here: http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm079742.pdf)
because avoiding excessive pill burden and simplifying dosage regimens
is of utmost importance with this class of drugs. This is because the
risk associated with non-adherence when beneficiaries have to take the
single-entity products has far more severe consequences, such as viral
resistance, than in most other instances, where occasional non-
adherence does not present such dire complications. Consequently,
although we believe this exception is generally appropriate for the
categories and classes of clinical concern that receive added
protections under section 3307 of the Affordable Care Act, we propose
that it not be available for antiretrovirals. This means that, under
our proposed criteria, which, as discussed further in the following
paragraphs, apply to antiretrovirals, all Part D formularies would need
to include not only all single-entity antiretrovirals, but also all
FDA-approved fixed-dose combination and co-packaged antiretrovirals.
Additionally, consistent with current guidance, we propose an
exception at Sec. 423.120(b)(2)(vi)(E) for certain types of Part D
drugs, including multi-source brands of the identical molecular
structure, extended-release products when the immediate-release product
is included, products that have the same active ingredient or moiety,
and dosage forms that do not provide a unique route of administration
(for example, tablets and capsules versus tablets and transdermal
products). Although such products may contribute to improvements in
beneficiary adherence to their medication regimens, other interventions
such as Medication Therapy Management Programs and special compliance
packaging can also improve adherence. Therefore, the added costs of
required formulary inclusion of such products may not

[[Page 1944]]

provide added value since they do not provide a clinically different
therapeutic alternative. Such products currently are not required to be
included on formularies, and we do not interpret section 3307 of the
Affordable Care Act as requiring their inclusion now. Thus, we do not
believe this exception would disrupt access.
Finally, we considered proposing an exception at Sec.
423.120(b)(2)(vi)(H), to allow Part D sponsors to implement prior
authorization, including PA used to implement step therapy
requirements, to convert beneficiaries to preferred alternatives within
these drug categories or classes for enrollees who are initiating
therapy (new starts). This is consistent with current guidance that
Part D sponsors may not implement prior authorization, including PA
used to implement step therapy requirements that are intended to steer
beneficiaries to preferred alternatives within these drug categories or
classes for enrollees who are currently taking a drug, unless they are
trying to establish appropriate coverage under Parts A, B, or D. This
prohibition applies to those beneficiaries already enrolled in the
plan, as well as to new enrollees who were actively taking drugs in any
of the drug categories or classes of clinical concern prior to
enrollment in the plan. If a sponsor cannot determine at the point of
sale that an enrollee is not currently taking a drug (for example, new
enrollee filling a prescription for the first time), the sponsor treats
such enrollee as currently taking the drug. Additionally, step therapy
and prior authorization for HIV/AIDS drugs are generally not employed
in widely-used best-practice formulary models and are not permitted
under the current policy. Although this has been our policy since the
start of the Part D program, and we are not aware of any problems with
it to date, we recognize that this raises the potential for a delay in
access to initial therapy to occur and could be in conflict with our
first proposed criterion. However, we must balance this with incentives
for efficient formularies and do not want to eliminate a tool that may
be useful for Part D sponsors. Consequently, we solicit comment on the
continued need and utility of this policy and whether it should be
included in the exceptions at 423.120(b)(2)(vi). These exceptions would
supersede any previous guidance relative to PAs and UM for the
categories and classes of clinical concern.
d. Analysis and Identification of the Categories or Classes of Clinical
Concern
We convened a consensus panel of CMS pharmacists and the Chief
Medical Officer for the Center for Medicare to identify which drug
categories or classes met our proposed criteria for clinical concern.
The panel was supported by a contractor that performed background
research and provided specific information on Part D utilization by
drug category or class and associated widely-accepted treatment
guidelines for each drug category or class, when available. The panel
reviewed all Part D drugs with utilization in 2012 using the American
Hospital Formulary Service (AHFS)-6 classification system. We chose the
AHFS-6 classification system as a framework because it provided us with
a tool to logically, and in stepwise fashion, apply the criteria to all
Part D drugs. A detailed synopsis of the panel's findings is posted at
http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxContracting_FormularyGuidance.html. The
consensus panel determined that of the current six drug categories or
classes of clinical concern, three (anticonvulsants, antineoplastics,
and antiretrovirals) meet both of the proposed criteria, and three do
not (antidepressants, antipsychotics, immunosuppressants). The panel
also determined that while other drug categories and classes met one of
the criteria, no other drug categories or classes met both criteria.
With respect to the first criterion, the panel concluded that
initiation of therapy with drugs from the antiretroviral,
antineoplastic, and anticonvulsant categories and classes for the
typical individual prescribed these drugs in a Part D setting generally
cannot be delayed for 7 days because of the risk of hospitalization,
incapacity, disability, or death. For antiretrovirals, the risk
associated with the failure to immediately initiate recommended
concurrent therapies could significantly increase the risk of
developing drug resistance and the potential for re-exacerbation of the
disease. For antineoplastics, prompt initiation of therapy is also
critical. Given that the antineoplastic drug therapy often is but one
part of a complex cancer treatment protocol that includes non-drug
therapies, such as radiation or surgery, initiation of the
antineoplastic drug therapy is usually integrated with the entire
treatment protocol. Thus, delaying initiation of antineoplastic drugs
can delay a beneficiary's entire course of treatment. For
anticonvulsants, the risk of seizure associated with a delay in drug
therapy for 7 days can lead to hospitalization and significant
incapacity.
With respect to the second criterion, the panel concluded that the
antiretroviral, antineoplastic and anticonvulsant categories and
classes meet the criterion because different drugs within those
categories and classes are used in so many patient-, drug-, or disease-
specific clinical applications that an alternative formulary
requirement is not feasible. For antiretrovirals, the panel based this
conclusion on the number of multiple drug combinations and adjunctive
therapies involved, frequency with which recommended drug protocols
change, and the role that changing drug resistance plays in determining
the selection of among the different antiretroviral drugs. The need to
adjust specific combination antiretroviral therapy in real time is
complex and must consider, among other things, viral sensitivity to the
drugs, drug interactions, pregnancy status (if applicable), and
potentially the patient's pharmacogenomic profile of the cytochrome
P450 system. Similarly, for antineoplastic drug therapies, the panel
based its conclusion on the diversity of treatment protocols, the
specificity of such treatment protocols, including the role that
specific genetic variations can play in the selection of the
appropriate drug therapy, and the frequency with which disease-specific
treatment protocols recognized in the official Part D compendia change
and get updated. A cancer patient whose clinical picture is rapidly
changing must immediately initiate very specific changes in
antineoplastic therapy when the new disease target is identified.
Finally, for anticonvulsants the panel concluded that the class met the
criterion based on the number of unique types of seizures, the multiple
drug combinations indicated for them, and the potential for altered
drug effects based on drug-drug interactions that occur via the
cytochrome P450 system. For all three of the classes (anticonvulsants,
antineoplastics, and antiretrovirals), the panel concluded that CMS
would be unable to address them more efficiently through formulary
requirements that would allow for some restrictions at this time based
upon the number and specificity of the different treatment protocols.
After a detailed analysis of existing therapies and widely-accepted
treatment guidelines, the panel concluded that immunosuppressants for
transplant rejection, antidepressants, and antipsychotics do not meet
both of

[[Page 1945]]

the proposed criteria and thus would not be eligible for the additional
protections intended by section 3307 of the Affordable Care Act.
With respect to immunosuppressants for transplant rejection, the
panel concluded that the first criterion was met. Due to the immune
system's ability to mount progressively faster and stronger attacks
against a beneficiary's new organ, and to maintain a memory relative to
those attacks, initiation of therapy in a Part D setting generally
cannot be delayed for up to 7 days because of the risk of
hospitalization, incapacity, disability, or death, and thus meets the
first criterion. Because widely-accepted treatment guidelines recommend
sub-classes of drugs rather than specific, individual drugs, the panel
did not believe that every drug product should be required for
inclusion on Part D sponsors' formularies. Moreover, relative to the
reasonably small number of transplant options available to
beneficiaries (for example, stem cell, liver, lung, kidney, pancreas,
heart and intestine), the consistency and specificity of treatment
guidelines, and the amount of therapeutic drug monitoring required for
these drugs, provide us with sufficient clinical information necessary
to establish additional, specific formulary requirements without
needing to continue to identify it as a drug category or class of
clinical concern.
For antidepressants, the panel concluded that a 7-day delay in
initiation of therapy would generally not put the typical individual at
risk of hospitalization, incapacity, disability or death, and thus did
not meet the first criterion. The panel also concluded that
antidepressants did not meet the second criterion. This determination
was based upon the similarities of drugs within sub-classes and the
lack of unique effects for distinguishing individual drug products when
initiating drug therapy for the typical individual in a Part D setting.
For example, for a patient initiating antidepressant therapy for
depression, when the treatment guidelines indicate that a drug within
the selective serotonin reuptake inhibitor (SSRI) sub-class of
antidepressants should be used, there are multiple options from which
to choose, such as fluoxetine, paroxetine, sertraline, citalopram, and
escitalopram. While treatment guidelines may indicate the choice of an
SSRI over the tri-cyclic antidepressant (TCA) or serotonin-
norepinephrine reuptake inhibitor (SNRI) sub-classes, assuming a
patient is dosed correctly, they generally do not advocate a preference
of one SSRI drug over another for initiation of therapy, nor do they
provide a hierarchical inventory for these drugs' place in therapy
relative to each other. In fact, the American Psychiatric Association's
2010 treatment guideline (available at http://www.guideline.gov/content.aspx?id=24158) states that ``the effectiveness of
antidepressant medications is generally comparable between classes and
within classes of medications.''
With respect to antipsychotics, many of these take weeks to reach
their full effect (steady state). In addition, with regard to the
Medicare population, particularly in long term care settings, current
treatment guidelines indicate that the use of antipsychotics in the
elderly is, in many cases, unwarranted and in others, possibly
dangerous. However, due to the potential that, untreated, beneficiaries
with active psychotic symptoms may be dangerous to themselves or
others, the panel concluded that a 7-day delay in initiation of therapy
met the threshold to put a typical individual with psychotic symptoms
at risk of hospitalization, incapacity, disability or death, and thus
met the first criterion.
However, the panel concluded that antipsychotics did not have
unique effects that distinguished one drug from another for the
purposes of choosing the appropriate drug to initiate therapy. For
example, for a patient initiating antipsychotic therapy for
schizophrenia or schizoaffective, or schizophreniform disorder, when
the treatment guidelines may indicate that a drug within the second
generation (atypical) antipsychotic sub-class should be used, there are
multiple options from which to choose such as aripiprazole,
risperidone, olanzapine, quetiapine, ziprasidone, and clozapine. While
the treatment guidelines may indicate the choice of a second generation
antipsychotic over the neuroleptics or first generation antipsychotic
sub-classes, assuming a patient is dosed correctly, they generally do
not advocate a preference of one atypical antipsychotic over another
for initiation of therapy, nor do they provide a hierarchical inventory
for these drugs' place in therapy relative to each other. Moreover, the
2009 update to the American Psychiatric Association's treatment
guideline for the management of patients with schizophrenia (available
at http://psychiatryonline.org/data/Books/prac/Schizophrenia_Guideline%20Watch.pdf) states ``the distinction between first- and
second-generation antipsychotics appears to have limited clinical
utility.'' Thus the panel concluded that these agents are considered to
be generally therapeutically interchangeable when initiating therapy,
and based on treatment guidelines, our formulary requirements could
efficiently ensure appropriate access to antipsychotics without
requiring inclusion on the formulary of every drug in the class.
In addition to any cost savings that would result from the proposed
change for the antipsychotic drug class, it is important to emphasize
that the change also would provide Part D sponsors with an improved
capability to address widespread inappropriate overuse of antipsychotic
drugs through better utilization management. A recent study published
in Psychiatric Services analyzing 2009 claims data from private
insurance claims found that 58 percent of individuals prescribed
psychotropic medication in 2009 had no psychiatric diagnosis during the
year (Psychiatric Services 2013; doi: 10.1176/appi.ps.201200557).
Moreover, on September 20, 2013, the American Psychiatric Association
released a ``list of specific uses of antipsychotic medications that
are common, but potentially unnecessary and sometimes harmful'',
including a recommendation not to prescribe these drugs ``as a first-
line intervention to treat behavioral and psychological symptoms of
dementia'' (http://www.psychiatry.org/choosingwisely). CMS has been
particularly concerned with unnecessary use of antipsychotic drugs in
nursing homes, which might be exacerbated by our current policy, which
significantly limits Part D sponsors' options for ensuring appropriate
use of these drugs. While this change in formulary requirements
generally would not impede appropriate access to antipsychotic drug
therapy for the mentally ill given the other formulary protections
discussed previously, it would allow Part D sponsors to better align
utilization management with CMS efforts to prevent inappropriate use of
these drugs and the potential harmful effects associated with such
inappropriate use.
While proposing to remove the previous level of formulary coverage
from these particular classes, it is worth noting that the requirement
to include on plan formularies all drugs in certain categories and
classes is unique to the Part D program. We are not aware of any other
U.S. government programs (such as the Veteran's Administration (VA),
Tricare, the Federal Employees Health Benefits Program (FEBHP), and,
most recently, the Affordable Care Act Essential Health Benefits (EHB)
Benchmark Plans), or commercial private health plans having a similar

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requirement. Similar to the Part D program, these plans also operate in
the outpatient setting where access to medications is not typically
needed on an emergency basis. Even though Part D formularies are more
restrictive than Federal Employees Health Benefits Plans (FEHBP) and
EHB plans, when CMS compared Part D formulary requirements with those
of the VA National and Department of Defense (DoD) Basic Core
formularies, out of 26 distinct antidepressant drugs required on all
Part D formularies, the VA included 17, and the DoD included 10.
Similarly, out of 19 distinct antipsychotic drugs required on all Part
D formularies, the VA included 15, and the DoD included 2.
Supporting this analysis that our formulary checks could
efficiently require adequate access to the antidepressant and
antipsychotic drug categories and classes without requiring that every
drug be included on all Part D formularies, we compared a Part D
formulary to other formularies. We took an approved CY 2014 formulary
containing the average number of RxNorm Concept Unique Identifiers
(RxCUIs). This formulary includes the following: 23 generic (ANDA)
antidepressant drugs, 7 brand (NDA) antidepressant drugs, 18 generic
antipsychotic drugs, and 9 brand antipsychotic drugs. We then reviewed
the drugs comprising the aforementioned list against our formulary
review requirements standards for treatment guidelines, common Medicare
drugs, and the discrimination review. We found that the formulary could
have passed these checks with 9 generic antidepressant drugs, and 6
generic antipsychotic drugs. No brands were necessary to meet the
formulary review requirements. Thus, this formulary includes an excess
of 16 brand drugs and 26 generic drugs within these two classes of
medications.
While the immunosuppressant, antidepressant and antipsychotic
classes all fail to meet the second criterion, we are deferring any
change in formulary requirements for the antipsychotic class at this
time and will continue to require all drugs from within this class to
be on Part D formularies in 2015, subject to the exceptions that get
finalized in Sec. 423.120(b)(2)(vi). Section 1860D-4(b)(3)(G)(I) of
the Act requires that the Secretary identify classes and categories of
clinical concern ``as appropriate,'' using criteria specified in notice
and comment rulemaking. We interpret this provision as permitting us to
postpone applying our proposed criteria to antipsychotics at this time,
and as we are not applying the criteria to antipsychotics at this time,
we believe it is appropriate to continue to treat antipsychotics as a
class of clinical concern, in light of section 1860D-4(b)(3)(G)(iv) of
the Act, because we wish to make certain we have not overlooked a need
for any transitional considerations. This is because the risks
associated with untreated psychotic illness, as differentiated from the
broad category of mental illness, have the potential to be so severe.
Therefore, although we previously explained why we do not believe the
antipsychotic drug class would meet the new proposed criteria, at this
time, we are proposing not to subject the antipsychotic class to the
new criteria and therefore are proposing not to change the current
requirement that all drugs from within this class must be included on
all formularies, except as permitted under our proposed exceptions.
In general, our existing beneficiary protections should suffice to
ensure appropriate access to antipsychotic drug therapies. However, we
are not changing the requirement for antipsychotics at this time
because we need to determine if additional transitional consideration
is necessary for any individuals taking these medications. While we are
not convinced that our existing transition requirements are
insufficient, we seek comment on whether there are additional
considerations for transitioning some patients taking these drugs to
alternative drug therapies and if so, why our current requirements are
not adequate. In addition, we seek comments on what specific patient
population(s) or individual patient characteristics would require such
additional transition protections and how such population(s) can be
consistently identified. Conversely, we also seek comments on whether
it might be in the best interest of beneficiaries to have their
existing antipsychotic therapies reevaluated through utilization
management, given our concern with the inappropriate use of these drugs
especially in nursing homes and the limited clinical utility of
distinctions among agents in this class of drugs. If so, we would also
appreciate comments on whether the benefits of such a periodic
reevaluation that would arise from routine utilization management might
outweigh other transitional risks. While we do not believe the risks
associated with illnesses treated by antidepressants are as severe as
those treated by antipsychotics, we are also seeking comment on whether
any transitional policies specific to antidepressants would be
appropriate.
We are concerned about overutilization and inappropriate
prescribing of antipsychotic medications in individuals with dementia
for whom these medications may be prescribed as a mechanism for
behavioral control; persons for whom antipsychotics are being used as
sleeping aids or anxiolytics; and children who have not been diagnosed
with a disorder for which an antipsychotic medication has been FDA-
approved. Our concerns about overutilization are not aimed at
individuals with a current mental illness or those who are or have
recently or previously been stabilized on antipsychotic medications. We
do not want to limit access to effective medications, or to limit a
return to those effective medications for adults with a psychotic
illness who need them. Finally, we seek comment on the timing necessary
to address any additional transitional considerations, and remove the
temporary protections for antipsychotics, if necessary.
Therefore, the initial drug categories and classes of clinical
concern that meet the proposed criteria for coverage year 2015 are
anticonvulsants, antiretrovirals, and antineoplastics. In addition, the
antipsychotic drug class will continue to be treated as a class of
clinical concern in 2015 and until CMS determines that it is
appropriate to apply the criteria with respect to the antipsychotics.
These categories and classes will be read narrowly and are not
inclusive of every related drug product that an individual who has a
disease treated by one of these categories or classes of drugs would
need to take. For example, conjugated or esterified estrogens used for
the palliative treatment of carcinoma of the prostate or metastatic
breast cancer are not considered antineoplastics and would not be
included in the antineoplastic class of clinical concern. We will
provide more detailed guidance on the specific formulary checks that
will be in place relative to antidepressant and immunosuppressant
categories and classes of drugs at a later date. Additionally, we plan
to work with stakeholders to provide outreach to beneficiaries around
the proposed modification of the categories and classes of drugs of
clinical concern that receive additional protections under section 3307
of the Affordable Care Act so that beneficiaries can select the most
appropriate drug plan for their needs based on drug choice as well as
cost. Finally, CMS plans to periodically review the drug categories and
classes

[[Page 1947]]

as the clinical landscape changes to determine whether these classes
continue to meet both criteria and/or if other categories/classes meet
both criteria. We would propose any changes to the categories and
classes of clinical concern through a public notice and comment process
such as the annual Call Letter.
15. Medication Therapy Management Program (MTM) Under Part D (Sec.
423.153(d))
Section 1860D-4(c)(2) of the Act, provides that Part D sponsors, in
offering Medication Therapy Management (MTM) programs, must target
individuals who: (1) Have multiple chronic diseases (such as diabetes,
asthma, hypertension, hyperlipidemia, and congestive heart failure);
(2) are taking multiple covered Part D drugs; and (3) are identified as
likely to incur annual costs for covered Part D drugs that exceed a
level specified by the Secretary. At the start of the Part D program,
we believed that 25 percent of enrollees would qualify for MTM
services. However, analysis revealed that MTM program enrollment was
well below that level. In the 2010 Call Letter and subsequent
regulation, we modified the criteria to reduce the variability in
eligibility and level of service and to improve access to MTM services,
again targeting 25 percent of enrollees. Despite these changes, MTM
program participation remains very low. Moreover, additional evidence
that the program improves quality and generates medical savings
supports the idea that more than 25 percent of enrollees will benefit
from MTM services.
Section 1860D-4(c)(2)(C) of the Act, as implemented in Sec.
423.153(d)(vii), specifies that sponsors shall offer a minimum level of
MTM services to targeted beneficiaries to increase adherence to
prescription medications or other goals deemed necessary by the
Secretary. Additionally, section 1860D-4(c)(2)(E \2\) of the Act, as
implemented in Sec. 423.153(d)(1)(v), provides that Part D sponsors
must automatically enroll targeted beneficiaries in the MTM program,
allowing beneficiaries the option to opt out. Under that authority, we
also issued sub-regulatory guidance (found at http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Chapter7.pdf) and an annual memo with MTM Program Guidance
and Submission instructions notifying Part D sponsors that we expect
them to promote continuity of care by performing an end-of-year
analysis that identifies current MTM program participants who will
continue to meet the eligibility criteria for the next program year for
the same plan. We indicated that this targeting could be done to auto-
enroll beneficiaries in the plan's MTM program early in the next
program year in order to provide MTM interventions with less
interruption. Although beneficiaries who are new to Part D or who may
have changed plans may be captured during the quarterly, or more
frequent, targeting throughout the year, there is a time lag at the
start of the year before these beneficiaries can be enrolled in MTM.
This concern is particularly relevant for LIS enrollees who may have
been reassigned to a new Part D plan if their existing plan terminated
or no longer qualified as a benchmark plan. Moreover, we believe that
there are other special populations of beneficiaries for whom simply
increasing the frequency of targeting will not adequately address
barriers they face to receiving MTM services. There are also situations
in which a beneficiary is unable to accept the offer to participate in
a CMR, but offering to perform the CMR with the beneficiary's
prescriber, caregiver, or other authorized individual, as provided at
Sec. 423.153(d)(1)(vii)(B)(2), may not be effectively addressed by the
sponsor. For example, sponsors may not effectively take steps to
identify the beneficiary's authorized representative or coordinate with
the beneficiary's LTC facility when appropriate. Consequently, to
improve access to this beneficial service, we are exploring new ways to
improve access to MTM services for Part D enrollees.
---------------------------------------------------------------------------

\2\ Two subparts (E) have been enacted in section 1860D-4(c)(2).
Here, we refer to the first one.
---------------------------------------------------------------------------

Although we initially estimated that 25 percent of the Part D
eligible population would meet the three criteria for MTM services at
the start of the Part D program, we provided minimal detail on how
sponsors should implement the criteria. For example, we did not
initially provide in regulation any detail on the number of chronic
diseases or covered Part D drugs, or an annual cost threshold that
would be required to establish a beneficiary's eligibility for MTM
services, although we established an annual cost threshold of $4,000 in
subregulatory guidance. We did this to allow maximum flexibility for
the industry to develop best practices in the provision of MTM
services.
After an analysis of common practices revealed wide ranges in
eligibility and the levels of services provided, we announced in the
2010 Call Letter (available at http://www.cms.gov/PrescriptionDrugCovContra/Downloads/2010CallLetter.pdf) that the MTM
requirements would be revised beginning in 2010 to provide greater
consistency among the MTM programs and to raise the level of MTM
interventions offered to positively impact medication use by Medicare
Part D beneficiaries. We clarified that in defining multiple chronic
diseases, sponsors could not require more than three chronic diseases
as the minimum number of chronic diseases and that sponsors must target
at least four of seven core chronic diseases (hypertension, heart
failure, diabetes, dyslipidemia, respiratory disease (such as asthma,
chronic obstructive pulmonary disease (COPD), or chronic lung
disorders), bone disease--arthritis (such as osteoporosis,
osteoarthritis, or rheumatoid arthritis), and mental health (such as
depression, schizophrenia, bipolar disorder, or chronic and disabling
disorders)). We further clarified that in defining multiple Part D
drugs, sponsors could not require more than eight Part D drugs as the
minimum number of multiple covered Part D drugs. We also lowered the
cost threshold to $3,000 and instructed sponsors to adjust their
targeting criteria accordingly. These requirements were subsequently
codified in the regulations at Sec. 423.153(d)(1) and (2).
Despite the expanded criteria, we continue to see restrictive
criteria, such as plan sponsors specifying a narrow list of chronic
diseases or Part D drugs coupled with requiring a higher minimum number
of covered drugs (for example, eight drugs versus two) for eligibility.
As a result, access to MTM services remains very low with MTM program
eligibility rates at less than 8 percent in 2011. Even more concerning,
there may be racial disparities in meeting the eligibility criteria. In
the 2012 Call Letter (available at http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2012.pdf), we
reviewed a 2010 study published in Health Services Research (HSR) by
Wang and colleagues (Wang, et al. 2010. ``Disparity Implications of
Medicare Eligibility Criteria for Medication Therapy Management
Services.'' Health Services Research. 45 (4): 1061-1082.). This study
was based on data from the Medical Expenditure Panel Survey (MEPS)
collected prior to the implementation of the Part D program and used
the original 2006 and the revised 2010 MTM eligibility thresholds. The
study suggested that Hispanic and African American beneficiaries could
be less likely to meet MTM eligibility criteria where utilization was a
criterion for program

[[Page 1948]]

participation. The study findings had important implications for the
Part D program because utilization based upon drug costs is a critical
part of MTM eligibility. In 2012, Wang and colleagues repeated the
study (Wang, et al. 2012. ``Historical trend of disparity implications
of Medicare MTM eligibility criteria.'' Research in Social and
Administrative Pharmacy (2012): 1-12) using 2007-2008 data along with
both the 2006 and 2010 MTM eligibility thresholds. They found that
disparity patterns did not change from the first study. Their findings
that ``racial and ethnic disparities in meeting the MTM eligibility
criteria may not decrease over time unless the eligibility criteria are
changed'' have led us to conclude that the current MTM eligibility
criteria are overly restrictive.
A 2011 report from the United States Public Health Service (PHS)
Pharmacist Professional Advisory Committee (PharmPAC report) (available
at http://www.usphs.gov/corpslinks/pharmacy/sc_comms_sg_report.aspx)
supports the conclusion that the current eligibility criteria are
restricting access to MTM services. The PharmPAC report, which was
based on the experiences of PHS clinical pharmacists who attempted to
provide services to Part D beneficiaries, indicated that the Part D MTM
eligibility criteria, and variability in the application of these
criteria among Part D sponsors, constituted a policy constraint which
limited patient participation in the program, despite the 2010
enhancements. The authors of the PharmPAC report expressed concern
that, at the time, the criteria permitted sponsors to define
eligibility parameters. The PharmPAC report went on to say that as a
result of the overly restrictive targeting criteria, patients who may
need MTM services but did not meet the plan's criteria were not able to
participate, unless the plan offered MTM services to a wider group than
the targeted population.
Further supporting this conclusion, a recent study conducted in
conjunction with the Center for Medicare and Medicaid Innovation called
Medication Therapy Management in Chronically Ill Population: Final
Report (August 2013) (``CMMI MTM study'') (available at http://innovation.cms.gov/Data-and-Reports/index.html) explored the variations
in MTM eligibility criteria. This CMMI MTM study identified patients
with equivalent MTM eligibility characteristics who were in different
plans with different eligibility criteria. The enrollees were
ineligible for MTM in their own plan, but would have been eligible for
MTM if they were enrolled in another plan which targets a particular
chronic disease that is not targeted for MTM services by their own plan
or which targets beneficiaries for MTM services based on a lower number
of chronic diseases or Part D drugs for eligibility. We are concerned
with such variability, especially in cases where a beneficiary meets
the minimum number of chronic diseases for eligibility, but may not
qualify for MTM because his or her chronic condition is not targeted by
the plan, he or she does not take enough medications for the plan's
program (even though medication management issues are present), or
because high utilization of lower cost generics places prescription
drug costs for the beneficiary below the cost threshold. Restrictive
application of MTM eligibility criteria may limit MTM enrollment to
beneficiaries with spending well above the $3,000 threshold, and the
CMMI MTM study indicates that drug spending for MTM enrollees varied
from $4,452 to $7,477. The CMMI MTM study's final report was published
in August, 2013 and is available at: http://innovation.cms.gov/Files/reports/MTM-FINAL-Report.pdf.
As discussed in the 2014 Call Letter (available at http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcements2014.pdf), the CMMI MTM study found that MTM programs
effectively targeted high risk individuals who had problems with their
drug-therapy regimens and had high rates of hospital and emergency room
visits before enrollment as well as those that experienced a recent
visit to the hospital or emergency room. The study also found that
individuals with diabetes, CHF, and COPD who were enrolled in MTM
programs--particularly those who received annual comprehensive
medication reviews (CMRs)--experienced significant improvements in drug
therapy outcomes when compared to beneficiaries who did not receive any
MTM services, thus supporting the hypothesis that the annual CMR may be
one of the more crucial elements of MTM. Significant cost savings
associated with all-cause hospitalizations at the overall PDP and MA-PD
levels were found, which may be due to MTM's comprehensive, rather than
disease specific approach. This research supports statements in a
recent Congressional Budget Office report that programs and services
that manage the prescription drug benefit well or improve prescription
drug use might result in medical savings (Congressional Budget Office,
Offsetting Effects of Prescription Drug Use on Medicare's Spending for
Medical Services, November 2012, available at http://www.cbo.gov/publication/43741).
Consistent with the findings of this research, we believe that the
CMS-established eligibility criteria should be considered as the
threshold for MTM eligibility, but not the driver of interventions by
the plan. However, because plans target beneficiaries with specific
diseases for MTM services, some plans, in turn, have designed
interventions only focused on these diseases, in contrast to a more
comprehensive approach to improving medication management and
adherence. For example, one plan targeted beneficiaries with CHF and
diabetes and designed interventions for these conditions. Beneficiaries
who also had COPD qualified for MTM services, but the plan did not
address their COPD medication issues, a practice that is inconsistent
with the intent of comprehensive MTM. Nonetheless, the best-performing
plans were able to improve medication adherence and quality of
prescribing while maintaining or reducing overall health care costs
(including drug costs), despite the costs associated with delivering a
high number of CMRs. Moreover, the study's findings suggested that
other conditions associated with cardiovascular disease, such as acute
myocardial infarction (AMI), stroke, and vascular disorders, in
addition to those already targeted under the eligibility criteria
adopted in 2010, disproportionately appeared among the top cost savers.
Overall, the CMMI MTM study identified practices that typified
high-performing MTM programs, including three that concern beneficiary
targeting. They are:
Establishing proactive and persistent CMR recruitment
efforts;
Targeting and aggressively recruiting patients to complete
a CMR based on information on medical events such as a recent hospital
discharge in addition to scanning for the usual MTM eligibility
criteria; and
Coordinating care by utilizing trusted community
relationships, including networks of community pharmacists, to recruit
MTM eligible candidates, and utilizing existing working relationships
between MTM providers (pharmacists) and prescribers to make
recommendations and discuss identified problems for patients.
Potential additional requirements, related to the first and third
practices, are discussed elsewhere in this proposed rule. However, the
second practice leads us to reconsider our current MTM targeting
requirements. We believe that the results of the aforementioned studies
indicate the

[[Page 1949]]

necessity to reduce variability in eligibility criteria among plans and
as a result improve access to MTM services.
a. Multiple Chronic Diseases
The statute identifies targeted beneficiaries as those Part D
beneficiaries who have multiple chronic diseases such as diabetes,
asthma, hypertension, hyperlipidemia, and congestive heart failure. We
previously interpreted this language to allow sponsors to define
``multiple chronic diseases'' with three chronic diseases being the
maximum number a plan sponsor may require for targeted enrollment.
Further, sponsors are allowed to target beneficiaries with select
chronic diseases, but must include at least five of the nine core
chronic diseases in their criteria. This list of core chronic diseases,
as updated in the 2013 Call Letter (available at http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/downloads//Announcement2013.pdf), includes hypertension, congestive heart failure,
diabetes, dyslipidemia, respiratory disease, bone disease--arthritis,
mental health, Alzheimer's disease, and end stage renal disease. We
propose to revise our interpretation of ``multiple chronic diseases''
to require that sponsors must target enrollees having two or more
chronic diseases for MTM services. We believe this is a reasonable
interpretation of the statute because ``multiple'' is commonly
understood to mean more than one.
In addition, we believe that the statute specifically named the
diseases that are most prevalent within the Medicare Part D beneficiary
population and that present a likelihood of having medication use
issues that impact therapeutic outcomes. Therefore, we propose to
require that at least one of the chronic diseases that a beneficiary
has in order to satisfy the eligibility criteria must be one of the
list of core chronic diseases. This list has been updated since 2010 to
encompass common targeting practices among plan sponsors and diseases
prevalent among beneficiaries. We also believe that this interpretation
is consistent with other literature concerning the relative risk of the
combination of multiple disease states and medications and ensures that
Medicare Part D beneficiaries with prevalent health conditions receive
access to MTM. In addition, to be more consistent with the findings of
the CMMI MTM study and the current drug hierarchical condition
categories (RxHCCs) used in the Part D risk adjuster, we propose to
redefine the core diseases by combining hypertension and congestive
heart failure under the umbrella of ``cardiovascular disease,'' which
would also encompass congestive heart failure, acute myocardial
infarction, cerebral hemorrhage and effects of stroke, vascular
disease, specified heart arrhythmias, and hypertensive heart disease.
The list of core chronic diseases would thus become cardiovascular
disease, diabetes, dyslipidemia, respiratory disease, bone disease--
arthritis, mental health, Alzheimer's disease, and end stage renal
disease. However, in future rulemaking, we may consider further
revising the regulation to establish standards by which these core
chronic diseases are selected, and therefore establish the list of core
chronic diseases annually in subregulatory guidance based on those
factors. We solicit comment on what specific patient population(s) or
individual patient characteristics should be considered in establishing
such standards.
b. Multiple Part D Drugs
The statute identifies targeted beneficiaries as those Part D
beneficiaries who are taking multiple covered Part D drugs. Although we
initially had no requirements in this area, as early as contract year
2006, we asked plan sponsors to report to us the number of covered Part
D drugs that a beneficiary must have filled to meet their targeting
criteria for MTM, and if applicable, to list the type of Part D drugs
that would apply. While still allowing a great deal of flexibility in
the design of MTM programs, for contract year 2007 forward, we
requested more detailed information in this area in MTM Program
Submission materials for a March 15, 2006 User Group Call which were
distributed through HPMS. We asked plan sponsors to identify the number
of covered Part D drugs that a beneficiary must have filled to meet
their criteria for MTM programs, and to provide information on the type
of covered Part D drugs that would apply. Specifically, we asked if any
Part D drug would apply, only chronic/maintenance drugs, only disease-
specific drugs related to chronic diseases, or if specific Part D drug
classes would apply (and what those drug classes were), or what other
types of categories the plan sponsor intended to use. For coverage year
2013, we consolidated this list of types of covered Part D drugs that
could apply and no longer specifically collected information on
disease-specific drugs related to chronic diseases. (MTM Program
Submission Process Guidance for CY 2013 is available at: http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/Memo-Contract-Year-2013-Medication-Therapy-Management-MTM-Program-Submission-v041012.pdf)
Because our analyses continued to reveal such wide ranges in
eligibility under this criterion, we issued guidance in 2009, which we
subsequently codified in our April 2010 final rule entitled, ``Policy
and Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs'' (75 FR 19678), to establish
specific requirements regarding the minimum number of covered Part D
drugs that plan sponsors should consider in order to satisfy the
statutory requirement. Specifically, we instructed that Part D sponsors
should define ``multiple'' for purposes of satisfying this requirement
as no more than eight Part D covered drugs. (75 FR 19772) Although we
tried to maintain maximum flexibility for plan sponsors by permitting
this broad range, the authors of the PharmPAC report specifically cite
the options available to plan sponsors in determining enrollee
eligibility criteria for multiple Part D drugs as a limitation of the
MTM programs required under Part D. We now believe that allowing plans
this flexibility has contributed to beneficiary confusion, decreased
access to MTM services, and even led to racial disparities in access to
services.
We propose to revise our interpretation of ``multiple Part D
drugs'' to require that sponsors must target enrollees taking two or
more Part D covered drugs for MTM services. While we are expanding this
criterion, we are also proposing to restrict the flexibility previously
available to sponsors by requiring that they consider any Part D
covered drug. Literature supports the idea that patients with multiple
diseases and taking at least two drugs are more likely to have drug
therapy problems.
The importance of MTM services for patients taking two or more
medications was demonstrated in a 2007 evaluation which validated the
Risk Based Relative Value Scale (RBRVS) for MTM Services by Isetts and
colleagues on behalf of the state of Minnesota (available at http://www.dhs.state.mn.us/main/groups/business_partners/documents/pub/dhs16_140283.pdf). This study shows that when a patient has a single
indication treated by at least two medications, there is likely to be
at least one drug therapy problem. When the patient moves to two
indications, he or she is more likely to be treated by at least three
to five medications, and will likely have at least two drug therapy
problems. It should be noted that this

[[Page 1950]]

evaluation considered not only prescription drugs, but also over the
counter medications and dietary supplements.

Table 2--Pharmaceutical Care RBRVS *--At a Glimpse
----------------------------------------------------------------------------------------------------------------
Number of medical Number of drug therapy
Level ** indications Number of medications problems (DTP)
----------------------------------------------------------------------------------------------------------------
Level 1............................ At least 1........... At least 1........... None observed.
Level 1............................ At least 1........... At least 2........... 1 DTP.
Level 2............................ At least 2........... At least 3-5......... 2 DTPs.
Level 3............................ At least 3........... At least 6-8......... 3 DTPs.
Level 4............................ 4 or more............ 9 or more............ 4 or more DTPs.
----------------------------------------------------------------------------------------------------------------
* Summarized from the Minnesota DHS Web site Program Guide for Delivery of Medication Therapy Management
Services (MTMS).
** The level of care reported is the lowest of patient needs met by all criteria in each level.

Section 3503 of the Affordable Care Act establishes a program under
the Public Health Service Act under which the Secretary is authorized
to provide grants or contracts to eligible entities to implement MTM
services and provides that MTM programs shall target individuals who
take four or more prescribed medications, including over-the-counter
(OTC) medications and dietary supplements, and take any high-risk
medications. Although this provision does not directly pertain to the
Part D program, we believe that an examination of the criteria used to
target individuals under that provision is helpful in considering what
changes could be made to improve the effectiveness of MTM programs
offered under Part D. Unlike section 3503 of the Affordable Care Act,
which expressly requires that services be targeted based on the use of
either prescription or non-prescription drugs, the Part D statute
expressly requires that Part D plans target beneficiaries taking
multiple covered Part D drugs for MTM services. OTC medications or
dietary supplements are not covered Part D drugs, and we cannot require
Part D sponsors to consider them in targeting beneficiaries for MTM
services. Nevertheless, as evidenced by the RBRVS approach discussed
previously, we believe that these OTC medications and supplements may
contribute to drug therapy problems. Therefore, we believe that it is
reasonable to propose that ``multiple Part D drugs'' should be
construed to mean two or more Part D drugs in order to ensure that
beneficiaries that are at risk of drug therapy problems, including
problems associated with taking multiple prescription medications in
conjunction with over-the-counter medications, are appropriately
targeted for MTM services. A literature review (Hajjar ER, Cafiero AC,
Hanlon JT. Polypharmacy in elderly patients. Am J Geriatric
Pharmacother. 2007; 5:345-351) cited a study that found that almost 90
percent of elderly, rural community-dwelling patients took one or more
OTC products and almost 50 percent took two to four. Another study of
noninstitutionalized patients found that 47 to 59 percent of older
patients took a vitamin or mineral and 11 to 14 percent took herbal
supplements. The review found that polypharmacy among the elderly may
be increasing. (Stoehr GP, Ganguli M, Seaberg EC, et al. Over the
counter medication use in an older rural community: The MOVIES Project.
J Am Geriatr Soc. 1997; 45:158-165). Therefore, it is reasonable to
conclude that the Part D MTM population with multiple chronic diseases
would also be taking OTC medications. Furthermore, we expect that
sponsors will perform outreach to beneficiaries to acquire additional
information regarding OTC medication use by their enrollees, consistent
with our current guidance for CMRs, which explains that the medication
review as part of the CMR should include prescriptions, OTC
medications, herbal therapies, and dietary supplements (available at
http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/Memo-Contract-Year-2013-Medication-Therapy-Management-MTM-Program-Submission-v041012.pdf).
Although we are proposing this option, we also considered
alternatives such as duplication of the section 3503 of the Affordable
Care Act criteria for four or more prescribed medications which could
include OTC medications and dietary supplements, provided the
beneficiary was taking at least 2 covered Part D drugs. However, we
recognized that Part D sponsors would not have the ability to assess an
enrollee's use of OTC medications or dietary supplements in order to
determine MTM eligibility despite the RBRVS approach which suggests
that beneficiaries may still experience drug therapy problems when they
have only one chronic disease but take at least two medications, which
could include OTC medications or dietary supplements. As a result, we
solicit comments on alternative definitions for ``multiple Part D
drugs,'' including what minimum number of medications is appropriate
for MTM targeting.
c. Annual Cost Threshold
The Congress did not impose any specific requirements with respect
to the cost threshold at the time the MTM criteria were passed in to
law, nor has it addressed this threshold in any of the subsequent
amendments to section 1860D-4(c)(2) of the Act. When we first
established the requirements regarding MTM programs, we recognized that
cost alone was not the best indicator of those that could benefit most
from MTM. Indeed, in our January 2005 final rule entitled, ``Medicare
Prescription Drug Benefit'' (70 FR 4282), we stated that cost might not
be the best proxy for identifying patients that could benefit most from
MTM. Nevertheless, in an attempt to identify a manageable population at
the start of the program, we believed that individuals with the highest
costs were more likely to be suffering from more chronic conditions and
taking more Part D medications. Therefore, we believed that setting a
cost threshold that would limit MTM programs to the individuals with
the highest costs would increase the likelihood that MTM services would
be provided to those individuals that could benefit most (because those
individuals were likely to be at greater risk for improper medication
use and adverse drug events). Thus, although it was set in
subregulatory guidance, we established the initial $4000 cost threshold
at the inception of the Part D program.
As discussed in our April 2010 final rule entitled, ``Policy and
Technical Changes to the Medicare Advantage and Medicare Prescription
Drug Benefit Programs'' (75 FR 19776), following an analysis of plan
reported data, we found

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that only 10 percent of beneficiaries enrolled in a Part D plan with an
approved MTM program were eligible for MTM services in 2006 and only
13.1 percent were eligible for MTM services in 2007. In 2008, we
conducted an analysis of beneficiary drug costs using Prescription Drug
Event (PDE) data from contract years 2006 and 2007 obtained from the
Integrated Data Repository (IDR) system. As part of this analysis, the
total gross drug cost and number of beneficiaries that incurred annual
drug costs (below) or (greater or equal to) the $4000 cost threshold
was determined. The average number of PDEs and average costs per
beneficiary were also calculated. Further analysis examined cost
breakouts in $500 increments to determine the distribution of
beneficiaries, as well as the number of fills, and gross drug cost for
beneficiaries with annual drug costs in each of these categories. We
determined that close to 25 percent of Part D enrolled beneficiaries
with drug utilization (beneficiaries with at least one PDE during the
study period) during 2006 and 2007 had annual gross drug costs of at
least $3,000. Therefore, we lowered the cost threshold to $3,000 in the
2010 Call Letter. Based upon our analysis of the more recent data in
2010, we concluded that this threshold would ensure that approximately
25 percent of the beneficiaries using the Part D benefit would receive
MTM services, and we codified the $3,000 threshold, as updated annually
by the annual percentage increase in the average per capita aggregate
expenditures for Part D drugs for Part D eligible individuals under
Sec. 423.104(d)(5)(iv) in the April 2010 final rule entitled, ``Policy
and Technical Changes to the Medicare Advantage and Medicare
Prescription Drug Benefit Programs'' (75 FR 19818). The threshold is
currently $3,144 in 2013.
However, the use of lower cost generics has been increasing since
the Part D program began, so the application of this threshold may
exclude many beneficiaries who are in need of MTM services. We believe
this increase in the use of lower cost generics may contribute to low
MTM program enrollment rates which currently hover around 8 percent,
and may also be a driver in racial disparity in MTM program enrollment.
Additionally, prior work, including the RBRVS approach described
previously, assigns relative risk of needing MTM services using the
number of indications that an individual has and the number of
medications that he or she is taking, but does not address a cost
threshold. Consequently, we are concerned that there are a number of
beneficiaries who need MTM, but are not currently eligible because they
do not meet the current cost threshold of $3,144, despite the increased
likelihood of having drug therapy problems as a result of having
multiple chronic diseases and taking multiple medications. Moreover,
the current cost threshold may have the unintended consequence of
causing beneficiaries to no longer qualify for MTM services in the next
plan year (whether remaining in the same plan or enrolling into a new
plan) if they fall below the cost threshold as a result of their
enrollment in plans that employ cost avoidant strategies, such as
aggressive use of generics, or in MTM programs that center on
therapeutic interchange.
Consistent with our proposal that sponsors must target enrollees
taking two or more Part D covered drugs for MTM services and taking
into account that one or more of these Part D drugs are likely to be
generics, we propose setting the annual amount in Part D drug costs at
an amount that represents the intersection of multiple conditions and
multiple drugs. Based on an analysis of PDE data, the average cost of a
generic prescription is $25.85. Because a very small percentage of
prescriptions are for more than 30 days, we assume that this amount is
the average cost for a 30-day generic prescription. Thus, the annual
total drug cost for a beneficiary filling two generic prescriptions is
$620.40. Accordingly, consistent with our proposal to determine a cost
threshold that is commensurate with the drug spending of beneficiaries
that meet the first two criteria regarding multiple conditions and use
of multiple covered Part D drugs, we would set the cost threshold at
$620, which is the approximate cost of filling two generic
prescriptions. We propose to revise this number periodically to reflect
more up-to-date information regarding the drug spending of
beneficiaries that have two or more chronic conditions and use two
covered Part D drugs. We remind sponsors that the drug costs used to
determine if the total annual cost of a beneficiary's covered Part D
drugs is likely to equal or exceed the specified annual cost threshold
for MTM program eligibility includes the ingredient cost, dispensing
fee, sales tax, and vaccine administration fee, if applicable. Because
the statute requires that plans target beneficiaries who ``are
identified as likely to incur annual costs for covered Part D drugs
that exceed a level specified by the Secretary,'' we encourage
sponsors, as most do now, to project annual costs for a beneficiary
based on costs from the preceding month or quarter.
We took a number of factors into consideration in deciding to
propose lowering the annual threshold to a level commensurate with the
drug spending of beneficiaries with multiple chronic diseases taking
two covered Part D drugs. Doing so promotes consistency among Part D
plans relative to the three eligibility criteria set forth in the
statute by factoring multiple conditions and multiple Part D drugs into
how the cost threshold is set. We know now that patients with multiple
conditions and taking multiple drugs have a higher probability of
having at least two drug therapy problems and could benefit from MTM.
More beneficiaries are using lower cost generic alternatives and no
longer meet the current cost threshold, which is over $3,000, and
studies have found that the current cost threshold may promote racial
disparities in MTM eligibility.
Based on an analysis of 2011 PDE data and 2011 RxHCCs from the Risk
Adjustment system, approximately 60 percent of Part D enrollees have
two or more chronic diseases were taking two or more Part D drugs and
incurred drug costs greater than or equal to $500. We found that 50
percent of Part D enrollees have two or more chronic diseases, were
taking two or more Part D drugs, and had drug costs of greater than or
equal to $1000. Therefore, we estimate that approximately 55 percent of
Part D beneficiaries will be eligible for MTM based on the proposed
criteria (two or more chronic diseases, two or more Part D drugs, and
likely to incur $620 in annual Part D drug costs).
The CMMI MTM study found that high-performing MTM programs not only
improved drug therapy outcomes but also maintained or lowered rates of
hospitalizations, ER visits, and associated costs. Therefore, more of
the Part D population can benefit from MTM services and these programs
can potentially positively impact the Medicare program as a whole
through improved medication use and lower healthcare costs. As a result
of this, we no longer believe that it is appropriate to target only 25
percent of the Part D populations, and only those beneficiaries with
high drug costs. This is consistent with our view in our January 2005
final rule where we stated that we believe that MTM must evolve and
become a cornerstone of the Medicare Prescription Drug Benefit. We also
intend that the Medicare Prescription Drug Benefit will serve as a
model for achieving quality

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improvement in prescription drug therapy.
Although we are proposing to set the annual threshold at a level
that is commensurate with the drug spending of beneficiaries with two
or more chronic diseases that use two covered Part D drugs, we
considered other alternatives. For example, we considered setting the
threshold at $900 or $1200, which roughly coincide with cost thresholds
achieved by taking three or four generic drugs. We solicit comment,
based on industry and MTM provider experience, on where this threshold
might be alternatively set.
Although we are proposing to broaden MTM eligibility, we also
believe there are special populations of beneficiaries for whom broader
targeting criteria will not adequately address barriers they may face
to receiving MTM services. The CMMI MTM study found that effective MTM
programs establish proactive and persistent CMR recruitment efforts.
These programs also utilize trusted community relationships, including
networks of community pharmacists, to recruit MTM eligible candidates
as well as existing working relationships between MTM providers
(pharmacists) and prescribers to make recommendations and discuss
identified problems for patients. Trusted community relationships are
an important tool that can be leveraged to reduce disparities in access
to MTM services, and other health disparities in general, faced by some
special populations of beneficiaries.
For example, LIS-enrollees are a diverse group and are more likely
than other Medicare enrollees to have a high burden of disability and
chronic disease, to have limited English proficiency, and to belong to
a racial or ethnic minority group. Although LIS-eligibility is not a
perfect indicator for the social determinants of health faced by those
with limited English proficiency or belonging to racial or ethnic
minorities, it is true that those with limited English proficiency, and
those belonging to racial and ethnic minorities are more likely than
other Medicare enrollees to be poor. Because this financial status is
frequently compounded by a variety of barriers to accessing health
insurance and care, these beneficiaries generally have a higher burden
of disability and chronic disease. As discussed previously, the use of
utilization-based criteria to target at-risk individuals who may not,
as a result of cultural norms or preferences, be high utilizers of
health care services is particularly troubling. This comes in spite of
evidence in treatment guidelines which suggests that they may need
targeted outreach. Such criteria may also miss other high-risk
individuals who use multiple low-cost generic drugs that present a
safety risk without reaching a cost threshold. More of these
beneficiaries will be eligible for MTM services due to the revised
criteria that we are proposing in this rule. However, there are
currently no requirements under our regulations that Part D plans
ensure that beneficiaries in these special populations receive focused
outreach or engagement to increase their participation in MTM.
Chronic disease and disability are common in the LIS population.
More than 80 percent of Part D enrollees who had spending high enough
to reach catastrophic coverage were LIS enrollees. Additionally, the
reassignment process can present additional challenges for LIS
enrollees such as new formularies, requirements for prior
authorizations, step therapy, or quantity limits, processes for
exceptions, appeals, and grievances, and contacting their plan. This
makes it more challenging for LIS enrollees to maintain access to their
drugs. Further, pharmacists at the point of sale frequently spend a
great deal of time with and on behalf of these enrollees as they face
formulary changes. This, in turn often generates high levels of
frustration for the enrollee, as he or she waits for the pharmacist to
resolve the issues, as well as for the pharmacist, as the effort
required to assist the customer approaches the level of service
furnished in MTM, but remains uncompensated.
Challenges faced by LIS enrollees in the Part D program are
exacerbated for those with limited English proficiency or who belong to
a racial or ethnic minority. For example, translators and multi-
language inserts currently required may not be adequate to address the
cumulative effects of race and ethnicity, lower levels of education,
and poverty that are frequently associated with individuals with
limited English proficiency. Moreover, messages conveyed by such
approaches may not be consistent with an individual's underlying
cultural beliefs and attitudes about medicine and therapy.
Another example involves the Indian Health Service, which is
staffed by many health care providers in the United States Public
Health Service and bears primary responsibility for caring for American
Indians and Alaska Natives. The Indian Health Service is comprised of
facilities operated by the Indian Health Service, tribes or tribal
organizations pursuant to the Indian Self-Determination and Education
Assistance Act, and urban Indian organizations pursuant to title V of
the Indian Health Care Improvement Act. When the majority of American
Indians and Alaska Natives live outside reservation land, where most
IHS/tribal facilities are located, barriers in access to care are seen
in both rural and urban landscapes, where there is limited availability
of providers or limited offering of services, respectively.
Transportation to IHS/tribal facilities may be a barrier and, the
PharmPAC report also indicates that the patient-perceived benefit of
paying monthly premiums, in light of 100 percent coverage of health
care expenses for eligible patients, may also reduce participation in
MTM services. The PharmPAC report goes on to state that the Public
Health Service Pharmacy program has apprehension about contracting with
Part D plans offering MTM programs because limited compensation by Part
D plans for MTM services is not cost-effective to implement on a
national scale.
We believe that the difficulties faced by special populations of
beneficiaries represent important opportunities for robust MTM services
that, when associated with early completion of CMRs, will help
beneficiaries navigate the reassignment process, better reward
pharmacists for the level of effort needed to serve these
beneficiaries, and provide another option for sponsors to manage high
cost beneficiaries. We have previously discussed the impact of one-to-
one counseling by State Health Insurance Assistance Programs, and a
growing body of evidence indicates that the person-to-person aspect of
MTM (including through the use of telehealth technologies) has the
potential to yield multiple benefits that warrant more effective
outreach by sponsors to LIS beneficiaries and those with limited
English proficiency or who belong to a racial or ethnic minority. As we
see with the proportion of LIS-eligible-but-unenrolled beneficiaries
who have to apply to qualify for subsidies, generalized attempts at
outreach are not sufficient to increase enrollment. Because of the wide
variety in social determinants that contribute to barriers in access to
coverage and care, individualized approaches to target populations such
as LIS-eligible, limited English proficiency, racial and ethnic
minorities, including American Indians and Alaska Natives, within the
larger MTM-eligible population will likely require a multi-faceted
approach. Thus, the opt-out method of enrolling targeted beneficiaries
into MTM at Sec. 423.153(d)(1)(v) may only partly

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address the increased barriers to care faced by this group.
We are concerned that such social determinants contribute to
persistently low MTM enrollment and participation despite attempts to
broaden the criteria. As we have gained more experience with the MTM
programs, we have become concerned with the number of simplistic,
generalized strategies that have been implemented for delivering MTM
services. We believe that Part D sponsors' strategies for outreach and
service provision cannot be ``one size fits all'' and must be
appropriately geared to social and demographic subpopulations within
the overall targeted population in order to be effective. As discussed
previously, the CMMI MTM study identified that high-performing MTM
programs engage in multi-pronged, persistent efforts to recruit
Medicare beneficiaries to CMRs and often use effective and diverse
communication modalities such as person-to-person interactions, phone
calls, or community contacts (through networks of trusted community
pharmacists), if needed. Moreover, as illustrated in the example of the
Indian Health Service, this may also include negotiating rates more
acceptable to MTM providers that beneficiaries perceive as more
accessible and trustworthy.
Consequently, we are interpreting section 1860D-4(c)(2)(D) of the
Act, which requires plans to have in place a process to assess
medication use of individuals who are at-risk but not enrolled in MTM,
to require Part D sponsors to establish effective strategies that
ensure access to MTM services for all eligible beneficiaries. The
statutory requirement to assess the medication use of at risk
beneficiaries should encompass the requirement that plan sponsors
better address barriers in access to MTM services and improve
participation rates, particularly at the start of enrollment in the
plan, faced by those with limited English proficiency, those who belong
to racial and ethnic minorities, or who are LIS enrollees. Without
being prescriptive about what strategies must be employed, we are
proposing that sponsors develop an effective strategy to ensure access
to services for all MTM-eligible beneficiaries, including those who
have disabilities or who have limited English proficiency.
Specifically, we propose to revise Sec. 423.153(d)(1)(v) to include
the requirement that a Part D sponsor must ``have an outreach strategy
designed to effectively engage all at-risk beneficiaries enrolled in
the plan.''
Sponsors have previously commented to us that they have difficulty
reaching many individuals in these special populations because of
inconsistent or incorrect contact information. While this certainly
presents an added challenge, plan sponsors could, for example, analyze
fill data, and partner with pharmacies they know that a particular
beneficiary or populations of beneficiaries frequent. Incorporating the
pharmacies that targeted individuals utilize into the MTM program may
be a particularly effective strategy for successful outreach that will
lead to enrollment in MTM programs that is more broadly representative
of the breadth of demographic segments in the targeted population. We
believe that current plan reporting requirements, along with other CMS
data sources, will be sufficient for us to evaluate the impact of such
strategies. We solicit stakeholder comment on other important
strategies that might prove successful in improving access to MTM
services which could be considered at a later time. This proposed rule
may be of interest to, and affect, American Indians/Alaska Natives.
Therefore, we plan to consult with Tribes during the comment period and
prior to publishing a final rule. We also intend to monitor best
practices as sponsors implement more effective strategies and may
consider imposing additional requirements in future rulemaking.
In summary, we are proposing revisions to the MTM eligibility
criteria to target beneficiaries who have two or more chronic
conditions, with at least one being a core chronic disease, who are
taking two or more covered Part D drugs, and who have annual Part D
drug costs commensurate with the drug spending of beneficiaries with
two or more chronic diseases that use two covered Part D drugs. By
decreasing the number of chronic diseases and medications and lowering
the cost threshold for MTM eligibility, we anticipate that more
beneficiaries will have access to MTM services which have been shown to
improve drug therapy outcomes and decrease healthcare costs. We believe
that these changes will simplify the MTM criteria and minimize
beneficiary confusion when choosing or transitioning between plans. We
believe these changes will also reduce disparities within the Part D
beneficiary population and allow more beneficiaries with drug therapy
problems to receive MTM. Additionally, broadened criteria, when paired
with more effective strategies for outreach and access to MTM services,
will more appropriately reach those individuals in need of these
services. We remind sponsors that these proposed changes represent the
minimum requirements, and that they may target additional
beneficiaries. Effective MTM programs strengthen the Part D program and
improve its overall value and, we note, our 5-star plans have
consistently made significant investments in MTM.
16. Business Continuity for MA Organizations and Part D Sponsors (Sec.
422.504(o) and Sec. 423.505(p))
A variety of events ranging from power outages to disasters and
warnings of disasters can disrupt normal business operations, and when
these events occur it is important to ensure beneficiary access to
health care services and drugs. Sections 1852(d) and 1860D-4(b) of the
Act, respectively applicable to Parts C and D, establish access to
services and covered Part D drugs as a core beneficiary protection.
After Hurricane Sandy it became apparent that a few entities,
particularly those with operational centers and/or information
technology (IT) resources physically located in the affected areas, did
not have consistent continuity plans or back-up systems and processes
to ensure ongoing coordinated deployment of critical staff to alternate
locations.
Sections 1857(e)(1) and 1860D-12(b)(3)(D) of the Act authorize the
Secretary to adopt additional contract terms for, respectively, MA
organizations and Part D sponsors, including section 1876 cost
contracts and Program for the All-Inclusive Care for the Elderly (PACE)
organizations that provide qualified prescription drug coverage, that
are not inconsistent with Parts C and D, respectively, of Title XVIII
of the Act, when the Secretary finds it necessary and appropriate.
Hereafter, all proposed requirements described in this section as
applicable to Part D sponsors, also apply to section 1876 cost contract
and PACE organizations that provide qualified prescription drug
coverage. While a limited number of beneficiaries were affected by
problems on the part of a small number of entities as a result of
Hurricane Sandy, the goal of consistent disaster response remains: All
MA organizations and Part D sponsors must limit the beneficiary impact
of unavoidable disruptions and must ensure rapid restoration of
operations. Accordingly, we propose to add contract provisions to
require that MA organizations and Part D sponsors develop and maintain
business continuity plans in order to better anticipate the types of
disruptions that could occur and then implement policies and procedures
to reduce interference with business operations. We believe this is
appropriate to ensure

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that Medicare beneficiaries have access to the care and coverage
contemplated by the statute.
The proposed provision would, in Sec. 422.504(o)(1) and Sec.
423.505(p)(1), require that every MA organization and Part D sponsor
develop, maintain, and implement a business continuity plan that meets
certain minimum standards. In Sec. 422.504(o)(1)(i) and Sec.
423.505(p)(1)(i), we propose that the business continuity plan must
assess risks posed to critical business operations by disasters and
other disruptions to business as usual, be they natural, human, or
environmental. Proposed Sec. 422.504(o)(1)(ii) and Sec.
423.505(p)(1)(ii) would impose a requirement that the business
continuity plan contain a mitigation strategy to lessen hazards,
identify essential functions, and prioritize the order in which
functions are restored to normal operations; proposed paragraphs
(1)(iii) through (v) contain other minimum requirements for the
business continuity plan, discussed in more detail in the following
paragraphs. In paragraphs (o)(2) of Sec. 422.504 and (p)(2) of Sec.
423.505, we propose essential functions that must be restored within 24
hours of a failure, disaster, emergency, or other disruption.
In paragraph (1)(ii) of Sec. 422.504(o) and Sec. 423.505(p), we
would require MA organizations and Part D sponsors to mitigate those
risks through a variety of strategies, specifically, by: (A)
Identifying events (triggers) that would activate the business
continuity plan; (B) developing plans to maintain the availability and,
as applicable, the confidentiality of hard copy and electronic
essential records, including a disaster recovery plan for IT and
beneficiary communication systems; (C) establishing a chain of command,
which would ensure that employees know the rules of succession; (D)
creating a communications plan that includes emergency capabilities and
means to communicate with employees and third parties; (E) establishing
procedures to address management of space and transfer of employee
functions; and (F) establishing a restoration plan with procedures to
transition back to normal operations. Finally, we also propose, at
(1)(ii)(G) in Sec. 422.504(o) and Sec. 423.505(p), that the business
continuity plan comply with all applicable federal, state, and local
laws. In light of the nature of the records an MA organization and Part
D sponsor would have in its possession, we propose to emphasize
continuing compliance with the contingency plan requirements of the
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
Security Rule (45 CFR Parts 160 and 164, Subparts A and C) by including
a cross-reference to those requirements in paragraph (1)(ii)(B)(2).
These areas of responsibility are essential to continuing the business
operations that allow beneficiaries to access health care services and
covered Part D drugs.
To better ensure that a business continuity plan works as a
practical matter, we next propose in Sec. 422.504(o)(1)(iii) and (iv)
and Sec. 423.505(p)(1)(iii) and (iv) to require that on an annual
basis, each MA organization and Part D sponsor test and revise the plan
as necessary, and train employees on their responsibilities under the
plan. Sections 422.504(o)(1)(v) and 423.505(p)(1)(v) would require that
MA organizations and Part D sponsors keep records of their business
continuity plans that would be available to CMS upon request.
We do not believe the broad list of areas that we propose be
covered by business continuity plans are new to MA organizations and
Part D sponsors. Rather, these topics typically appear in standard
business continuity plans. And we are also building on some
requirements that already exist under federal and state laws. For
instance, with respect to electronic protected health information,
health plans have long had to comply with the contingency plan
requirements found in the HIPAA Security Rule. Indeed, our goal is to
provide a list broad enough to align with the business contingency
plans that we believe most, if not the vast majority, of MA
organizations and Part D sponsors already have in place.
In contrast to the aforementioned list of broad content
requirements, we believe the need to protect beneficiary access
requires a prescriptive approach for some functions. In paragraphs
(o)(2) and (p)(2), as part of the proposal that essential functions
must be restored within 24 hours of failure (whether due to disaster,
emergency, or other disruption), we identify what we believe are the
minimum essential functions for each MA plan and Part D plan: Benefit
authorization, if authorization requirements have not been waived, and
claims adjudication and processing; an exceptions and appeals process;
and call center operations. Given the mandate of the Act to ensure
beneficiary access to health care and covered Part D drugs and the
inability of many beneficiaries to pay for services or drugs without
the Medicare benefit, we believe that the operations listed in the
proposed regulations are the most essential operations because they
directly support the provision of Part C and D benefits. They ensure
immediate electronic communication on the availability and extent of
Part C and D benefits and also provide support that makes it more
likely that Medicare benefits will be appropriately and timely provided
(for example, by providing telephone assistance to beneficiaries with
questions on how to obtain benefits and maintaining a forum in which
beneficiaries can challenge benefit denials). Without real time
provision of Medicare benefits, beneficiaries might not pay for the
entire cost of the services or drugs and therefore go without necessary
treatment.
We believe the operations listed here are the essential operations
which must be restored in a rapid time frame. We intend our proposed
deadline of 24 hours to be the outside limit and would expect MA
organizations and Part D sponsors to restore operation of essential
functions as soon as possible but not later than 24 hours after they
fail or otherwise stop functioning as usual. The clock would begin
running in cases of total failure (for example, a computer or
telecommunications system crashes or stops working after disruption of
the power supply) and also when significant problems occur (for
example, a central database is corrupted).
The need to ensure correct claims adjudication and benefit
administration of health care services and drugs is no less acute
during emergencies. A disaster or other disruption in one part of the
country may disable computer systems that service areas across the
country that have not otherwise been disrupted. Beneficiaries in those
unaffected areas who were denied health care or drug benefits (that is,
access to drugs or reimbursement for claims paid out of pocket) before
the disruption took place should not be denied the right to immediately
challenge those denials or to learn timely the resolution of earlier
challenges. As proposed, Sec. 422.504(o)(2)(i) and Sec.
423.505(p)(2)(i) identify benefit authorization (if authorization
requirements have not been waived) and claim adjudication and
processing as essential functions which must be operational within 24
hours. We intend that this proposed regulation would require
restoration of those operations for services rendered at a hospital,
clinic or provider office or at the point of sale for Part D covered
drugs. This function is essential for both Medicare Advantage and Part
D plans.
In addition, we also propose standards specific to Part D sponsors
in Sec. 423.505(p)(2)(ii) and (iii) to ensure that a beneficiary who
presents at a

[[Page 1955]]

pharmacy with an appropriate prescription for a covered Part D drug
during a disruption will be more likely to walk away with the drug in
hand. The first three prongs under proposed Sec. 423.505(p)(2) would
classify as essential the following functions: (i) Authorization,
adjudication and processing of pharmacy claims at the point of sale;
(ii) administration and tracking of enrollee's drug benefits in real
time, including automated coordination of benefits with other payers;
and (iii) provision of pharmacy technical assistance. These essential
tasks entail numerous sub-functions. For instance, Part D sponsors
would need to restore within the 24 hour return to operations (RTO) all
computer and other systems that meet all privacy and security
requirements in order to communicate to pharmacies information about
topics including: Coverage under Part D and the specific plan; cost-
sharing and deductibles; any restrictions such as prior authorization,
step therapy, or quantity limit edits; and coordination of benefits
from other insurers and any low income subsidies. Additionally, the
sponsor would need to undertake a concurrent drug utilization review
(DUR) to address, for instance, safety issues, as well as restore its
pharmacy help desk to provide prompt answers to any questions
pharmacies might have. (For more detail on some of these functions and
sub-functions, as related to Part D, please see the preamble to section
III. A. 17 of this proposed rule entitled, ``Requirement for Applicants
or their Contracted First Tier, Downstream, or Related Entities to Have
Experience in the Part D Program Providing Key Part D Functions''.)
Proposed Sec. 422.504(o)(2)(ii) and Sec. 423.505(p)(2)(iv) would
classify as an essential operation an enrollee exceptions and appeals
process including coverage determinations. Under this provision, within
24 hours of failure, MA organizations and Part D sponsors would need to
restore all IT and workforce support necessary to maintain the ``safety
net'' that ensures beneficiaries the right to appeal or to seek a
formulary exception.
Finally, for both MA organizations and Part D sponsors, we propose
that the operation of the call center be an essential function which
must be restored within 24 hours. By classifying operation of the call
center as essential, proposed Sec. 422.504(o)(2)(iii) and Sec.
423.505(p)(2)(v) would ensure that beneficiaries can receive the
information necessary to find out where they need to go to access
benefits and learn about any special rules that might apply (for
example, whether pre-authorization requirements are waived or
beneficiaries can obtain benefits at out-of-network providers or
pharmacies) by requiring MA organizations and Part D sponsors to
restore operation of call center services within 24 hours. Enabling a
beneficiary who has just been denied Part D coverage at his or her
usual pharmacy to call immediately and speak to a customer service
representative while still standing in that pharmacy can ensure that he
or she obtains drugs appropriately covered by his or her Part D plan
before returning home or moving to a safer area.
Furthermore, because it may be difficult during a disaster to get
to a provider's office or a pharmacy, we believe it is also important
that benefit authorization, claims adjudication, and call center
operations be restored within 24 hours after failure. While our
proposed provision would require MA organizations and Part D sponsors
to coordinate their workforce, facilities, and IT and other systems
support to meet the 24 hour RTO, we believe that the vast majority of
MA organizations and Part D sponsors already meet, or if not, would be
able to meet this requirement with their current resources, based upon
our knowledge of the industry and as evidenced by the lack of
widespread problems with MAO and Part D operations that resulted after
recent natural disasters in different parts of the country. MA
organizations and Part D sponsors would not be required to take any
prescribed actions (for example, there is no requirement for redundant
systems located at certain distances apart). Rather, the 24 hour RTO
would allow MA organizations and Part D sponsors the flexibility to
continue to seek their own disaster preparedness solutions (for
instance, vendor sites or functions spread across facilities).
Our goal in proposing a contractual requirement for business
continuity plans is to ensure beneficiary access to health care
services and Part D drugs during disasters and other interruptions to
regular business operations. We view prior planning as essential to
achieving this goal. We specifically solicit comments regarding which
functions should be identified as essential operations and the 24-hour
timeframe for RTO and would appreciate any information unique to the
role of MA organizations and Part D sponsors.
17. Requirement for Applicants or Their Contracted First Tier,
Downstream, or Related Entities To Have Experience in the Part D
Program Providing Key Part D Functions (Sec. 423.504(b))
Since its establishment in 2006, the Medicare Part D program has
matured into a generally stable, well functioning program, and the Part
D sponsors (as well as their first tier, downstream, and related
entities (FDRs)) with which CMS contracts have developed vast expertise
in the operational complexities of the program. While we will continue
to fine tune the program through rulemaking, guidance, and additional
oversight procedures, we believe the program has largely entered a
mature stage. Despite this progress, we still find ourselves spending a
disproportionate amount of resources and attention on the operations of
new Part D sponsors where neither the new sponsor nor its supporting
FDRs have experience with Part D. In an environment where there is an
abundance of Part D industry expertise, we are committed to
establishing an approach to contracting with new Part D sponsors that
ensures that they take advantage of that expertise and experience in
the development of their Part D program operations.
To address this problem, pursuant to our authority at section 1860D
12(b)(3)(D) of the Act to adopt additional contract terms, not
inconsistent with the Part C and D statutes, that are necessary and
appropriate to administer the Part D program, we are proposing to adopt
provisions that would require any entity seeking to contract as a Part
D plan sponsor (as a stand alone prescription drug plan sponsor or as a
Medicare Advantage organization offering Part D benefits) to have
arrangements in place such that either the applicant or one of its
contracted FDRs has one full benefit year serving as a Part D plan
sponsor, or at least one full benefit year of experience performing key
Part D functions for another Part D plan sponsor. The applicant or a
contracted FDR will be required to have obtained that experience within
the two years preceding the Part D sponsor qualification application
submission. Under this proposal, the experience requirement would be
met by an entity seeking to contract as a Part D plan sponsor if its
parent or another subsidiary of that parent already holds a Part D
sponsor contract that has been in effect for at least one year at the
time of the application submission.
Of course, all applicants and their FDRs were new to the Part D
program

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in 2006, so we necessarily went forward with partners that may have had
significant drug benefit administration experience, but no experience
with the unique features of Part D. In 2014, there will be
approximately 310 parent organizations that own 578 legal entities
offering 881 contracts for Part D. In addition, more than 300
organizations (including Part D sponsors and their FDRs) perform key
Part D functions on behalf of the Part D sponsors. Given this large
number of organizations with Part D experience available to serve
beneficiaries, we believe it is in the Part D program's best interest
to be more discriminating about the entities with which we partner to
deliver the Part D benefit.
New, inexperienced entities may be more likely to fail in all or
some key Part D functions, causing harm to beneficiaries and requiring
us to devote significant resources providing technical support to the
new Part D sponsor in order to protect the Medicare beneficiaries
enrolled in the sponsor's plan(s). Given the wealth of available Part D
expertise that now exists, it is justifiable for us to require that new
applicants to the program bring with them Part D experience so that we
can better protect Part D enrollees and minimize unnecessary
expenditures of resources by us in correcting avoidable problems.
We have determined that prior experience offering drug benefits in
the commercial insurance or Medicaid markets is no longer a sufficient
substitute for experience operating the Part D benefit. The Medicare
drug benefit is fundamentally different from other drug benefits, with
unique and operationally complex provisions, including transition fill
requirements, protected class medication formulary requirements, low
income subsidy administration, Part A and B versus Part D coverage
determinations, requirements related to the tracking of true out of
pocket costs, and requirements related to the coordination of benefits
with other payers in real time. When neither a Part D sponsor, nor its
FDRs providing key Part D functions, has any experience delivering Part
D benefits, the consequences can be disastrous for beneficiaries and
highly disruptive for the program and CMS. In a recent plan year, we
placed a new PDP sponsor, where neither it nor its FDR had PDP
experience, under an immediate enrollment and marketing sanction just
months after the organization began its PDP operations. The sponsor had
experienced widespread failures across all of the most important PDP
operational areas and was unable to fix its problems without hiring
additional staff and contractors with PDP experience. In this case,
among other deficiencies, this sponsor had inappropriately rejected
drug claims at the point of sale; failed to properly process coverage
determinations (that is, requests for drug coverage or payment and
reimbursement); denied enrollees the chance to appeal rejected claims
and failed to ensure that denied coverage determinations were reviewed
by an independent third party; and failed to process enrollment and
disenrollment requests, or failed to properly process enrollment
transactions. In short, the PDP sponsor was not providing the PDP
benefit to its members. This became obvious when the rate at which we
received beneficiary complaints about the sponsor for the first 4
months of operation was more than 225 percent higher than the average
rate at which we received complaints about all other PDP sponsors for
the same period. We were forced to dedicate significant resources and
personnel to addressing the sponsor's systemic failures.
We believe that these failures would not occur, or would be less
catastrophic, if either the Part D sponsor or its supporting FDRs have
had experience actually performing key Part D functions. When both the
new sponsor and its FDRs lack experience in Part D, there is no source
of Part D expertise associated with the operation of a Medicare
contract that could be counted on not only to establish and maintain
systems that would ensure the effective delivery of the drug benefit,
but also to identify emerging operational problems and promptly develop
and implement necessary corrective action plans. Thus, we have found
that the marriage of Part D novices under a single contract has proven
to be a particularly risky and disruptive combination.
At the heart of the Part D benefit is the sponsor's ability to
process claims for prescription drugs in real time because, unlike
health benefits, where claims payment normally follows the delivery of
services, pharmacies require confirmation of claims payment at point of
sale either from an insurer or payment from the individual. While there
are many operational functions that must run smoothly for a Part D plan
to be successful (for example, pharmacy network development/
maintenance, enrollment processing, prescription drug discount
negotiation, and provision of customer service), we are proposing to
require Part D experience in only three critical areas in which
beneficiaries are particularly vulnerable should the sponsor
demonstrate significant non compliance. We believe limiting our new
requirement proposal to just three targeted areas offers a balanced
approach which protects beneficiaries while at the same time provides
needed flexibility to new sponsors to structure their business
arrangements to address the dozens of other Part D functions. The three
areas for which we are proposing to require prior experience in Part D
at the time of application to become a new Part D sponsor are
(1) Authorization, adjudication and processing of pharmacy
claims at the point of sale;
(2) Administration and tracking of enrollees' drug
benefits in real time, including automated coordination of benefits
with other payers; and
(3) Operation of an enrollee appeals and grievance
process.
It is in these three areas where--in our view, based on our
experience with Part D enrollee health is placed at the most
significant risk by Part D sponsor compliance failures. Further, our
audit work has indicated that these are the operational areas where
sponsors are most likely to have significant failures that require
immediate corrective action. While other areas, like enrollment
processing, also present risks of direct beneficiary harm, our
experience has shown that organizations usually can overcome enrollment
problems in a manner that minimizes direct beneficiary harm fairly
quickly. Also, our audit findings have shown far fewer serious problems
in the enrollment area compared to the three selected areas (see http://www.cms.gov/Medicare/ComplianceandAudits/PartC
andPartDComplianceandAudits/Downloads/
2012PartCPartDProgramAuditAnnualReport.pdf).
Authorization, adjudication and processing of pharmacy claims at
the point of sale are the most basic features of the Part D program,
allowing Part D plan enrollees to have their prescriptions filled at
the pharmacy counter. When presented with a prescription by a
beneficiary, the pharmacy communicates electronically with the Part D
sponsor to determine eligibility, coverage, and cost sharing for the
item according to the formulary and benefit structure of the plan in
which the beneficiary is enrolled. Aspects of eligibility and coverage
unique to Part D include eligibility for the Low Income Subsidy and
transition benefits. Assuming that the sponsor informs the pharmacy
that the prescribed drug is covered under the beneficiary's plan, the
pharmacy charges the beneficiary the appropriate cost share or
deductible amount, as determined by the plan

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sponsor. The Part D sponsor also uses the online, real time system to
conduct concurrent drug utilization review (DUR), a process through
which pharmacists receive a message warning of potential safety issues
given the drug requested and the patient's drug history. If any of the
cost sharing information is incorrect, or if the claim fails to
adjudicate electronically for any reason, the beneficiary may be forced
to pay out of his own pocket costs that are not his responsibility or
leave the pharmacy without his prescription drugs. If concurrent DUR is
not performed correctly, the beneficiary's health and safety is at
risk.
Administration and tracking of enrollees' drug benefits in real
time refers to a Part D sponsor correctly adjudicating the formulary it
had submitted to CMS and that had been approved by CMS, along with
accurately tracking an enrollee's drug spend within the Part D benefit,
and coordinating benefits in real time with other payers. Sponsors must
insure that the drug dispensed meets the definition of a covered Part D
drug, including a medically accepted indication that is not otherwise
covered under Part A or B of Medicare. Sponsors must also insure that
any approved prior authorization, step therapy, and quantity limit
edits are processed consistent with those approved by us, so that drugs
are not denied inappropriately at the point of sale. Sponsors are also
required to insure that enrollees are charged correct cost sharing, as
amounts vary depending on the drug's tier placement, the enrollee's
drug spend to date, contributions from other payers, and other factors
such as whether the beneficiary receives a low income subsidy.
Critically, compliance also includes correct application of our
transition requirements, which is a beneficiary protection that is
unique to Part D, and ensures beneficiaries facing a situation where
their drugs are not on the plan's formulary have access to a temporary
fill of the prescription, giving beneficiaries time to switch to
another drug or seek a formulary exception. Failures in this area can
have significant negative health consequences for enrollees because
they are likely to be denied access to Part D drugs or face incorrect
charges at the point of sale.
The third key function we selected as part of the experience
requirement is operation of an enrollee appeals process (including
coverage determinations). A sponsor's appeals operations serve as a
``safety net'' for improper benefits administration. Medicare enrollees
have the right to contact their sponsor to make a complaint about the
denial of coverage for drugs or services to which the enrollee believes
he or she is entitled. Generally, sponsors are required to classify and
process complaints about coverage for drugs or payment as a request for
a coverage determination or appeal. Improper processing of a coverage
determination denies an enrollee their due process and appeal rights
and may delay an enrollee's access to medically necessary, even life
sustaining services or drugs. There are different decision making
timeframes for the review of coverage determinations and appeals. We
have a beneficiary protection in place that requires plans to forward
coverage determinations and redeterminations to an Independent Review
Entity (IRE) when the plan has missed the applicable adjudication
timeframe. If the plan sponsor reverses its initial adverse coverage
determination or the IRE reverses the plan sponsor's adverse decision,
the plan sponsor must correctly authorize or provide the benefit under
dispute within the timeframes set forth in regulation. If the plan
sponsor does not effectuate the decision timely and correctly, this can
result in delays to an enrollee's access to medically necessary or even
life sustaining drugs. Thus, the appeals process is a vital beneficiary
protection that serves as the beneficiary's safety net when something
goes wrong with claims adjudication or benefit administration, and once
again, directly affects a beneficiary's access to prescription drugs.
Under our proposal, multiple separate organizations could together
combine their experience to meet the prior qualification requirements
for the three key Part D functions. That is, no one single entity would
need to have prior experience in all three areas. Rather, the
requirement would be for the Part D applicant in combination with its
FDRs, if any, to have Part D experience covering the three key
functions.
We believe there will be minimal impact on the prescription drug
benefit administration market stemming from our proposal, particularly
since large numbers of experienced organizations currently perform this
Part D work. Fifty nine entities currently perform authorization,
adjudication and processing of pharmacy claims at the point of sale; 66
entities perform administration and tracking of enrollees' drug
benefits in real time; and 203 entities operate an enrollee appeals and
grievance process. The ready availability of entities that would meet
the criteria we establish here is demonstrated by the fact that the
vast majority of new Part D sponsors each year choose to contract with
experienced Part D FDRs. For example, as of late May 2013, there are 21
new organizations (at the parent level) with active Part D contract
qualification applications for 2014, and each applicant has contracted
with an FDR having at least one year of recent Part D experience. Some
of the applicants for 2014 that attempted to apply with inexperienced
entities performing the selected key functions withdrew their
applications upon learning that they contained significant
deficiencies.
Our proposal also does not prohibit additional organizations from
gaining Part D experience in the selected key functional areas. Should
an organization wish to become a new Part D FDR for one or more of the
key functions, this ``novice'' entity could provide the service for
just one of the hundreds of existing Part D sponsors. After a period of
one year, the novice entity would then be qualified to provide its
services to existing Part D sponsors as well as partner with new Part D
applicants. We are comfortable with this scenario because during the
novice entity's first year gaining Part D experience the existing Part
D sponsor would apply its knowledge of how to oversee its FDRs, have
institutional knowledge of the functional area, understand the
complexity of the program, and know the risks of failing to implement
the program successfully.
In the somewhat the opposite scenario, a new Part D sponsor
contracting with experienced FDRs will have the opportunity to gain its
experience in the key Part D functions by working closely with its
FDRs, developing in house expertise, and providing oversight. After a
period of one or more years, if desired, the Part D sponsor itself
could conceivably take responsibility for carrying out one or more of
the key Part D functions. We fully believe that our proposed approach
allows for new organizations to develop Part D expertise, yet minimizes
the significant risk to beneficiaries that would be caused by the types
of widespread failures we have seen in the selected key Part D
functions performed by inexperienced entities.
While our proposal does not require the Part D experience to be
current at the time of an application to become a Part D sponsor, we
are proposing that the experience be recent (that is, within the past 2
years) and have lasted for at least one full benefit year. As stated
previously, the Part D program is complex, and program policies evolve
each year, requiring organizations working in Part D to adapt and
adjust

[[Page 1958]]

their operations. We believe that any experience older than 2 years
would be out of date and would not represent experience with the
current state of the Part D program. As for our proposed requirement
that the experience be for at least a term of one full benefit year,
this approach is appropriate because operating the benefit involves
cyclical activities, some of which take place only one time per year,
and thus an organization can only gain full experience by operating its
Part D functional area for an entire benefit year.
We intend to implement this proposal through our existing Part D
contract qualification application process, and we have proposed to
amend Sec. 423.504(b) accordingly. Today, at the time of application,
an entity seeking a Part D sponsor contract must provide evidence that
it has contractual arrangements in place for any key Part D function
that the applicant itself will not be performing. For the three key
functions identified under this proposal, new application procedures
will require the applicant to submit evidence that the entity to
perform such functions (whether itself or an FDR) has provided the same
function for another Part D sponsor within the past 2 years, for at
least one full benefit year. Applicants with existing Part D contracts
or whose parents or other subsidiaries of the same parent hold Part D
contracts will not be required to submit evidence of their Part D
experience.
18. Requirement for Applicants for Stand-Alone Part D Plan Sponsor
Contracts To Be Actively Engaged in the Business of the Administration
of Health Insurance Benefits (Sec. 423.504(b)(9))
The Medicare prescription drug benefit program has matured into a
generally stable, well-functioning program, and the Part D sponsors
with which CMS contracts have developed vast expertise in the
operational complexities of the program. The market for stand-alone
Part D Prescription Drug Plans (PDPs) has also matured significantly
since the program's inception and what was once a novel product is now
available to residents of every state from multiple sponsors who offer
several plan options. Over the same period, we have noticed that the
Part D program has in some cases attracted sponsors wishing to offer
stand-alone PDPs who have no prior experience in the delivery of health
or prescription drug insurance benefits, often to the detriment of the
Part D program and the Medicare beneficiaries who elect plans offered
by these sponsors. We are committed to establishing an approach to
contracting with organizations new to the stand-alone PDP program that
ensures that their first experience in the health insurance and health
benefits market is not as the sponsor of a stand-alone PDP.
To address this problem, we are proposing, pursuant to our
authority at section 1860D-12(b)(3)(D) of the Act to adopt additional
contract terms that are necessary and appropriate to administer the
Part D program, regulatory provisions that would require any entity
seeking to contract as a stand-alone PDP sponsor, to have either
actively provided health insurance or health benefits coverage for 2
continuous years immediately prior to submitting a contract
qualification application, or provided certain prescription drug
benefit management services to a company providing health insurance or
health benefits coverage for 5 continuous years immediately prior to
submitting an application. This requirement would not apply to an
entity seeking to contract as the sponsor of a stand-alone PDP if its
parent or another subsidiary of itself or its parent possesses the
requisite experience.
This proposal may appear similar to the immediately-preceding
proposal (section III.A.17) of this proposed rule requiring, at Sec.
423.504(b)(8), that new Part D sponsors engage first tier, downstream,
and related entities with prior Part D experience. However, the
proposed change we are discussing in this section, which we propose to
codify at Sec. 423.504(b)(8), would apply only to entities seeking to
contract as a Part D sponsor of a stand-alone PDP, whereas the proposed
requirement at Sec. 423.504(b)(8) would apply to all new Part D
sponsors, including those seeking to contract as Medicare Advantage
organizations offering Part D through an MA-PD plan. We are proposing
both requirements because the problems encountered by new PDP sponsors
with no experience in the health insurance market are distinct from
those encountered by new PDP sponsors and MA organizations who use PBMs
with no experience in the Part D market. New PDPs with no prior health
insurance or health benefits experience have demonstrated significant
problems even when using experienced PBMs.
The Part D program has matured to the point where beneficiaries in
every state now have access to several options for basic and enhanced
stand-alone Part D coverage. In 2013, there is an average of 15
enhanced stand-alone plans and 16 basic plans per PDP Region and no
region had fewer than 23 plans from which beneficiaries may choose.
These numbers are consistent with the quantity of available PDPs in
recent benefit years and are well above the minimum of two plans per
region required by section 1860D-(a)(1) of the Act. Also, a total of 57
parent organizations that own 72 legal entities hold 75 Part D
contracts for stand-alone PDPs, numbers that indicate that CMS has kept
the PDP marketplace open to a significant number of entities that
compete to serve beneficiaries.
Among the patterns we have identified during our implementation and
administration of the Part D program is the extent to which the program
has attracted organizations with no experience in the delivery of
health or prescription drug benefits prior to their entry into the Part
D program. These organizations often have experience in other lines of
business, such as information technology, or are formed by investment
groups with no other health care business for the sole or primary
purpose of entering the Part D market. The Part D program is
effectively used by these organizations as a means to finance their
first (and often only) foray into the health insurance or health
benefits industry. It appears to CMS that these sponsors view the Part
D program as simply another line of business to which they can
profitably apply their information management expertise, especially if
they believe they can sell these new contracts to a larger participant
at a substantial profit after several years. While relatively few
sponsors fit this profile each year, they have caused disproportionate
problems for beneficiaries and CMS, as described in the following
paragraphs. The proper administration of the Part D benefit involves
much more than claims adjudication. Our interaction with these novice
sponsors leads us to believe that they underestimate the value of
clinical expertise in administering Part D benefits, particularly in
conducting effective coverage determination and appeals processes.
Also, we believe they often do not recognize the critical role that
relationships, particularly those among beneficiaries, physicians,
pharmacists, other health care professionals, and insurers, play in the
successful delivery of a healthcare or prescription drug benefit. Yet,
the stakes involved in administering a Part D plan are likely higher
than those associated with any other line of business in the novice
sponsor's portfolio. Operational failures in Part D can cause improper
denials at the pharmacy counter of beneficiaries' valid claims for
prescriptions or improper denial of

[[Page 1959]]

appeals, leading to interruptions in their therapies, which can have
life-threatening implications. In short, we have found that these types
of applicants have been unable to administer a Part D benefit.
The compliance record of PDP sponsors with no healthcare-related
experience confirms our assessment of the risks they pose to the Part D
program. Time and again, these sponsors fail our past Medicare contract
performance and audit tests or receive low quality scores (that is,
star ratings) because they lack the ability to administer even the most
basic elements of a health or drug benefit program, let alone one as
complex as Medicare Part D. For example, we recently sanctioned a new
stand-alone PDP sponsor (a situation we describe in section III.A.17 of
this rulemaking where we propose to establish the requirement that all
new Part D sponsors engage subcontractors with Part D experience). The
sponsor had no recent experience providing or administering health
benefits. It only began offering healthcare-related benefits when it
became a Part D plan sponsor. We believe the sponsor's inexperience
administering health insurance and health benefits, as well as its
apparent reliance on Medicare as its sole source of revenue, compounded
the problems it experienced, as the sponsor was unable to independently
and expeditiously identify and resolve problems with benefits
administration.
Another, more dramatic case, involved a CMS decision in 2010 to
immediately terminate a PDP sponsor's contract under urgent
circumstances in which beneficiaries were being significantly harmed.
Prior to contracting with CMS, the PDP sponsor involved had no
experience providing or administering health insurance or health
benefits coverage. We terminated the sponsor's contract when an audit
(prompted by urgent complaints from providers) revealed that the
sponsor's compliance failures resulted in improperly denied access to
Part D drugs and put the health of enrollees in the sponsor's PDP at
imminent and serious risk. Numerous compliance failures resulted in
beneficiaries being denied drugs that they were entitled to, including
those needed to treat HIV, cancer, and seizures, or receiving delayed
access to these drugs, sometimes after being required to undergo
medically unnecessary and invasive procedures. The problems were so
egregious and widespread that we were compelled to terminate the
contract less than a month after we were first alerted to the problems
and less than a week after an onsite audit of the sponsor. This
termination created massive disruption for beneficiaries and to the
program and required significant resources from CMS to resolve. As
discussed previously, we believe that these failures would not have
occurred, or would not have been as catastrophic, if the sponsors had
prior, recent experience providing health insurance, health benefits
coverage, or key services related to health benefits coverage.
When the sponsor is a novice not only to Medicare Part D, but also
to virtually every aspect of health benefits administration, there is
no assurance that the entity will be able to administer or oversee the
most basic elements of health benefits coverage, such as processing
claims, administering a coverage determination and appeals process,
enrolling beneficiaries, or administering the benefit as approved. Its
systems and procedures for doing so are by definition new and unproven.
We do not believe that health care is a commodity that can be reduced
to a programmable data set, or that administering the Part D benefit
involves little more than having the right software package. To entrust
inexperienced applicants with responsibility for correctly operating a
program for which even experienced health insurers have had to develop
new expertise has proven to be unacceptably risky. Part D sponsors are
charged with both ensuring that beneficiaries get the drugs they need
and applying clinically appropriate utilization management protocols to
control costs and protect beneficiary safety. In this capacity, they
have a role in clinical decision making that is usually reserved for
physicians and health care providers with years of academic training
and clinical practice. Permitting an organization with prior experience
limited to, for example, developing payroll software, to design and
broker individuals' access to prescription drugs for potentially life-
threatening conditions is an unacceptable mismatch between a set of
tasks and the expertise applied to it.
We propose that new applicants have two years of experience
providing health insurance or health benefits coverage (that is,
operating as risk-bearing entities licensed in the states where they
offer benefits) prior to applying as stand-alone Part D Sponsors
because we believe that this provides sufficient time to demonstrate
the applicant's ability to operate a health plan. A risk-bearing entity
with significant problems administering health benefits would be
unlikely to remain in good standing with its licensing authority for
two years. While a longer record of successful operations would likely
provide better evidence of the organization's competence, we are also
sensitive to the need to promote innovation and competition that can
come from new PDP sponsors. We believe that requiring two years of
experience as a risk bearing entity offering health insurance or health
benefits coverage ensures that new sponsors of stand-alone PDPs have
minimal experience operating a health benefits program without unduly
limiting new entrants to the marketplace.
We recognize that a number of PBMs and Third Party Administrators
with experience administering prescription drug benefits have entered
the stand-alone PDP market and have adapted to providing the Part D
benefit despite their lack of previous experience as health insurers.
We believe this success is the result, at least in part, of their
substantial experience operating key functions that form the core of
PDP benefits on behalf of insurers. This experience is not sufficient
in and of itself to administering a Part D plan, but it is certainly
necessary. Therefore, we are proposing elsewhere in this proposed rule
that organizations applying to contract as stand-alone PDP sponsors
that do not have experience as a risk-bearing entity providing health
insurance or health benefits coverage would, in the alternative, be
eligible to hold a PDP contract if they had experience performing
services on behalf of an insurer in the delivery of benefits in any
health insurance market in the three key areas indicated in this
section III.A.17 of this proposed rule. The three areas that we are
proposing as meeting the experience requirements are: (1) Adjudication
and processing of pharmacy claims at the point of sale; (2)
administration and tracking of enrollees' drug benefits in real time,
including automated coordination of benefits with other payers; and (3)
operation of an enrollee appeals and grievance process. Our reasons for
selecting these three areas as meeting the experience requirements are
described in more detail in the section of this rulemaking notice
relating to the proposed requirement at Sec. 423.504(b)(8) that new
Part D sponsors employ experienced FDRs for these functions.
We are proposing that entities without two years of experience as a
risk bearing entity offering health insurance or health benefits
coverage have five continuous years' experience providing services in
the three key areas listed previously. We are proposing a longer
experience requirement for these entities because entities offering
these services face fewer barriers to entry in

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the marketplace and are not as tightly regulated as risk bearing
entities. An entity seeking to become a risk bearing entity must
qualify for a state license, which requires the entity to demonstrate
on a continuous basis that it meets extensive financial,
capitalization, and administrative requirements. By contrast, an entity
seeking to become a PBM or Third Party administrator faces little or no
regulatory oversight for the services it offers. The investment
required to start a PBM or Third Party Administrator may be
significantly lower than that required of risk bearing entities
operating health insurance programs. While a PBM that performs poorly
may lose contracts, it is unlikely to be subject to regulatory action
that would become part of the publicly available record that CMS could
use to evaluate its application to operate a stand-alone PDP. However,
we do believe that over a longer period of time, a PBM or Third Party
Administrator's poor reputation would become known among participants
in the health and prescription drug insurance markets, making it
difficult for that organization to retain current contracts or obtain
new ones with insurers and remain in business. We therefore believe
that entities that seek to qualify on the basis of their experience as
PBMs or Third Party Administrators should be required to have provided
services in these key areas for five continuous years, rather than
merely two.
We believe our proposal will not have significant impact on the
availability of stand-alone PDP plans in the marketplace, but that it
will simply function to keep out a small number of inexperienced
organizations who are likely to perform poorly as stand-alone PDPs.
Fortunately, the vast majority of new sponsors of stand-alone PDPs each
year have the requisite experience. For example, eight organizations
filed initial applications during 2013 to qualify to offer stand-alone
PDPs in 2014 and 6 of them had at least two years' experience as a
health insurer or 5 years' experience managing prescription drug
benefits for health insurers. Of the six new stand-alone Part D plans
in 2013, five had the level of experience we are proposing to require.
Thousands of entities nationally possess the requisite experience
providing health insurance, health benefits coverage, or PBM services.
If this proposed change is finalized, we intend to incorporate it
into our existing Part D application process. At the time of
application, an entity seeking a Part D sponsor contract must provide
evidence that it is currently licensed or is in the process of being
licensed in a state and provide certain information about its
organizational experience and history. New application procedures would
require an applicant for a stand-alone PDP contract to submit evidence
that the entity, its parent, or a subsidiary of the same parent has
actively provided health insurance or health benefits coverage for the
prior 2 years, or has engaged in the three key functions identified
here continuously for the prior 5 years.
19. Limit Parent Organizations to One Prescription Drug Plan (PDP)
Sponsor Contract per PDP Region (Sec. 423.503)
Each year, we accept and review applications from organizations
seeking to qualify to offer stand-alone prescription drug plans in one
or more PDP regions. With limited exceptions (for example, poor past
contract performance, limited Part D experience), we approve all
applications submitted by organizations that demonstrate that they meet
all Part D application requirements. CMS proposes, under our authority
at section 1860D-12(b)(3)(D) of the Act to adopt additional contract
terms, not inconsistent with the Part C and D statutes, that are
necessary and appropriate to administer the Part D program, to add as a
basis upon which we may deny a PDP sponsor application the fact that
the applicant is applying for qualification in a PDP Region where
another subsidiary of the applicant's parent organization already holds
a PDP sponsor contract. In our description of this proposal, the term
``parent organization'' refers to an entity that controls a subsidiary
through ownership of more than 50 percent of the subsidiary's shares.
During the 2013 contract year, there are 72 unique contracting
entities (that is, entities licensed as risk bearing entities) holding
75 PDP sponsor contracts. There are 57 parent organizations that hold
more than one PDP sponsor contract through a subsidiary contracting
organization over which they maintain a controlling interest.
To promote the effective administration of a Part D program that
involves so many parent organizations and contracting entities, we have
consistently taken steps to ensure that the numbers of PDP sponsors,
PDP sponsor contracts, and plan offerings are kept at a level that
allows sponsors to fully exercise their rights as PDP sponsors but
avoids the duplication and confusion that can result when reasonable
limits are not placed on sponsors' requests for contracting
arrangements that serve only their internal business operations. During
the initial Part D contracting conducted during 2005, we approved a
handful of contracts that were held by subsidiaries of a common parent
organization. Since then, we have worked with the affected parent
organizations to consolidate almost all of those ``duplicate''
contracts down to one PDP contract per participating parent
organization per PDP region. The remaining duplicate contracts
accommodate parent organizations that made binding business
arrangements while acting in reliance on our previous allowance of
multiple PDP sponsor contracts in the same PDP region. We expect to
continue to work with those parent organizations to explore options for
discontinuing their reliance on the second PDP sponsor contract in the
immediate future.
Section 1860D-12(b)(1) of the Act provides that PDP sponsors may
offer multiple plan benefit packages (referred to as PBPs or plans)
under one PDP sponsor contract. Therefore, parent organizations need
only one PDP sponsor contract to offer the full range of the possible
plan options in a particular PDP Region. We recognize that many parent
organizations that offer plans in multiple PDP regions must use more
than one subsidiary to administer their full array of plans throughout
the United States and the territories. For example, parent
organizations may adopt these arrangements to accommodate unique state
licensure requirements or the terms of trademark licensing agreements.
However, none of these justifications, which are based on a parent
organization's need to serve more than one PDP Region, would support a
request, like several we have received during the CY 2014 contract
qualification application cycle, by a parent organization to be granted
a second PDP sponsor contract in a PDP Region it already serves. As
discussed more fully in the following paragraphs, there are significant
inefficiencies to the program of having duplicate contracts that do not
provide more benefit plan options than could be offered under a single
contract. Additionally, informal communications made by past requestors
of duplicate contracts indicated that the purpose has been to either
(a) segregate low income beneficiaries into their own contract, or (b)
corral the experience of a particular low-performing plan into its own
CMS contract so as not to taint the performance rating of the better
performing plan offering, as performance ratings are calculated at the
contract level. CMS opposes the

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inefficiencies of duplicate contracts and the gaming duplicate
contracts can support. That said, we welcome comments from industry,
advocates, and others as to circumstances for our consideration under
which duplicate contracts may be beneficial.
One of the fundamental principles of the Part D program is that the
selection of plans made available to beneficiaries is the product of
true competition among PDP sponsors. Two subsidiaries of the same
parent organizations offering plans in the same PDP region are not
truly competitors as decisions concerning their operations are
ultimately controlled by a single entity, or parent organization. Also,
we only approve those PDP offerings that meet the meaningful
differences test stated at Sec. 423.265(b)(2), and we apply that test
at the parent organization level. A parent organization would not gain
an opportunity to offer more plan benefit packages under two or more
contracts it controlled through its subsidiaries than it would under
one contract because we would, as part of our bid review, evaluate
whether all the plans proposed by the same parent organization met the
meaningful differences test.
The proposed limitation on the number of PDP sponsor contracts a
parent may control in a PDP Region is also necessary to preserve the
integrity of CMS' star ratings. CMS assigns star ratings at the
contract level, and they are intended to reflect all aspects of the PDP
operations controlled by a unique contracting entity. However, that
principle is compromised when a parent organization to one of the
contracting entities is permitted to control, through other
subsidiaries, more than one PDP contract. While the contracting
entities (that is, PDP sponsors) are legally accountable for the
delivery of benefits under a PDP sponsor contract, when those sponsors
are subsidiaries to a parent organization, it is the parent that, in
reality, controls the quality of the sponsor's contract performance.
The parent does this by using its controlling interest in the
subsidiaries to establish the budget priorities and operational
policies of those entities. As a result, allowing a parent organization
to effectively administer two or more PDP sponsor contracts would allow
it potentially to artificially inflate the star ratings on one contract
by excluding the poor performance under its other contract from the
rating calculation. In that instance, some beneficiaries could make a
plan election without complete information about the performance of the
organization ultimately responsible for the quality of services they
would receive by enrolling in that plan. A beneficiary for whom quality
ratings are an important factor in choosing a plan is best served by
contracting arrangements and rating systems that provide the most
transparency about the performance of all the PDP products offered
under the authority of the single parent organization. This goal is
best served by limiting parent organizations to one PDP sponsor
contract per PDP Region.
Based on our experience in administering the Part D prescription
drug benefit program we do not believe that there is a compelling
justification for parent organizations to administer two PDP sponsor
contracts in the same PDP region. Moreover, such arrangements impede
our ability to efficiently administer the PDP and provide a means by
which the integrity and reliability of our star ratings system can be
compromised. Therefore, we propose to amend Sec. 423.503(a) by adding
a paragraph (3) stating that CMS will not approve an application when
it would result in the applicant's parent organization holding more
than one PDP sponsor contract in the PDP region for which the applicant
is seeking qualification as a PDP sponsor. We anticipate that we would
most frequently use this authority to deny an application in instances
where the applicant's parent organization already controls a PDP
sponsor contract, either directly by acting as a PDP sponsor itself (in
instances when the parent is licensed as a risk-bearing entity) or
through its ownership of a subsidiary that qualifies as a PDP sponsor
and is a party to a stand-alone PDP sponsor contract. In the less
likely situation where two or more subsidiaries of the same parent
organization each submit applications in the same year for PDP regions
where the parent organization controls no PDP sponsor contracts, we
would request that the parent withdraw all but one of the applications.
In the absence of a withdrawal election, CMS will deny all of the
parent organization's applications.
20. Limit Stand-Alone Prescription Drug Plan Sponsors To Offering No
More Than Two Plans per PDP Region (Sec. 423.265)
Under our authority at section 1860D-11(d) of the Act, we conduct
negotiations with stand-alone prescription drug plan (PDP) sponsors
concerning our approval of the bids they submit each year. As the Part
D program has evolved, we have adopted regulations designed to
authorize us to use that negotiating authority to ensure that the
number of plans offered in a given PDP region reflects a balance
between sponsors' interest in providing options tailored to meet the
needs of a diverse Medicare population and the need to avoid creating
undue confusion for beneficiaries as they consider various plan
offerings. We continue here our process of updating our bid review
authority to reflect the evolution of the Part D program by proposing
to limit to two the number of plans stand-alone PDP sponsors may offer
in each PDP region.
PDP sponsors must offer throughout a PDP region at least one basic
plan that consists of: Standard deductible and cost sharing amounts (or
actuarial equivalents); an initial coverage limit based on a set dollar
amount of claims paid on the beneficiary's behalf during the plan year;
a coverage gap during which a beneficiary pays more of his drug costs;
and finally, catastrophic coverage that applies once a beneficiary's
out-of-pocket expenditures for the year have reached a certain
threshold. Prior to our adopting regulations requiring meaningful
differences among each PDP sponsor's plan offerings in a PDP Region,
CMS guidance allowed sponsors that offered a basic plan to offer in the
same region additional basic plans, as long as they were actuarially
equivalent to the basic plan structure described in the statute. These
sponsors could also offer enhanced alternative plans which provide
additional value to beneficiaries in the form of reduced deductibles,
reduced copays, coverage of some or all drugs while the beneficiary is
in the gap portion of the benefit, or some combination of those
features.
As we have gained experience with the Part D program, we have made
consistent efforts to ensure that the number and type of plan benefit
packages PDP sponsors may market to beneficiaries are no more numerous
than necessary to afford beneficiaries choices from among meaningfully
different plan options. In addition to setting differential out-of-
pocket-cost (OOPC) targets each year to ensure contracting
organizations submit bids that clearly offer differences in value to
beneficiaries, we issued regulations in 2010 that established at Sec.
423.265(b)(2) our authority to deny bids that are not meaningfully
different from other bids submitted by the same organization in the
same service area. Our application of this authority has effectively
eliminated PDP sponsors' ability to offer more than one basic plan in a
PDP region since all basic plan benefit packages must be actuarially
equivalent to the standard benefit structure discussed in the statute.
That regulation also effectively limited to two the

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number of enhanced alternative plans that we can approve for a single
PDP sponsor in a PDP region. As part of the same 2010 rulemaking, we
also established at Sec. 423.507(b)(1)(iii) our authority to terminate
existing plan benefit packages that do not attract a number of
enrollees sufficient to demonstrate their value in the Medicare
marketplace. Both of these authorities have been effective tools in
encouraging the development of a variety of plan offerings that provide
meaningful choices to beneficiaries without creating undue confusion
for beneficiaries.
We believe that the progressive closure of the coverage gap
provided for in the Affordable Care Act affords us another opportunity
to promote even greater clarity in the set of stand-alone PDP plan
options from which beneficiaries may make an election. Under the
statute, beginning in 2011, applicable beneficiaries enjoy discounts of
50 percent off negotiated prices on brand name drugs when purchased
while in the coverage gap portion of the benefit. Also, since 2011, the
required coverage in the gap has increased and will continue to do so
gradually until 2020, when the combination of required coverage and
manufacturer discounts covers 75 percent on average for both brand-name
and generic drugs. This ``closing'' of the coverage gap effectively
will leave the beneficiary with only a 25 percent cost share on average
across the entire benefit (or its actuarial equivalent) before the
catastrophic threshold.
Our experience in applying the meaningful differences standard
indicates that, as the Part D coverage gap is closed, it will become
increasingly difficult for a PDP sponsor to qualify to offer more than
two plans in the same service area and still meet the meaningful
differences test. Since we began applying the meaningful differences
standard to our bid reviews, we have generally approved two types of
enhanced alternative plans. The first type of plan offers
beneficiaries, in exchange for a higher premium than that charged for
basic plan coverage, significant reductions in the cost sharing and
deductible amounts associated with the basic Part D benefit. The second
type offers even greater cost sharing and deductible reductions as well
as coverage for many drugs in the gap. Since coverage of Part D drugs
in the gap is the distinguishing feature between the two types of
enhanced alternative plans currently available, closing the coverage
gap also means that sponsors can no longer rely on it to establish that
their proposed second enhanced alternative plan is meaningfully
different than their first.
Our enrollment data indicate that beneficiaries are already making
plan choices based on their recognition of the shrinking significance
of the coverage gap and with it, the value of PDP sponsors' second
enhanced plans. Since the start of the coverage gap discount program in
2011, enrollment levels in the second enhanced alternative plans
offered by PDP sponsors that offer two enhanced alternative plans have
declined from approximately 12 percent of those sponsors' total
enhanced alternative plan enrollment in 2010 to between 7 percent and 8
percent in the 2011, 2012, and 2013 benefit years. This finding
suggests that the proportion of beneficiaries for whom the additional
supplemental coverage offered by these plans is worth the supplemental
premium continues to decline, and we expect this trend to continue as
the coverage gap closes.
Despite these developments, many sponsors continue to submit three
bids per region each year, at least in part, we believe (based on
conversations with various stakeholders), to ensure that they are not
perceived as a weaker participant in the Part D market by offering a
smaller set of plans than their PDP competitors. CMS believes that plan
sponsors and beneficiaries, as well as the taxpayers, would be better
served by a more streamlined bid submission process that limited
sponsors to submitting two PDP bids (one basic and one enhanced) per
PDP region each year. This limitation would provide a consistent
bidding framework for all sponsors, allowing them to focus on quality,
rather than quantity, in development of their bids. It would also
reduce some of the sponsors' administrative costs associated with
preparing, marketing, and administering a third benefit package. It may
also help ensure that beneficiaries can choose from a less confusing
number of plans that represent the best value each sponsor can offer.
For CY 2013, there are seven parent organizations that offer two
enhanced plans (that is, three plans total, one basic and two enhanced
alternative) within a given PDP region. This amounts to 264 enhanced
alternative plans in total (two for each affected PDP region) among the
seven parent organizations. The application of this proposed
regulation, if finalized, would result in the elimination of 132
enhanced alternative plans, representing 13 percent of the total number
of stand-alone PDP plans, and 25 percent of all enhanced alternative
plans in 2013. If implemented today, these proposed reductions would
affect a combined 522,742 beneficiaries, approximately 2 percent of the
overall stand-alone PDP enrollment of 22,529,197 (based on April 2013
enrollment data). We expect that most sponsors would attempt to
consolidate their current beneficiaries in one of their two remaining
plan options, so we believe adoption of this proposal would result in
minimal disruption to beneficiaries currently enrolled in a sponsor's
second enhanced plan.
While the incremental closure of the coverage gap continues until
2020, CMS believes that the observed enrollment trends in these plans
demonstrate the reduction in beneficiaries' coverage gap costs that has
occurred already has moved the stand alone PDP plan market in a way
that warrants the imposition of the two plan limit as soon as possible.
The list of plan options today is cluttered with those that the record
shows appeal to only approximately 2 percent of the overall stand alone
PDP-plan-enrolled beneficiaries of which 522,742 are enrolled in second
enhanced plans). In addition, in many cases one of the two enhanced
plans offers the minimum level of supplemental coverage required to
meet our meaningful differences tests. We refer to these as ``low value
enhanced plans'' to distinguish them from second enhanced plans with
substantially more supplemental coverage. In some cases, the premiums
for these low value enhanced plans have been less than the premiums for
the sponsors' basic plans due to favorable risk selection. This occurs
because many of the beneficiaries with more serious health issues and
higher utilization of prescription drugs are in the low-income subsidy
(LIS) eligible population which will not receive the full LIS subsidies
in plans with supplemental coverage. For this reason we neither auto-
assign the LIS eligible population into such plans, nor will this
population generally voluntarily enroll in such plans. Thus, continuing
to permit multiple enhanced plans, particularly low value enhanced
plans, facilitates risk segmentation. This can increase costs for the
Part D program and the taxpayers overall. During the most recently
completed CY 2014 bid review cycle, we continued to encounter bids
submitted by sponsors for low value enhanced plans with premiums lower
than the premiums for their basic plans. We believe it is urgent that
we adopt this proposed policy as soon as possible so that we can bring
an end to this bidding practice. However, because such a change would
entail substantial changes to bidding processes for both

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Part D sponsors and CMS that could not realistically be undertaken
until the proposal was final, we propose to adopt this policy for the
2016 Part D contracting cycle. We believe that beneficiaries and the
Part D program would be better served by sponsors that are focused on
developing plans with broad beneficiary appeal rather than those
intended to enable the sponsor to either pursue a diminishing niche in
the Part D market or segment favorable risk into low value enhanced
plans. We solicit comments on whether there is any real need for more
than two standalone plan options per PDP sponsor.
Therefore, we propose to amend the Part D regulations at Sec.
423.265 to add a revised subsection (b)(3), which states that ``CMS
shall not accept more than one basic bid and one enhanced bid for a
coverage year from a single PDP sponsor in the same PDP region.'' We
would adopt this provision under our authority at section 1860D-11(d)
of the Act. In instances where a parent organization owns a controlling
interest in more than one subsidiary that operates as a PDP sponsor in
a single PDP region, we would apply subsection (b)(3) at the parent
organization level. That is, in the same way that we currently apply
the meaningful differences test, a parent organization with two
subsidiary PDP sponsors could offer no more than one plan under each
sponsors' contract. We anticipate that the need to use this
interpretation will be infrequent as existing multi-contract
arrangements are phased out through plan consolidation and the creation
of new ones would be prohibited by the implementation of the provision
described elsewhere in this proposal (if finalized) authorizing CMS to
deny applications from organizations owned by a parent that already has
a subsidiary operating a PDP sponsor contract in the same PDP region.
In a proposed rule we published in October 10, 2010, announcing our
intent to codify the Affordable Care Act provision in the Part D
regulations, we solicited comments on whether we should use the
Affordable Care Act authority to impose limits on the number of plans
in a PDP region. In the preamble to the final rule that followed on
April 15, 2011, we noted that among the comments we received were those
stating that we should not consider imposing limits on plan offerings
until the impact of previous statutory and regulatory changes governing
our bid review process could be fully evaluated. At the time we
declined to codify such limits. Now, we believe that the record in
support of the adoption of a two-plan limit has had time to fully
develop, including, as discussed previously, the dwindling popularity
of the second enhanced option, the shrinking differences between the
first and second enhanced options, and the role the second enhanced
option plays in enabling risk segmentation, and therefore we make the
proposal described here and seek comment from the public.
In addition to proposing to limit PDP sponsors to submitting one
basic and one enhanced bid per coverage year, we are also considering
several regulatory proposals for limiting the type of coverage offered
in those two plans to reduce or eliminate the risk segmentation
described previously. We believe that risk segmentation is not
consistent with the Congressional design for the Part D program, or
with the policy goal of obtaining the best value for the government and
the taxpayer. We believe the Congress intended sponsors to compete in
the Part D market by offering their best bids for basic plans, in order
to attract the greatest enrollment through the lowest premiums, and
that this competition would maintain downward pressure on Part D bids
and government subsidies. We do not believe that the Congress intended
that instead sponsors would offer their best bids for a segment of the
market that represents individuals who are low utilizers of
prescription drugs due to better health and who can afford unsubsidized
supplemental premiums due to better socioeconomic status. When many
healthy individuals are not included in the basic plans, the cost of
the basic plans is increased, and this in turn increases low-income
premium subsidies. Therefore, permitting risk segmentation does not
generate the best value for the Part D program as a whole. To reduce or
eliminate risk segmentation, we are considering three options. We
solicit comments on our conclusions with respect to risk segmentation
and on the effectiveness of the following options.
The first option we are considering would be to continue to allow
separate basic and enhanced plans, but require that enhanced plans
offer a substantial minimum level of supplemental coverage defined in
regulation. This would differ from current practice in that we
currently set meaningful differences requirements by observing the
distribution of benefits submitted independently by sponsors and using
statistical techniques to identify outlier thresholds. The problem with
the current approach is that, when all or most sponsors reduce their
supplemental coverage over time--the trend that we have observed--the
outlier thresholds will decline as well. When this occurs the
supplemental coverage will again tend to converge on the value of basic
coverage. Instead, for instance, we could require that the enhanced
plan offering had to cover a minimum of 50 percent (or another higher
percentage) of the remaining actuarial value of the Part D benefit not
included in the standard benefit for any coverage year. The additional
coverage would be in the form of reduced deductibles and cost sharing
and the inclusion of excluded drugs, consistent with the statutory
definition of supplemental coverage. We solicit comment on whether such
an approach would be sufficient to accomplish our goal of eliminating
risk segmentation.
In the second option we are considering, instead of setting minimum
supplemental coverage requirements for a sponsor's enhanced plan
offering, we would propose to use the authority provided in section
3209 of the Affordable Care Act which amends section 1860D-11(d)(3) of
the Act to deny any enhanced plan bid with a premium equal to or lower
than the sponsor's basic plan premium. Alternatively we might require
the enhanced premium to be no less than a specified multiple of the
basic premium, such as 115 percent or another multiple. Again, the
additional coverage in the enhanced plan would be in the form of
reduced deductibles and cost sharing and the inclusion of excluded
drugs. We solicit comments on this approach, and on the appropriate
multiple of the basic premium necessary to eliminate risk segmentation.
We also solicit comment on whether there is a possibility that this
approach might effectively eliminate the offering of supplemental
coverage if favorable risk selection were to continue and the actuarial
value of such coverage could not generate sufficient premiums to pass
these sorts of tests.
The third option we are considering would be to reinterpret the
provisions of section 1860D-11(b) and (c) of the Act governing the
submission of bids that include supplemental benefits. We would propose
that enhanced alternative coverage would be redefined to consist of
supplemental coverage added to the sponsor's one basic benefits
offering (for an additional premium). This could be thought of as basic
benefits plus a supplemental benefit rider. This would mean that all
Part D enrollees in a sponsor's Part D plans would be enrolled in the
sponsor's one basic plan with the same formulary and pharmacy network,
and some portion of those enrollees would

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also elect the optional supplemental coverage in the form of the second
plan that would be the combination of the basic plan and the
supplemental benefits. Thus, the risk of the basic benefits would be
estimated at the PDP Regional level and the risk of the supplemental
benefits would be estimated in accordance with that of the projected
enrollees in the second plans. This means that the supplemental
benefits would have to constitute actual enhancements to the basic
benefit and that the notion of actuarial equivalence would not apply to
the combination of the basic and supplemental benefits. This change
would bring standalone PDP coverage more in line with both commercial
coverage designs and with the offering of Part C optional supplemental
benefits. We believe this option would eliminate the possibility of
risk segmentation because every enrollee participating in a sponsor's
Part D line of business would be enrolled in the one basic plan and
beneficiaries that elect supplemental benefits will be charged the
additional premium for the extra coverage. The sponsor's Part D
offerings would consist of two plan benefit packages, one comprised
solely of basic coverage and the other (if offered) consisting of the
combination of the basic coverage with the supplemental coverage.
We solicit comments on this approach and on our belief that this
approach would be the most effective strategy for eliminating risk
segmentation and providing the best value for the government and the
taxpayer.
21. Efficient Dispensing in Long-Term Care Facilities and Other Changes
(Sec. 423.154)
We are proposing changes to the rule requiring efficient dispensing
to Medicare Part D enrollees in Long Term Care (LTC) facilities. For
background, section 3310 of the Affordable Care Act amended the Act to
add a new paragraph (3) to section 1860D-4(c) of the Act. Section
1860D-4(c)(3) of the Act provides that the Secretary shall require
Medicare Part D sponsors of prescription drug plans to utilize
specific, uniform dispensing techniques, such as weekly, daily, or
automated dose dispensing, when dispensing covered Part D drugs to
enrollees who reside in a LTC facility in order to reduce waste
associated with 30-day fills. The section states that the techniques
shall be determined by the Secretary in consultation with relevant
stakeholders.
After extensive consultation with stakeholders, in the April 15,
2011 Federal Register entitled ``Medicare Program; Changes to the
Medicare Advantage and the Medicare Prescription Drug Benefit Programs
for Contract Year 2012 and Other Changes'' (``April 15, 2011 Final
Rule''), we published a final rule at 76 FR 21432 which governs the
appropriate dispensing of prescription drugs in LTC facilities under
Part D plans. Pursuant to this regulation, Part D sponsors generally
must require their network pharmacies to dispense certain solid oral
brand covered Part D drugs in quantities of 14 days or less, unless an
exemption applies. The regulation is found at Sec. 423.154.
We are proposing the following specific changes to the LTC short
cycle dispensing requirements:
Add a prohibition on payment arrangements that penalize
the offering and adoption of more efficient LTC dispensing techniques.
Eliminate language that has been misinterpreted as
requiring the proration of dispensing fees.
Incorporate an additional waiver for LTC pharmacies using
restock and reuse dispensing methodologies under certain conditions.
Make a technical change to eliminate the requirement that
Part D sponsors report on the nature and quantity of unused brand and
generic drugs.

After providing a summary of the current LTC short cycle dispensing
rule, we will address each proposed change in more detail.
Section 423.154 requires that all Part D sponsors require all
pharmacies servicing LTC facilities to dispense solid oral doses of
covered Part D brand name drugs to enrollees in such facilities in no
greater than 14 day increments at a time. Part D sponsors must also
require such pharmacies to permit the use of uniform dispensing
techniques, as defined by the LTC facility. The regulation refers to
definitions in existence at the time of its promulgation. Brand name
and generic drugs are defined in Sec. 423.4, and the definition
specifically refers to a brand name drug as being one approved under an
NDA.
In order to quantify waste more precisely, the regulation requires
Part D sponsors to collect and report information to CMS on the
dispensing methodology used for each dispensing event, and on the
nature and quantity of unused brand and generic drugs dispensed to
enrollees in LTC facilities. Reporting on unused drugs is waived for
Part D sponsors when both brand and generic drugs are dispensed in no
greater than 7-day increments.
The regulation excludes: (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 (FDA) prescribing
information or that are customarily dispensed in their original
packaging to assist patients with compliance. Thus, the regulation does
not apply to drugs that are not typically dispensed in greater than 14-
day supplies (for example: inhalers, eye drops, ear drops, steroid dose
packs).
LTC facilities are defined in Sec. 423.100, which definition
excludes assisted living facilities. Intermediate care facilities for
the mentally retarded and institutes for mental disease are
specifically waived from the requirement in the regulation, as are I/T/
U pharmacies, due to specific problems with delivery and dispensing to
closed (often locked) facilities.
With respect to copayments, the regulation states that regardless
of the number of incremental dispensing events, the total cost sharing
must be no greater than the total cost sharing that would be imposed if
the regulation did not apply.
When permitted under applicable law, the regulation requires Part D
sponsors to include provisions that address the disposal of drugs that
have been dispensed to an enrollee in an LTC but not used, and then
returned to the pharmacy, in the terms and conditions that they must
offer to pharmacies, including whether return for credit and reuse is
authorized.
a. Prohibition on Payment Arrangements That Penalize the Offering and
Adoption of More Efficient LTC Dispensing Techniques (Sec. 423.154)
Our first proposed change is to add a clause to Sec. 423.154
prohibiting payment arrangements that penalize the offering and
adoption of more efficient LTC dispensing techniques. It is our
understanding that for 2013, some of the largest PBMs have prorated LTC
pharmacy dispensing fees for medications subject to the LTC short cycle
requirements. Under such dispensing fee payment arrangements, if a
medication is discontinued before a month's supply has been dispensed,
a pharmacy that dispenses the maximum amount of medication at a time
permitted under Sec. 423.154 collects more in dispensing fees than a
pharmacy that utilizes dispensing techniques that result in less than
maximum quantities being dispensed at a time.
We provide the following example of two pharmacies--one more
efficient at dispensing than the other-- to illustrate our concern: A
$4.00 dispensing fee for

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a 30-days' supply is prorated, and a medication is discontinued after
21 days. The first pharmacy dispenses 14-days' supply at a time and
receives approximately $3.73 in total dispensing fees for a 28-days'
supply, which results in 7 days' worth of medication waste. The second
pharmacy dispenses 3-days' supply at a time and receives approximately
$2.80 in dispensing fees for a 21-days' supply in total, which results
no medication waste.
We believe this example is contrary to the Congress' intent in
enacting section 3310 of the Affordable Care Act. In this example, the
second pharmacy's more efficient dispensing techniques save facility,
sponsor, and Part D program costs associated with reducing the amount
of medication waste, but the pharmacy itself receives less in
dispensing fees than it would if it had dispensed in 14-day increments.
This approach creates a perverse incentive for LTC pharmacies to adopt
less efficient dispensing techniques, if available. Rational self-
interest on the part of any LTC pharmacy with the flexibility to
dispense greater quantities encourages wasteful dispensing and
additional costs to the Part D program, in direct opposition to the
intent of the law.
During the extensive industry consultation conducted prior to the
rulemaking required to implement section 3310 of the Affordable Care
Act, CMS was repeatedly informed by multiple stakeholders that
dispensing costs did not vary on the basis of the quantity of
medication dispensed, but only by the number of dispensing events and
the type of dispensing technique utilized. Therefore, there is no
justifiable rationale for proration, since the cost of dispensing is
not directly related to the quantity dispensed. In order to align
incentives, we encouraged Part D sponsors to do quite the opposite to
prorating dispensing fees, and offer differentially higher dispensing
fees to promote the adoption of the most efficient dispensing
methodologies.
Starting in the fall of 2012, we have received numerous complaints
about proration of dispensing fees from multiple LTC pharmacy
organizations, LTC pharmacies, and LTC facilities that represent,
offer, or have contracted to utilize more efficient dispensing
methodologies. Some smaller LTC pharmacies, which rely upon their
relative greater efficiency in reducing waste from unused drugs for
competitive advantage, have complained that they were unable to
negotiate appropriate terms through their intermediary group purchasing
and contracting organizations and could not negotiate directly with
Part D sponsors. Small LTC pharmacies have also reported that they
risked losing their LTC facility contracts to larger LTC pharmacies if
they did not accept the payment terms that, in effect, penalize their
efficiency. These pharmacies have indicated that prorated dispensing
fees are not mutually agreeable terms, and that this fee structure
threatens the survivability of the most efficient dispensing
techniques.
It is unclear why Part D sponsors and their agents would choose to
reimburse LTC pharmacies in a manner that does not promote more
efficient dispensing methodologies. One possibility is that the smaller
LTC pharmacies lack the leverage to negotiate differential fees due to
the market power of the largest LTC pharmacies, which control more than
60 percent of the market. This would be the case only if the largest
LTC pharmacies had the market power over the largest PBMs to not only
set their own dispensing fees, but also the dispensing fees of their
competitors. However, we have not heard any evidence or testimony that
would support that conclusion.
Another possibility is that Part D sponsors are not motivated to
promote efficiencies in long-term care prescription drug utilization.
This could be the case because their liability for these costs is
substantially less than that of the federal government. Since most LTC
residents are LIS-entitled individuals or likely to incur costs subject
to catastrophic coverage, or both, sponsor liabilities are actually
minimized when the LTC resident beneficiary reaches the TrOOP threshold
as quickly as possible. Thus, sponsors' interests may actually be
aligned with those LTC pharmacies with the least efficient dispensing
methodologies, since both parties' interests may be served by higher
costs.
A final possibility is that Part D sponsors believe the Sec.
423.154 and/or the upcoming daily cost-sharing rate requirement at
Sec. 423.153(b)(4)(i) (which becomes effective January 1, 2014)
mandate the proration of dispensing fees when less than 30 days is
dispensed. This is not accurate, and we discuss this misunderstanding
both further in this section and in the section entitled, ``Application
and Calculation of Daily Cost-Sharing Rates'' of this proposed rule.
Given the clear intent of the Affordable Care Act to reduce
wasteful dispensing in the LTC setting, CMS is proposing to prohibit
payment arrangements that penalize the offering and adoption of more
efficient LTC dispensing techniques. This would be accomplished by
adding a new clause (f) in Sec. 423.154 that would state that a Part D
sponsor must not, or must require its intermediary contracting
organizations not to, penalize long-term care facilities' choice of
more efficient uniform dispensing techniques by prorating dispensing
fees based on days' supply or quantity dispensed. This clause would
also state that a sponsor or its intermediary contracting organizations
must ensure that any difference in payment methodology among LTC
pharmacies incentivizes more efficient dispensing techniques.
b. Misinterpretation of Language as Requiring the Proration of
Dispensing Fees (Sec. 423.154)
Our second proposed change to Sec. 423.154 is to eliminate
paragraph (e), which we believe has caused confusion. Section
423.154(e) currently states: ``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.'' The purpose of this language was to ensure that sponsors did
not assess multiple monthly copayments for each incremental dispensing
event. We believe misinterpretation of paragraph (e) may have prompted
some sponsors to prorate dispensing fees, even though the regulation
does not address dispensing fees.
Moreover, effective January 1, 2014, the daily cost-sharing rate
requirement will apply whenever a prescription is dispensed by a
network pharmacy for less than a 30 days' supply, unless the drug is
excepted pursuant to Sec. 423.153(b)(4)(i), regardless of the setting
in which the applicable drugs are dispensed. In other words, the daily
cost-sharing rate requirement will apply to brand drugs dispensed in
LTC facilities to the extent they must be dispensed in supplies less
than 30 days pursuant to Sec. 423.154, and to generic drugs, to the
extent a sponsor voluntarily dispenses generic drugs in LTC facilities
in supplies less than 30 days. Consequently, the requirement of Sec.
423.153(b)(4)(i) will make Sec. 423.154(e) unnecessary, and we believe
retaining both provisions could cause further confusion. (Note that we
propose some technical changes to the daily cost-sharing rate
requirement in the section, entitled ``Application and Calculation of
Daily Cost-Sharing Rates'' of this proposed rule) For these reasons, we
propose to delete Sec. 423.154(e).

[[Page 1966]]

c. Additional Waiver for LTC Pharmacies Using Restock and Reuse
Dispensing Methodologies Under Certain Conditions (Sec. 423.154)
Our third proposed change to Sec. 423.154 is to waive the short-
cycle dispensing requirements for LTC pharmacies meeting certain
conditions. Currently, Sec. 423.154(c) waives the requirements for
pharmacies when they dispense brand name Part D drugs to enrollees
residing in intermediate care facilities for the mentally retarded and
institutes for mental disease, as well as for I/T/U pharmacies. We have
learned that some institutional pharmacies maintain custody of
medications within the LTC facilities through operating a closed
pharmacy within the facility, and as a result can ensure sufficient
quality control over these medications to return all unused medications
to stock for reuse that are eligible for return and reuse under
applicable law. This has led us to believe there is another category of
pharmacies, such as some on site pharmacies in veterans' homes, for
which a waiver from the LTC short cycle dispensing requirement may be
appropriate, if they meet certain conditions that demonstrate that
applying the 14-day dispensing requirements in these instances would
not serve to reduce waste.
We are proposing to waive the requirements of Sec. 423.154(a) for
an LTC pharmacy that exclusively uses the dispensing technique of
returning all unused medications to stock that can be restocked under
applicable law for reuse and rebating full credit for the ingredient
costs of the unused medication to the PDP sponsor. The proposed waiver
would also require that for those drugs that cannot be returned for
full credit and reuse under applicable law, such as controlled
substances, the pharmacy uses a dispensing methodology that results in
the delivery of no more than 14 days of a drug at a time. We would
propose that the waiver would apply on a uniform basis to all similarly
situated LTC pharmacies, but not to a pharmacy organization that is
contracted to use this technique at some, but not all, of its
pharmacies. Rather, the waiver would only apply to the qualifying
pharmacies themselves. We would not require the pharmacy to credit back
any amount of the dispensing fee when drugs are returned for reuse,
since the level of effort for the pharmacies would not be expected to
be decreased in any way. If anything, the level of effort would be
increased to implement the appropriate internal controls for inspection
and return to inventory of the unused medication.
We solicit comments on whether there are any variations in
operations that may exist among LTC pharmacies that we need to consider
in determining whether to implement this waiver. We also solicit
comments on how such pharmacies could be identified in industry
standard transaction coding, as well as in network contracting and
auditing protocols. We believe that such pharmacies would be expected
to have documentation of relevant protocols approved by Pharmacy and
Therapeutics (P&T) committees of the LTC facility, as well as records
supporting the returns to inventory that could be compared with billing
credits. We solicit comments on this understanding as well.
We further solicit comments on our proposal that to qualify for the
waiver, a pharmacy would have to dispense any drugs that cannot be
restocked under applicable law, such as controlled substances, in no
greater than 14-day supply increments. Our rationale in proposing this
condition to the waiver is that we do not want the waiver to
inadvertently result in large quantities of medications being dispensed
to Part D enrollees serviced by the pharmacies that would qualify for
the waiver because they cannot be restocked under applicable law.
Therefore, we are proposing that such drugs should still effectively be
subject to the short-cycle dispensing requirement. In this regard we
wish to understand the extent of waste in pharmacies that would qualify
for the waiver we are proposing, if we did not impose the requirement
that drugs that cannot be restocked would be subject to a dispensing
increment of 14-day supply or less if they cannot be restocked under
applicable law. If persuaded that the waste would be insignificant, we
may be persuaded to eliminate this condition to the waiver.
We acknowledge that in the aforementioned April 15, 2011 Final
Rule, we responded to some comments requesting that we exempt from the
short-cycle dispensing requirement those pharmacies that already
utilize low waste practices or ``return for credit and reuse.'' In
response, we stated that although ``return for credit and reuse'' could
reduce unused drugs in LTC facilities, there are limitations to this
approach, especially because not all states allow ``return for credit
and reuse,'' and reuse of controlled substances is limited by the Drug
Enforcement Administration. Because of these limitations, we stated
that we believe financial waste is 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.
This proposal means that we have reconsidered our decision not to
waive the short-cycle dispensing requirement for LTC pharmacies that
use ``return for credit and reuse'' dispensing practices, because we
did not fully consider such a waiver previously in the context of
comments received about return and reuse being a universal alternative
approach to short-cycle dispensing. In addition, we continue to receive
persuasive arguments that such pharmacies should be exempt; for
example, from some veterans' homes with on-site pharmacies. However, as
we explained previously, we are still concerned about waste associated
with drugs that are not permitted to be returned for reuse and credit
under applicable law in such LTC pharmacies in considering this
additional exemption, and for this reason have specifically solicited
comments on the extent of waste in such pharmacies that would qualify
for the proposed additional waiver.
d. Technical Change To Eliminate the Requirement That PDP Sponsors
Report on the Nature and Quantity of Unused Brand and Generic Drugs
(Sec. 423.154)
Finally, we are proposing to make a technical change to Sec.
423.154(a)(2), which requires Part D sponsors 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, as well as on the nature and quantity of unused
brand and generic drugs dispensed by the pharmacy to enrollees residing
in a LTC facility. This latter reporting requirement is waived for
sponsors for drugs dispensed by pharmacies that dispense both brand and
generic drugs in no greater than 7-day increments.
In a memorandum titled, ``Modifications to the Drug Data Processing
System (DDPS) in Relation to Appropriate Dispensing of Prescription
Drugs in Long Term Care Facilities,'' issued by CMS on August 3, 2012,
we explained that we planned to use the PDE data in conjunction with
other CMS data (such as MDS) to determine the extent to which 14 day or
less dispensing to enrollees in LTC facilities reduces the amount of
unused drugs in LTC. We did this to lessen the burden on sponsors that
would be created by a separate reporting requirement. Therefore, it is
no longer necessary to waive the reporting requirement for any Part D
sponsor, because Part D sponsors

[[Page 1967]]

comply with the requirement (in the form and manner we specified in the
previously-referenced memorandum) via PDE submission. Thus, we are
deleting the first sentence of Sec. 423.154(a)(2) to eliminate any
confusion that there is a separate reporting requirement. 22.
Applicable Cost-Sharing for Transition Supplies. Transition Process
Under Part D Sec. 423.120(b)(3)
We established transition requirements under Sec. 423.120(b)(3)
for Part D sponsors to address the needs of new Part D plan enrollees
who are transitioning from other prescription drug coverage (Part D or
otherwise), and whose current drug therapies may not be included on
their Part D plan's formulary (including Part D drugs that are on a
plan's formulary but require prior authorization or step therapy under
the plan's utilization management requirements). While Sec.
423.120(b)(3)(iii) specifies that PDP plans must provide a temporary
fill when an enrollee requests a fill of a non-formulary drug during
the transition time period (including Part D drugs that are on a plan's
formulary but require prior authorization or step therapy under a
plan's utilization management rules), it does not currently specify the
cost sharing that should apply to such fills. Current guidance (at
Sec. 30.4.9 of Chapter 6 of the Medicare Drug Benefit Manual, found at
http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Chapter6.pdf) states that a Part D
sponsor may charge cost sharing for a temporary supply of drugs
provided under its transition process. Further, cost sharing for
transition supplies for low-income subsidy (LIS) eligible beneficiaries
cannot exceed the statutory maximum copayment amounts. However, for
non-LIS enrollees, we stated that a sponsor must charge cost sharing
based on one of its approved drug cost sharing tiers (if the sponsor
has a tiered benefit design), and this cost sharing must be consistent
with cost sharing that the sponsor would charge for non-formulary drugs
approved under a coverage exception. This guidance created a great deal
of confusion on the part of sponsors and beneficiaries. Charging the
same cost sharing for non-formulary drugs, which are approved during
transition, as for formulary drugs subject to utilization management
edits (such as prior authorization or step therapy), that are
overridden during transition while waiting for the utilization
management requirement to be satisfied, is likely to be inconsistent
with a tiered benefit design. It is possible that beneficiaries may pay
more during transition than for his or her drug's normal designated
formulary tier. Conversely, it is also possible that the beneficiary
may pay more once the utilization management edit had been satisfied
than he or she did under the transition fill. The following examples
will illustrate these scenarios, assuming that the beneficiary is
eligible for a transition fill, using the following hypothetical
formulary structure:

Table 3--Hypothetical Formulary Structure
----------------------------------------------------------------------------------------------------------------
Tier Tier description Beneficiary cost sharing
----------------------------------------------------------------------------------------------------------------
1............................... Generics............... $5 copay/30[dash]days' supply.
2............................... Preferred Brands....... $10 copay/30[dash]days' supply.
3 *............................. Non[dash]preferred $15 copay/30[dash]days' supply.
Brands.
4............................... Specialty drugs 25% coinsurance/30[dash]days' supply.
(includes both
generics & brands).
----------------------------------------------------------------------------------------------------------------
* Tier 3 is the designated formulary exception tier.

Each of the following examples shows the fill date, quantity
filled, the associated days' supply, whether a transition fill was
applied, and as a result, if either formulary tiering or exception
tiering was applied to the enrollee's cost sharing. In all cases, if a
transition fill was applied, the enrollee's cost sharing used exception
tiering.

Table 4--Example 1--The Beneficiary's Drug Is on Tier 2 With a Prior Authorization Requirement
----------------------------------------------------------------------------------------------------------------
Cost share used
Transition fill formulary tiering
Date of fill Quantity Days' supply applied (FT) or exception
tiering (ET)
----------------------------------------------------------------------------------------------------------------
1/1/13........................... 30 30 Y $15.00--ET.
----------------------------------------------------------------------------------------------------------------
The beneficiary obtains the PA, and the drug is no long considered a transition fill.
----------------------------------------------------------------------------------------------------------------
2/1/13........................... 30 30 N $10.00--FT.
----------------------------------------------------------------------------------------------------------------

In this example, if the exception tier is used on the transition
fill, the beneficiary's cost sharing amount is reduced once he or she
obtains the prior authorization approval. However, if the drug's
designated formulary cost sharing amount had been used, the cost
sharing amount would have stayed the same, and would have been the same
cost as the cost sharing amount shown on the formulary.

Table 5--Example 2--The Beneficiary's Drug Is on Tier 4 With a Prior Authorization
----------------------------------------------------------------------------------------------------------------
Cost share used
Transition fill formulary tiering
Date of fill Quantity Days' supply applied (FT) or exception
tiering (ET)
----------------------------------------------------------------------------------------------------------------
1/1/13........................... 30 30 Y $15.00--ET.
----------------------------------------------------------------------------------------------------------------
The beneficiary obtains the PA, and the drug is no long considered a transition fill.
----------------------------------------------------------------------------------------------------------------
2/1/13........................... 30 30 N 25%--FT.
----------------------------------------------------------------------------------------------------------------

[[Page 1968]]

In this example, if the exception tier is used on the transition
fill, the beneficiary's cost sharing amount will increase once he or
she obtains the PA since the designated formulary tier has a higher
cost sharing amount than the exception tier. If instead, the drug's
designated formulary cost sharing had been used, the cost sharing
amount would have remained the same for both fills. This scenario is
particularly confusing for enrollees, since they pay more after
receiving the required approval than they did under transition.

Table 6--Example 3--The Beneficiary's Drug Is Not on Formulary With a Formulary Exception
----------------------------------------------------------------------------------------------------------------
Cost share used
Transition fill formulary tiering
Date of fill Quantity Days' supply applied (FT) or exception
tiering (ET)
----------------------------------------------------------------------------------------------------------------
1/1/13........................... 30 30 Y $15.00--ET.
----------------------------------------------------------------------------------------------------------------
The beneficiary obtains the FE, and the sponsor continues to treat the drug as non[dash]formulary.
----------------------------------------------------------------------------------------------------------------
2/1/13........................... 30 30 N $15.00--ET.
----------------------------------------------------------------------------------------------------------------

Plan sponsors are currently required to designate to which tier a
non-formulary drug will apply once a formulary exception is granted.
Sponsors can continue to treat the drug as non-formulary and continue
the exception for the remainder of the coverage year, in which case,
cost sharing at the exception tiering continues.
We believe that more consistent treatment of formulary and non-
formulary drugs, respectively, will simplify the benefit and reduce
sponsor and beneficiary confusion. Consequently, we propose to add a
paragraph at Sec. 423.120(b)(3)(vi) clarifying that when providing a
transition supply, the cost sharing is determined as follows: A Part D
sponsor must charge cost sharing for a temporary supply of drugs
provided under its transition process such that the following
conditions are met:

For low-income subsidy (LIS) enrollees, a sponsor must not
charge higher cost sharing for transition supplies than the statutory
maximum copayment amounts.
For non-LIS enrollees, a sponsor must charge--
++ The same cost sharing for non-formulary Part D drugs provided
during the transition that would apply for non-formulary drugs approved
through a formulary exception in accordance with Sec. 423.578(b); and
++ The same cost sharing for formulary drugs subject to utilization
management edits provided during the transition that would apply once
the utilization management criteria are met.
23. Medicare Coverage Gap Discount Program and Employer Group Waiver
Plans (Sec. 423.2325)
Section 3301 of the Affordable Care Act, codified in section 1860D-
43 and 1860D-14A of the Act, established the Medicare Coverage Gap
Discount Program (Discount Program), beginning in 2011. Under the
Discount Program, manufacturer discounts are made available to
applicable Medicare beneficiaries receiving applicable covered Part D
drugs while in the coverage gap. Section 1860D-14A(c)(1)(A)(ii) of the
Act requires the manufacturer discount to be provided to beneficiaries
at the point-of-sale.
Employer Group Waiver Plans (EGWPs) are customized employer-offered
plans available exclusively to employer/union health plan Part D
eligible retirees and/or their Part D eligible spouse and dependents.
Section 423.458(c)(4) requires sponsors offering EGWPs to comply with
all Part D requirements unless those requirements have been
specifically waived or modified by us using our authority under section
1860D-22(b) of the Act. We do not regulate any supplemental benefits
that EGWPs offer outside of Part D prescription coverage. Employers/
Unions offering EGWPs must ensure that any supplemental benefits comply
with any applicable requirements for issuance under state insurance
laws and/or ERISA rules (see January 25, 2013 Insurance Bulletin from
the Center for Consumer Information and Insurance Oversight: http://www.cms.gov/cciio/resources/Regulations-and-Guidance/index.html#Health
Market Reforms).
EGWP benefits are generally structured to provide additional
coverage so that their enrollees do not actually experience a coverage
gap. However, the Affordable Care Act did not exclude EGWP enrollees
from the Discount Program. Therefore, in order for an applicable drug
to be covered by EGWPs, it must be covered under a manufacturer
agreement, and the manufacturer must pay applicable discounts as
invoiced. Beginning in 2014, all EGWP benefits beyond the parameters of
the defined standard benefit will be treated as non-Medicare Other
Health Insurance (OHI) that wraps around Part D. We specifically
excluded supplemental coverage offered through EGWPs from the
definition of Part D supplemental benefits in Sec. 423.100. We made
this a requirement with respect to EGWPs so that the discount amount
could be consistently and reliably determined. This was necessary to
ensure that we can determine that the discount is always calculated
accurately since we do not collect information on all EGWP retiree
benefit arrangements to determine actual supplemental benefits. Not
only would collecting such information be impractical, but we also
believe instituting a requirement to collect the specific information
on all such benefits would be so burdensome as to hinder the design of,
the offering of, or the enrollment in employer plans. Consequently, the
discount calculation will be based upon the Part D Defined Standard
benefit for all EGWPs beginning in 2014. While we believed that our
justification for excluding any supplemental benefits offered through
EGWPs from Part D benefits clearly indicated that the basic EGWP Part D
benefits would be limited to Defined Standard benefit because that is
the only way we can determine that the discount is calculated
accurately, we are taking the opportunity now to propose this specific
requirement in Sec. 423.2325(h)(1) to remove any ambiguity.
Treating EGWP supplemental benefits as OHI and always calculating
the manufacturer discount based on the Defined Standard benefit means
that discount payments likely will increase for some applicable
beneficiaries enrolled in EGWPs over the amounts that would have been
calculated when these benefits were considered as supplemental benefits
for purposes of the coverage gap discount program. As noted previously,
EGWPs' benefits are generally structured to provide additional coverage
so that their

[[Page 1969]]

enrollees do not actually experience a coverage gap. Now that the Part
D portion of the EGWP plan is based on the Defined Standard benefit,
the coverage gap discount pays before the EGWP supplemental benefits
(that is, OHI) are applied. Consequently, Part D sponsors that
administer EGWP plans will receive discount amounts that may not offset
the enrollees' final out-of-pocket cost-sharing, as the discounts do in
individual market Part D plans when it is applied after Part D
supplemental benefits. Nevertheless, we think it is important that
these discounts that are calculated and paid prior to the application
of OHI are apparent to the employer and union group clients of our Part
D sponsors. This transparency ensures that the parties who are
ultimately responsible for the both the EGWPs' plan design and the
financial integrity of the plans are aware of the discount amounts
received. We anticipate that the employer and union group
administrators will take the additional funds into account when
negotiating and designing retiree prescription drug benefits. We
believe that his will ultimately benefit the beneficiaries enrolled in
these plans.
We considered several approaches for ensuring that all manufacturer
payments accrue to the benefit of beneficiaries enrolled in EGWPs. The
most obvious approach would have been to require EGWPs to use
manufacturer payments to reduce beneficiary premiums or cost-sharing in
the non-Part D portion of benefit. While this approach would have
offered the most straightforward benefit for beneficiaries, it has
several serious obstacles. First, we do not believe that we have the
authority to require any specific application of the coverage gap
discount payments to OHI benefits that are by definition non-Medicare
private market benefits outside our regulatory purview. In addition,
since we do not collect premium or benefit information for EGWPs,
monitoring compliance with such requirements would not be feasible.
Moreover, establishing an affirmative requirement would necessitate
establishing standards for how the discount amounts should be applied
to the retiree benefits. We frankly do not have the depth of knowledge
of private and public sector retiree benefits necessary to establish
such standards. We can envision that more prescriptive requirements
about how discount amounts can be used might interfere with critical
utilization management and cost control features of these benefits,
conflict with employment or bargaining agreements particulars, or have
other unintended consequences. We also considered not taking any action
since anecdotal evidence suggests that some employer groups are already
using the discounts to reduce premiums, and we have no reason to
believe that this is not generally the case. However, we cannot be sure
that all employer groups are aware of how Discount Program payments are
calculated or the value of the payments attributable to their
enrollees. After consideration, we believe that our best course is to
pursue full disclosure and transparency so that employer groups have
the information they need to take full advantage of these discounts to
strengthen and safeguard their enrollees' retiree benefits. Through the
proposed regulation we are seeking to ensure that employer groups are
fully aware of Discount Program payments attributable to their
enrollees so that the payments can be accurately anticipated and
incorporated into EGWP benefit designs. Equipped with projected and
actual payments received, each employer group can design a benefit
package that best meets the needs of its retirees.
To ensure that Discount Program payments are communicated to
employer groups in a uniform fashion, we propose to codify notification
requirements by amending Sec. 423.2325 to add a new paragraph (h)
requiring Part D sponsors of EGWPs to disclose to each employer group
the projected and actual manufacturer discount payments under the
Discount Program attributable to the employer group's enrollees. We
further propose that such disclosures happen at least annually or upon
request. Part D sponsors must also be prepared to demonstrate to CMS
that such notifications have been made upon request.
24. Interpreting the Non-Interference Provision (Sec. 423.10)
Since the MMA created the Part D benefit in 2003, we have never
formally interpreted section 1860D-11(i) of the Act, which is known as
the noninterference provision. In practice we have generally invoked
the spirit of this provision in declining to intervene in negotiations
or disputes involving payment-related contractual terms between
participants in the drug distribution channel. However, it is
increasingly clear from the many questions that continue to arise when
working with stakeholders on matters ranging from lawsuits to policy
clearance to complaint resolution that the agency and all Part D
stakeholders would benefit from a clear, formal interpretation of these
limits on our authority. Some stakeholders appear to believe the
prohibition on interference in negotiations extends far beyond the
boundaries that we consider relevant, while others insist our authority
extends into arbitrating matters that seem to us to clearly fall within
the intended prohibition. Therefore, we are proposing an interpretation
through rulemaking in order to clarify and codify the extent of these
limits on our authority.
The noninterference provision at section 1860D-11(i) of the Act
provides that, ``In order to promote competition under this part and in
carrying out this part, the Secretary: (1) May not interfere with the
negotiations between drug manufacturers and pharmacies and PDP
sponsors; and (2) may not require a particular formulary or institute a
price structure for the reimbursement of covered Part D drugs.'' In
beginning with the words ``In order to promote competition under this
part and in carrying out this part . . .'' we believe that the Congress
intended that the activities addressed in the rest of the provision
should take place through private market competition. We interpret this
to mean two separate but related goals. The first goal is that the
Secretary through CMS should promote private market competition in the
selection of Part D drugs for Part D sponsor formularies. The second
goal is that CMS should not create any policies that would be expected
to interfere with competitive market negotiations leading to the
selection of drug products to be covered under Part D formularies.
Therefore, in light of these two goals we believe there is both a duty
to act--to promote competition in the private market for Part D drugs--
and a duty to refrain from acting--to avoid intervention in private
market negotiations that take place in the context of that competitive
market.
Economic theory on competitive markets suggests that the duty to
ensure a competitive market means that within the limits of our
authority we should seek to encourage certain features of the market
that promote more perfect competition. This would include such goals as
decreasing the transaction cost of acquiring information on products
offered in the market, increasing the transparency of prices, ensuring
a large number of buyers and sellers, and minimizing barriers to entry
to the extent possible while still ensuring quality. We have pursued
these types of goals since the start of Part D program implementation
through such efforts as the Medicare Prescription Drug Plan Finder, the
development of the Medicare star ratings, our extensive efforts to
provide technical assistance to

[[Page 1970]]

new and existing sponsors, and our meaningful differences policies that
improve the comparability of Part D formularies and benefit packages.
We will continue to seek opportunities to improve competition. As an
initial matter, in light of our interpretation of the general purpose
of section 1860D-11(i) of the Act, we propose a general rule at Sec.
423.10(a) that CMS promotes fair private market competition in the
market for Part D drugs.
There is also a duty to avoid intervention in private market
negotiations that take place in the context of that competitive market.
We believe the intent of 1860D-11(i) is to ensure that we do not create
any policies or become a participant in any discussions that could be
expected to interfere with negotiations leading to the selection of
drug products to be covered under Part D formularies. By this we mean
selection by Part D sponsors (or other intermediary contracting
organizations) of specific manufacturers' products for inclusion on
formularies, formulary tier placement, and negotiations of acquisition
costs, rebates, and any other price concessions. We believe this
interpretation is consistent with a textual reading of 1860D-11(i) and
with how private market transactions determine which prescription drug
products are covered under Part D plans.
Private market competition for prescription drugs is a complex
process that has been described in detail elsewhere, such as in the
2007 CBO report entitled ``Prescription Drug Pricing in the Private
Sector'' at: http://www.cbo.gov/publication/18275. This process
involves specific transactions between manufacturers and distribution
channel participants (generally wholesale distributors and dispensing
pharmacies) that are different than the transactions that take place
between manufacturers and ultimate purchasers (primarily health plans
or self-insured employers and/or their intermediate contracting
organizations, such as pharmacy benefit managers (PBMs)). Pharmacies
will stock most commonly used brand medications but will selectively
stock generic products to leverage volume in return for the best prices
from competing generic manufacturers. Thus, generally speaking, the
price negotiations between manufacturers and pharmacies differentially
determine which generic products are stocked and dispensed by
pharmacies. These price negotiations are generally based on discounts
off manufacturer list prices. Health plans and PBMs, in contrast, will
base decisions on which multiple-source or therapeutically equivalent
brand drug products will be covered under a plan in part on the
evaluation of the relative cost effectiveness of the competing drug
products. This will be determined by comparing both the list prices of
the drug products and the level of rebates negotiated between the
sponsor and the manufacturers of the brand products. Thus the price
negotiations between manufacturers and health plans determine which
brand products are placed on the plan's formulary and available to
enrollees. These additional price negotiations are generally around the
level of rebates for both formulary and tier placement. These distinct
sets of negotiations in the private market between manufacturers and
pharmacies on the one hand, and between manufacturers and plan sponsors
on the other hand, support our textual reading of section 1860D-
11(i)(1) of the Act to prohibit CMS involvement in negotiations between
manufacturers and pharmacies, and between manufacturers and plan
sponsors. There are also separate price negotiations between plan
sponsors (or their intermediary contracting organizations) and
pharmacies around the negotiated prices required for network
participation. However, as will be discussed in more detail in this
section, since the statute establishes numerous requirements that CMS
must regulate concerning access to network pharmacies and negotiated
prices, we believe that a CMS role in negotiations between plan
sponsors and pharmacies is not prohibited under section 1860D-11(i)(1)
of the Act.
We note that in The Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 Conference Agreement (Conference Agreement),
in addition to the statutory language, MMA drafters included the
following sentence: ``Conferees expect PDPs to negotiate price
concessions directly with manufacturers.'' We believe this statement
supports our understanding that the primary focus of section 1860D-
11(i) of the Act is on the negotiations between plan sponsors (or their
intermediary contracting organizations) and manufacturers for rebates
and other price concessions that ultimately determine which multiple
source products will be placed on a sponsor's formulary. The outcome of
these negotiations also determine tier placement, or the level of cost
sharing that will be charged for the drug, whether the drug will be
subject to certain utilization management controls, and may even
influence the list prices that manufacturers submit to the commercial
databases and that form the basis of most purchasing contracts in the
drug distribution channel.
Section 1860D-11(i)(1) of the Act states that we ``may not
interfere with the negotiations between drug manufacturers and
pharmacies and PDP sponsors''. We believe that the term
``interference'' in this context should be interpreted as prohibiting
our involvement in discussions between manufacturers and their
distribution channel customers (such as wholesalers and pharmacies) or
the ultimate purchasers of prescription drugs (such as plan sponsors
and PBMs) leading to signed contracts. We believe that the negotiations
addressed by the first clause should be read to apply to discussions
manufacturers have with their customers because, as discussed
previously, this textual reading comports with the nature of the
transactions that occur in the private market that determine which drug
products will be covered under Part D plans. We also believe section
1860D-11(i)(1) of the Act should be interpreted as prohibiting our
involvement in arbitration of agreements already executed between any
of these parties. It would not make sense to prohibit CMS involvement
in discussions leading up to an executed agreement only to allow
involvement in arbitrating the terms of the agreement afterwards. Thus
we interpret the word ``negotiations'' to mean not only the initial
discussions leading to executed agreements, but also any subsequent
discussions between the parties as to what those agreements require. We
are periodically asked to become involved in both initial negotiations
and in disputes and renegotiations by parties trying to get CMS to
weigh in on one side or another on the premise that failure to do so
will lead to access issues for Medicare beneficiaries. We also
periodically are asked to address terms and conditions of executed
agreements that one of the parties believes is unfair. We believe that
our involvement in these sorts of issues is precisely what the statute
prohibits in section 1860D-11(i)(1) of the Act--our weighing in on a
contract negotiation or dispute could influence the outcome. In other
words, government involvement could affect market forces around
prescription drugs in ways that change the value that would otherwise
be assigned to these products in a competitive market. We believe we
should not pick winners and losers in formulary selection negotiations,
and that the remedies for disputes should be determined in accordance
with the terms of the

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contracts or in the courts having jurisdiction over the contracts.
Therefore we interpret the prohibition in section 1860D-11(i)(1) of
the Act on interference in negotiations to pertain to discussions
either between prescription drug manufacturers and pharmacies, or
between prescription drug manufacturers and Part D sponsors (or their
intermediary contracting organizations, hereafter included by
association whenever we refer to Part D sponsors). Our interpretation
is based on the sequential phrasing of the clause ``negotiations
between drug manufacturers and pharmacies and PDP sponsors.'' Because
in general these negotiations are not among all three parties at once,
and because manufacturers separately contract with pharmacies for the
purchase of inventory and with sponsors for formulary placement, we
believe the quoted phrase can be interpreted as recognizing these
distinct types of negotiations. Under such a reading, the prohibition
on interference in negotiations, as described in section 1860D-11(i)(1)
of the Act, would not pertain to negotiations between Part D sponsors
and pharmacies.
This does not mean, however, that we would be free to interfere in
sponsor-pharmacy negotiations. Indeed, we believe section 1860D-
11(i)(2) of the Act sets forth specific limits on our ability to
involve ourselves in Part D sponsors' arrangements with their network
pharmacies, as discussed in more detail later in this section. However,
we believe that our proposed interpretation of section 1860D-11(i)(1)
of the Act as not applying to the sponsor-pharmacy negotiations is
supported by the provision's context. There are numerous statutory
provisions that require us to directly intervene in the contractual
relationship between Part D sponsors and network pharmacies, and these
provisions clearly signal that the Congress expected CMS involvement in
at least some of these negotiations. The Congress has provided many
contractual requirements for CMS to enforce between sponsors and
pharmacies; just the drug-cost-related of these include: Interpretation
of what ``access to negotiated prices'' means, any-willing-pharmacy
standard terms and conditions, prohibition on any requirement to accept
insurance risk, prompt payment, and payment standard update
requirements. So it is clear that Part D sponsors and pharmacies do not
have sole discretion to interpret these specific matters. We would be
obligated to intervene in disputes over whether proposed or finalized
contractual arrangements violated our rules in any area where our
oversight is directed under the statute. Therefore, it is clear that
such involvement could not be what the Congress intended to prohibit.
Moreover, we observe a growth in related-party relationships between
Part D sponsors and network pharmacies, where the distinction between
the sponsor and the pharmacy is increasingly unclear, and there is no
reason to believe that the Congress intended that we are prohibited
from oversight of the sponsor's dealings with itself. In addition, we
believe the goals of the non-interference provision generally support
CMS avoidance of being an arbiter of private disputes. Thus, we would
also decline to intervene in contractual disputes between sponsors and
network pharmacies except in matters implicating CMS requirements,
because to do so might distort private market outcomes in unpredictable
ways. Therefore, we propose at Sec. 423.10(b) that CMS may not be a
party to discussions between prescription drug manufacturers and
pharmacies, or between drug manufacturers and Part D sponsors, and may
not arbitrate the meaning of or compliance with the terms and
conditions of agreements reached between these parties, except as
necessary to enforce CMS requirements applicable to those agreements.
Thus, we could only be involved in such discussions in order to explain
CMS requirements and to ensure compliance with Part D rules and
regulations. We also add that nothing in this prohibition limits our
authority to require documentation of and access to all such
agreements, or to require the inclusion of terms and conditions in
agreements when necessary to implement requirements under the Act.
The first part of the section 1860D-11(i)(2) of the Act states that
CMS ``may not require a particular formulary''. The noninterference
clause must be read in context of the other provisions that give CMS
authority with respect to formularies, so we propose to interpret the
term ``particular formulary'' to mean the selection of specific
manufacturer licensed drug products to be on formulary, or on any
particular tier of a formulary, assuming the product meets the
definition of a Part D drug. We interpret the first part of section
1860D-11(i)(2) of the Act to prohibit us from developing formulary
guidelines that prefer one manufacturer's product over another's in
Part D formularies, leading to more limited formularies such as
provided by the Department of Defense and the Veteran's Administration.
The most efficient formularies will make formulary selections and then
exclude all or most competing multi-source and therapeutically
equivalent brand products in order to concentrate volume and maximize
rebates. Given the size of the Part D market, if CMS were able to
similarly limit access to Part D formularies to certain products, this
would bestow significant competitive advantage on the manufacturers of
selected products and significant competitive disadvantage on
manufacturers of competing products. Such limits would be expected to
fundamentally alter supply and demand in the marketplace. This
prohibited sort of selection would be distinguished from CMS formulary
requirements that may require particular types of drug entities to be
on all formularies, or on preferred tiers, in order to provide non-
discriminatory access to drugs necessary to treat conditions in all
Medicare beneficiaries, or to address drug classes of clinical concern
(see section III.A.14 of this proposed rule). Therefore, we propose a
provision prohibiting establishment of formulary drug product selection
at Sec. 423.10(c) that specifies that CMS does not determine the
specific drug products to be included on Part D sponsor formularies or
any tier placement of such products, except as required to comply with
Sec. 423.120(b)(1)(v) or Sec. 423.272(b)(2).
The second part of section 1860D-11(i)(2) of the Act states that
CMS ``may not institute a price structure for the reimbursement of
covered Part D drugs''. Again, the noninterference clause must be read
in context of the other provisions that give CMS responsibilities in a
number of areas that pertain to pricing, so we interpret the phrase
``price structure'' to refer to establishing either absolute or
relative indices of price for Part D drugs. Specifically, we believe
the intent of this provision is to prohibit two types of intervention
by CMS. The first prohibited activity is that CMS may not require Part
D drug acquisition costs or sales prices to be a function of (be
defined relative to) any particular published or unpublished pricing
standard, either existing or future. Thus, we could not require that
Part D prices be based on, or be any particular mathematical function
(such as a percentage or multiple) of established pricing standards
such as Average Wholesale Price, Wholesale Average Cost, Average
Manufacturer Price, Average Sales Price, Federal Supply Schedule, 340b
pricing, etc. The second prohibited activity is that CMS cannot require
price concessions (from any

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standard or basis) to be at any specific (absolute) dollar amount or
equal to a level specified in other legislative requirements for other
federal programs. Thus, we could not, for example, set minimum or
maximum dollar prices for a drug product or require that Part D prices
be offered at acquisition cost, or at the `best price' applicable under
the Medicaid program. However, since the statute requires us to
regulate many aspects of how drug costs are made available and
displayed to beneficiaries and treated in Part D bidding and payment
processes, it is clear that we have an important role to play in
establishing rules for consistent treatment of drug costs in the
program. Consequently, we may establish definitions of what constitutes
a pricing standard, a price concession, a cost, etc. We may also
establish rules concerning how drug costs are treated under Part D,
including, but not limited to, how such amounts are disclosed in the
marketplace, projected in Part D bids, made available to beneficiaries
at point of sale, reported in Explanation of Benefits (EOBs), submitted
to CMS, and treated in CMS payments to Part D sponsors. Therefore, we
propose a provision prohibiting establishment of drug price
reimbursement methodologies at Sec. 423.10(d) that specifies that CMS
does not establish drug product pricing standards or the dollar level
of price concessions at any stage in the drug distribution channel for
Part D drugs. Nothing in this prohibition limits our authority to
require full disclosure or uniform treatment and reporting of drug
costs and prices.
25. Pharmacy Price Concessions in Negotiated Prices (Sec. 423.100)
We have learned that some Part D sponsors have been reporting costs
and price concessions to CMS in different ways. This reporting
differential matters because this variation in the treatment of costs
and price concessions affects beneficiary cost sharing, CMS payments to
plans, federal reinsurance and low-income cost-sharing (LICS)
subsidies, and manufacturer coverage gap discount payments.
Differential treatment of costs would also be expected to affect plan
bids. We do not collect sufficient detail in price concession data
reported to CMS to quantify this impact, but this conclusion follows
from the admitted reporting of some pharmacy price concessions in the
annual aggregate price concession reporting (that is, the DIR
reporting) during the coverage year payment reconciliation process,
rather than as part of the negotiated price. (This issue, and its
financial effect, have been discussed in the Announcement of Calendar
Year (CY) 2014 Medicare Advantage Capitation Rates and Medicare
Advantage and Part D Payment Policies and Final Call Letter (2014 Call
Letter), [at http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2014.pdf] and will be
discussed in more detail in the discussion which follows.) If the
projected net costs a sponsor is liable for in its bid are understated
because the sponsor has been reporting certain types of price
concessions as direct or indirect remuneration (DIR) rather than as
price concessions that affect the negotiated price, it follows that the
sponsor may be able to offer a lower bid than its competitors and may
achieve a competitive advantage stemming not from greater efficiency,
but rather from a technical difference in how costs are reported to
CMS. When this happens, such differential reporting could result in
bids that are no longer comparable, and in premiums that are no longer
valid indicators of relative plan efficiency. We are therefore
proposing changes to rectify this concern.
The MMA established Part D as a voluntary, private-market-based
program that would rely on private plans to provide coverage and to
bear some of the financial risk for drug costs. These private plans
would determine premiums through a bid process and would compete with
other plans based on premiums and negotiated prices. [The Medicare
Prescription Drug, Improvement, and Modernization Act of 2003
Conference Agreement (Conference Agreement), page 4] Premiums are set
through a statutory formula that ensures that premium levels are
commensurate with bid levels. Therefore, all other things being equal,
the lowest premium for a given level of benefits should signal the most
efficient plan. Premiums are established through a prospective bidding
process in which costs are projected and evaluated in accordance with
actuarial guidelines set by the CMS Office of the Actuary.
Negotiated prices are the payment amounts pharmacies receive from
plans for covered Part D drugs dispensed to plan enrollees. CMS
payments to plans are based on the reporting of negotiated prices
(through PDE reporting) that are actually paid and are then offset by
any other price concessions (submitted in aggregate through the
separate annual DIR reporting process). CMS establishes rules for cost
and price concession reporting through both PDE and DIR guidance and
other payment reconciliation rules, and has regulated the definition of
negotiated price and how it is to be treated in Part D benefit
administration and in payment reconciliation. Since 2010, the
regulatory definition has been: ``Negotiated prices means prices for
covered Part D drugs that: (1) The Part D sponsor (or other
intermediary contracting organization) and the network dispensing
pharmacy or other network dispensing provider have negotiated as the
amount such network entity will receive, in total, for a particular
drug; (2) Are reduced by those discounts, direct or indirect subsidies,
rebates, other price concessions, and DIR that the Part D sponsor has
elected to pass through to Part D enrollees at the point of sale; and
(3) Include any dispensing fees.''
We intended clause 2 to primarily refer to price concessions from
parties other than pharmacies, since these would be price concessions
that were not based on the sale of the drug by the pharmacy and
calculated when the claim adjudicated and, in fact, could not be
calculated until a later date. In particular, we expected these other
non-claim-based price concessions to be in the form of rebates offered
by prescription drug manufacturers. Since prescription drugs are
dispensed by pharmacies and purchased through transactions between Part
D sponsors (or their intermediary contracting organizations) and
pharmacies, manufacturers are never in a position to apply price
concessions to negotiated prices at point of sale. We now understand
that clause 2 is ambiguous and permits sponsors and their
intermediaries to elect to take some price concessions from pharmacies
in forms other than the negotiated price and report them outside the
PDE. When this occurs, the increased negotiated prices generally shift
costs to the beneficiary, the government and taxpayer, and when
applicable to certain brand name drugs, to prescription drug
manufacturers. (The mechanism of this sort of cost shift was discussed
at length in the analogous context of lock-in pricing in our 2008
proposed rule entitled ``Medicare Program; Revisions to the Medicare
Advantage and Prescription Drug Benefit Programs'' which as published
on May 16, 2008 in the Federal Register,--FR 28563 through 28566.)
In addition, when price concessions from pharmacies are reflected
in forms other than the negotiated price, the degree of price
concession that the pharmacy has agreed to is no longer reflected in
the negotiated prices available at point of sale or reflected on the
Medicare Prescription Drug Plan

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Finder (Plan Finder) tool. Thus, the true price of drugs at individual
pharmacies is no longer transparent to the market. Consequently,
consumers cannot efficiently minimize both their costs (cost sharing)
and costs to the taxpayers by seeking and finding the lowest-cost drug/
pharmacy combination. Moreover, as the coverage gap closes, there are
fewer and fewer beneficiaries who are exposed to the full cost of drug
products, either at the point of sale or as reflected in Plan Finder
estimates. When this occurs, the basis of competition shifts from
prices to cost sharing, and the pricing signals available to the market
can be distorted when lower cost sharing is not aligned with lower
prices. Thus, we believe the exclusion of pharmacy price concessions
from the negotiated price thwarts the very price competition that the
Congress intended when it said that private plans would compete with
other plans on both premiums and negotiated prices.
We are aware that certain pharmacy price concessions are being
excluded from the determination of the negotiated price because they
are being characterized as ``network access fees'', ``administrative
fees,'' ``technical fees'' or ``service fees'' that are frequently
imposed through PBM-issued manuals rather than explicit contractual
terms. Pharmacies and pharmacy organizations report that they do not
receive anything of value for those fees other than the ability to
participate in the Part D network. The itemized types of services for
which their payments are offset reportedly include things such as
transaction fees for submission of claims, help desk support,
information technology and telecommunication systems connectivity,
electronic funds transfers, and other expenses associated with
credentialing, maintaining, and auditing pharmacy networks. These fees
take the form of deductions from payments to pharmacies for drugs
dispensed, but in our view clearly represent charges that offset
sponsor/PBM operating costs. We believe that if the sponsor or its
intermediary contracting organization wishes to be compensated for
these services and have those costs treated as administrative costs,
such costs should be accounted for in the administrative costs of the
Part D bid. If instead these costs are deducted from payments made to
pharmacies for purchases of Part D drugs, such costs are price
concessions and must be treated as such in Part D cost reporting. This
is the case regardless of whether the deductions are calculated on a
per-claim basis or not. In our view, the decision on how such network
management costs are funded between the PBM and the sponsor is not
governed by our rules, but our rules do require that price concessions
be fully disclosed and net against drug costs in reconciliation.
We have also heard from pharmacies that some sponsors apply
dispensing fees to claims when they are adjudicated at point of sale,
but require that these fees later be rebated back to the sponsor and
deducted from payment remittances. Such practices again misstate the
negotiated price. Our proposal would require that dispensing fees could
only be applied at point of sale if they are received and retained by
the pharmacy in the negotiated price.
In comments on our related discussion in the 2014 Call Letter, one
commenter argued that these other amounts charged to pharmacies are
actually valid administrative costs. In contrast, all other sponsors
and PBMs that commented on that section acknowledged these amounts to
be price concessions. More significantly, all pharmacies and pharmacy
organizations we have heard from assert that these are price
concessions. When reported as DIR, these price concessions have the
effect of offsetting price concessions disproportionally against just
the costs the plan is most liable for, as discussed in the 2014 Call
Letter. If not reported at all, these amounts would result in another
form of so-called PBM spread in which inflated prices contain a portion
of costs that should be treated as administrative costs. That is, even
if these costs did represent services rendered by the PBM or other
intermediary organization for the sponsor, then these costs would be
administrative service costs, not drug costs, and should be treated as
such. Failure to report these costs as administrative costs in the bid
would allow a sponsor to misrepresent the actual costs necessary to
provide the benefit and thus to submit a lower bid than necessary to
reflect its revenue requirements (as required at section 1860D-
11(e)(2)(C) of the Act and at Sec. 423.272(b)(1)) relative to another
sponsor that accurately reported administrative costs consistent with
CMS instructions. Therefore, we agree with the pharmacy position that
an amount deducted from the negotiated price otherwise payable to the
pharmacy for these sorts of administrative fees is a price concession
that should be reflected in the negotiated price. Consequently, we
believe that the best interpretation of statutory intent is that all
pharmacy price concessions must be reflected in the negotiated price.
This would preclude the differential reporting that is taking place
today, and put all plans on a level playing field in reporting drug
costs and price concessions from network pharmacies. Consistent and
transparent pricing would also promote increased price competition
among network pharmacies and will align beneficiary and taxpayer
interests in minimizing costs. Therefore, we do not believe that other
pricing arrangements that cannot be calculated at the point of sale,
such as risk sharing or conditional payments based on volume, are
compatible with the price competition envisioned under the statute.
Such arrangements will tend to overstate negotiated prices at point of
sale, and require the subsequent adjustments through DIR reporting that
may increase beneficiary and government costs if specified targets are
met. We believe that the advantages of any such incentive arrangement
could be achieved without the cost shifting by adjusting future
negotiated prices. For instance, if specified volume targets were met
in one quarter, rather than retroactively adjusting that quarter's
prices down through DIR reporting, the negotiated prices for the next
quarter could be reduced, and so on. Therefore we propose to
reinterpret section 1860D-2(d)(1)(B) of the Act such that negotiated
prices are the amounts that a network pharmacy receives in total for
covered Part D drugs, and that these prices must reflect all price
concessions from network pharmacies. Therefore, any other negotiated
price concessions, such as discounts, direct or indirect subsidies,
rebates, and (DIR) referenced in the statute would be those price
concessions offered by sources other than network pharmacies (or their
intermediary contracting organizations). In practice, this means
prescription drug manufacturers.
Some stakeholders have recommended that certain incentive payments
to pharmacies, such as generic dispensing incentive fees, should not be
included in negotiated prices. If these payments are included, they
explain, the negotiated prices appear higher at the more efficient
pharmacy as the result of the additional incentive payment. This higher
price then proportionally increases costs borne by beneficiaries, the
government, and manufacturers. These incentives really represent
amounts that the sponsor is willing to bear in order to encourage the
most efficient drug choices, which will drive down total costs overall,
and thus the sponsor is willing to bear a disproportionate share of
such expense. We agree with this

[[Page 1974]]

argument and we believe that this sort of arrangement would not
conflict with our proposed requirement that all price concessions be
reflected in the negotiated price since such additional payments are
the opposite of price concessions. Instead such incentive fees
represent contingent price increases that cannot be predicted in
advance, and cannot therefore be programmed to be applied at point of
sale or reflected in the price posted on Plan Finder. We believe it
would be appropriate to treat this particular sort of price increase
differently than price decreases because including such amounts in the
negotiated price (incentive fee component) at point of sale could
disguise the relative competitiveness of the underlying pharmacy
prices. Incentive fees also primarily benefit the plan sponsor who
benefits from the lower costs associated with the incentivized
behavior, rather than the beneficiary. Therefore, in this case, we
agree that it would be more appropriate for such incentive payments to
be excluded from the negotiated price, and reported later in
reconciliation as negative DIR. When reported as negative DIR, these
amounts disproportionately affect (increase) the amounts the sponsor is
liable for in risk sharing, which is appropriate given the intent of
the incentives to promote least-cost drug product selection at point of
sale. Least-cost drug product selection will directly reduce the
sponsor's allowable risk corridor costs, so any incentive paid to
encourage this behavior would be expected to be more than offset by the
ingredient costs savings achieved through avoidance of higher-cost drug
selection. This is so because, as we learned from numerous commenters
to the 2014 draft Call Letter, the incentive payments are generally in
the range of a dollar or two and the difference between preferred and
non-preferred drug products is generally much greater.
Therefore, we propose to revise the definition of negotiated prices
at Sec. 423.100 to require that all price concessions from pharmacies
are reflected in these prices. Specifically we propose to redefine
negotiated prices to mean prices for covered Part D drugs that: (1) The
Part D sponsor (or other intermediary contracting organization) and the
network dispensing pharmacy or other network dispensing provider have
negotiated as the amount such network entity will receive, in total,
for a particular drug; and (2) are inclusive of all price concessions
and any other fees charged to network pharmacies; and (3) include any
dispensing fees; but (4) exclude additional contingent amounts, such as
incentive fees, only if these amounts increase prices and cannot be
predicted in advance; and (5) may not be rebated back to the Part D
sponsor (or other intermediary contracting organization) in whole or in
part.
26. Payments to PDP Plan Sponsors for Qualified Prescription Drug
Coverage (Sec. 423.308)) and Payments to Sponsors of Retiree
Prescription Drug Plans (Sec. 423.882)
We propose to revise the definition of the term actually paid at
both Sec. 423.308 for the Part D program and Sec. 423.882 for the
Retiree Drug Subsidy program in order to reconcile this definition with
the changes proposed to the definition of negotiated prices in this
regulation. Since our proposal would require that all price concessions
from network pharmacies must be reflected in the negotiated price, it
would no longer be correct to include pharmacies in the list of sources
from which price concessions could be received without qualification.
Therefore, we propose to revise the definition of actually paid at
Sec. 423.308 to include references to incentive payments, and to
clarify that DIR may include additional payments to pharmacies, such as
for incentive payments, but may not include any other price concessions
from pharmacies as these must be in the form of the negotiated price as
proposed in Sec. 423.100. We similarly propose to change the reference
to ``from any source'' in the definition of actually paid at Sec.
423.882 to ``from any manufacturer or similar entity'' to align these
definitions.
We also propose to remove any reference to coupons in the list of
price concession types. The definition of ``actually paid'' relates to
costs incurred by Part D sponsors, and coupons would not affect those
costs. Similarly, we are considering whether any or all of the
surrounding terms ``cash discounts, free goods contingent on a purchase
agreement, up-front payments . . . goods in kind, free or reduced-price
services, [or] grants'' in both of those paragraphs would affect costs
paid by Part D sponsors. We solicit comments on this question. We
similarly propose to remove any reference to coupons in the definition
of actually paid at Sec. 423.882 to align these definitions. We also
solicit comments on whether the surrounding terms ``cash discounts,
free goods contingent on a purchase agreement, up-front payments . . .
goods in kind, free or reduced-price services, [or] grants'' in both of
those paragraphs would affect costs paid by sponsors of qualified
retiree prescription drug plans.
Our reason for striking any such term is that we are not aware of
any form of coupons (or the other forms of remuneration listed
previously) that would affect the amount a Part D sponsor pays to the
pharmacy on a claim. Therefore, the terms should be deleted to
accurately reflect the types of price concessions a Part D sponsor
might receive that would affect its financial obligation to pharmacies.
Moreover, we do not want to signal any ambivalence with regard to the
permissibility of copayment coupons to eliminate or reduce the cost-
sharing obligations of Part D beneficiaries. The anti-kickback statute
prohibits the knowing and willful payment of remuneration, directly or
indirectly, in cash or in kind, to induce the recipient to purchase any
item for which payment may be made in whole or in part under a federal
health care program. (42 U.S.C. 1320a-7b(b)(2)). The statute also
prohibits the knowing and willful receipt of remuneration in return for
such a purchase. (42 U.S.C. 1320a-7b(b)(1)). Because copayment coupons
are provided to consumers for the purpose of inducing them to purchase
specific prescription drugs, knowing and willful use of such coupons to
reduce the cost-sharing obligations of federal health care program
beneficiaries is prohibited by the anti-kickback statute.
Pharmaceutical manufacturers are aware of this prohibition and
typically include language on copayment coupons stating that persons
whose prescriptions are paid for by federal programs are not eligible
to use them.
27. Preferred Cost Sharing (Sec. 423.100 and Sec. 423.120)
In our original rule implementing the Part D Program, we codified
an interpretation of section 1860D-4(b)(1)(B) of the Act at Sec.
423.120(a)(9) that permitted Part D sponsors to offer lower cost
sharing at a subset of network pharmacies, dubbed ``preferred
pharmacies,'' than at other in-network pharmacies. This lower cost
sharing was subject to certain conditions that seemed straightforward
to us at the time, but which have proven to need clarification. We have
recently discussed this concern in the Announcement of Calendar Year
(CY) 2014 Medicare Advantage Capitation Rates and Medicare Advantage
and Part D Payment Policies and Final Call Letter (2014 Call Letter) on
pages 175-176 [at http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2014.pdf]

[[Page 1975]]

Section 1860D-4(b)(1)(B) of the Act contemplates the possibility of
sponsors offering lower cost sharing at some network pharmacies than is
offered in conjunction with the any willing pharmacy terms and
conditions mandated in the immediately preceding paragraph (A).
However, a plan's ability to reduce cost sharing is contingent upon one
condition: ``In no case shall such a reduction result in an increase in
payments made by the Secretary under section 1860D-15 of the Act to a
plan.'' In our original proposed rule entitled ``Medicare Program;
Medicare Prescription Drug Benefit; Proposed Rule,'' published on
August 3, 2004 in the Federal Register, 69 FR 46658 through 46659, we
did not offer an interpretation of this language but implied that any
assessment of whether the condition was met would be a matter of
actuarial equivalence analysis. We proposed to codify the requirements
in regulation with the following two conditions: ``. . . the plan must
still meet the requirements under Sec. 423.104(e)(2) and (5); and
[a]ny cost sharing reduction must not increase CMS payments under Sec.
423.329.'' In the final regulation entitled ``Medicare Program;
Medicare Prescription Drug Benefit; Final Rule'', published on January
28, 2005 in the Federal Register, 70 FR 4247 through 4255, we
reiterated the language from the aforementioned proposed rule (69 FR
46658). ``However, we note that while these within-network distinctions
are allowed, the statute also requires that such tiered cost-sharing
arrangements in no way increase our payments to Part D sponsors.
Therefore, tiered cost-sharing arrangements based on within-network
distinctions could be included in Part D plans' benefits subject to the
same actuarial tests that apply to formulary-based tiered cost-sharing
structures. Thus, a reduction in cost sharing for preferred pharmacies
in a Part D plan network could be offered through higher cost sharing
for non-preferred pharmacies (or as alternative prescription drug
coverage).'' (70 FR 4254, January 28, 2005). This statement was
immediately followed by an expression of our intent to ensure that such
network benefit designs were non-discriminatory: ``We recognize the
possibility that Part D plans could effectively limit access in
portions of their service areas by using the flexibility provided in
Sec. 423.120(a)(9) of our final rule to create a within-network subset
of preferred pharmacies. In other words, in designing its network, a
Part D plan could establish a differential between cost-sharing at
preferred versus non-preferred pharmacies--while still meeting the
access standards in Sec. 423.120(a)(1) of our proposed rule--that is
so significant as to discourage enrollees in certain areas (rural areas
or inner cities, for example) from enrolling in that Part D plan. We
emphasize that such a network design has the potential to substantially
discourage enrollment by certain Part D enrollees, and that we have the
authority under section 1860D-11(e)(2)(D) of the Act to disallow
benefit designs that are discriminatory.''
And in fact, once sponsors began to submit preferred cost sharing
benefit designs, we imposed limits on non-preferred cost sharing in
such plans (through plan benefit package (PBP) bid review) to ensure
that non-preferred cost sharing in these designs did not represent a
cost sharing outlier in comparison to Part D plans without preferred
cost sharing. If we were to allow cost sharing in pharmacies not
offering preferred cost sharing to rise above this outlier level,
beneficiaries with significant utilization due to severe or chronic
illness would clearly see that such plans were disadvantageous, and
would avoid them. Thus, we would find any such designs to be
discriminatory and would not approve the plan benefit package. However,
what we failed to sufficiently explain in 2005 was that if cost sharing
cannot rise beyond a certain level, then in return for lower cost
sharing, preferred networks must reduce drug costs paid by the plan in
order to prevent an increase in CMS payments to the plan. In part this
omission may have been because we presumed that Part D sponsors would
motivate enrollees to go to a subset of pharmacies through lower cost
sharing only if those pharmacies offered significantly lower negotiated
prices, and thus would provide a competitive advantage for the sponsor
in lowering costs. As the concerns expressed in the 2014 Call Letter
indicate, this does not seem to have been the case for some sponsors.
However, if drug costs (negotiated prices) are not lower in return for
lower cost sharing, and the lower cost sharing cannot be completely
offset by higher cost sharing on other beneficiaries due to our cost-
sharing-outlier limits, then the amount that must be subsidized by the
government and the taxpayer will increase.
As noted in the Call Letter, we conducted an analysis of 2011 Part
D drug costs in standalone PDPs with preferred networks, and compared
these to costs in their non-preferred networks, as well as to costs in
other PDPs without preferred networks. (The April 2013 analysis by CMS,
``Negotiated Pricing between Preferred and Non-Preferred Pharmacy
Networks'', is posted at: http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/PharmacyNetwork.pdf).
We expected to find that costs were consistently lower, although we had
no preconceived estimate of how much lower. Instead we found that
aggregate unit costs weighted by utilization (for the top 25 brand and
top 25 generic drugs) were slightly higher in a few preferred networks
than in non-preferred networks in some plans. The majority of sponsors
offering preferred networks did not have these higher costs, although
the range of cost savings in their preferred networks ranged from a
high of 24.2 percent to as little as 0.1 percent when measured in this
particular way. Surprisingly, the most significant driver of excess
costs in the outlier sponsor preferred networks appeared in mail-order
claims. In these cases the retail pharmacies in the non-preferred
network were actually offering savings through discounted generics at
prices below those offered by pharmacies with preferred cost sharing.
This is a primary reason we have proposed to interpret the any willing
pharmacy requirements (see section III.A.29 of this proposed rule) to
require plan sponsors to offer preferred cost sharing for any pharmacy
that can offer sufficient discounts to qualify. Even assuming that
preferred pharmacies were to offer lower negotiated prices than those
available in the rest of the network, failure to allow access to any
pharmacy willing to meet the pricing terms necessary to be included in
the preferred network could mean that fewer beneficiaries would have
convenient access to both lower cost sharing and lower negotiated
prices than would otherwise obtain. We seek to not only ensure that
preferred cost sharing is aligned with lower drug costs, but also to
maximize the number of beneficiaries who can take advantage of such
savings. We note that most PBMs own their mail order pharmacies, and we
believe their business strategy is to move as much volume as possible
to these related-party pharmacies to maximize profits from their
ability to buy low and sell as high as the market will bear.
Our findings--that a few sponsors have actually offered little or
no savings in aggregate in their preferred pharmacy pricing,
particularly in mail-order claims for generic drugs--are troubling.
Instead of passing through lower costs available through economies of
scale or steeper discounts, a few sponsors are actually charging the
program higher negotiated prices. When these higher

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prices are combined with significantly lower cost sharing offered in
preferred pharmacy pricing, such pricing increases the proportion of
costs borne by the plan and the government. All other things being
equal, this increases payments to plans in violation of section 1860D-
4(b)(1)(B) of the Act. Moreover, the lower cost sharing provides a
defective price signal that distorts market behavior. As the coverage
gap closes, there are fewer and fewer beneficiaries who are exposed to
the full cost of drug products, either at the point of sale or in
Medicare Plan Finder estimates. When sponsors compete on cost sharing
unrelated to the underlying negotiated prices of drugs, beneficiaries
may make choices that are rational and aligned with plan interests, but
not in the best interests of the Medicare program and the taxpayer. In
these cases, the lower cost sharing does not motivate enrollees to
select pharmacies with lower prices and thus make more efficient
choices in the market, but rather, motivates enrollees to do the
opposite. This results in higher costs to the Part D program overall.
Therefore, we propose to clarify that preferred cost sharing should
signal consistently lower costs. When lower cost sharing correctly
signals the best prices on drugs, then choosing pharmacies on the basis
of that lower cost sharing lowers not only beneficiary out-of-pocket
costs, but also Part D plan and other government subsidy costs. Lower
plan and government subsidies translate into lower CMS payments to
plans, consistent with the statutory requirements at section 1860D-
4(b)(1)(B) of the Act. Therefore, we propose to revise Sec.
423.120(a)(9) to state: ``Preferred cost-sharing in network pharmacies.
A Part D sponsor offering a Part D plan that provides coverage other
than defined standard coverage may reduce copayments or coinsurance for
covered Part D drugs obtained through a subset of network pharmacies,
as long as such preferred cost sharing is offered in accordance with
the requirements of Sec. 423.120(a)(8) and for Part D drugs with
consistently lower negotiated prices than the same drugs when obtained
in the rest of the pharmacy network.'' We propose that by `consistently
lower' we mean that sponsors must offer beneficiaries and the Part D
program better (lower) negotiated prices on all drugs in return for the
lower cost sharing. In practice we believe this would mean that
whatever pricing standard is used to reimburse drugs purchased from
network pharmacies in general, a lower pricing standard must be applied
to drugs offered at the preferred level of cost sharing. For instance,
if drugs offered at the standard retail level of cost sharing were
reimbursed at 20 percent off the average wholesale price (AWP) pricing
standard, then any drugs offered at the preferred level of cost sharing
must be reimbursed at deeper discount than AWP minus 20 percent. If
generic drugs offered at the standard retail level of cost sharing were
reimbursed according to a sponsor's proprietary maximum allowable cost
(MAC) pricing standard, then generic drugs offered at the preferred
level of cost sharing must be reimbursed at deeper discount than the
MAC pricing rates. We believe this is not only consistent with the
statutory intent, but also reasonable since the mail-order operations
and other large pharmacies where preferred cost sharing is currently
offered have significantly more purchasing leverage with manufacturers
and wholesalers than do smaller pharmacies. Our analysis shows that
some sponsors are already achieving these levels of savings, and our
proposed policy would apply a consistent standard across all sponsors
to compete on negotiated prices, including in related-party pharmacy
operations. We would welcome comments on alternative approaches to
ensuring that the offering of preferred cost sharing does not increase
our payments. We believe that any alternative methodology must be based
solely on the level of negotiated prices and thus consistent with our
proposal to amend that definition (section III.A.25 of this proposed
rule). As discussed in that section, we proposed to revise the
definition to specify that all price concessions from pharmacies must
be reflected in the negotiated price in order to promote transparent
price competition, as well as to eliminate differential cost reporting
and cost shifting that interfere with a fair and transparent
competitive bidding process. We request that any alternative
methodology suggestions be accompanied by specific proposals for how we
could objectively validate compliance through data we already collect.
In addition, we solicit comments on whether we should also
establish standards on how much lower drug costs should be in return
for preferred cost sharing. We are aware that there is a wide range of
savings projections associated with the use of limited networks. For
instance, a January 2013 study prepared for the Pharmaceutical Care
Management Association (PCMA) provides various estimates ranging from 5
percent to 18 percent [at http://www.pcmanet.org/images/stories/uploads/2013/visante-pcma%20pharmacy%20networks%20study%201-24-13%20final.pdf]. We solicit comment on whether Medicare should require
a minimum level of savings, such as 10 percent or 15 percent, over the
costs available at retail cost-sharing rates. We believe that
substantial discounts in this range would be necessary to balance the
extremely low preferred cost sharing rates offered by many sponsors in
2013. We also solicit comments on how broadly preferred cost sharing
should be applied to drugs on a sponsor's formulary. For instance, is
it reasonable to offer cost sharing as low as $0 for only the least
expensive generics on formulary? Or should preferred cost sharing have
to apply to a minimum percentage of formulary products to be a
meaningful benefit instead? Or should preferred cost sharing have to
apply to all drugs available at pharmacies offering preferred cost
sharing? This would require that the prices of all drugs at those
pharmacies could be no higher than the prices at the other network
pharmacies. Such a policy would prevent sponsors from offering lower
prices on drugs with preferred cost sharing while offering higher
prices on other drugs not subject to preferred cost sharing. Our
concern is that without such rules, it is possible that the beneficiary
is motivated to change pharmacies in order to pay very low copays on
some drugs, but the program may end up paying higher costs on other
drugs the beneficiary purchases at the same pharmacy out of
convenience.
We also propose a clarification in terminology to better describe
the application of the policy to a sponsor's approved Part D pharmacy
network. As illustrated in the proposed revision to Sec.
423.120(a)(9), we would like to change the point of reference in our
guidance away from ``preferred pharmacies'' to ``preferred cost
sharing''. This is not only a more accurate interpretation of the
statute, but it also avoids the use of the corollary term ``non-
preferred''. We regret the unintended connotation that some network
pharmacies are ``non-preferred pharmacies'' when, in most cases, these
pharmacies have had no opportunity to meet the terms and conditions for
qualifying for preferred cost sharing. The use of the term non-
preferred also has caused confusion for some stakeholders since non-
preferred is also a term of art referring to non-contracted and,
therefore, non-network pharmacies. In addition, we believe it is
generally misleading for our sponsors to refer to preferred pharmacies,
when

[[Page 1977]]

only a limited number of tiers (for instance, generics) may be
available at the lower preferred cost sharing rates at these
pharmacies. Consequently, we are proposing to delete the definitions of
``preferred pharmacy'' and ``non-preferred pharmacy'' from Sec.
423.100 and to add a new definition of preferred cost sharing.
``Preferred cost sharing'' would mean lower cost sharing for certain
covered Part D drugs at certain network pharmacies offered in
accordance with the requirements of Sec. 423.120(a)(9). We would then
require that Part D sponsors would revise any marketing materials to
reflect the revised nomenclature, and eliminate any references to
preferred or non-preferred network pharmacies. We solicit comment on
whether any further clarifications of terminology are needed for this
policy proposal.
28. Prescription Drug Pricing Standards and Maximum Allowable Cost
(Sec. 423.505(b)(21))
We are proposing a change to the regulations governing the
disclosure and updating of prescription drug pricing standards used by
Part D sponsors to reimburse network pharmacies to make clear that drug
pricing based on maximum allowable cost (MAC) is subject to these
regulations. Section 173 of MIPPA amended sections 1860D-12(b) and
1857(f)(3) of the Act to add a provision requiring the regular updating
of prescription drug pricing standards. Thus, for plan years beginning
on or after January 1, 2009, CMS's contracts with Part D sponsors must
include a provision requiring sponsors to update any standard they use
to reimburse network pharmacies based on the cost of the drug to
accurately reflect the market price of acquiring the drug. These
updates must occur not less frequently than once every 7 days,
beginning with an initial update on January 1 of each year.
We codified this requirement in Sec. 423.505(b)(21). We also
amended Sec. 423.505(i)(3) with respect to contracts or written
arrangements between Part D sponsors and pharmacies or other providers,
first tier, downstream and related entities, to ensure that Part D
sponsors' contracts with these entities include provisions for
regularly updating any prescription drug pricing standard used by
sponsors to reimburse their network pharmacies, as provided in Sec.
423.505(b)(21). Specifically, Sec. 423.505(i)(3)(viii)(A) requires
that sponsors' pharmacy contracts include a provision establishing
regular updates of any prescription drug pricing standard used by the
Part D sponsor, consistent with Sec. 423.505(b)(21), and Sec.
423.505(i)(3)(viii)(B) requires that a Part D sponsor's pharmacy
contract indicate the source used by the Part D sponsor for making any
such pricing updates. We finalized these regulations in a final rule
entitled, ``Medicare Program; Medicare Advantage Program and
Prescription Drug Benefit Programs'' at 76 FR 54600 (September 1, 2011)
(``September 2011 final rule'').
When we finalized these regulations, we did not provide a specific
definition for ``prescription drug pricing standard,'' because we
believed that it was unnecessary at that time. Instead, we provided the
following examples of prescription drug pricing standards: ones that
are based on ''wholesale average cost, average manufacturer price, and
average sales price.'' At the time, we believed these examples
sufficiently illustrated what is meant by a prescription drug pricing
standard, which we described as ``an accepted methodology based on
published drug pricing.'' We also stated that defining the standard
beyond this may be overly prescriptive and might not be flexible enough
to evolve with industry changes.
Since publication of the September 2011 final rule, we have
concluded that our description of ``prescription drug pricing
standard'' in the preamble to the final rule was unintentionally too
restrictive. Pharmacy representatives have noted that many contracts
between Part D sponsors/PBMs and their network pharmacies set
reimbursement through the application of MAC prices. It is our
understanding that MAC prices generally refer to lists of drugs that
include the maximum amount that a plan will pay for multi-source drugs,
whether generics or multi-source brands. Based on numerous
conversations with pharmacy representatives, we further understand that
there is no standardization in the pharmacy benefits industry as to the
criteria used to determine inclusion of drugs on MAC lists or as to the
methodology used to determine the MAC prices, but that the latter is
based in part on the costs of the drugs and fluctuate, sometimes
frequently. We also understand that MAC prices seem to be set in some
relation to a lowest cost generic product alternative available on the
market at a given time. Additionally, we understand that MAC prices are
not typically based exclusively on published drug pricing, but are
based at least in part on internal Part D sponsor/PBM methodologies.
Finally, we understand that many Part D sponsors and PBMs have asserted
that because MAC prices are not based solely on published drug pricing,
MAC prices are not a ``prescription drug pricing standard,'' and thus,
not subject to the updating requirements.
Pharmacy representatives further report to us that pharmacies are
forced to sign contracts that reimburse based on MAC prices that change
without notice. These representatives state that pharmacies
consequently do not know exactly what price they will be paid for which
drugs, and thus the pharmacies cannot confirm that their reimbursements
are correct nor engage in proper business planning.
As noted previously, we stated in the preamble to the final
regulation that a ``prescription drug pricing standard'' is an accepted
methodology based on published drug pricing. This is because we were
unaware at the time that there is at least one standard based on costs
of the drugs that is not based strictly on published drug pricing. Now
that we have become aware of these types of pricing standards, we wish
to clarify our regulatory requirement. We believe that the updating
requirement should apply to pricing standards based on the cost of a
drug, even when the standard is not based on published drug pricing, an
approach consistent with the intent of the statute. The text of MIPPA
section 173 itself indicates the provision's purpose--Part D sponsors
must update their prescription drug pricing standards regularly ``to
accurately reflect the market price of the drug.'' We believe that this
statement of purpose indicates that the Congress intended to provide
pharmacies with a means of ensuring that they have current data on the
amount of reimbursement that they can expect.
When the source of a prescription drug pricing standard is
published publicly, such as with AWP or WAC, pharmacies can determine
their reimbursement for all drugs at any given time and can monitor
these sources to ensure they are being reimbursed correctly. However,
when a prescription drug pricing standard is not published publicly,
network pharmacies are unable to promptly determine whether their
reimbursement is consistent with their contractual arrangements. This,
in turn, presents risks to the Medicare Part D program in a number of
ways. For example, disclosure of the source used to determine drug
prices is necessary for pharmacies to ensure accurate payment of their
claims, which is necessary for accuracy in the costs submitted to CMS
by Part D sponsors on PDEs without unnecessary later adjustments that
are disruptive to the operation of the Part D program.
In addition, when network pharmacies are unable to determine
whether their reimbursement is

[[Page 1978]]

consistent with their contractual arrangements, the accuracy of the
prices displayed in the Medicare Prescription Drug Plan Finder
(``MPDPF'') is questionable. While these prices only provide an
estimate of Part D drugs costs at particular pharmacies, beneficiaries
do use the MPDPF to make drug purchasing choices. If a pharmacy does
not know what it will be paid for drugs on any given day, it cannot
test the MPDPF and validate the prices. Thus, there is no assurance
that the posted prices are accurate, and pharmacies are deprived of the
opportunity to compete based on more accurate prices, and beneficiaries
may make choices based on erroneous estimated drug costs. This is
contrary to the public policy goal of facilitating competition in the
health care system and supporting consumers to be informed purchasers
of health care. Also, when CMS compares posted prices to prices
submitted on PDEs to evaluate the estimates provided in the MPDPF,
there can be no assurance that those values correspond to the payments
pharmacies actually receive.
For these reasons, we now believe it is necessary to define
``prescription drug pricing standard'' in regulation. Therefore, we
propose to add a definition to Sec. 423.501 that would state that a
``prescription drug pricing standard'' means ``any methodology or
formula for varying the pricing of a drug or drugs during the term of a
pharmacy reimbursement contract that is based on the cost of a drug,
which includes, but is not limited to, drug pricing references and
amounts that are based upon average wholesale price, wholesale average
cost, average manufacturer price, average sales price, maximum
allowable cost (MAC), or other cost, whether publicly available or
not.'' We propose to include the phrase, ``includes, but is not limited
to,'' to signify that the examples specified in the regulation text are
not exhaustive.
We expect some commenters may ask what pharmacy reimbursement
method would not be considered a ``prescription drug pricing
standard,'' since the regulations apply only ``if'' a Part D sponsor
uses a standard for reimbursement that is based on the cost of the
drug. In our view, a fixed fee drug price schedule that is not expected
by the parties to vary during the term of the contract between the Part
D sponsor/PBM would be not be a ``prescription drug pricing standard,''
as there would be no reason to update the list at least every 7 days.
In addition, in order to make the regulations regarding
prescription drug pricing standards easier to reference, we are
proposing the following technical changes for consolidation purposes:
(1) To combine the current requirements contained in Sec.
423.505(b)(21) (i) and (ii) into (i) and eliminate the reference to the
effective contract year 2009 as no longer necessary. These requirements
generally state that Part D sponsors agree to update any prescription
drug pricing standard (as would be defined in Sec. 423.501) on January
1 of each contract year and not less frequently than once every 7 days
thereafter. We also propose to move the current requirement to indicate
the source used for making any such updates to (b)(21)(ii) from Sec.
423.505(i)(3)(viii)(B). We propose this latter move of regulation text,
so that it is clearer by its placement in the regulation that this
requirement is on Part D sponsors.
For new paragraph Sec. 423.505(b)(21)(iii), to be clear, we are
proposing a new requirement and not a technical change. We are
proposing that Part D sponsors agree in their contracts with CMS to
disclose all individual drug prices to be updated to the applicable
pharmacies in advance of their use for reimbursement of claims, if the
source for any prescription drug pricing standard is not publicly
available. This means, in conjunction with the proposed definition of a
``prescription drug pricing standard'' discussed previously, that Part
D sponsors would have to convey to network pharmacies in advance the
actual MAC prices to be changed. We are requiring that the actual MAC
prices be disclosed in advance because, if the pharmacies are not able
to use the updates as a reference against which they can check their
reimbursements, there would be no point to the statutory requirement.
As a final technical change, we are proposing to eliminate language
in Sec. 423.505(i)(3)(viii)(A) about establishing regular updates of
any prescription drug pricing standard used by the Part D sponsor which
is and would be duplicative to language in 423.505(b)(21). As a result
of the changes described previously, there would be no paragraphs (A)
and (B) to Sec. 423.505(i)(3)(viii), and this provision would simply
require that, if applicable, each and every contract governing Part D
sponsors and first tier, downstream, and related entities, must contain
provisions addressing the prescription drug pricing standard
requirements of Sec. 423.505(b)(21). We believe these proposed
technical changes will make the regulation text easier to reference and
understand.
29. Any Willing Pharmacy Standard Terms & Conditions (Sec.
423.120(a)(8))
Section 1860D-4(b)(1)(A) of the Act requires Part D plans to permit
any pharmacy meeting the standard Terms and Conditions (T&C) to
participate in the plan's network. We used this authority to establish
requirements under Sec. 423.120(a)(8) and Sec. 423.505(b)(18) that
plan sponsors have reasonable and relevant T&C for network
participation in their standard contract, and allow any pharmacy
meeting the T&C to participate as a network pharmacy for that plan.
Section 1860D-4(b)(1)(B) of the Act permits sponsors to reduce cost
sharing ``below the level otherwise required,'' notwithstanding
paragraph (A). Thus, the statute permits a ``preferred'' cost sharing
level (using the definition specified in section III.A.27 of this
proposed rule) to be offered at some network pharmacies. Since the
beginning of the program, we have required sponsors to offer standard
T&Cs to any willing pharmacy in order to achieve broad network access,
but have permitted sponsors to offer different T&Cs in return for
preferred cost sharing to a smaller subset of its network. We have
previously stated that we believed our interpretation of these two
seemingly conflicting statutory provisions struck an appropriate
balance between the need for broad pharmacy access and the need for
Part D plans to have appropriate contracting tools to lower costs. In
this section we are proposing that in place of sponsors having one
contract with standard terms for any willing pharmacy and a second
preferred cost sharing contract for a limited subset of pharmacies,
that sponsors instead have standard T&C for network participation that
list all combinations of cost sharing and negotiated prices possible
for retail settings under the plan, allowing any willing pharmacy the
opportunity to offer preferred cost sharing if the pharmacy can offer
the requisite level of negotiated prices.
When discussing cost sharing, distinctions are made in this section
between plans offering a preferred cost sharing level and plans that do
not. For the purposes of this section, the cost sharing levels offered
at retail pharmacies not contracted to offer preferred cost sharing
(previously referred to as ``non-preferred pharmacies'') are referred
to as standard cost sharing levels. Cost sharing levels offered at
retail pharmacies at the preferred T&C (previously referred to as
``preferred pharmacies''), are referred to as preferred cost sharing
levels.

[[Page 1979]]

Because under our proposal for preferred cost sharing, pricing
terms for pharmacies offering preferred cost sharing could not exceed
the pricing terms for pharmacies offering standard cost sharing (see
discussion in section III.A.27 of this proposed rule), we will use the
terms ``ceiling price'' and ``floor price'' to refer to the upper and
lower limits put on pricing terms. As proposed, the negotiated prices
charged by pharmacies offering preferred cost sharing must be at or
below the agreed upon ceiling price (determined by using the defined
preferred cost sharing T&C pricing), which must be less than the floor
price, or lowest negotiated price, charged at network pharmacies
offering standard cost sharing.
We heard from many pharmacies, many of them small independent
community pharmacies, that plans do not offer any willing pharmacy the
opportunity to offer preferred cost sharing. Instead, some pharmacies
are being offered only the plan's standard T&C, at the highest level of
beneficiary cost sharing. We received more than 200 comments in
response to our discussion of this topic in the Announcement of
Calendar Year (CY) 2014 Medicare Advantage Capitation Rates and
Medicare Advantage and PDP Payment Policies and Final Call Letter (2014
Call Letter) pp. 175-176 at http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2014.pdf. Most of
these comments were from pharmacies concerned about barriers to entry
for participation in preferred networks, and many of these argued that
such limited networks violate the statutory intent of the network
access provisions at section 1860D-4(b)(1) of the Act. In particular,
these commenters disagreed that such barriers were consistent with the
any willing pharmacy requirement as stated in 1860D-4(b)(1)(A) of the
Act.
Consequently, we have reviewed our original regulatory
interpretation of these provisions, not only in light of these
complaints, but also in light of our experience in the Part D program.
We believe that an alternative reading of sections 1860D-4(b)(1)(A) of
the Act and (B) of the Act to reduce barriers is not only permissible,
it would have the following key policy benefits, which we describe as
follows:
Increased access for beneficiaries to preferred level cost
sharing with any willing pharmacy able to agree to the T&C that include
preferred cost sharing.
Improved opportunity for competition among pharmacies
contracting with the sponsor to charge no more than the ceiling price
stated in the contract for preferred cost sharing, reducing costs
charged to the program.
Improved clarity for beneficiaries surrounding cost
sharing levels available at retail and mail order pharmacies.
Elsewhere in this proposed regulation we discuss clarifications to
the requirements for offering preferred cost sharing within a sponsor's
network (see section III.A.27 of this proposed rule). In III.A.27 we
discuss our analysis of 2011 benefit designs incorporating preferred
cost sharing. We found that some retail pharmacies are actually
offering to sell Part D drugs (particularly generic versions) at prices
below those offered by the network pharmacies eligible for preferred
cost sharing. In such cases, the lower negotiated prices offering the
program superior savings are offered to enrollees at the higher
standard cost sharing levels, while the same drugs being offered to
enrollees at lower preferred cost sharing levels may be costing the
program as much or more. The lower cost sharing ``price'' signal is not
aligned with either the true price of the drug or better overall value
to the program, and therefore the defective signal incentivizes
inefficient purchasing decisions from the perspective of the Part D
program. If some retail pharmacies are willing to provide deeper
discounts than those that sponsors are currently negotiating with
pharmacies in return for offering preferred cost sharing, we can
conclude that, all other things being equal, competition will be
increased and aggregate negotiated prices will be reduced if these more
competitive retail pharmacies have the opportunity to qualify for
preferred cost sharing. Therefore, we now believe that this opportunity
for pharmacies to gain entry into previously limited networks should be
a component of the any willing pharmacy requirements for retail
pharmacies, allowing more pharmacies the option to offer preferred
level cost sharing if they are willing to charge no more than the
ceiling price stated in the contract.
We have heard the assertion that limited networks achieve greater
savings than broader networks, and that moreover, allowing more
participants into a limited network than those hand-picked by the
sponsor will necessarily lead to increased prices. However, we have
been running a natural experiment of sorts relative to this assertion
in the Part D program. If limited networks per se led to significantly
lower costs, we would see consistently significant savings in those
network segments relative to the rest of the sponsors' networks.
However, an April 2013 analysis by CMS, ``Negotiated Pricing Between
Preferred and Non-Preferred Pharmacy Networks'', reviewed actual
program experience and indicated that this is not the case across the
board (see http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/PharmacyNetwork.pdf). As the 2012
claims show, there is wide variation in discounting across sponsors.
Consistent savings are not seen uniformly. In some cases, pharmacies
extending high discounts are ones that have been excluded from limited
networks offering preferred cost sharing, while some pharmacies within
the limited networks offer effectively no discounts compared to the
rest of the network. Therefore, we believe that opening up these
limited networks to any pharmacy willing to charge no more than the
contract's ceiling price to qualify for offering the lower preferred
cost sharing is necessary to restore price competition in these
networks. Consequently, for any sponsor that offers both standard and
preferred cost sharing under any of its benefit packages, we propose
that the sponsor's contracts for network retail pharmacies include not
only the T&C for standard cost sharing, but also the T&C for offering
preferred cost sharing, stating negotiated pricing levels that must be
agreed upon to qualify for offering preferred cost sharing. As
discussed previously, the ceiling price that a pharmacy can charge for
a drug filled at a preferred cost sharing level, must be less than the
floor price, or minimum price, charged by network pharmacies under that
plan offering standard cost sharing levels. Retail pharmacies would
elect to participate according to one set of terms or the other, but
not both.
We have also heard the argument that the pharmacies in currently
limited networks are offering deeper discounts solely in return for
increased market share and that they will withdraw such offers if the
limited network is opened up to other pharmacies that can meet those
T&C. We are skeptical that such participants in the highly competitive
retail market will abandon their market share by returning to the
broader network T&C. As some network pharmacies offering standard cost
sharing have been able to extend discounts in pricing even deeper than
what is seen in some pharmacies offering preferred cost sharing, it is
not obvious that negotiated prices would necessarily increase in the
aggregate in the event that a limited number of pharmacies consider
changing from preferred to standard cost sharing. We

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have also been informally told by one sponsor with preferred cost
sharing in a limited network that its preferred cost sharing T&C
already are offered to any willing pharmacy. For these reasons, we do
not believe that our proposal would result in increased prices. We note
that our proposed alternative statutory interpretation still would
permit sponsors to limit preferred cost sharing to those pharmacies
accepting T&C with stated ceiling prices. Aggressive price concessions
to fall below the stated ceiling price (solely in the form of lower
negotiated price, in accordance with our proposed change to that
definition at Sec. 423.100 discussed at section III.A.25 of this
proposed rule) would have to be met by all pharmacies offering
preferred cost sharing, including pharmacies that are related parties
of the Part D sponsor or its PBM. Sponsors could not offer preferred
cost sharing for higher negotiated prices than the ceiling price listed
in the T&C, but would be free to negotiate even deeper discounts from
individual pharmacies in the limited network. Publicly posted pricing
standards would effectively set a pricing floor for all pharmacies
accepting a plan's standard T&C and set a pricing ceiling for
pharmacies accepting the preferred cost sharing T&C. These benchmarks
better align price with value, while maintaining sponsor flexibility to
negotiate with all pharmacies in its network. Therefore, we are
confident that requiring that a Part D plan sponsor offer T&C for every
level of cost sharing approved in its benefit packages to any willing
pharmacy would not limit competitive negotiations, nor would it in and
of itself lead to increased negotiated prices.
We also believe that there is a limit to the number of cost sharing
levels offered under a benefit plan that can be well understood by
beneficiaries. When establishing its network, a Part D sponsor does not
offer identical T&C for network participation to every pharmacy.
Certain terms will necessarily differ among contracts with the
different types of pharmacies needed to provide all Part D drugs, if
for no other reason than to address the different access and service
standards established by CMS. These various types include at a minimum:
Retail, mail-order, long-term care institutional, limited-distribution-
drug specialty, and home infusion therapy pharmacies. Terms will also
differ with respect to negotiated prices and the level of cost sharing
that a pharmacy's claims will be subject to. For instance, long-term
care institutional, specialty, and infusion pharmacies are generally
offered at the standard level of cost sharing (for the applicable
formulary tier) for a month's supply of a covered drug. Retail and
mail-order pharmacies, in contrast, currently may contract with plans
to be offered at more than one cost sharing level.
Cost sharing at retail and mail-order pharmacies currently vary on
three dimensions: Whether the cost sharing is standard or preferred, on
the quantity dispensed (or ``days' supply''), and on dispensing
location.
a. Preferred Cost Sharing
Under Sec. 423.120(a)(9), sponsors can offer lower preferred cost
sharing levels to some retail and mail order pharmacies in their
network who agree to offer superior price concessions. While
beneficiaries may actively seek out preferred cost sharing among retail
and mail order pharmacies, this is less common among long term care,
specialty, and infusion pharmacy settings. Any preferred cost sharing
structure would be required to meet certain conditions as previously
proposed and would be required to be submitted to CMS for approval as
part of a sponsor's plan benefit package. Plans are not currently
required to offer a preferred cost sharing level, nor would they be
required to if this proposal is implemented. However, for pharmacies
that do contract to offer preferred cost sharing, our proposal means
that preferred cost sharing must be available to all enrollees covered
by that plan's contract and electing to use that pharmacy. This would
include consistently charging preferred cost sharing and consistently
billing no more than the ceiling price for all prescriptions, whether a
one month or extended days' supply is dispensed.
b. Extended Days' Supply
Additionally, different cost sharing levels may be offered for
extended days' (generally greater than 34 and no more than 102)
supplies, at both retail and mail order pharmacies. To avoid
unnecessarily complicated benefit designs, plans should create no more
than two cost sharing distinctions based on days' supply: One month
supply (not to exceed 34 days) or extended days' supply (greater than
34-days' supply). In manual guidance (see section 50.10 of Chapter 5 of
the Medicare Prescription Drug Benefit Manual) we have further
interpreted the ``level playing field'' provision to mean that sponsors
electing to offer extended days' supplies of covered Part D drugs need
to make available to retail pharmacies, upon request, an ``Extended
Supply Addendum'' to their standard contracting terms and conditions
for retail pharmacies. This Addendum provides one of two extended-
days'-supply contracting options: (1) To be offered at the same cost
sharing rate as mail order if a retailer can match the mail-order T&C,
or (2) to be offered at another higher cost-sharing level, but in no
case higher than three times the amount enrollee would have paid at the
same retail pharmacy had the enrollee had his or her prescription
filled in multiple 1-month supply increments at the applicable retail
pharmacy cost sharing (standard or preferred) cost sharing rate. The
nature of long term care, specialty, and infusion pharmacy dispensing
makes a price differential based on days' supplies largely unnecessary.
c. Mail Order Cost Sharing
Section 1860D-4(b)(1)(D) of the Act (and Sec. 423.120(a)(10))
require sponsors to provide for extended days' supplies at retail when
extended days' supplies are available at mail, but explicitly permits
differential cost sharing between the two settings. For plans offering
both preferred cost sharing and mail order options, the mail order cost
sharing for an extended days' supply can be less than the preferred
cost sharing for an extended days' supply filled at retail. However,
for 1-month supplies, we propose that the cost sharing at mail order
(for prescriptions for 34 days or less) cannot be less than the
standard cost sharing at retail (for prescriptions for 34 days or
less), regardless of whether a preferred cost sharing level is
available. In general, we believe that filling initial prescriptions or
routine 30-day supplies at mail-order is not good practice. Given the
need to order or re-order mail order prescriptions well in advance of
when the medication runs out (to allow time for shipping), the
opportunity for gaps in therapy caused by delayed orders rises. When
using mail order for one month supplies, a beneficiary would have to
order the next month's supply shortly after receiving a new order, and
complaints received by CMS indicate that billing errors and delayed
shipments occur. It is our understanding that mail order is most
efficient when processing extended days supplies, when all billing and
processing can be addressed well in advance of needing to ship the next
supply. However, we recognize that for some populations, monthly mail
order supplies are an acceptable option, so we are not seeking to
disincentivize this option. Rather, we are proposing that 1-month
supplies filled by mail order pharmacies cannot

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have cost sharing lower than a comparable one month supply filled at
retail, so as not to provide an incentive to fill short supplies of
chronic medications through mail order.
We believe that a more simplified benefit design, incorporating
these three variables and accommodating a more clearly defined set of
cost sharing levels, would promote better understanding of Part D plan
benefits, both in terms of beneficiary cost sharing and prices charged
to the program, as well as streamlined contracting options. We also
find it important to expressly state the total number of possible cost-
sharing levels, to clarify expectations and to preempt the introduction
of additional or unauthorized cost-sharing levels in the future.
For prescriptions not subject to Long Term Care, specialty
pharmacy, or home infusion pricing, the interaction of the following
four provisions of section 1860D-4(b)(1) of the Act point to three
authorized levels of cost sharing: Standard, preferred, and extended
days' supplies for retail and mail order pharmacies.
Section 1860D-4(b)(1)(A) of the Act details the
participation of Any Willing Pharmacy in a plan's network, provided
that they meet T&C offered by the plan, authorizing a standard cost
sharing level. This proposal offers retail and mail order pharmacies a
chance to not just participate in the plan's network, but to select
among a plan's various T&C for participation. By listing the T&C
required for offering preferred cost sharing on the contract offered to
any willing pharmacy, instead of only offering these T&C to select
pharmacies, a greater percentage of network pharmacies can offer
beneficiaries the lower cost sharing, while also offering reduced
negotiated prices and savings to the Part D program.
Section 1860D-4(b)(1)(B) of the Act permits discounting
for some network pharmacies, authorizing a preferred cost sharing
level. This proposal continues to permit both a standard and preferred
cost sharing level within a plan's network.
Section 1860D-4(b)(1)(C) of the Act defines the authority
to establish rules defining convenient access, permitting a mail order
cost sharing level. Expanding requirements for any willing pharmacy
contracts, with any pharmacy (and presumably a greater number of
pharmacies) now offered the opportunity to compete for preferred cost
sharing if the pharmacy can offer the requisite level of negotiated
prices, would expand beneficiary access to lower cost sharing options
within the network.
Section 1860D-4(b)(1)(D) of the Act creates a level
playing field by ensuring that if extended days' supply benefits are
available at mail order, beneficiaries can get the same benefit at
retail pharmacies. Extended days' supply cost sharing at mail order
does not have to equal extended days' supply cost sharing at retail,
however, we propose to require that it cannot be less than the standard
cost sharing offered at retail pharmacies for extended days' supply. As
previously discussed, it is our understanding that mail order is most
efficient when processing extended days supplies, when all billing and
processing can be addressed well in advance of needing to ship the next
supply. While we are not proposing to disincentivize mail order for
supplies of less than 90 days, nor do we believe it is appropriate to
incentivize through lower cost sharing the use of mail order in
situations where gaps in therapy may be more likely to occur.
When assessed together, we believe these four sections direct Part
D plans to create a network offering convenient access not only to
various types of pharmacies but also to various types of cost sharing.
Permitting three retail cost sharing levels, as the statute implies,
reflects the levels of cost sharing also observed in the commercial
market. However, unique to Part D, the available cost sharing levels
must also meet the Medicare requirements assuring pharmacy access for
Medicare beneficiaries.
We would like to minimize the number of variations on these three
levels to the following options and to ensure that standard T&C for
network participation offer every level available for each respective
pharmacy type. First, we propose to limit long term care, specialty,
and infusion pharmacy cost sharing to the standard monthly rate, as is
industry practice today. Second, we propose to limit retail pharmacies
to the three authorized levels; either the standard or preferred
monthly rate (for supplies up to 34 days), and one extended days'
supply cost sharing rate not exceeding three times the monthly retail
rate (either three times the standard monthly retail rate or three
times the preferred monthly retail rate, depending upon the T&C of the
pharmacy's contract). Third, we propose to limit the levels of cost
sharing at mail-order pharmacies to one monthly rate and one extended
day mail order cost sharing rate (for any supplies greater than 34
days) for reasons discussed previously. We additionally solicit
comments on the frequency of mail order being used to fill
prescriptions lasting one month or less. We note that these proposals
would not alter our requirements around the dispensing of any days'
supplies less than 30 days, which is still subject to the ``daily cost
sharing'' provision at Sec. 423.153(b)(4) (which we propose to further
clarify in section III.E.9 of this proposed rule).
In summary, we propose to use the authority in section 1860D-
4(b)(1)(C)(i) of the Act to establish rules defining convenient access
within a Part D pharmacy network, combined with the authority in
section 1860D-4(b)(1)(A) of the Act to revise the any willing pharmacy
requirements, to ensure that any pharmacy that can meet the applicable
T&C for offering standard or preferred cost sharing can join the
network on those terms. We believe the network access provisions in
section 1860D-4(b)(1) of the Act support expanding Sec. 423.120(a)(8)
to all levels of cost sharing offered under a sponsor's benefit plans.
We believe that doing so supports the Congressional intent to have
plans compete on negotiated prices by making this price competition
more open and accessible to pharmacies. Specifically, we propose to
revise Sec. 423.120(a)(8) to require that, in establishing its
contracted pharmacy network, a Part D sponsor offering qualified
prescription drug coverage must comply with all of the following
requirements:
Must offer and publicly post standard terms and conditions
for network participation for each type of pharmacy in the network
subject to the following:
++ May not require a pharmacy to accept insurance risk as a
condition of participation in the PDP sponsor's contracted pharmacy
network.
++ Must offer payment terms for every level of cost sharing offered
under the sponsor's plans consistent with CMS limitations on the number
and type of cost sharing levels, and for every type of similarly
situated pharmacy.
Must contract with any willing pharmacy able to meet one
set of the terms and conditions offered by that plan for that type of
pharmacy.
We also propose to make conforming changes to the contracting
provisions at Sec. 423.505(b)(18) to require Part D sponsors to agree
to have standard T&C for network participation that meet the
requirements described in Sec. 423.120(a)(8), with reasonable and
relevant T&C of participation for each type of pharmacy in its network.
We believe these proposed requirements would better ensure that each
Part D plan: (1) Provides convenient access to Part D drugs in all Part
D settings and to the extent practical, at all cost sharing

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levels; and (2) offers cost sharing levels that encourage beneficiaries
to make choices that minimize costs not only for themselves, but also
to the Medicare Part D program as a whole.
We solicit comments on these proposals to expand the any willing
pharmacy T&C and to streamline the levels of cost sharing offered under
those standard T&C. Based on the current level of negotiated prices in
the Part D program, we conclude that if a greater number of pharmacies
were given the option to compete for each cost-sharing level offered
under the plan, that beneficiaries would have more pharmacy options
offering the lowest cost-sharing level for reduced prices. We cannot
compel sponsors to negotiate lower negotiated prices, nor can we compel
pharmacies to accept plan sponsors' T&C for participation, but we can
create benefit specifications and network access standards that promote
streamlined benefit comparisons and that maximize opportunities for
price competition. We believe these proposals will increase beneficiary
understanding of and access to cost sharing that is better aligned with
the lowest negotiated prices, improve market competition, and increase
downward pressure on total program costs.
30. Enrollment Requirements for the Prescribers of Part D Covered Drugs
(Sec. 423.120(c)(5) and (6))
To improve our ability to oversee the Medicare Part D program, we
are proposing to implement section 6405(c) of the Affordable Care Act
effective January 1, 2015. This section provides the Secretary with
authority to require that prescriptions for covered Part D drugs must
be prescribed by a physician enrolled under section 1866(j) of the Act
(42 U.S.C. 1395cc(j)) or an eligible professional as defined at section
1848(k)(3)(B) of the Act (42 U.S.C. 1395w-4(k)(3)(B)). We are proposing
in revised 42 CFR 423.120(c)(5) and new (6) that a prescriber of Part D
drugs must have: (1) An approved enrollment record in the Medicare FFS
program (that is, original Medicare); or (2) a valid opt-out affidavit
on file with a Part A/Part B Medicare Administrative Contractor (A/B
MAC) for a prescription to be eligible for coverage under the Part D
program.
Our long-standing Part D policy has been that drugs cannot be
eligible for Part D coverage unless they are dispensed upon
prescriptions that are valid under applicable state law. We
incorporated this policy (Sec. 423.100 and Sec. 423.104) in the April
12, 2012 final rule (77 FR 22072) entitled, ``Medicare Program: Changes
to the Medicare Advantage and the Medicare Prescription Drug Benefit
Programs for Contract Year 2013 and Other Changes.''
Inherent in this policy is the notion that valid prescriptions of
covered Part D drugs are written by qualified prescribers, meaning
prescribers who have an active professional health care license that
conveys prescribing privileges to them under applicable state law. A
prescription is not valid under any state law if it is not written by a
qualified prescriber. Indeed, we note that not all of the eligible
professional types under section 1848(k)(3)(B) of the Act can
necessarily prescribe drugs under state law.
To help ensure that Part D drugs are prescribed only by qualified
prescribers, we are proposing that physicians and eligible
professionals enroll in the Medicare program in order to prescribe
covered Part D drugs. We are proposing an enrollment deadline of
January 1, 2015, which would provide physicians and eligible
professionals with at least 6 months after the publication of a final
rule to initiate and complete the Medicare enrollment process for the
purposes of prescribing covered Part D drugs. We are soliciting
comments regarding the effective date of this provision and the
reason(s) why we should consider an earlier or later implementation
date for this provision.
Our proposal to implement section 6405(c) of the Affordable Care
Act with respect to Part D prescribers complements our recent steps to
help ensure that prescriptions covered by the Part D program are
written by qualified health care practitioners. In 2012, we provided
sponsors with guidance in an October 1, 2012 HPMS memorandum titled,
``Revised Reporting Requirements for Prescriber Identifiers and Other
Prescription Drug Event Fields.'' We also required every PDE record
submitted by a Part D sponsor to CMS to contain an active and valid
individual prescriber national provider identifier (NPI) beginning
January 1, 2013. PDE records are summary records of every prescription
filled under the Part D program and contain prescription drug cost and
payment data that enables CMS to make payments to plans and otherwise
administer the Part D benefit. Thus, the PDE NPI requirement ensures
that we have a record of the prescriber's active and valid individual
NPI for every prescription covered under the program.
In the final rule implementing the NPI PDE requirement, we
explained that the consistent use of a single validated identifier
would enable us to provide better oversight over possible fraudulent
activities in the Part D program. When promulgating Sec. 423.120(c)(5)
(77 FR 22143, April 12, 2012), we stated that CMS, the National Benefit
Integrity Medicare Drug Integrity Contractor, and oversight agencies
would be able to more efficiently, and therefore more effectively,
identify patterns of unusual prescribing that may be associated with
improper and/or fraudulent activities.
While requiring NPIs on every PDE record was an important first
step in identifying and monitoring prescribers in the Part D program,
the system that assigns and maintains NPI data--the National Plan and
Provider Enumeration System (NPPES)--is not a practitioner
credentialing system. The information stored in NPPES is self-reported
by the applicant and is not required to be independently verified by
HHS or CMS. This has left open some program vulnerabilities as
described in recent OIG reports on this issue. For instance, in a June
2013 report, the OIG found that the Part D program inappropriately paid
for drugs ordered by individuals who clearly did not appear to have the
authority to prescribe. (See ``Medicare Inappropriately Paid for Drugs
Ordered by Individuals Without Prescribing Authority'' (OEI-02-09-
00608). This raises concerns about patient safety and the
appropriateness of Part D payments. In addition, there have been
reports that the prescriptions of physicians with suspended licenses
have been covered by the Part D program. This should not happen, and we
believe we can better address this type of vulnerability by verifying
the credentials of prescribers as physicians or eligible professionals
through either their enrollment in the Medicare FFS program with an
approved enrollment record or their submission of a valid opt-out
affidavit on file with a NPI at an A/B MAC.
The Medicare FFS enrollment process requires that an A/B MAC screen
and validate each enrollment application submitted by a physician or
eligible professional prior to the decision to approve or deny
enrollment in the Medicare program. Thus, when a physician, including
an intern or resident, or eligible professional submits an enrollment
application (for example, the CMS-855I or CMS-855O or the Internet-
based Provider Enrollment, Chain and Ownership System (PECOS) version
of these enrollment forms) to an A/B MAC, the A/B MAC approves or
denies the application to enroll into the Medicare FFS program based on
whether the practitioner meets the program requirements for his/her for
medical specialty. The Medicare FFS enrollment application collects and

[[Page 1983]]

verifies identifying information about the applicant, and his or her
credentials, such as the license number. For example, an A/B MAC
verifies each applicant's social security number and NPI at the time of
enrollment, when changes or updates are submitted, and during the 5-
year revalidation process. The A/B MAC also verifies state licensing
board information prior to enrolling an individual practitioner, and
monthly thereafter, to determine if the state suspended or revoked a
physician or eligible professional's medical license. In addition, A/B
MACs verify that physician and eligible professionals are not excluded
from receiving payments under any federal health program by checking
the System for Award Management (SAM), a process similar to that which
Part D sponsors currently use to ensure that physicians and eligible
professionals are not excluded by the OIG). Thus, by leveraging the
state licensing and OIG exclusion information maintained within PECOS,
CMS' national fee-for-service enrollment database, we believe that we
can help ensure that physicians and eligible professionals are State
licensed to prescribe covered Part D drugs.
As an alternative to submitting an enrollment application for
Medicare billing privileges, physicians and certain eligible
professionals may enroll in Medicare for the sole purpose of ordering
and certifying services in the Medicare program by completing the
Medicare enrollment application--Registration for Eligible Ordering and
Referring Physicians and Non-Physician Practitioners (CMS-855-O). Once
an A/B MAC determines that a physician or eligible professional meets
all program requirements to solely order services, they are enrolled in
the Medicare program and are placed into an approved status in PECOS. A
physician or eligible professional may submit a CMS-855O application as
a means of complying with our proposed requirement, if he or she is
enrolling solely to order or certify Medicare items or services.
Section 1861(r) of the Act, defines a physician as a doctor of
medicine, doctor of osteopathy, doctor of dental surgery or dental
medicine, doctor of podiatric medicine, doctor of optometry, or a
chiropractor who is acting within the scope of his license when he/she
prescribes a drug within Part D of Medicare. We note that physicians
and eligible professionals may enroll in the Medicare program, but
whether these individuals can prescribe is a matter of state law where
the physician specialty or eligible professionals practices. For
instance, a doctor of optometry may enroll in Medicare, but only be
able to prescribe certain drugs within a state, and a clinical
psychologist may enroll in Medicare, but may or may not be able to
prescribe medications under state law. Our proposal to require
physicians and eligible professionals to enroll in the Medicare program
to prescribe covered Part D drugs does not solicit comment on the types
of health care physicians and eligible professionals who can write a
valid prescription under state law. We will continue to defer to state
law regarding the physicians and eligible professionals that can
prescribe covered Part D drugs. As such, a Part D sponsor would remain
responsible for ensuring that a prescriber has the authority to
prescribe under state law.
Depending on state law, interns and residents may enroll in the
Medicare FFS program to receive Medicare billing privileges or to
solely order/certify services in Part A and Part B of the Medicare
program. Under our proposal, interns and residents with an approved
enrollment record in PECOS would also be allowed to prescribe covered
Part D drugs in the Medicare program as long as the state permits this
practice. We believe that this approach is consistent with the policy
that we previously established in the April 27, 2012 final rule (77 FR
25284) entitled, ``Medicare and Medicaid Programs: Changes in Provider
and Supplier Enrollment, Ordering and Referring, and Documentation
Requirements; and Changes in Provider Agreements.
A small number of physicians and eligible professionals elect to
opt out of enrolling in the Medicare program for a 2-year period by
submitting an affidavit to the A/B MAC and only bill the Medicare
program for covered emergency or urgent care furnished to a Medicare
beneficiary. Under section 1802(b) of the Act and the implementing
regulations at 42 CFR 405.400 et seq., certain physicians and eligible
professionals can opt out of the Medicare program and enter into
private contracts with Medicare beneficiaries. By entering into these
types of contracts, these individuals do not bill the Medicare program
for non-emergency services that they furnish to Medicare beneficiaries.
In addition, Sec. 422.220 states, ``An MA organization may not pay,
directly or indirectly, on any basis, for services (other than
emergency or urgently needed services as defined in Sec. 422.2)
furnished to a Medicare enrollee by a physician (as defined in section
1861(r)(1) of the Act) or other practitioner (as defined in section
1842(b)(18)(C) of the Act) who has filed with the Medicare carrier an
affidavit promising to furnish Medicare-covered services to Medicare
beneficiaries only through private contracts under section 1802(b) of
the Act with the beneficiaries. An MA organization must pay for
emergency or urgently needed services furnished by a physician or
practitioner who has not signed a private contract with the
beneficiary.''
Generally, a physician or eligible professional makes the decision
to opt out of the Medicare program because they have decided to furnish
services on a private contracting basis. Therefore, we are proposing a
similar opt-out policy as the Medicare FFS program uses for ordering
services within Part B of the Medicare program and certifying services
within Part A of the Medicare program. We believe that allowing opt-out
physicians and eligible professionals to continue to prescribe covered
Part D drugs to a Medicare enrollee would ensure consistency with the
Part B program in this regard. In addition, an A/B MAC verifies medical
licensure for opt-out physicians and eligible professionals on a
monthly basis. Accordingly, we are soliciting comments on whether a
prescription of opted-out physicians and eligible professionals should
be considered covered under the Part D program as long as the opt-out
physician or eligible professional furnishes their NPI to an A/B MAC.
Under our proposal, the prescriptions of physicians or eligible
professionals who are not enrolled in the Medicare FFS program or who
are not enrolled in Medicare in an approved status would not be
coverable under the Part D program. Specifically, in revised Sec.
423.120(c)(5), we are proposing that beginning January 1, 2015, a Part
D sponsor must deny or must require its PBM to deny a claim for a Part
D drug from a pharmacy, including at the point of sale, if the claim
does not contain an active and valid physician or eligible professional
NPI. Also, the Part D sponsor must deny or must require its PBM to deny
a pharmacy claim for a Part D drug if: (1) The physician or eligible
professional is not enrolled in Medicare in an approved status and (2)
the physician or eligible professional does not have a valid opt-out
affidavit on file with an A/B MAC. We believe that the implementation
of this policy will promote quality health care and prevent fraud by
ensuring that prescribers of Part D drugs are physicians and eligible
professionals who have a valid state license. We note that a prescriber
NPI is essential on the pharmacy claim for Part D sponsors and PBMs to
determine whether the

[[Page 1984]]

prescriber is enrolled in Medicare in an approved status or has a valid
opt-out affidavit on file with the Medicare FFS program.
We also note this provision, if adopted, would preclude almost all
prescribers located outside of the United States, Puerto Rico, Guam,
the Virgin Islands, and the Northern Mariana Islands from prescribing
covered Part D drugs to a Medicare beneficiaries, since these
physicians and eligible professionals may not be eligible to enroll in
the Medicare program. In the April 12, 2012 final rule entitled,
``Medicare Program; Changes to the Medicare Advantage and Medicare
Prescription Drug Benefit Programs for Contract Year 2013 and Other
Changes'' (77 FR 22144), we stated that it was our understanding that
seven states (Arizona, Florida, Maine, North Dakota, Texas, Vermont and
Washington) currently permit pharmacies to fill prescriptions from
foreign prescribers, to varying degrees. Under our current requirements
(see Publication 100-18, Chapter 5 (Medicare Prescription Drug Benefit
Manual), section 90.2.1 (Foreign Prescribers) of the Internet-Only
Manual), Part D sponsors must pay a claim with an active and valid NPI
of a foreign prescriber. If there is not one at point of sale, sponsors
do not have to cover the claim and research the NPI, as they do with
domestic prescribers under current 423.120(c). Our proposed policy
would change this, as no prescription would be covered if the
prescriber is not enrolled in Medicare and does not have a valid opt-
out affidavit on file with an A/B MAC.
We are also proposing that beginning January 1, 2015, a
beneficiary's request for reimbursement from a Part D sponsor must be
for a Part D drug that was dispensed in accordance with a prescription
written by a physician or eligible professional who--
Is identified by his or her legal name in the request; and
Is enrolled in Medicare in an approved status; or
Has a valid opt-out affidavit on file with an A/B MAC.
Finally, we are also proposing to add provisions to 42 CFR
423.120(c)(6) that a Part D sponsor would not be able to submit a PDE
to CMS, unless it pertains to a claim for a Part D drug that was
dispensed pursuant to a prescription written by a physician or, when
permitted by applicable law, an eligible professional who: (1) Is
enrolled in Medicare in an approved status; or (2) has a valid opt-out
affidavit on file with the A/B MAC. Proposed Sec. 423.120(c)(6) would
also provide that a Part D sponsor must submit to CMS only a PDE that
contains an active and valid prescriber NPI.
Under our proposal, CMS would furnish or make available to Part D
sponsors a list of physicians and eligible professionals that have an
approved enrollment record within the Medicare FFS program or who have
a valid opt-out affidavit on file with the A/B MAC. Part D sponsors
would no longer be required to check the NPPES database to determine
whether a prescriber has an active and valid individual prescriber NPI.
For these reasons, the language of 423.120(c)(5) would be revised, as
Part D sponsors would have to determine from the list whether the
prescriber is enrolled in the Medicare FFS program in an approved
status or has a valid opt-out affidavit on file with an A/B MAC before
allowing coverage of a prescribed Part D drug. We believe that
verifying whether a prescriber is enrolled in Medicare with an approved
enrollment record (or valid opt-out affidavit) would involve an effort
similar to the one sponsors use now to determine if a prescriber has an
active and valid individual NPI. If the prescriber were not listed as
enrolled in Medicare in an approved status or on file with the A/B MAC
with a valid opt-out affidavit, the drug would not be covered under the
Part D program and a claim, including a non-standard claim from a
Medicare enrollee, would be denied by a pharmacy or the sponsor. Our
proposal to require a prescriber to be enrolled in the Medicare FFS
program or have an opt-out affidavit on file with an A/B MAC, would
allow a sponsor to confirm that a prescriber's license had been
previously verified to ensure that the prescriber is a physician or
eligible professional and has an active health care license under
applicable state law.
With more than 1 million physicians and eligible professionals
enrolled in the Medicare FFS program and more than 9,000 valid opt-out
affidavits on file with an A/B MAC, we do not believe that there are a
large number of physicians or eligible professionals who prescribe
covered drugs for Part D enrollees who are not enrolled in an approved
status in Medicare. Our proposed revisions to Sec. 423.120 reflect the
existing usage of the CMS-855I, Medicare Enrollment Application--
Physicians and Non-Physician Practitioners (OMB Approval Number 0938-
0685) and the CMS-855O (OMB Approval number 0938-1135), and, as such,
we do not believe that it is necessary to change our existing paperwork
burden estimates associated with completing the CMS-855I or the CMS-
855O.
We are also soliciting comments on whether we should consider
requiring all pharmacies (for example, network, non-preferred, home
infusion, non-retail or mail order, and out-of-network) to enroll or
maintain enrollment in the Medicare FFS program in order to dispense
covered Part D drugs. In a May 2013 OIG report titled, ``Retail
Pharmacies with Questionable Part D Billing, (OEI-02-09-00600),'' the
OIG found that 2,637 or approximately 4.4 percent of pharmacies, had
questionable billing in 2009. The report also highlighted several
cities (Miami, Florida, Los Angeles, California, and Detroit, Michigan)
with significantly high levels of questionable billing than the
national average.
We believe that requiring Medicare FFS enrollment for network
pharmacies would leverage the credentialing, identity verification and
other safeguards that are part of the FFS enrollment process, allowing
Part D sponsors to leverage an important program integrity tool for
their networks. Alternatively, we seek comment on whether requiring FFS
enrollment for network pharmacies is a ``best practice'' in pharmacy
contracting by plan sponsors, and should be an integral part of
sponsors' required fraud, waste and abuse programs.
Finally, we are soliciting public comments from doctors of dental
surgery or dental medicine, including family dentists, regarding our
proposal that doctors of dental surgery or dental medicine enroll in
the Medicare program in order to prescribe covered Part D drugs. While
many dentists have enrolled in Medicare program within the last 2 years
to order bill the Medicare program or order services within the
Medicare program, we will continue to conduct outreach to professional
organizations/associations to increase the likelihood that all dentists
have sufficient notice and therefore time to enroll in the Medicare
program in order to prescribe covered Part D drugs.
31. Improper Prescribing Practices (Sec. 424.535)
a. Background and Program Integrity Concerns
Notwithstanding our proposal discussed in the previous section, we
believe that additional program safeguard enhancements are necessary to
protect the Medicare Trust Funds from fraud, waste and abuse while
ensuring that Part D enrollees and Part B Medicare beneficiaries
maintain access to quality health care.

[[Page 1985]]

As alluded to earlier, the OIG has conducted several studies
addressing program integrity issues related to the Medicare Part D
program. Two such reports are of particular relevance to the provisions
we are proposing in this section.
The first, which we have already referenced, is titled, ``Medicare
Inappropriately Paid for Drugs Ordered by Individuals Without
Prescribing Authority'' (OEI-02-09-00608), issued on June 21, 2013. The
report found that Medicare paid $26.2 million for drugs prescribed by
individuals with National Plan & Provider Enumeration System (NPPES)
taxonomy codes indicating that they did not have the authority to
prescribe these drugs. Such persons included counselors, chiropractors,
social workers, physical therapists, registered nurses, occupational
therapists, and speech-language pathologists. Some of these
individuals--specifically, chiropractors, physical therapists,
occupational therapists, and speech language pathologists--are eligible
to enroll in the Medicare program to furnish Part B services.
The second study is titled, ``Prescribers with Questionable
Patterns in Medicare Part D'' (OEI-02-09-00603), also issued in June
2013. This report highlighted a number of instances in which physicians
and eligible professionals prescribed inordinate amounts of drugs to
Part D beneficiaries in 2009. For example--
Medicare paid a total of $9.7 million--151 times more than
the average--for one California physician's prescriptions; most of this
physician's prescriptions were filled by two independent pharmacies,
both of which the OIG had identified as having questionable billing;
One hundred and eight general-care physicians each ordered
an average of 71 or more prescriptions per beneficiary, more than 5
times general-care physicians' national average of 13; and
An Ohio physician ordered more than 400 drugs each for 13
of his 665 beneficiaries.
A Texas physician ordered more than 400 prescriptions each
for 16 beneficiaries and prescribed 700 or more drugs for 3 of these
beneficiaries.
The OIG also noted examples of physicians prescribing a high
percentage of Schedule II and III drugs in 2009. In one case, 78
percent of the prescriptions a Florida physician ordered were for
Schedule II drugs even though the OIG found that 4 percent of the
prescriptions ordered by prescribers nationwide were for Schedule II
drugs. For one beneficiary, the physician prescribed a 605-day supply
of morphine sulfate, a 524-day supply of oxycodone HCl, a 460-day
supply of fentanyl, and a 347-day supply of hydromophone HCl.
In both reports, as well as in other Part D studies, the OIG
recommended that CMS exercise greater oversight of the Part D program,
not only to curb the specific practices outlined previously but also to
stem the overall risk of fraud and abuse that the program presents. The
OIG has expressed particular concern over the potential for
beneficiaries to become addicted to or otherwise be seriously harmed by
certain drugs if they were inappropriately prescribed in dangerously
excessive amounts. We share this concern.
Although we have recently taken steps to tighten and strengthen our
supervision of the Part D program, problems remain. We continue to
receive reports of questionable prescribing practices. Some of these
prescribers have been referred to our Medicare Drug Integrity
Contractor (MEDIC) for investigation. Yet even if we find improper
practices, such as a particular physician's unreasonably high volume or
unsafe amounts of Schedule III controlled substance prescriptions, CMS
does not possess the legal authority to take administrative action
against the prescriber. This means, in many cases, that the prescriber
can continue prescribing drugs that will be covered under Part D and,
if he or she is enrolled in Medicare FFS, remain so enrolled to furnish
medical services. We believe this is inconsistent with the OIG's
recommendations in its various Part D reports, and with our goal of
protecting and promoting the health and safety of Medicare
beneficiaries and safeguarding the Medicare Trust Funds.
b. Drug Enforcement Administration (DEA) Certification of Registration
The DEA implements and enforces Titles II and III of the
Comprehensive Drug Abuse Prevention and Control Act of 1970, and the
Controlled Substances Import and Export Act, as amended, and
collectively referred to as the Controlled Substances Act (CSA) (21
U.S.C. 801-971); the implementing regulations for these statutes are in
21 CFR Parts 1300 through 1321. The CSA makes possession of authority
under state law to dispense controlled substances a requirement for
both obtaining and maintaining a DEA Certificate of Registration.
Consistent with 21 U.S.C. 822(e), 21 CFR 1301.12(a) states: ``A
separate registration is required for each principal place of business
or professional practice at one general physical location where
controlled substances are manufactured, distributed, imported,
exported, or dispensed by a person.'' The term ``dispense'' under 21
U.S C. 802(10) means ``to deliver a controlled substance to an ultimate
user or research subject by, or pursuant to the lawful order of, a
practitioner, including the prescribing and administering of a
controlled substance . . .''
We view a DEA Certificate of Registration to prescribe controlled
substances as similar to a state's requirement that a physician or
eligible professional be licensed or certified by the state to furnish
health care services. We have required that physicians and eligible
professionals meet state licensure or certification requirements in
order to enroll in the Medicare FFS program to furnish health care
services. In fact, certain suppliers, such as air ambulance suppliers,
must also meet national certification standards by a federal agency
(the Federal Aviation Administration (FAA)) to enroll or remain
enrolled in the Medicare program. Failure to obtain or maintain
appropriate licensure or certification can result in the denial or
revocation of the provider or supplier's Medicare under Sec. 424.530
and Sec. 424.535, respectively.
We believe there is a similarity between the need to obtain and
maintain DEA registration to dispense controlled substances, and the
need for an air ambulance supplier to meet FAA certification
requirements, and for a physician or eligible professional to meet
state licensure or certification requirements in order to enroll in and
maintain enrollment in Medicare FFS. The Medicare FFS licensure and
certification requirements are designed to ensure that physicians,
eligible professionals, and other suppliers are qualified to furnish
health care services within the Medicare program. In a similar way, the
DEA Certificate of Registration is designed to ensure that physicians
and eligible professionals meet the statutory criteria established by
the CSA to dispense controlled substances.
Physicians, eligible professionals, and pharmacies with a valid DEA
Certificate of Registration are allowed to dispense controlled
substances. A DEA Certificate of Registration is not required to
dispense non-controlled substances, including covered Part D drugs that
are not considered to be controlled substances. Thus, under our current
regulations, a physician or eligible professional may prescribe covered
Part

[[Page 1986]]

D non-controlled drugs to a Part D enrollee even though his or her DEA
Certificate of Registration has been suspended or revoked. As the
agency that administers the Part D drug program, we believe it is both
appropriate and necessary to expand our Medicare FFS provider
enrollment requirements to ensure that only physicians and eligible
professionals who are in good standing with state licensing boards and,
as applicable the DEA, are writing prescriptions for covered Part D
drugs in the Medicare program.
c. Proposed Provisions
In light of the foregoing discussion, we are proposing several
changes to 42 CFR Part 424, subpart P, in order to enhance our Medicare
Part D and Part B program integrity efforts.
(1) DEA Certificate and State Authority
We propose to add a new Sec. 424.530(a)(11) granting CMS the
authority to deny a physician or eligible professional's Medicare
enrollment application if: (1) His or her DEA Certificate is currently
suspended or revoked; or (2) the applicable licensing or administrative
body for any state in which the physician or eligible professional
practices has suspended or revoked the physician or eligible
professional's ability to prescribe drugs; and (3) such suspension or
revocation is in effect on the date he or she submits his or her
enrollment application to the Medicare contractor. We believe this
approach is consistent with our policy under Sec. 424.530(a)(1) of
denying enrollment to providers and suppliers that do not meet
applicable licensure and certification requirements.
Similarly, we propose to add a new Sec. 424.535(a)(13) granting
CMS the authority to revoke a physician or eligible professional 's
Medicare enrollment if (1) his or her DEA Certificate is suspended or
revoked, or (2) the applicable licensing or administrative body for any
state in which the physician or eligible professional practices
suspends or revokes the physician or eligible professional's ability to
prescribe drugs. Again, this approach is consistent with our
requirement that providers and suppliers maintain compliance with all
applicable licensure and certification requirements.
We believe that the loss of the ability to prescribe drugs via a
suspension or revocation of a DEA Certificate or by state action is a
clear indicator that a physician or eligible professional may be
misusing or abusing his or her authority to prescribe such substances.
This raises concerns that the physician or eligible professional's
improper practices may be duplicated in the Medicare program. We must
therefore take steps to ensure that Medicare beneficiaries are
protected and the Medicare Trust Funds.
(2) Patterns or Practices of Prescribing
(a) Grounds for Revocation
We also propose to add a new Sec. 424.535(a)(14) that would permit
CMS to revoke a physician or eligible professional's Medicare
enrollment if CMS determines that he or she has a pattern or practice
of prescribing Part D drugs that--
Is abusive and represents a threat to the health and
safety of Medicare beneficiaries, or
Fails to meet Medicare requirements.
We believe we have several bases for the legal authority for this
proposal. First, sections 1102 and 1871 of the Act give the Secretary
the authority to establish requirements for the efficient
administration of the Medicare program. Second, section 1866(j) of the
Act states that the Secretary shall establish by regulation a process
for the enrollment of providers of services and suppliers.
We also note that on April 29, 2013, we published in the Federal
Register a proposed rule entitled, ``Medicare Program: Requirements for
the Medicare Incentive Reward Program and Provider Enrollment'' (78 FR
25013). We proposed therein to add a new Sec. 424.535(a)(8)(ii) that
would give CMS the discretion to revoke a provider or supplier's
Medicare enrollment if the provider or supplier has a pattern or
practice of submitting claims for services that fail to meet Medicare
requirements. Our purpose was to place providers and suppliers on
notice that they were under a legal obligation to always submit correct
and accurate claims and that failure to do so may result in the
revocation of Medicare enrollment if such failures establish a pattern
of incorrect or inaccurate claims. We believe that this concept should
also extend to revoking Medicare enrollment for Part D prescribers who
engage in abusive prescribing practices. In our view, if a physician or
eligible professional repeatedly and consistently fails to exercise
reasonable judgment in his or her prescribing practices, we should have
the ability to remove such individuals from the Medicare program to
protect beneficiaries' safety and health as well as Medicare Trust
Funds.
(b) Criteria To Be Considered
Many patterns and practices of prescribing, though perhaps
questionable on their face, do not upon investigation involve abusive
or fraudulent behavior nor involve substandard medical care. Therefore,
we are proposing to base any revocation under proposed Sec.
424.535(a)(14) on situations that fall outside the norm of appropriate
prescribing, and only after carefully considering the factors outlined
later in this section. A thorough, detailed investigation by CMS of the
physician or eligible professional's prescribing practices would be a
prerequisite for the use of Sec. 424.535(a)(14). Honest physicians and
eligible professionals who engage in reasonable prescribing activities
would not be impacted by our proposal. We note further that CMS, rather
than the Part D plans, would make all determinations under our proposed
provisions, though information contained in referrals from Part D Plan
sponsors may be used as part of CMS' analysis to make revocation
decisions.
We choose not to define ``abusive'' and ``threat to the health and
safety of Medicare beneficiaries'' in this proposed rule, primarily
because the myriad of questionable situations that warrant the possible
application of Sec. 424.535(a)(14) requires that CMS have the
flexibility to address each case on its own merits. We believe that the
sounder approach would be to propose a list of criteria that CMS would
use in determining whether a prescriber is engaging in prescribing
practices sufficient to warrant a revocation.
In determining instances of a pattern or practice of prescribing
that is abusive and a threat to the health and safety of Medicare
beneficiaries, CMS proposes to consider several factors, including--
Whether there are diagnoses to support the indications for
which the drugs were prescribed;
Whether there are instances where the necessary evaluation
of the patient for whom the drug was prescribed could not have occurred
(for example, the patient was deceased or out of state at the time of
the alleged office visit);
Whether the physician or eligible professional has
prescribed controlled substances in excessive dosages that are linked
to patient overdoses;
The number and type(s) of disciplinary actions taken
against the physician or eligible professional by the licensing body or
medical board for the state or states in which he or she practices, and
the reason(s) for the action(s);
Whether the physician or eligible professional has any
history of ``final adverse actions'' (as that term is defined under
Sec. 424.502);

[[Page 1987]]

The number and type(s) of malpractice suits that have been
filed against the physician or eligible professional related to
prescribing that have resulted in a final judgment against the
physician or eligible professional or in which the physician or
eligible professional has paid a settlement to the plaintiff(s) (to the
extent this can be determined);
Whether any State Medicaid program or any other public or
private health insurance program has restricted, suspended, revoked, or
terminated the physician or eligible professional's ability to
prescribe medications, and the reason(s) for any such restriction,
suspension, revocation, or termination; and
Any other relevant information provided to CMS.
In determining whether a physician or eligible professional has a
pattern or practice of prescribing that fails to meet Medicare
requirements, CMS would consider the following factors, including
whether the physician or eligible professional--
Has a pattern or practice of prescribing without valid
prescribing authority;
Has a pattern or practice of prescribing for controlled
substances outside the scope of the prescriber's DEA Certificate of
Registration;
Has a pattern or practice of prescribing drugs for
indications that were not medically accepted--that is, for indications
neither approved by the Food and Drug Administration (FDA) nor
medically accepted under 1860D-2(e)(4) of the Act--and whether there is
evidence that the physician or eligible professional acted in reckless
disregard for the health and safety of the patient.
To be covered under Part D, Medicare requires that a drug be
dispensed upon a prescription that is valid under state law, that the
drug meets the definition of a Part D drug, and that it be prescribed
by a valid prescriber for a medically accepted indication. Therefore, a
physician or eligible professional evidencing a pattern or practice of
prescribing without valid prescribing authority, or for controlled
substances outside the scope of the prescriber's DEA Certificate of
Registration, would face potential revocation of Medicare enrollment.
In addition, a physician or eligible professional with a consistent
pattern or practice of prescribing drugs for indications that were not
medically accepted--that is, for indications neither approved by the
FDA nor medically accepted under 1860D-2(e)(4) of the Act--could
potentially face revocation. In the latter example, we would anticipate
revoking enrollment only in cases where there is evidence of reckless
disregard for the health and safety of the patient, not when the
prescribing is based on peer reviewed literature or community standards
of medical practice.
We reiterate our earlier statement that all criteria would be
carefully examined before determining whether a revocation under Sec.
424.535(a)(14) is warranted. In the vast majority of cases, no single
factor would or could be dispositive. Nonetheless, there are certain
criteria that, if met, would weigh very heavily and perhaps decisively
towards a finding that a revocation is justified. A primary example
would be that the physician or eligible professional is prescribing
drugs without legal authorization. Even if a review of the other
criteria did not indicate a pattern of improper activity, unauthorized
prescribing is so serious a matter that the practitioner's continued
retention of his or her Medicare enrollment would be unacceptable.
We stated in section III.A.30, of this proposed rule that
prescriptions ordered by physicians and eligible professionals who are
not enrolled in Medicare in an approved status would not be coverable
under the Part D program.
We welcome and indeed encourage comments on our proposed additions
of Sec. 424.530(a)(11) and of Sec. 424.535(a)(13) and (14). We are
especially interested in receiving comments on the following issues:
Whether certain proposed criteria should not be used.
Whether criteria that we did not propose should be used.
Whether certain criteria should be given more or less
weight than others.
Whether our proposed additions of Sec. 424.530(a)(11) and
of Sec. 424.535(a)(13) and (14) should be expanded to include pharmacy
activities.
32. Transfer of TrOOP Between PDP Sponsors Due to Enrollment Changes
During the Coverage Year (Sec. 423.464)
Sections 1860D-23 and 1860D-24 of the Act specify that requirements
for Part D sponsor coordination of benefits with State Pharmaceutical
Assistance Programs and other plans providing prescription drug
coverage, including treatment of expenses incurred by these payers
toward a beneficiary's out-of-pocket (TrOOP) threshold. Part D
coordination of benefit requirements are codified at Sec. 423.464
which define ``other prescription drug coverage'' for COB purposes to
include, among other entities, other Part D plans and specify Part D
plan requirements for determining when an enrollee has satisfied the
out-of-pocket threshold.
Related regulations at Sec. 423.104(d), codifying the requirements
in section 1860D-2(b) of the Act, require sponsors to track beneficiary
TrOOP and gross covered drug costs and correctly apply these costs to
the benefit limits to correctly position the beneficiary in the benefit
and provide the catastrophic level of coverage at the appropriate time.
When a beneficiary transfers enrollment between Part D plans during the
coverage year, the enrollee's gross covered drug costs and TrOOP must
be transferred between plans and applied by the subsequent plan in its
administration of the Part D benefit. The procedures for a prior plan
to report these TrOOP-related data and for the plan of record to
receive, upload, and use the data position the beneficiary in the
correct phase of the benefit was expressed in guidance outlining
sponsor responsibilities related to the 2006 Enrollment Reconciliation
process. CMS April 2006 guidance detailing instructions for the
Enrollment Reconciliation-related data transfer noted the process would
be applicable on an on-going basis when a beneficiary's enrollment in a
plan terminated due to enrollment in another plan.
This initial manual data transfer process was replaced in 2009 by
an automated process for TrOOP-related data transfer developed by CMS
and the industry in collaboration with National Council for
Prescription Drug Programs (NCPDP). Our guidance released in 2008
describing sponsor implementation of the automated TrOOP balance
transfer process reiterated sponsor requirements for data reporting by
the prior plan and use of the data for proper positioning of the
beneficiary in the benefit by the current plan. We have continued to
specify these requirements in subsequent updated versions of the
guidance.
Automated TrOOP balance transfer is supported by the NCPDP
Financial Information Reporting (FIR) transaction standard, which is
used to electronically transfer TrOOP-related data between plans. When
a beneficiary transfers enrollment to another plan during the coverage
year, transactions are sent sequentially by the CMS Part D Transaction
Facilitator to all Part D plans in which the beneficiary was enrolled
during the coverage year or that paid claims on the beneficiary's
behalf. Sponsors must receive and respond to each transaction, accept
the data reported by the enrollee's prior plan, and use these data in
the administration of the Part D benefit.

[[Page 1988]]

To ensure Part D benefits are correctly administered when a
beneficiary transfers enrollment during the coverage year, we propose
to codify these requirements in federal regulations. Specifically, we
propose to amend Sec. 423.464(f)(2) by adding a new paragraph (C)
requiring Part D sponsors to--
Report benefit accumulator data in real-time in accordance
with the procedures established by CMS;
Accept in real-time data reported in accordance with CMS-
established procedures by any prior plans in which the beneficiary was
enrolled, or that paid claims on the beneficiary's behalf, during the
coverage year; and
Apply these costs promptly.

In our guidance on automated TrOOP balance transfer, we express our
expectation that sponsors successfully transfer accumulator data for
beneficiaries making enrollment changes during the coverage year in a
timely manner 100 percent of the time. Although sponsors may be
reporting and accepting these data in accordance with our expectations,
we have been informed that some sponsors may not be promptly loading
the data received into their systems so it is available for claims
processing. As a result, the beneficiary's previously incurred costs
and gross covered drug costs are not considered in the processing of
claims received by the new plan sponsor soon after the enrollment
change. With this change we seek to clarify that, since the automated
TrOOP transfer process enables the accumulators to available to the new
plan within a day or 2 of the new enrollment effective date or, if
later, the date CMS processes the enrollment change, we expect the new
plan sponsor to apply the data promptly after receipt and use it in
benefit administration.
33. Broadening the Release of Part D Data (Sec. 423.505)
We are proposing to revise our regulations governing the release of
Part D data to expand the release of unencrypted prescriber, pharmacy,
and plan identifiers contained in prescription drug event (PDE)
records, as well as to make other changes to our policies regarding
release of Part D PDE data. In the May 28, 2008 Federal Register (76 FR
30664) we published a final rule entitled ``Medicare Program; Medicare
Part D Claims Data,'' (hereinafter referred to as the Part D data final
rule) to implement regulations that govern the collection of PDE data
under the authority of section 1860D-12(b)(3)(D) of the Act and the
disclosure of this data in accordance with section 1106 of the Act. The
provisions governing the collection and disclosure of PDE data are
codified at Sec. 423.505(b)(8), (f)(3) and (l).
PDE data are summary records of individual claim transactions at
the pharmacy containing CMS-defined standard fields submitted by Part D
sponsors that document the final adjudication of a Part D dispensing
event. The Part D data final rule governed the collection and
disclosure of the original 37 elements of PDE data, but was updated to
apply to any additional elements that were added to the PDE record.
This update was in a final rule issued in April 2010 (75 FR 19678)
entitled, ``Medicare Program; Policy and Technical Changes to the
Medicare Advantage and the Medicare Prescription Drug Benefit
Programs'' (hereinafter referred to as the April 2010 final rule).
In the preamble to the Part D data final rule (73 FR 30671), we
stated, ``we [ ] believe that it is in the interest of public health to
share the information collected under [the authority of 1860D-
12(b)(3)(D)] with entities outside of CMS.'' We explained that the
release of PDE data assists CMS in evaluating the Medicare Part D
program and assessing related policies. We further stated such release
was in the interest of public health and would improve the clinical
care of beneficiaries.
In addition to setting forth the significant public policy reasons
for disclosure of PDE data, we made clear in the preambles of both the
Part D data final rule and the April 2010 rule that our primary
concerns in releasing PDE data are protecting the confidentiality of
beneficiary identifiable information and commercially sensitive data of
Part D sponsors. Part D sponsors are private organizations that
contract with the federal government to administer the Part D benefit
by offering prescription drug plans to Medicare beneficiaries who may
voluntarily enroll in one. Therefore, as described in the Part D data
final rule and the April 2010 rule, the release of PDE data is subject
to certain protections, described here generally, such as encryption of
beneficiary information and aggregation of commercially sensitive data
of Part D sponsors. In addition, whenever PDE data is released, we only
release the minimum data necessary for a given purpose, as determined
in the sole discretion of CMS after review of the requestor's detailed
request for data. If releasing data to an external entity, in the Part
D data final rule, CMS indicated that the requestor must be a
legitimate researcher, meaning the requestor has the requisite
experience and is working for, or on behalf of, a reputable
institution. (In the preamble to the Part D data final rule (73 FR
30674 citing 45 CFR 164.501), we used the definition of ``research''
contained in the HIPAA Privacy Rule, which defines the term as ``a
systematic investigation, including research development, testing, and
evaluation, designed to develop or contribute to generalizable
knowledge.'' In the Part D data final rule (73 FR 30674), we also
indicated that, consistent with our current policies for Part A and B
data, identifiable Part D data would not be disclosed for commercial
purposes.
The following describes the current policy for the release of Part
D data more specifically by PDE element: Beneficiary, prescriber,
pharmacy, and plan identifiers are generally encrypted when released.
We only release unencrypted beneficiary, prescriber, pharmacy, or plan
identifiers to other government agencies or states, if these
identifiers are necessary for the project, and we only release
unencrypted beneficiary, prescriber, and pharmacy identifiers to
external entities if needed to link to another dataset. We do not
release unencrypted plan identifiers to external entities, except to
HHS grantees, as permitted under the criteria described in the April
2010 rule and codified in the regulations at 42 CFR
423.505(m)(1)(iii)(C).
Under the Part D data final rule, drug cost data in PDE records are
generally aggregated when released. Drug cost data are available in
disaggregated format only to other HHS entities and congressional
oversight agencies. Drug costs data in PDE records consist of the drug
ingredient cost, applicable dispensing fee and any required state sales
tax. However, upon request we would exclude sales tax from the
aggregation at the individual claim level if necessary for a project.
As this is a time of unprecedented change for CMS and the health
care system in general, we believe the current regulations governing
the release of PDE data need to be re-considered. The agency has an
important role to play in supporting opportunities to accelerate the
transition to a data-driven and information-based health care delivery
system in this country. CMS itself is transforming from a passive payer
of claims towards a value-based purchaser of health care, while at the
same time, other health care payer and provider incentives have shifted
toward broader coverage and coordinated care. These trends are all a
positive and expected outgrowth of the passage and implementation of
the Affordable Care Act.

[[Page 1989]]

Concurrent with the changes to CMS' role and the health care system
in general is the fact that we now have several years of experience
with release of PDE data from the Medicare Part D program. We believe
the current limitations on the release of certain data elements hinder
the use of PDE data in this new health care environment, and inhibit
accompanying insights into prescription drug benefit plans that could
result from broader release of the data. Our experience has led us to
conclude that broader release of PDE data to external entities can
increase the positive contributions researchers make to the evaluation
and function of the Part D program, and improve the efficiency of the
program and the clinical care of its beneficiaries, which is in the
interest of public health. Expanded access to PDE data by external
entities will allow the researchers to study additional aspects of the
Medicare program and health care, and their findings will be released
publicly. Such contributions are in the interest of the Medicare Part D
program and public health now more than ever as the Affordable Care Act
transforms CMS's role and the nation's health care system.
For these reasons, we believe increased access to prescriber,
pharmacy, and plan identifiers by all categories of requestors is of
utmost importance. This new policy would facilitate research by
entities outside CMS that involves identifiable plans, prescribers, and
pharmacies. Furthermore, we believe we can relax the current policies
on the release of this PDE data, while still protecting beneficiary
confidentiality and commercially sensitive data of Part D sponsors.
Accordingly, we are proposing to permit the release of unencrypted
prescriber, pharmacy, and plan identifiers contained in PDE records to
all current categories of requestors (including, other HHS entities and
the Congressional oversight agencies, non-HHS executive branch agencies
and states, and external entities). We note that because the minimum
necessary policy will still apply to all such releases, this proposed
policy change with respect to HHS entities/Congressional oversight
agencies and non-HHS executive branch agencies/states is more a
formality, since this data is available in unencrypted format to these
same entities under the current Part D data regulations ``if needed.''
For this reason, we focus on the release of unencrypted prescriber,
pharmacy, and plan identifiers to external entities as discussed later
in this section.
We emphasize that we are not proposing any changes to our release
policies with respect to beneficiary identifiable data and the drug
cost data of Part D sponsors. In addition, other data that is still
viewed by some at this time to be commercially-sensitive data of Part D
sponsors, for example, data on bids, rebates and other price
concessions, are outside the scope of the changes to current PDE data
release policies that we are proposing here. We note that bid data is
not collected through PDE records, and while rebates and other price
concessions may be reflected in PDE records, we are not proposing to
make any changes to the policies governing release of such data.
We understand that there may be concerns about releasing
unencrypted prescriber, plan, and pharmacy identifiers to external
entities, as they have been raised in the past, and we would like to
address them upfront. In the preamble to the Part D data final rule (73
FR 30675), we addressed specific concerns about expanding access to
prescriber information by external entities, particularly for
pharmaceutical companies and others who may want to influence
physicians' prescribing patterns and interfere with a physicians'
professional judgment. We stated that an encrypted version of the
prescriber identifier, which allows for the linkage of all of a
prescriber's claims without divulging the prescriber's identity, would
meet the needs of most researchers.
However, in our view today, the vast majority of physicians have
prescribed and do prescribe what they believe are the appropriate
medications for their patients, and they should have no concerns with
transparency in their prescribing patterns. Moreover, there are other
measures in place to prevent inappropriate influence by external
entities on prescribers. For example, section 6002 of Affordable Care
Act requires applicable manufacturers of drugs covered under the Part D
program to report annually to the Secretary certain payments or other
transfers of value to physicians. This requirement was implemented
through a final rule that appeared in the February 8, 2013 Federal
Register (78 FR 9458) entitled, ``Medicare, Medicaid, Children's Health
Insurance Programs; Transparency Reports and Reporting of Physician
Ownership of Investment Interests''. In addition, the federal Anti-
Kickback Law (section 1128B(b) of the Act) provides that anyone who
knowingly and willfully solicits, receives, offers, or pays anything of
value to influence the referral of federal health care program
business, including Medicare and Medicaid, can be held accountable for
a felony. Finally, we would point out that when data are completely
transparent, it is easier for the attempts of some to use the data for
purposes of inappropriate manipulation to be countered by others who
have access to the same data. We note that it appears that prescriber
data are already available commercially from pharmacy data aggregators.
For these reasons, we believe that our earlier concerns about the
release of unencrypted prescriber identifiers in PDE data to external
entities are no longer warranted.
Our proposal to release unencrypted prescriber identifiers means
that legitimate external researchers will be able to conduct research
that involves identifiable prescribers using PDE data. In the Part D
data final rule (73 FR 30676), a commenter argued that providing access
to linked physician identifiable claims in order to pool them with
employer data would allow analysis to reduce cost of care delivery and
improve the quality of care. In response, we did not disagree with the
commenter, but referenced a variety of pay for performance and value-
based health care initiatives being undertaken by CMS in an effort to
encourage health care providers to furnish high quality health care and
to provide cost and quality information to consumers. We noted that we
intended to use PDE data in those activities. We declined, however, to
adopt a policy that would include making unencrypted prescriber
identifiers available for release to external entities (except when
needed to link to another data set).
However, in light of the goals of the Affordable Care Act to
improve the quality of health care, including through better access to
information, we now acknowledge our agreement with the commenter
regarding the importance of providing access to prescriber-identifiable
claims. As we noted previously in this section, now more than ever, it
is vital that researchers have more data to investigate ways to reduce
the cost of care and improve its quality. Studying the prescribing
trends of identifiable prescribers can assist all stakeholders in the
health care system, from both public and private health care payers, to
patients, and even to physicians themselves, by identifying prescribing
benchmarks and determining the reasons for variations.
With respect to the release of plan identifiers, we recognized that
it might be asserted that in the Part D data final rule and April 2010
rule we included this data when discussing commercially sensitive data
of Part D sponsors that would generally be encrypted when

[[Page 1990]]

released to external entities. However, we point out that we focused on
the separate costs paid by Part D sponsors for ingredient costs or
dispensing fees as being the confidential data on the claim (73 FR
30668), and we are not proposing any changes to our policies with
respect to the release of ingredient costs or dispensing fees. However,
we are proposing to release unencrypted plan identifiers to all
categories of requestors.
In comments in response to the Part D data proposed rule,
commenters requested clarification that the plan-specific information
we were proposing to disclose related only to Part D claims data and
would not include competitively sensitive financial data regarding
rebates, discounts, or other negotiated price concessions. The
commenters expressed concerns that release of competitively sensitive
data could undermine the competitive bid process, asserting that plans
would be able to adjust their bids on the basis of knowledge of each
other's data, resulting in higher drug costs for all. In response to
these concerns, we replied in the preamble to the Part D data final
rule that we shared the commenters' concerns about the need to protect
sensitive data under the Part D program. We stated that because the
Medicare drug benefit is based on a competitive business model, we
believe releasing commercially or financially sensitive data to the
public could negatively impact Part D sponsors' ability to negotiate
for better prices, and ultimately could affect the ability of sponsors
to hold down prices for beneficiaries and taxpayers. Therefore, we
explained (73 FR 30668) that we were adopting a number of protections
to mitigate these concerns, which include our minimum necessary,
legitimate researcher, and aggregation policies described previously.
These policies would also not change under our current proposal,
except that plan identifiers (including internal plan/pharmacy
identification numbers on the claim that represent reference numbers
assigned by the plan at the time a drug is dispensed), would be
available for release to all categories of requestors without
encryption. In other words, our current policy on release of ingredient
cost and dispensing fee data would not change under our proposal,
meaning the minimum necessary data regarding ingredient costs and
dispensing fees would continue to be available for release in
disaggregated form only to other HHS entities and congressional
oversight agencies. Non-HHS executive branch agencies and external
entities could still only obtain the minimum necessary ingredient cost
and dispensing fee data, only in aggregated form, and only if it is
released to a legitimate researcher.
We are proposing this change to our regulations governing the
release of plan identifiers, because we no longer believe plan
identifiers in PDE data are commercially sensitive data of Part D
sponsors that should not be available for release (unless encrypted).
Indeed in the April 2010 rule (75 FR 19675 through 19676), in which we
expanded access to unencrypted plan identifiers to include HHS grantees
under certain conditions on the basis that it would allow for the study
of beneficiary plan choices, which would assist CMS in better
understanding and improving the Medicare program, we responded to
opposing comments that we believed allowing broader access by grantees
of non-HHS entities and external researchers could also further assist
CMS, even though we declined to adopt such broader access at the time,
because we believed that additional time was needed to evaluate the
issue.
Moreover, an analysis of Part D plans, their network pharmacies,
and average drug costs, can already be accomplished through data posted
on CMS' Web site and/or purchased in public use files. Additionally,
the MPDPF allows users to view and compare all available prescription
drug plan choices, including plan and pharmacy specific estimates of
the costs of individual drugs. These data can be manipulated by
researchers to reveal information about specific plans and pharmacies
that contributes to the evaluation and functioning of the Part D
program and can be used to improve the public health. Therefore, in
light of the public policy rationale for increasing access to PDE data
by all categories of requestors, we believe that plan identifiers
should be available in unencrypted format.
We did not respond to any comments specifically addressing pharmacy
identifiers in our Part D data final rule and April 2010 rule. However,
for the same reasons that we are proposing to make prescriber and plan
identifiers available for release in an unencrypted format, we no
longer see a reason that pharmacy identifiers should not be available
for release in unencrypted format. Accordingly, we also propose to
release unencrypted pharmacy identifiers to all categories of
requestors, which would also be a change in the current regulations
governing the release of PDE data.
We would like to address one final aspect of our policies governing
the release of Part D data. As discussed previously, in the preamble to
the Part D data final rule, we explained that consistent with CMS's
existing policies with respect to Parts A and B data, CMS would not
release PDE data for commercial purposes (but external researchers may
be funded by commercial firms if the researchers are free to publish
their results regardless of the findings). However, given reasons that
we have highlighted previously which provide the impetus for the
changes that we are proposing to make to our rules governing the
release of PDE data, we are also soliciting comment on the current
restriction on the release of PDE data for commercial purposes. We are
not making a specific proposal in this regard, but rather wish to
receive comments for consideration in light of the proposed changes to
the requirements governing the release of Part D data that are included
in this proposed rule.
In addition to the proposed changes with respect to prescriber,
pharmacy, and plan identifiers described previously, and our request
for comment on the restriction on the release of Part D PDE data for
commercial purposes, we are proposing a few other changes to our
regulations governing the release of PDE data and also wish to clarify
our existing policies with respect to several issues related to the PDE
data. First, we are proposing to add supporting program integrity
purposes, including coordination with states, as an additional purpose
deemed necessary and appropriate by the Secretary for which a Part D
sponsor must agree to submit all data elements included in all its drug
claims under section 1860D-12(b)(3)(D) of the Act. The regulation at
Sec. 423.505(f)(3) currently contains a non-exclusive list of purposes
deemed necessary and appropriate. We believe that the use of these data
for supporting program integrity purposes has always been included,
even though not explicitly listed. However, given the importance of our
ability to release PDE data for program integrity purposes, including
for coordination with states on program integrity, we are proposing to
add this purpose explicitly to the non-exclusive list in Sec.
423.505(f)(3).
Second, we are clarifying that non-final action data (for example,
information on claims subject to subsequent adjustment) are available
to entities outside of CMS. Non-final action data are captured through
the data element, ``Original versus Adjusted PDE (Adjustment/Deletion
code).'' This is a PDE field which distinguishes original from adjusted
or deleted PDE records, so CMS can adjust claims and make accurate
payment for revised PDE records, and is thus not point-of-sale

[[Page 1991]]

data. With the increasing focus on coordination of care, requests for
access to non-final action PDE data have also increased. Such data are
also routinely requested for evaluation and research projects. The Part
D data final rule (73 FR 30683) included an appendix that explained in
more specific detail the restrictions relative to the available PDE
elements for the different categories of requestors. This appendix
stated (73 FR 30685) that the data element ``Original versus Adjusted
PDE (Adjustment/Deletion code)'' was available to other (that is, non-
CMS) HHS entities and the congressional oversight agencies, while for
non-HHS executive branch agencies, states, and external entities, it
stated that ``Final Action claims would be provided, so this element
should not be needed.'' Thus, this appendix did not explicitly address
the question of whether non-final action data would be available for
release to these entities, because such data were not expected to be
needed. However, since it is clear that these entities do need access
to non-final data, we are clarifying that non-final action data are
also available for release to non-HHS executive branch agencies,
states, and external entities under the Part D data final rule.
Finally, we believe these proposed changes to the Part D
regulations governing PDE data release do not raise any new issues
under the Privacy Act and that the changes are consistent with the
System of Records that currently applies to the relevant data. Thus, we
are not proposing any changes to the System of Records, ``Medicare Drug
Data Processing System (DDPS),'' System No. 09-70-0553, as we are not
proposing any changes to the data we are collecting, to how the data
may be used, to the entities that may receive the data, or to the
manner of transmission of the data. Rather we are proposing a change in
the format in which the data may be provided when released to certain
categories of requesters.
In light of the proposed changes to our policies governing the
release of PDE data described previously, we are proposing changes to
the current applicable regulatory text as described later in this
section. We are also proposing to eliminate the appendix that
accompanied the Part D data final rule (73 FR 30683) that explained in
more specific detail which PDE elements would be available to different
categories of requestors, and any restrictions that applied. We believe
this appendix is no longer necessary, as our proposals would eliminate
most of the distinctions with respect to the PDE data available for
release to the different categories of requesters, with the exception
of Total Drug Costs, which will continue to be available in
disaggregated form only to other (that is, non-CMS) HHS entities and
the congressional oversight agencies, and we propose to revise the
regulation at Sec. 423.505(m)(1)(iii)(B) to account for this
distinction. We also clarify that we will exclude sales tax from the
aggregation, if necessary for the project. We also propose changes to
the regulatory text to incorporate notes from the current Appendix that
are not addressed by the existing reference to CMS data sharing
procedures in Sec. 423.505(m)(1)(ii).
Therefore, consistent with the foregoing, we propose the following
revisions to the applicable regulatory text:
Section 423.505(f)(3) would be revised to add supporting
program integrity purposes, including coordination with states, as an
additional purpose.
Section 423.505(m)(1)(iii) would be revised to remove
references to encrypting certain identifiers since prescriber, plan,
and pharmacy identifiers would no longer be subject to encryption when
released.
Section 423.505(m)(1)(iii)(A) would be revised to clarify
that, subject to the restrictions contained in paragraph (m)(1), all
elements on the claim are available not only to HHS, but also to other
executive branch agencies and states, since there is no longer any
distinction between the two categories.
Section 423.505(m)(1)(iii)(B) would be revised to
incorporate a note from the appendix, which states: ``Upon request, CMS
excludes sales tax from the aggregation at the individual level, if
necessary for the project'' at the end of the provision.
Section 423.505(m)(1)(iii)(C) would be deleted as no
longer necessary since unencrypted plan identifiers, including the
internal plan/pharmacy identification numbers, would be available for
release.
Section 423.505(m)(1)(iii)(D) would be re-lettered as (C)
and references to encryption of pharmacy and prescriber identifiers
would be deleted, since these identifiers would be available for
release in unencrypted format. Additional language regarding
beneficiary identifiers would be added to the existing provision to
reflect the current policy on release of this identifier as reflected
in the appendix that would be eliminated.
Section 423.505(m)(3) would be revised to incorporate a
note from the appendix that would be eliminated about the status of the
Congressional Research Service as an external entity when it is not
acting on behalf of a Congressional committee in accordance with 2
U.S.C. 166(d)(1).
34. Establish Authority To Directly Request Information From First
Tier, Downstream, and Related Entities (Sec. 422.504(i)(2)(i), and
Sec. 423.505(i)(2)(i))
Pursuant to section 1857(d)(2) and 1860D-12(b)(3)(c) of the Act,
existing regulations at 42 CFR 422.504(i) and 42 CFR 423.505(i)
establish various conditions that entities contracting as a first tier,
downstream, or related entity (FDR) to an MA organization or Part D
sponsor must agree to in order to participate in the MA or Part D
program. One such condition at Sec. 422.504(i)(2)(i) and Sec.
423.505(i)(2)(i) is that HHS, the Comptroller General, or their
designees have the right to audit, evaluate, and inspect any books,
contracts, computer or other electronic systems, including medical
records and documentation of the first tier, downstream, and related
(FDR) entities related to CMS' contract with the Part C and D sponsor.
CMS (or its designee(s)) conduct routine audits of Part D sponsors
and MA organizations, as well as conduct audits to investigate
allegations of noncompliance with Part C and/or Part D rules and
requirements. While Sec. 422.504(d) and Sec. 423.505(d) address Part
D and MA organizations' own maintenance of records and the rights of
CMS to inspect those records, Sec. 422.504(i)(2)(i) and Sec.
423.505(i)(2)(i) also require plan sponsors require that their FDRs
agree to this CMS right to inspection. Plan sponsors regularly contract
with FDRs to perform critical Part C and D operating functions. For
example, many (if not most) Part D sponsors delegate critical Part D
functions to their PBMs. As a result, many of the records that we or
our designees would need to review and evaluate when we audit a Part D
sponsor or MA organization reside with its FDRs.
Our existing regulation at Sec. 423.505 (i)(3)(iv) states that the
contracts between the Part D sponsor and its FDRs must indicate whether
records held by the FDR pertaining to the Part D contract will be
provided to the sponsor to provide to CMS (upon request), or will be
provided directly to CMS or its designees by the FDR (the Part C
regulation is silent on this matter). As such, we have not previously
required Part C or Part D FDRs to provide information directly to CMS.
Two separate reports by the OIG (OEI-03-08-00420, dated October
2009 and OEI 03-11-00310, dated January 2013), have highlighted
barriers experienced by the Medicare Drug

[[Page 1992]]

Integrity Contractor (MEDIC), the entity contracted by CMS to be
responsible for detecting and preventing fraud, waste, and abuse in the
Medicare Parts C and D programs nationwide, in obtaining requested
information in an expeditious manner. The 2009 OIG report discussed
that CMS' and its designees' (in this case, the MEDIC) lack of
authority to directly obtain information from pharmacies, PBMs, and
physicians has hindered the MEDIC's ability to investigate potential
fraud and abuse and the OIG recommended that CMS change its regulations
to establish its authority to obtain necessary information directly
from FDRs. The OIG's 2013 report reiterated the recommendation that CMS
have a more direct route to obtain records held by FDRs so that CMS
would be able to obtain necessary records in a timely fashion. While
the 2013 report pointed out that sponsors and their FDRs generally
cooperate in providing the information requested by the MEDIC, it often
takes months for it to reach the MEDIC because the MA organization or
Part D sponsor acts as a gatekeeper.
In the past, we chose not to be prescriptive regarding whether a
first tier, downstream, or related entity must make its books and
records available to us directly or through the Part C or D sponsor. As
a consequence of what we have learned through the OIG investigations
and the seriousness with which we approach our fraud, waste, and abuse
oversight obligations, we are now proposing to specify at Sec.
422.504(i)(2)(ii) and Sec. 423.505(i)(2)(ii) that HHS, the Comptroller
General, or their designees have the right to audit, evaluate, collect,
and inspect any records by obtaining them directly from any first tier,
downstream, or related entity. This proposed regulatory change would
not grant CMS any investigative or audit authority that we do not
already possess. It would merely guarantee us a direct and expeditious
route to the information we need to obtain for purposes of program
oversight. This regulatory change would also reduce the burden on the
plan sponsor. The plan sponsor would no longer need to act as the
gatekeeper between CMS and its first tier, downstream, or related
entity. Upon making contact with the first tier, downstream, or related
entity, we would simultaneously notify the plan sponsor concerning the
nature of the request. This will ensure that the plan sponsor will have
notice that we are contacting one of its subcontractors.
We are proposing to revise the regulation at Sec. 422.504(i)(2)(i)
and Sec. 423.505(i)(2)(i) to make clear that CMS and its designees may
``collect'' records, in addition to our existing authority to ``audit,
evaluate, and inspect'' information. The addition of ``collect''
removes any doubt that, in addition to our other options for obtaining
records, we have the authority to request information to be reviewed in
some location other than onsite at a sponsor's or FDR's facility.
Furthermore, the proposed provision is intended to clarify only that
CMS may contact FDRs directly and request that they provide Part C or
D-related information directly to CMS. The question as to whether CMS
has the authority to enter the premises of FDRs, is to be determined by
interpreting other applicable statutory and regulatory authority.
We also propose to delete the existing provision at Sec.
423.505(i)(3)(iv) which gives Part D sponsors the choice as to how
information sought from their FDRs will be provided to CMS. Section
423.505 would be renumbered so that paragraphs (v)-(viii) would become
paragraphs (iv)-(vii).
35. Eligibility of Enrollment for Incarcerated Individuals (Sec.
417.1, Sec. 417.460, Sec. 422.74, and Sec. 423.44)
Entitlement and enrollment in the Medicare program (Part A and Part
B) is contingent on entitlement to Social Security retirement and
disability benefits as outlined in sections 226 and 226A of the Act,
and enrollment in the Medicare program for individuals not receiving
retirement or disability benefits is outlined in sections 1818 and
1818A of the Act. These sections do not preclude entitlement to or
enrollment in the Medicare program for individuals who are incarcerated
in prisons or other penal facilities. However, section 1862(a)(3) of
the Act excludes Medicare payment for services which are paid directly
or indirectly by another government entity, including federal, state
and local prisons, and penal facilities. Given that Medicare
entitlement flows from entitlement to Social Security retirement and
disability benefits, we established regulations at Sec. 411.4(b) and
implemented section 1862(a)(3) of the Act through a payment exclusion
process in the FFS program, outlined in section 50 of Chapter 16 of the
Medicare Benefit Policy Manual and section 10.4 of the Medicare Claims
Payment Manual.
The Medicare payment exclusion process includes the receipt of
incarceration status for individuals via regular data exchanges from
the SSA to CMS. Once we receive the data, the incarceration status is
noted on the individual's record and is retained in the FFS claims
processing systems. Upon receipt of submitted FFS claims, CMS denies
payment of both Part A and Part B claims for individuals with records
on which incarceration is denoted. The denial of claims continues until
the individual is no longer considered incarcerated and that
information is reported by SSA to CMS. Individuals who are entitled to
premium-free Part A will maintain their entitlement and will remain
enrolled in Part B as long as premiums are paid. Similarly, individuals
who are enrolled in premium Part A and/or Part B maintain their
enrollment as long as premiums are paid. Sections 1851(a)(3)(B), 1860D-
1(a)(3)(A), and 1876(a)(1)(A) of the Act outline the eligibility
requirements to enroll in MA, Part D, and Medicare Health Maintenance
Organization/Competitive Medical Plans (cost plans). In all options,
individuals must have active Medicare coverage. Specifically, to enroll
in MA, an individual must be entitled to Part A and enrolled in Part B;
to enroll in a PDP, an individual must be eligible for Part D by either
being entitled to Part A and/or enrolled in Part B; to enroll in a
Medicare cost plan, an individual must be enrolled in Part B but Part A
is not required.
In addition, sections 1851(b)(1)(A), 1860D-1(b)(1)(B)(i), and
1876(d) of the Act provide that Medicare beneficiaries are eligible to
enroll in an MA plan, PDP, or cost plan only if they reside in the
geographic area served by the plan, known as the plan's ``service
area.'' As noted earlier, an individual who is incarcerated still meets
the eligibility requirements for Part A and Part B and is eligible
generally to enroll in an MA plan, PDP, or cost plan. However,
residence in a plan's service area is also a condition for eligibility
to enroll in an MA plan, PDP or cost plan. See Sec. 422.50(a)(3)(i)
for MA plans, Sec. 423.30(a)(1)(ii) for PDPs, and Sec. 417.422(b) for
cost plans. If a member no longer resides in the service area, plans
must disenroll that individual per rules at Sec. 422.74(a)(2)(i) and
Sec. 422.74 (d)(4) for MA plans, Sec. 423.44(b)(2)(i) for PDPs, and
Sec. 417.460(b)(2)(i) for cost plans.
a. Changes in Definition of Service Area for Cost Plans (Sec. 417.1)
In order to implement the exclusion from Medicare coverage for
incarcerated individuals under section 1862(a)(3) of the Act in the
case of MA plans and PDPs, we explicitly excluded facilities in which
individuals are incarcerated from an MA plan's service area by
including this exclusion in the definition of ``service area'' (54 FR
41734 and 72 FR 47410). Specifically, ``service area'' is defined in
Sec. 422.2 for

[[Page 1993]]

MA plans and Sec. 423.4 for PDPs and both definitions indicate that
facilities in which individuals are incarcerated are considered outside
of the service area.
We did not include a similar service area exclusion in the case of
cost plans. To the extent that cost plans do not incur costs for
incarcerated enrollees because their health care costs are covered by
the facility, there would be no costs claimed on the cost report, and
no Medicare payment. Nonetheless, to ensure that no cost payments are
made, we propose to revise the definition of service area in Sec.
417.1 to specifically note that facilities in which individuals are
incarcerated are not a part of the service area. This adjustment will
ensure parity among the various Medicare plan coverage options and be
the basis for ensuring that services are not paid for by the Medicare
Trust Funds for those who are not eligible for them.
b. Involuntary Disenrollment for Incarcerated Individuals Enrolled in
MA, PDP and Cost Plans (Sec. 417.460, Sec. 422.74, and Sec. 423.44)
Sections 1860D-1(b)(1)(B)(i), 1851(b)(1)(A), and 1876(a)(1)(A) of
the Act provide that individuals whose permanent residence is outside
the plan's service area are ineligible to enroll in or to remain
enrolled in the MA, Part D, or cost plan. Based on the definition of
service area established in Sec. 422.2 and Sec. 423.4, this applied
to individuals who were incarcerated as well. As such, individuals who
became incarcerated while enrolled were ineligible to remain enrolled
because they did not meet the eligibility criterion of residing in the
MA plan or PDP's service area. As noted previously, the regulations for
cost plans currently do not exclude incarcerated individuals from
enrolling or remaining enrolled in these plans.
At the time of the implementation of Part D, the data regarding
incarceration were not as robust as they are at the present time. To
compensate, we provided instructions in sub-regulatory guidance that
required MA plans and PDPs to investigate a notification from CMS of an
individual's incarcerated status. If a plan could not confirm the
status, the plan would then apply the policy for investigation of a
possible out-of-area status which would allow an incarcerated
individual to remain enrolled in the plan for up to 6 or 12 months for
MA plans or PDPs, respectively. Cost plans, on the other hand, are not
currently subject to similar instructions and therefore individuals are
not disenrolled solely because they are determined to be incarcerated.
Today we believe that the data that CMS receives from SSA regarding
the incarceration status of Medicare beneficiaries are reliable enough
for the purpose of involuntary disenrollment from MA, Part D, and cost
plans. Thus, we propose to amend Sec. 417.460(b)(2)(i), Sec.
417.460(f)(1)(i), Sec. 422.74(d)(4)(i), Sec. 422.74(d)(4)(v) and add
Sec. 423.44(d)(5)(iii) and Sec. 423.44(d)(5)(iv) to establish that MA
organizations, PDPs, and cost plan organizations must disenroll
individuals incarcerated for 30 days or more upon notification of such
status from CMS. As a part of this change, CMS will review the
incarceration data provided by SSA. Where possible, CMS will
involuntarily disenroll individuals who are incarcerated based on the
data provided by SSA, and will notify the plan in which the individual
is enrolled of this action. For all such disenrollments, the effective
date of disenrollment will be the first of the month after the start of
incarceration date as reported by SSA. We believe these proposed
changes will prevent months of improper payments to MA, Part D, and
cost plans and significantly lessen the burden for MA plans and PDPs by
not requiring investigation to verify residence as outlined in section
50.2.1 in Chapter 2 of the Medicare Managed care Manual and Chapter 3
of the Medicare Prescription Drug Benefit Manual.
In connection with this change, we would also propose to deny
enrollment requests for individuals if CMS data indicates an active
incarceration status of at least 30 days. Based on the data received
from SSA, if incarceration is denoted, we will deny that enrollment
based on the data provided by SSA and will notify the plan of the
denial. This would replace the current process requiring plans to
accept the enrollment and immediately begin the process to verify that
the individual was out of the plan's service area. We will provide
operational instructions in subregulatory guidance.
In addition, we will clarify that in instances where a plan
receives information about an individual's possible incarceration from
a source other than CMS or learns of some other permanent residence
change, the existing requirements to research a possible change in
address would still apply. Finally, we note that the exceptions to
involuntary disenrollment for not residing in the plan's service area
(Sec. 417.460(f)(2) and Sec. 422.74(d)(4)(iii)) would not apply to
members who are determined to be incarcerated. However, individuals
involuntarily disenrolled will be able to enroll in a plan following
their release from incarceration using an existing special enrollment
period outlined in section 30.4.1 in Chapter 2 of the Medicare Managed
Care Manual and section 30.3.1 in Chapter 3 of the Medicare
Prescription Drug Benefit Manual (Special Enrollment Periods (SEP) for
Changes in Residence). Individuals wanting to enroll in an open cost
plan may do so as long as the cost plan is accepting applications for
enrollment, following section 30.1 of Chapter 17-D of the Medicare
Managed Care Manual.
36. Rewards and Incentives Program Regulations for Part C Enrollees
(Sec. 422.134)
CMS has provided subregulatory guidance regarding the types of
rewards and incentives that may be offered to current Medicare
Advantage (MA) plan enrollees. (See Section 70.2, Chapter 3 of the
Medicare Managed Care Manual). Generally, such activities are limited
to a set monetary cap, and cannot be offered in the form of cash or
other monetary rebates or considered a health benefit. This guidance
generally flows from our authority to regulate marketing by MA
organizations and our recognition that certain marketing efforts may be
targeted to current enrollees to encourage continued enrollment and
reenrollment in a particular plan.
Every year, CMS receives inquiries from MA organizations that wish
to expand the scope of the rewards and incentives that currently may be
offered to beneficiaries enrolled in their MA plans. In some cases, MA
organizations wish to extend rewards and incentives already offered to
their commercial members to their Medicare enrollees and there is some
evidence to suggest that health-driven reward and incentive programs
for currently enrolled members of health plans may lead to meaningful
and sustained improvement to their health behaviors and health
outcomes.
CMS would like to enable MA organizations to offer health-driven
rewards and incentives programs that may be applied to more health-
related services and activities than are allowed under current
guidance. We are concerned about the possibility that such programs
would be targeted only to healthier enrollees, and discourage sicker
enrollees from participating in such incentives and in remaining
enrolled in the plan. Furthermore, we would like to strengthen our
existing subregulatory guidance and offer the opportunity for public
review and

[[Page 1994]]

comment on our requirements for rewards and incentives programs. We
propose to amend our regulations to establish parameters for rewards
and incentives programs offered to enrollees of MA plans. We also
propose to include specific requirements regarding rewards and
incentives so as to ensure that such programs do not discriminate
against beneficiaries, including those who are sick or disabled.
Section 1856(b)(1) of the Act provides authority for the
establishment of MA standards by regulation, and section 1857(e)(1) of
the Act provides authority to impose contract requirements that CMS
finds ``necessary and appropriate.'' Section 1852(b)(1)(a) of the Act
states that MA organizations may not discriminate against beneficiaries
on the basis of health status and that CMS may not approve an MA plan
if that offering is susceptible to discrimination based on an
individual's health status. Further, section 1857(g)(1)(D) of the Act
provides authority for taking intermediate sanction action against an
MA organization which ``engages in any practice that would reasonably
be expected to have the effect of denying or discouraging enrollment by
eligible individuals'' as a result of their health status or history.
We propose to rely upon the aformentioned rulemaking and substantive
authority to establish requirements for rewards and incentives programs
offered by MA organizations to Medicare beneficiaries enrolled in their
MA plans.
Specifically, we propose adding a new provision at Sec. 422.134
that would allow MA organizations to offer reward and incentive
programs to their current Medicare enrollees to encourage their
participation in activities that focus on promoting improved health,
preventing injuries and illness, and promoting efficient use of health
care resources. We would require that reward-eligible activities be
designed so that all enrollees are able to earn rewards without
discrimination based on race, gender, chronic disease,
institutionalization, frailty, health status, and other impairments.
Any rewards and incentives program implemented by an MA organization
under our proposal must accommodate enrolled beneficiaries who are
institutionalized or who need a modified approach to enable effective
participation.
To meet the proposed CMS requirements, a reward or incentive would
have to be earned by completing the entire health-related service or
activity and may not be offered for completion of less than all
required components of the eligible service or activity. Under this
proposal, rewards and incentives would be subject to a monetary cap in
an amount CMS determines could reasonably be expected to affect
enrollee behavior while not exceeding the value of the health-related
service or activity itself. We intend to provide guidance on this
qualitative standard on a regular basis.
In addition, our proposal would require MA organizations that offer
rewards and incentives programs to provide information about the
effectiveness of such programs to CMS upon request. If we determine
that the rewards and incentives programs are not compliant with our
regulatory standard, we may require that the MA organization modify the
basic parameters of the program.
37. Expand Quality Improvement Program Regulations (Sec. 422.152)
Section 1852(e) of the Act requires MA organizations to have an
ongoing quality improvement program for the purpose of improving the
quality of care provided to enrollees. Our current regulations at Sec.
422.152 require an MA organization to have a quality improvement
program that measures, records, and reports on the quality of care it
is providing to enrollees and to develop criteria for a chronic care
improvement program. We have recently expanded our quality improvement
program to include more specific and structured chronic care
improvement program requirements that are outcomes based and health
driven as well as require each MA organization to have a written
quality improvement program plan (approved form CMS-10209). Currently,
chronic care improvement programs must be measurable, reported on
annually, and has a clinical focus (as determined by CMS).
We propose revising paragraph (a) of Sec. 422.152 in order to
codify our recent expansion of the quality improvement program policies
and revising paragraph (c) of Sec. 422.152 to codify our recently
expanded chronic care improvement program policies. These revised
paragraphs will more accurately reflect current quality care
improvement program policies and requirements.
Additionally, paragraph (g) of Sec. 422.152 lists quality
improvement program requirements that are specific to special needs
plans (SNPs). We propose revising paragraph (g) to clarify that the
requirements listed there are in addition to program requirements
listed in paragraphs (a) and (f) of Sec. 422.152 and are not instead
of the regular quality improvement program requirements.
Finally, we propose to delete paragraph (h)(2) of Sec. 422.152 as
it pertains to plan year 2010 and is no longer relevant.
38. Authorization of Expansion of Automatic or Passive Enrollment Non-
Renewing Dual Eligible SNPs (D-SNPs) to Another D-SNP To Support
Alignment Procedures (Sec. 422.60)
At this time, SNPs are only authorized through 2014. This proposed
provision, which would take effect in 2015, is contingent upon, and
would only apply, if SNPs continue to be authorized after 2014.
Since D-SNPs were implemented in 2006, expectations for them to
serve as a vehicle for aligning Medicare and Medicaid benefits for
dually eligible individuals have been articulated. In 2007, the
Congress passed the Medicare Improvements for Patients and Providers
Act (MIPPA), which set 2013 as the deadline for all D-SNPs to have
contracts with states to coordinate their enrollees' Medicaid coverage.
In 2010, the Congress passed the Affordable Care Act, section 2602 of
which established a new CMS office charged with implementing goals to
improve the coordination between the federal government and states for
individuals eligible for benefits under both Medicare and Medicaid
programs in order to ensure that such individuals get full access to
the items and services to which they are entitled. Specifically listed
in sections 2602(c)(2) and (6) of the Affordable Care Act, we are
tasked with simplifying the processes for Medicare-Medicaid enrollee to
access the items and services they are entitled to under the Medicare
and Medicaid programs, and improving care continuity and ensuring safe
and effective care transitions for Medicare-Medicaid enrollees.
Our current authority does not allow us to limit involvement in the
D-SNP program to fully integrated D-SNPs; thus, the majority of
Medicare-Medicaid enrollees enrolled in D-SNPs continue to receive
their Medicare and Medicaid benefits and services from two different
organizations. At the same time, some states are approaching this
problem from a slightly different angle, and are attempting to align
care for Medicare-Medicaid enrollees under the same organization by
requiring that the same organization that provides Medicaid benefits
also provide Medicare benefits. However, states' efforts stall when the
Medicare-Medicaid enrollee is enrolled with one organization for his/
her Medicaid coverage, but in a D-SNP offered by another MA
organization. The statute generally requires that

[[Page 1995]]

Medicare beneficiaries make an active choice of their health plan, so
neither plans nor states can choose where the beneficiary enrolls.
The resulting fragmentation of care can generally be addressed
through existing mechanisms. For example, State Medicaid Agencies may
pursue waiver authority from CMS to require Medicare-Medicaid enrollees
to enroll in Medicaid Managed Care Organizations (MCO) that also offer
a D-SNP. Likewise, anMA organization offering a D-SNP could novate its
contract with CMS to the organization offering the Medicaid MCO, so
that the entire contract, including the D-SNP, and its enrollees, is
now held by the same organization that offers the enrollees' Medicaid
managed care plan. However, while we can approve novations, we cannot
mandate that the parties enter into such arrangements. Moreover, when
an MA organization elects to non-renew its Medicare contract, rather
than novate the contract, we do not have the authority to move
enrollees under that contract to another MA organization offering a D-
SNP.
Another possible solution to the problem of fragmented care lies in
section 1851(c)(1) of the Act, which we have interpreted to provide
flexibility in developing mechanisms by which beneficiaries may
complete voluntary MA enrollment elections (per section 1851(a)(1) of
the Act). These flexibilities include a process described as ``passive
enrollment,'' whereby beneficiaries are notified of the enrollment
opportunity and provided sufficient advance information to determine if
they will accept this option. A beneficiary who is offered a passive
enrollment completes the request to enroll by not declining the offer.
However, we have limited passive enrollment to situations in which
enrollees in MA plans that are terminating immediately have little or
no time to choose another MA plan option or stand-alone PDP, and are at
risk for losing their prescription drug coverage (see 42 CFR
422.60(g)).
Generally, we have declined to afford ourselves such discretion to
provide passive enrollment in more situations, in part, because of
concerns raised by beneficiary advocates about the challenges
beneficiaries face in navigating a new provider network and
understanding information about new benefits. In addition, we have also
been concerned that, were we to widen the scope of our authority to
allow passive enrollment in other situations not involving an immediate
termination, we would be faced with the seemingly impossible task of
sorting through requests by MA organizations to passively enroll
members to other plans within their organization, or across
organizations, and granting or denying such requests without appearing
to act in an arbitrary and capricious manner, or unintentionally
interfering with the voluntary nature of the MA program. Thus, we have
limited our use of our passive enrollment authority by regulation to
those situations in which beneficiaries faced an immediate plan
termination or potential harm, and where we could, through passive
enrollment, ensure that beneficiaries maintained access to affordable
coverage, including prescription drug coverage.
To date, we have not considered D-SNP non-renewals to fall under
either category, because, by definition, non-renewals occur with
appropriate, 90 days' notice to affected enrollees, just prior to the
start of the annual enrollment period, when enrollees have access to
the Medicare & You handbook and other materials, as well as ample time
to consider their health care choices.
However, it is worth noting that returning to Original Medicare,
whether due to an immediate contract termination or non-renewal, poses
potential disadvantages for the beneficiary as well, that is, the loss
of supplemental benefits such as dental or vision benefits, and
beneficiary confusion as he or she attempts to navigate the health care
system (and two sets of benefits) without case management or other
support that may have been provided by the MA plan. We have the
authority to widen the scope of the regulation slightly to allow for
passive enrollment when a Medicare-Medicaid enrollee is enrolled in a
D-SNP that is non-renewing its contract with Medicare, and is enrolled
in a Medicaid MCO (Managed Care Organization) that also offers a D-SNP,
and the networks and benefits of the non-renewing D-SNP and the future
D-SNP are substantially similar. By exercising passive enrollment in
this additional limited circumstance, we could better ensure better
continuity of care, particularly prescription drug coverage, but also
possibly supplemental benefits, and ensure beneficiaries enjoy use of
the same providers, with little or no change in the benefits offered.
Our use of passive enrollment in this case would also further promote
alignment of Medicare and Medicaid benefits offered by the same
organization. Through sub-regulatory guidance, we would interpret the
``substantially similar'' standard as it relates to the networks,
benefit packages, formularies, and out of pocket costs of the non-
renewing and gaining D-SNP. As already required by Sec. 422.60(g)(2),
we would ensure beneficiaries are notified of the costs and benefits of
the plan, and of their ability to decline enrollment or choose another
plan. As part of our proposal to add this additional basis for passive
enrollment, we propose to restructure paragraph (g).

B. Improving Payment Accuracy

1. Implementing Overpayment Provisions of Section 1128J(d) of the
Social Security Act (Sec. 422.326 and Sec. 423.360)
This section of the proposed rule would implement section 6402 of
the Affordable Care Act, which established new section 1128J(d) of the
Act entitled Reporting and Returning of Overpayments. Section
1128J(d)(4)(B) of the Act defines the term overpayment as any funds
that a person receives or retains under title XVIII or XIX to which the
person, after applicable reconciliation, is not entitled under such
title. The definition of person at section 1128J(d)(4)(C) of the Act
includes a Medicare Advantage organization (as defined in section
1859(a)(1) of the Act) and a Part D sponsor (as defined in section
1860D-41(a)(13) of the Act). The definition does not include a
beneficiary.
Section 1128J(d)(1) of the Act requires a person who has received
an overpayment to report and return the overpayment to the Secretary,
the state, an intermediary, a carrier, or a contractor, as appropriate,
at the correct address, and to notify the Secretary, state,
intermediary, carrier or contractor to whom the overpayment was
returned in writing of the reason for the overpayment. Section
1128J(d)(2) of the Act requires that an overpayment be reported and
returned by the later of: (1) The date which is 60 days after the date
on which the overpayment was identified; or (2) the date any
corresponding cost report is due, if applicable. Section 1128J(d)(3) of
the Act specifies that any overpayment retained by a person after the
deadline for reporting and returning an overpayment is an obligation
(as defined in 31 U.S.C. 3729(b)(3)) for purposes of 31 U.S.C. 3729.
Finally, section 1128J(d)(4)(A) of the Act defines ``knowing'' and
``knowingly'' as those terms are defined in 31 U.S.C. 3729(b).
Specifically, the terms ``knowing'' and ``knowingly'' mean that ``a
person with respect to information: (1) Has actual knowledge of the
information; (2) acts in deliberate ignorance of the truth or falsity
of the

[[Page 1996]]

information; or (3) acts in reckless disregard of the truth or falsity
of the information.'' There need not be ``proof of specific intent to
defraud.''
To implement section 1128J(d) of the Act for the Part C Medicare
Advantage program and the Part D Prescription Drug program, we are
proposing two new sections, Sec. 422.326 and Sec. 423.360,
respectively, both titled, ``Reporting and Returning of Overpayments.''
These sections propose rules for MA organizations and Part D sponsors
to report and return an identified overpayment to the Medicare program.
We are using the term Part D sponsor, as defined at Sec. 423.4, to
refer to the entities that offer prescription drug plans (PDPs) under
part 423 and thus are subject to section 1128J(d) of the Act.
We propose conforming amendments to Sec. 422.1, Sec. 422.300, and
Sec. 423.1 that add a reference to section 1128J(d) of the Act to the
existing list of statutory authorities for the regulations governing
the MA organizations and Part D sponsors. We also propose to amend
Sec. 422.504(l) and Sec. 423.505(k) to incorporate a reference to the
proposed Sec. 422.326 and Sec. 423.360, respectively, in order to
extend the existing data certification requirement to data that MA
organizations and Part D sponsors submit to CMS as part of fulfilling
their obligation to return an overpayment under section 1128J(d) of the
Act. Section 422.504(l) refers to certification of data ``as a
condition for receiving a monthly payment'' and Sec. 423.505(k) refers
to certification of data for enrollees ``for whom the organization is
requesting payment.'' Our proposal to implement section 1128J of the
Act contains requirements that apply after CMS has completed
prospective monthly payments for a year, and organizations are no
longer ``requesting payment'' because applicable reconciliation has
occurred. Applicable reconciliation is the point when organizations
submit their final data for the previous payment year. Accordingly, if
an MA organization or Part D sponsor has identified an overpayment,
there clearly is a different state of ``best knowledge, information,
and belief'' than the state of knowledge, information, and belief that
existed prior to applicable reconciliation. Thus, we propose to require
that the CEO, CFO, or COO must certify (based on best knowledge,
information, and belief) that information the MA organization or Part D
sponsor submits to CMS for purposes of reporting and returning of
overpayments under Sec. 422.326 and Sec. 423.360 is accurate,
complete, and truthful.
We remind all stakeholders that even in the absence of a final
regulation on these statutory provisions, MA organizations and Part D
sponsors are subject to the statutory requirements found in section
1128J (d) of the Act and could face potential False Claims Act
liability, Civil Monetary Penalties (CMP) Law liability, and exclusion
from Federal health care programs for failure to report and return an
overpayment. Additionally, MA organizations and Part D sponsors
continue to be obliged to comply with our current procedures for
handling inaccurate payments.
a. Terminology (Sec. 422.326(a) and Sec. 423.360(a))
We propose to adopt the statutory definition of overpayment, where
an overpayment exists when--after ``applicable reconciliation''--an MA
organization or Part D sponsor is not entitled to funds it has received
and/or retained. In order to clarify the statutory definition of
overpayment, we propose definitions of two key terms at Sec.
422.326(a) and Sec. 423.360(a): ``funds'' and ``applicable
reconciliation.''
We propose to define ``funds'' as payments an MA organization or
Part D sponsor has received that are based on data that these
organizations submitted to CMS for payment purposes and for which they
have responsibility for the accuracy, completeness, and truthfulness of
such data under existing Sec. 422.504(l) and Sec. 423.505(k). For
Part C, the data submitted by the MA organization to CMS includes Sec.
422.308(f) (enrollment data) and Sec. 422.310 (risk adjustment data).
For Part D, data submitted by the Part D sponsor to CMS includes data
submitted under Sec. 423.329(b)(3), Sec. 423.336(c)(1), Sec.
423.343, and data provided for purposes of supporting allowable costs
as defined in Sec. 423.308 of this part which includes data submitted
to CMS regarding direct or indirect remuneration (DIR).
There are additional payment-related data CMS uses to calculate
Part C and Part D payments that are submitted directly to CMS by other
entities, such as the Social Security Administration (SSA), which is
the authoritative source for data they submit to CMS. We believe that
MA organizations and Part D sponsors cannot be held accountable for the
accuracy of data controlled and submitted to us by other entities.
For example, the SSA is the authoritative source for date of death.
An MA organization or Part D sponsor generally do not submit a date of
death directly to CMS' systems; it comes from the SSA data feed. When
the SSA submits to CMS corrected data regarding a beneficiary's date of
death, CMS' systems recalculate the payments made to the plan for that
beneficiary and recoup the incorrect payment in a routine retroactive
payment adjustment process.
When CMS recoups an incorrect payment from an MA organization or
Part D sponsor based on data corrections submitted by authoritative
sources such as the SSA, CMS would not consider this recoupment to be
the return of an overpayment by an MA organization or Part D sponsor
under proposed Sec. 422.326 and Sec. 423.360. Therefore, the proposed
meaning of ``funds'' refers to a payment amount that an MA organization
or Part D sponsor received from CMS that is based on data that the MA
organization or Part D sponsor controls and submits to CMS.
The term ``applicable reconciliation'' refers to an event or events
after which an overpayment can exist under section 1128J(d) of the Act.
We propose definitions of the term applicable reconciliation that are
specific to the Part C and Part D.
For Part C, we propose that applicable reconciliation occurs on the
date that CMS announces as the final deadline for risk adjustment data
submission. (See section II.B.6 of this proposed rule for a discussion
of the final deadline for risk adjustment data submission established
at Sec. 422.310(g).) For each payment year, we apply three sets of
risk scores to adjust payments: Initial and midyear risk scores during
the payment year (both sets are based on incomplete diagnosis data from
the data collection year); and final risk scores after the payment year
using data MA organizations submit on or before the final deadline for
risk adjustment data (which reflects complete data for the data
collection year). Currently, the final deadline for risk adjustment
data submission is a month after the end of the payment year. In future
years, we expect to announce a date that will be about 6 to 8 weeks
after the end of the payment year to accommodate the current
subregulatory requirement that MA organizations review the monthly
enrollment and payment reports they receive from CMS within 45 days of
the availability of the reports. Moving this deadline means that the
risk adjustment data submission deadline would also function as the
Part C applicable reconciliation date. We would announce a final risk
adjustment data submission deadline that falls on or just after the
conclusion of this 45-day period for the January payment.
For Part D sponsors, we propose that applicable reconciliation is
the later of either: The annual deadline for

[[Page 1997]]

submitting prescription drug event (PDE) data for the annual Part D
payment reconciliations referred to in Sec. 423.343 (c) and (d) or the
annual deadline for submitting DIR data. The annual deadline for
submitting PDE data is the last federal business day prior to June 30th
of the year following the benefit year being reconciled. The annual
deadline for submitting DIR data is announced annually through
subregulatory guidance and generally occurs around the last business
day in June the year following the benefit year being reconciled. We
select these events to define the Part D applicable reconciliation
because these data are used for the purposes of determining final Part
D payment reconciliation. Note that MA organizations would still have
to submit all final risk adjustment diagnoses for Part D on the final
deadline for risk adjustment data submission.
The proposed approach to defining applicable reconciliation
establishes dates that differ for Part C and Part D. One effect of this
approach is that risk adjustment and enrollment data for Part D are
subject to the Sec. 423.360 overpayment requirements at a later date
than risk adjustment and enrollment data for Part C. The final risk
adjustment data submission deadline for Parts C and D data would
continue to be earlier than the deadline for final submission of PDE
and DIR data. For this reason, we considered an alternative approach to
defining applicable reconciliation, where there is one date for
applicable reconciliation for both Parts C and D risk adjustment data
and enrollment data (which would be about 6 to 8 weeks after the end of
the payment year, going forward), and then the Part D program would be
subject to a second applicable reconciliation date the date for final
submission of PDE data or DIR data, whichever is later. We are
proposing a single date for each program, and we seek comment on these
two approaches.
Note that payment errors identified as a result of any corrections
to risk adjustment data submitted by MA organizations (and other
organizations required to submit risk adjustment data to CMS) on or
before the annual final risk adjustment data submission deadline are
handled as part of the current annual process of risk adjustment
payment reconciliation. Because these payment errors are prior to the
date defined in this proposed rule as ``applicable reconciliation,'' we
do not consider these errors to be overpayments for the purpose of
Sec. 422.326 and Sec. 423.360. That is, any deletions of risk
adjustment data in the file submitted on or before the final risk
adjustment data submission deadline for a payment year, would result in
payment errors that are addressed with processes that have been in
place prior to our codification of section 1128J(d) of the Act in
proposed Sec. 422.326 and Sec. 423.360.
Likewise, for Part D, any payment errors identified as a result of
any corrections to PDE or DIR data submitted on or before the later of
the annual deadline for submitted PDE and DIR data are handled as part
of the current Part D reconciliation process.
It is our expectation that MA organizations and Part D sponsors
must be continuously diligent regarding the accuracy and completeness
of payment-related data they submit to CMS for a payment year, whether
during or after that payment year, and whether before or after
applicable reconciliation dates. This expectation is based on existing
requirements at Sec. 422.310, Sec. 422.504(l), Sec.
423.329(b)(3)(ii), and Sec. 423.505(k), and our proposed amendments
that clarify and strengthen these requirements.
b. General Rules for Overpayments (Sec. 422.326(a) Through (c); Sec.
423.360(a) Through (c))
We propose at Sec. 422.326(b) and Sec. 423.360(b) that if an MA
organization or Part D sponsor has identified that it has received an
overpayment, the MA organization or Part D sponsor must report and
return that overpayment in the form and manner set forth in the
section. In paragraphs Sec. 422.326(c) and Sec. 423.360(c), we
propose that the MA organization or Part D sponsor has identified an
overpayment if it has actual knowledge of the existence of the
overpayment or acts in reckless disregard or deliberate ignorance of
the existence of the overpayment. The terms ``reckless disregard'' and
``deliberate ignorance'' are part of the definitions of the ``knowing''
and ``knowingly'' in section 1128J of the Act, which provides that the
terms ``knowing'' and ``knowingly'' have the meaning given those terms
in the False Claims Act (31 U.S.C. 3729(b)(3)). Without such a proposal
to include ``reckless disregard'' and ``deliberate ignorance'', some MA
organizations and Part D sponsors might avoid performing activities to
determine whether an overpayment exists. We also provide that if an MA
organization or Part D sponsor has received information that an
overpayment may exist, the organization must exercise reasonable
diligence to determine the accuracy of this information, that is, to
determine if there is an identified overpayment.
Finally, in paragraphs Sec. 422.326(d) and Sec. 423.360(d), we
propose the requirements for reporting and returning an identified
overpayment. An MA organization or Part D sponsor must report and
return any overpayment it received no later than 60 days after the date
on which it identified it received an overpayment. The statute provides
an alternative deadline: the date any corresponding cost report is due,
if applicable. We propose that this alternative deadline is not
applicable to the Parts C or D programs because, in general, MA
organizations and Part D sponsors are paid based on their bids, and not
based on their actual incurred costs.
The MA organization or Part D sponsor must notify CMS, using a
notification process determined by CMS, of the amount and reason for
the overpayment. Also within this 60-day time period, the organization
must return identified overpayments to CMS in a manner specified by
CMS, including the amount and reason for the overpayment. We codify at
paragraph (3) the statutory requirement that any overpayment retained
by an MA organization or Part D sponsor after the 60-day deadline for
reporting and returning is an obligation under 31 U.S.C. 3729(b)(3).
It also is important to note that the MA organization and Part D
sponsor are deemed to have returned the overpayment when they have
taken the actions that we will specify, in forthcoming operational
guidance, to submit the corrected data that is the source of the
overpayment. We will recover the returned overpayment through routine
processing according to the systems schedule established in the annual
operations budget. That is, payments are recovered through the
established payment adjustment process, not on the 60-day schedule that
applies to each MA organization or Part D sponsor that has identified
an overpayment. Rerunning reconciliation each time an entity identifies
an overpayment that triggers its 60-day clock is simply not feasible
for CMS.
Further, there will be circumstances when we may ask the MA
organization or Part D sponsor to provide an auditable estimate of the
overpayment amount, reason for overpayment, and make a payment to CMS.
This may occur, for example, when the Part D reopening occurs prior to
the end of the look-back period or if an MA organization or Part D
sponsor had a thoroughly-documented catastrophic loss of stored data.
Information about the nature of such a request would be detailed in
forthcoming operational guidance.

[[Page 1998]]

c. Look-Back Period for Reporting and Returning Overpayments
We propose at Sec. 422.326(e) and Sec. 423.360(e) to codify a
look-back period for MA organizations and Part D sponsors. MA
organizations and Part D sponsors would be required to report and
return any overpayment that they identify within the 6 most recent
completed payment years. The statute of limitations related to the
False Claims Act is 6 years from the date of the violation or 3 years
from the date the relevant government official learns of the situation,
but in no case more than 10 years from the date of the violation. CMS
proposes 6 years as the look-back period because we believe this best
balances government's interest in having overpayments returned with
entities' interest in finality. Six years also is consistent with the
CMP provisions, and maintenance of records requirements under the
contracts. Note that overpayments resulting from fraud would not be
subject to this limitation of a look-back period.
2. Determination of Payments (Sec. 423.329)
Section 423.329 (d) describes the low-income cost-sharing subsidy
payment amount. Currently, that amount is defined as the amount
described in Sec. 423.782. However, Sec. 423.782 refers to the cost-
sharing paid by the beneficiary, not the cost-sharing subsidy paid on
behalf of the low-income subsidy eligible individual. As such, we
propose a technical change to Sec. 423.329(d) to correctly describe
the low-income cost-sharing subsidy payment amount as it is intended by
statute and has been implemented and described in interpretive guidance
by CMS.
The low-income cost-sharing subsidy amount is correctly described
in Chapter 13 of our Medicare Prescription Drug Benefit Manual, Premium
and Cost-Sharing Subsidies for Low-Income Individuals (Rev. 13, July
29, 2011). Under the basic benefit defined at Sec. 423.100, the low-
income cost-sharing subsidy payment amount is the difference between
the cost sharing for a non-LIS beneficiary under the Part D plan and
the statutory cost-sharing for the LIS eligible beneficiary. Under an
enhanced alternative plan described at Sec. 423.104(f), the cost-
sharing subsidy applies to the beneficiary liability after the plan's
supplemental benefit is applied. We propose to amend Sec. 423.329(d)
consistent with this guidance.
Pursuant to Sec. 423.2305, any coverage or financial assistance
other than basic prescription drug coverage, as defined in Sec.
423.100, offered by an employer group health or waiver plans is
considered ``other health or prescription drug coverage.'' This
definition applied to all of Medicare Part D. (See 77 FR 22071 and
22082; April 12, 2012). Therefore, the subsidy amount received by an
employer group health or waiver plan is the subsidy amount received by
a Part D plan offering defined standard coverage, as defined in Sec.
423.100.
Based on the preceding, we propose to amend Sec. 423.329(d) by
deleting the reference to Sec. 423.782 and amending Sec. 423.329(d)
to define the low-income cost-sharing subsidy payment amount on behalf
of a low-income subsidy eligible individual enrolled in a Part D plan
for a coverage year as the difference between the Part D cost-sharing
for a non-low-income subsidy eligible beneficiary under the Part D plan
and the statutory cost-sharing for a low-income subsidy eligible
beneficiary.
3. Reopening (Sec. 423.346)
a. Part D Plan Payments Reopening
As stated in our final rule entitled, ``Medicare Program; Medicare
Prescription Drug Benefit'' published on January 28, 2005 (70 FR 4194,
4316), the Secretary's right to inspect and audit any books and records
of a Part D sponsor or MA organization regarding costs provided to the
Secretary would not be meaningful, if upon finding mistakes pursuant to
such audits, the Secretary were not able to reopen final determinations
made on payment. Therefore, we established reopening provisions that
would allow us to ensure that the discovery of any overpayment or
underpayment could be rectified. In the rule, we established that a
reopening was at our discretion and could occur for any reason within 1
year of the final determination of payment, within 4 years for good
cause, or at any time when there is fraud or similar fault. We now
propose to amend the reopening provisions such that we may perform one
reopening within 5 years after the date of the notice of the initial
determination to the Part D sponsors. We also propose to amend the
provision to accommodate reopening the Coverage Gap Discount
Reconciliation described at Sec. 423.2320(b).
At the time the proposed regulations for reopening were published
in our proposed rule entitled, ``Medicare Program; Medicare
Prescription Drug Benefit'' in the Federal Register on August 3, 2004
(69 FR 46694), we had no experience in Medicare Part D to be able to
gauge the need for a reopening of an initial payment determination. We
patterned the provisions after the Medicare claims reopening
regulations found in part 405. The proposed reopening provisions were
subsequently adopted in our final rule published on January 28, 2005
(70 FR 4316) entitled, ``Medicare Program; Medicare Prescription Drug
Benefit.
Under the current regulation at Sec. 423.346 (a), CMS may reopen
for any reason within 1 year of the final determination of payment,
within 4 years for good cause, or any time for fraud or similar fault.
``Good cause'' is defined in the regulation at Sec. 423.346 (b) as:
new and material evidence that was not readily available at the time
the final determination was made; a clerical error in the computation
of payments; or when evidence that was considered in making the
determination clearly shows on its face that an error was made. We now
better understand the need for reopening a payment determination and
modify our regulation at Sec. 423.346 to align with our experience.
We have generally performed global reopenings as a result of plan
sponsor requests, and substantial revisions of PDE and DIR data due to
plan corrections, CMS corrections of systems error, post reconciliation
claims activity, and audit and other post reconciliation oversight
activity. To date, contract years 2006, 2007, and 2008 have been
reopened, and we have already released guidance stating that we
intended to eventually perform a global reopening of 2011 once there is
stability in the data for that year. This experience indicates to us
that we will likely have to perform a reopening of the initial payment
determination for every contract year. Therefore, we propose to remove
the current timeframes for a reopening described in Sec. 423.346
(a)(1) through (a)(3), remove paragraphs (b) describing good cause
referred to in paragraph (a)(2), modify paragraph (c) to eliminate the
reference to ``good cause,'' and amend paragraph (a) such that CMS may
reopen one time within 5 years of notice of the initial payment
determination.
Based upon our experience, we believe that 5 years is adequate time
to allow for data stability. By 5 years after the initial payment
determination, additional PDEs or PDE adjustments associated with
coordination of benefits will be submitted by Part D sponsors
consistent with the timeframe described at Sec. 423.466(b). We know
that audits and other post reconciliation oversight activity often take
place more than 5 years from notice of the initial payment
determination. However, in light of the overpayment provision at
section 6402(a) of the Affordable Care Act, which established section
1128J(d) of the Act and that we propose to codify

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at Sec. 423.360, we do not believe that it is necessary to reopen a
payment reconciliation after that 5-year period, nor do we believe it
is necessary to reopen a reconsidered payment determination. Therefore,
we propose to amend Sec. 423.346 (a) such that CMS will only reopen
the initial payment determination and will not reopen a reconsidered
payment determination.
As stated in our final rule entitled, ``Medicare Program; Medicare
Prescription Drug Benefit'' published in the Federal Register on
January 28, 2005 (70 FR 4194), CMS can initiate a reopening on its own
or an organization could request a reopening, but such reopenings are
at CMS' discretion. In determining whether to reopen, we will consider
a number of issues, including, but not limited to, whether the contract
has terminated and received a final settlement. We will not approve a
request to reopen for a contract that has terminated and received a
final settlement. In addition, when we perform a reopening on its own
initiative, contracts that have been terminated and settled will not be
included in the reopening.
b. Coverage Gap Discount Reconciliation Reopening
Under Sec. 423.2320(b), CMS performs a Coverage Gap Discount
Reconciliation in which CMS reconciles interim payments with invoiced
manufacturer discount amounts made available to each Part D plan's
enrollee under the Discount Program. Since the interim coverage gap
payments are estimates (76 FR 63017, 63027 (October 11, 2011)), a cost-
based reconciliation is performed to ensure that Part D sponsors are
paid dollar for dollar for all manufacturer discount amounts as
reported on invoiced PDE data submitted for Part D payment
reconciliation. Manufacturer discount amounts reported on PDE records
submitted after the PDE submission deadline for reconciliation continue
to be invoiced to manufacturers within a maximum of 3 years of the date
of dispensing, and manufacturers remit payments for invoiced coverage
gap discount amounts to Part D sponsors.
We propose to establish a reopening provision for the Coverage Gap
Discount Reconciliation for the same reasons and under the same
authority that we established a reopening provision for the Part D
payment reconciliation process described in our final rule, ``Medicare
Program; Medicare Prescription Drug Benefit'' published on January 28,
2005 (70 FR 4194, 4316). In a Health Plan Management System (HPMS)
memorandum dated April 30, 2010, we stated that the final reconciled
discount program payments are subject to the reopening provision in
Sec. 423.346. We anticipate rarely needing to reopen the Coverage Gap
Discount Reconciliation as a result of the invoicing process that
continues to occur after the reconciliation process. However, we want
to leave open the option to reopen if unforeseen events result in
underpayments or overpayments to Part D sponsors. Therefore, we propose
to amend Sec. 423.346 to accommodate reopening a Coverage Gap Discount
Reconciliation.
Based on the preceding, we propose to revise Sec. 423.346 by
removing the phrase ``or reconsidered'' from paragraph (a), amending
paragraph (a) to account for the proposed timing of the Part D
reopening, removing paragraphs (a)(1) through (3) and (b)(1) through
(3); adding a new paragraph (b) to accommodate a Coverage Gap Discount
Reconciliation reopening; and revising paragraph (c) to eliminate the
reference to ``good cause.''
4. Payment Appeals (Sec. 423.350)
Pursuant to Sec. 423.2320 (b), we perform a Coverage Gap Discount
Reconciliation in which we reconcile interim payments with invoiced
manufacturer discount amounts made available to each Part D plan's
enrollee under the Discount Program. Current regulations do not
describe the appeals process for a Coverage Gap Discount
Reconciliation. We propose to establish an appeals provision for the
Coverage Gap Discount Reconciliation for the same reasons and under the
same authority that was used to establish the Part D payment
reconciliation appeals process described in our final rule, ``Medicare
Program; Medicare Prescription Drug Benefit'' published on January 28,
2005 (70 FR 4194, 4317). In an HPMS memorandum dated April 30, 2010,
CMS stated that the final reconciled discount program payments are
subject the appeals provisions in Sec. 423.350, and we now propose to
revise Sec. 423.350 to accommodate a Coverage Gap Discount
Reconciliation appeals process.
Consistent with the Part D payment appeals process currently
described at Sec. 423.350, the proposed changes establish an appeals
process whereby the final reconciliation of the interim Coverage Gap
Discount Program payments may be subject to appeal. As stated in our
final rule describing the Part D payment appeals process (70 FR 4317
(January 28, 2005)), the Part D payment appeals process only applies to
perceived errors in the application of the payment methodology and the
payment information submitted by the Part D sponsor cannot be appealed
through this process. In the January 28, 2005 final rule (70 FR 4317),
Part D plans are expected to submit payment information correctly and
within the established timelines. We codified at Sec. 423.350(a)(2)
that payment information submitted to CMS under Sec. 423.322 and
reconciled under Sec. 423.343 is final and may not be appealed nor may
the appeals process be used to submit new information after the
submission of information necessary to determine retroactive
adjustments and reconciliations. We propose to amend Sec.
423.350(a)(2) to include information that is submitted and reconciled
under Sec. 423.2320(b) is final and may not be appealed nor may the
appeals process be used to submit new information after the submission
of information necessary to determine retroactive adjustments and
reconciliations.
Also consistent with the Part D payment appeals process, we propose
that the request for a reconsideration of the Coverage Gap Discount
Reconciliation must be filed within 15 days from the date of the final
payment, which is the date of the final reconciled payment made under
Sec. 423.2320 (b). Therefore, we propose to amend Sec. 423.350(b)(1)
by adding a new paragraph (iv) to define the timeframe for filing a
reconsideration of the Coverage Gap Discount Reconciliation.
Based on the preceding, we propose to revise Sec. 423.350 by
adding a new paragraph (a)(1)(v) to allow for an appeal of a reconciled
coverage gap payment under Sec. 423.2320 (b), by revising paragraph
(a)(2) to indicate that the payment information submitted to CMS and
reconciled under Sec. 423.2320(b) is final and may not be appealed,
and by adding a new paragraph (b)(1)(iv) to define the timeframe for
appealing the final reconciled payment under Sec. 423.2320(b).
5. Payment Processes for Part D Sponsors (Sec. 423.2320)
In our final rule entitled, ``Medicare Program; Changes to the
Medicare Advantage and the Medicare Prescription Drug Benefit Programs
for Contract Year 2013 and Other Changes'' (77 FR 22071, 22086; April
12, 2012), CMS described the payment process for Part D sponsors under
the Coverage Gap Discount Program. Under Sec. 423.2320(a), CMS
provides monthly interim Coverage Gap Discount Program payments as
necessary for Part D sponsors to advance coverage gap discounts to
beneficiaries. Part D

[[Page 2000]]

sponsors report the gap discount amounts to CMS, and through a
contractor, CMS invoices the manufacturers on a quarterly basis for the
applicable discount amounts. The manufacturers repay each Part D
sponsor directly for the invoiced amounts under the Medicare Coverage
Gap Discount Program Agreement (Agreement) described at Sec. 423.2315.
Under Sec. 423.2320(b), CMS reconciles the interim payments with
amounts invoiced to manufacturers.
In the event that a manufacturer fails to the provide the
applicable discounts in accordance with the Agreement, we must impose
civil money penalties (CMPs) equal to the sum of the applicable
discount the manufacturer would have paid under the Agreement and 25
percent of that amount. The CMP that is equal to the sum of the
applicable discount the manufacturer would have paid under the
agreement is used to pay the applicable discount that the manufacturer
had failed to provide.
In our final rule describing the payment process for Part D
sponsors under the Coverage Gap Discount Program, we did not
contemplate a payment process in the event that a manufacturer becomes
bankrupt and does not pay the Part D sponsors for quarterly invoiced
amounts under the Agreement. Even though we will impose a CMP on a
bankrupt manufacturer in an effort to collect the unpaid invoiced
amounts, the bankruptcy settlements will likely result in the CMP being
modified or reduced. In order to ensure that the Part D sponsors have
the funds available to advance the gap discounts at the point-of-sale,
as required under section 1860D-14A(c)(1)(A)(ii) of the Act, we now
propose to amend Sec. 423.2320 such that we will assume financial
liability for the applicable discount by covering the costs of the
quarterly invoices that go unpaid by a bankrupt manufacturer at the
time of the Coverage Gap Discount Reconciliation described at Sec.
423.2320(b). We would then file a proof of claim with the bankruptcy
court to recover those costs from the bankrupt manufacturer.
The proposed policy that CMS assume financial liability for the
applicable discounts in the event of a manufacturer bankruptcy is
consistent with CMS' payment processes for Part D sponsors under the
Medicare Coverage Gap Discount Program. Under Sec. 423.2320 (a), CMS
provides interim payments to ensure that Part D sponsors have the funds
available to advance the coverage gap discount to beneficiaries at
point of sale. Under Sec. 423.2320 (b), CMS reconciles the interim
payments with the invoiced manufacturer discount amounts in order make
the PDP sponsor whole for the gap discount amount provided to the
beneficiaries at point of sale. (For more information on these
provisions, see October 11, 2011 final rule (76 FR 63017, 63027).) In
order to remain consistent with the intent of the Coverage Gap Discount
Reconciliation to make the Part D sponsor whole for the gap discounts
amounts advanced at point of sale, CMS must provide payments to the
Part D sponsor to cover the cost of the applicable discount in the
event that the manufacturer cannot pay the quarterly invoices due to a
bankruptcy. We propose to cover the costs of unpaid quarterly invoices
only in the event that a manufacturer becomes bankrupt. We would not
cover the cost of unpaid quarterly invoices for any other reasons
because, in the event that a manufacturer fails to pay the quarterly
invoices, we will impose CMPs that will cover the cost of the unpaid
invoices. In the event that a manufacturer becomes bankrupt, we are
concerned that the court will either modify or reduce the amount of the
CMP, making the CMP process ineffective for covering the cost of the
invoices and leaving the Part D sponsor in the position of having to
cover the costs of the gap discount.
We propose to implement this policy by adjusting the Coverage Gap
Discount Reconciliation to account for quarterly invoices that go
unpaid as a result of a manufacturer becoming bankrupt. This adjustment
will only occur for manufacturer discount amounts as they are reported
on PDEs submitted by the submission deadline for the Part D
reconciliation.
Based on the preceding, we propose to add a new paragraph (c) to
Sec. 423.2320 to describe a process for accounting for quarterly
invoiced amounts that go unpaid by a bankrupt manufacturer.
6. Risk Adjustment Data Requirements (Sec. 422.310)
We propose to strengthen existing regulations related to the
accuracy of risk adjustment data by amending Sec. 422.310 on risk
adjustment data validation. First, we propose to renumber existing
paragraph Sec. 422.310(e) as paragraph (e)(2) and add new paragraph
(e)(1), which would require that any medical record reviews conducted
by an MA organization must be designed to determine the accuracy of
diagnoses submitted under Sec. 422.308(c)(1) and Sec. 422.310(g)(2).
(Paragraph Sec. 422.308(c)(1) addresses adjustments to payments for
health status, and paragraph Sec. 422.310(g)(2) addresses deadlines
for risk adjustment data submission, including the final risk
adjustment data submission deadline prior to CMS' calculation of the
final risk factors for a payment year.) Under our proposal, medical
record reviews conducted by an MA organization cannot be designed only
to identify diagnoses that would trigger additional payments by CMS to
the MA organization; and medical record review methodologies must be
designed to identify errors in diagnoses submitted to CMS as risk
adjustment data, regardless of whether the data errors would result in
positive or negative payment adjustments. This proposed amendment
furthers our goals of improving payment accuracy and reducing payment
errors.
We also propose to amend Sec. 422.310(g) regarding deadlines for
submission of risk adjustment data. Our current procedures generally
permit submission of risk adjustment data after the final risk
adjustment submission deadline only to correct overpayments. We propose
to revise the regulation to explicitly permit late submissions only to
correct overpayments but not to submit diagnoses for additional
payment.
Finally, we propose to align this regulation with proposed Sec.
422.326 by making two additional changes in paragraph (g). First, we
propose the deletion of the January 31 deadline in subparagraph (2) and
replacing it with the statement that CMS will announce the deadline by
which final risk adjustment data must be submitted to CMS or its
contractor. This means that the risk adjustment data submission
deadline would also function as the Part C applicable reconciliation
date for purposes of proposed Sec. 422.326 on overpayment rules, as
discussed in section II.B.1.b. of this proposed rule. Second, we
propose to add subparagraph (3) to Sec. 422.310(g). Proposed paragraph
(3) cites Sec. 422.326 as the source of rules for submission of
corrected risk adjustment data after the final risk adjustment data
submission deadline, that is, after applicable reconciliation as
defined at Sec. 422.326(a).
7. RADV Appeals
a. Background
We published Risk Adjustment Data Validation (RADV) appeals
regulations in the April 15, 2010 Federal Register. These rules were
proposed and finalized under CMS's authority to establish Medicare
Advantage (MA) program standards by regulation at section 1856(b)(1) of
the Act and are found at Sec. 422.311 et seq.
As explained in the preamble of that final rule, Subpart G of the
MA regulations at part 422 describes how

[[Page 2001]]

payment is made to MA organizations. These payment principles are based
on sections 1853, 1854, and 1858 of the Act. Subpart G also sets forth
the requirements for making payments to MA organizations offering local
and regional MA plans, including calculation of MA capitation rates.
Section 1853(a)(3) of the Act requires that we risk adjust our payments
to MA organizations. Risk adjustment strengthens the Medicare program
by ensuring that accurate payments are made to MA organizations based
on the health status plus demographic characteristics of their enrolled
beneficiaries and ensures that MA organizations are paid appropriately
for their plan enrollees (that is, less for healthier enrollees
expected to incur lower health care costs and more for less healthy
enrollees expected to incur higher health care costs). Accurate
payments to MA organizations also help ensure that providers are paid
appropriately for the services they provide to MA beneficiaries. In
general, the current risk adjustment methodology relies on enrollee
diagnoses, as specified by the International Classification of Disease,
currently the Ninth Revision Clinical Modification guidelines (ICD-9-
CM) to prospectively adjust capitation payments for a given enrollee
based on the health status of the enrollee. Diagnosis codes determine
the risk scores, which in turn determine the risk adjusted
reimbursement. As a result, physicians and providers must focus
attention on complete and accurate diagnosis reporting according to the
official ICD-9-CM coding guidelines (that is, coding diagnoses
accurately and to the highest level of specificity).
MA enrollee Hierarchical Condition Categories (HCCs) are assigned
based on risk adjustment diagnoses from FFS claims and from risk
adjustment data submitted to us by MA organizations via the Risk
Adjustment Payment System (RAPS). The CMS-HCCs contribute to an
enrollee's risk score, which is used to adjust a base payment rate.
Essentially, the higher the risk score for an enrollee, the higher the
expected health care cost for the enrollee. The HCC data that MA
organizations submit to CMS via the RAPS system is self-reported by the
MA organization and does not go through a validation review before
being incorporated into a given beneficiary's risk-profile. Since there
is an incentive for MA organizations to potentially over-report
diagnoses so that they can increase their payment, the Agency audits
plan-submitted diagnosis data a few years later to ensure they are
supported by medical record documentation.
Verifiable medical record documentation is the key to accurate
payment and successful data validation. We annually select contracts
for RADV audits. RADV audits are intended to confirm the presence of
risk adjustment conditions (that is, diagnoses that map to HCCs) as
reported by MA organizations for their enrollees and confirmed via
medical record documentation. RADV audits occur after the final risk
adjustment data submission deadline for the MA contract year. We
validate the HCC data submitted by MA organizations by reviewing
hospital inpatient, hospital outpatient, and physician/practitioner
provider medical records. The focus of this medical record review
activity is on diagnoses related to the enrollee's HCC profile. Risk
adjustment discrepancies are identified when the enrollee's HCCs used
for payment (based upon MA organization-submitted data) differ from the
HCCs assigned based on the medical record, under the RADV audit
process. Risk adjustment discrepancies can be aggregated to determine
an overall level payment error. In turn, payment error for a sample of
contract enrollees can be extrapolated to calculate a contract-level
payment error estimate.
Since finalizing these rules in 2010, we have conducted additional
RADV audits and believe that some of the appeals provisions finalized
in the 2010 RADV Appeals final rule should now be modified to prevent
confusion, and to strengthen the RADV appeals process. We therefore,
propose revisions to the RADV appeals regulations finalized in the
April 15, 2010 Federal Register. These proposed revisions clarify
program requirements and simplify the RADV appeals process. These
proposed RADV provisions will apply to any RADV determinations issued
on or after the effective date of this regulation.
b. RADV Definitions
We propose to amend the RADV definitions at Sec. 422.2 as follows:

Removing the following definitions:
++ ``Initial Validation Contractor (IVC)'' means the first level of
medical record review under the RADV audit process.
++ ``RADV payment error calculation appeal process'' means an
administrative process that enables MA organizations that have
undergone RADV audit to appeal the CMS calculation of an MA
organization's RADV payment error.
++ ``The one best medical record for the purposes of Medicare
Advantage Risk Adjustment Validation (RADV)'' means the clinical
documentation for a single encounter for care (that is, a physician
office visit, an inpatient hospital stay, or an outpatient hospital
visit) that occurred for one patient during the data collection period.
The single encounter for care must be based on a face-to-face encounter
with a provider deemed acceptable for risk adjustment and documentation
of this encounter must be reflected in the medical record.
Adding the following definition:
++ ``RADV appeal process'' means an administrative process that
enables MA organizations that have undergone RADV audit to appeal the
Secretary's medical record review determinations and the Secretary's
calculation of an MA organization's RADV payment error.
Revising the following definitions:
++ Risk adjustment data validation (RADV) audit means a payment
audit of a Medicare Advantage (MA) organization administered by CMS or
the Secretary that ensures the integrity and accuracy of risk
adjustment payment data.
++ ``Attestation process'' means a CMS-developed RADV process that
enables MA organizations undergoing RADV audit to submit CMS-generated
attestations for eligible medical records with missing or illegible
signatures or credentials. The purpose of the CMS-generated
attestations is to cure signature and credential issues for eligible
medical records. CMS-generated attestations do not provide an
opportunity for a provider or supplier to replace a medical record or
for a provider or supplier to attest that a beneficiary has the medical
condition.
c. Publication of RADV Methodology
In the October 22, 2009 Notice of Proposed Rule Making (NPRM), and
as reinforced in the April 15, 2010 Final Regulation, CMS indicated
that we would, ``publish its RADV methodology in some type of public
document--most likely, a Medicare Manual, so that the public can review
and provide comment as it deems necessary''. We also indicated that we
would provide an annual notice of RADV audit methodology. Our last
RADV-related notice of methodology was published in February, 2012. We
will continue to publish a notice of the methodology employed, but will
do so only if there is a change in the RADV methodology that would
require publication. We note that these notices of RADV audit

[[Page 2002]]

methodology updated information provided on RADV audit methodology
provided in the October 22, 2009 proposed rule and April 15, 2010 final
rule.
In addition, we provided in the October 22, 2009 proposed rule
preamble that we would provide an expanded explanation of methodology
and payment error calculation factors as a part of each audit report of
findings that we send to MA organizations that undergo RADV audit. Such
explanation and factors have been and will continue to be part of the
RADV audit report(s) that CMS provides health plans that have undergone
RADV audits.
d. Proposal To Update RADV Appeals Terminology (Sec. 422.311)
Current RADV regulations utilize the following terms for the CMS-
issued RADV audit report: Audit report post medical record review; RADV
audit report; IVC-level RADV audit report; and RADV audit report of
finding. This use of multiple terms to refer to what is the same audit
report (the RADV audit report that CMS issues following conclusion of
the medical record review portion of the audit) is potentially
confusing. Therefore, we propose amending the RADV regulations
throughout to adopt one common term to refer to RADV audit reports:
``RADV Audit Report''. By standardizing terminology throughout the RADV
regulations, the proposed amendment provides clarity which may lead to
increased efficiency. We welcome comment on this proposal.
As mentioned earlier in the description of RADV-related definitions
that have changed, we have revised certain RADV-related definitions to
accommodate changes to both the RADV audit process and the RADV appeals
process. One definition that we have removed from the RADV regulations
is Initial Validation Contractor, or IVC. The RADV medical record
review process no longer utilizes ``initial'' and ``secondary''
validation contractors to conduct medical record review under RADV.
Instead we now utilize medical record reviewers to code medical records
undergoing RADV review. These reviewers may be employed by the same or
different medical record review contractors. Therefore, the term
``IVC'' is no longer relevant to the RADV audit process. We therefore
propose to remove this term from the RADV regulations at the following
citations: Sec. 422.311(c)(2)(i)(B) through (D); Sec.
422.311(c)(2)(ii)(B), Sec. 422.311(c)(2)(iii)(A), Sec.
422.111(c)(2)(v), (vi), Sec. 422.311(c)(3)(ii)(A), and Sec.
422.311(c)(3)(iii)(A) and (B). We invite comment on this proposal.
e. Proposal To Simplify the RADV Appeals Process
Currently, there are two types of RADV-related appeals processes
described in Federal regulations at Sec. 422.311 et seq.: Medical
record review-determination appeals and RADV payment error calculation
appeals. RADV medical record review-determination appeal requirements
and procedures are discussed at Sec. 422.311(b)(3) and Sec.
422.311(c)(2). Medical record review determination appeal is a two-
stage administrative appeal process: The first step is a hearing by a
hearing officer, followed by a CMS Administrator-level review. This
appeal procedure provides MA organizations with an opportunity to
appeal RADV medical record review determinations that are made by
coders reviewing the medical record documentation submitted by MA
organizations undergoing RADV audit. The second type of RADV appeal,
payment error calculation appeal, is discussed at Sec. 422.311(c)(3).
Payment error calculation appeal is a three-pronged appeal process:
Reconsideration, followed by a hearing officer review, followed by CMS
Administrator-level review. This appeal process was specifically
designed to afford MA organizations the opportunity to appeal CMS's
contract-level RADV payment error calculation.
We propose that the administrative appeals language described at
Sec. 422.311(b)(3) and Sec. 422.311(c)(2) for RADV medical record
review determination appeals and Sec. 422.311(c)(3) for RADV payment
error calculation appeals be replaced with new regulatory language
proposed Sec. 422.311(c)(1) et seq., that combines the two existing
RADV appeal policies and procedures into one set of requirements and
one process. We propose to combine the two RADV appeals processes into
one combined RADV appeals process that is comprised of three
administrative steps: Reconsideration, hearing officer review, and CMS
Administrator-level review. A three-step administrative appeals process
comprising reconsideration, hearing officer review, and Administrator-
levels of review is a common administrative appeals model used
elsewhere within the Medicare managed care program, such as in
appealing contract award determinations and intermediate sanctions. The
combined RADV appeal process that we are proposing at new Sec.
422.311(c)(1) et seq., also has the benefit of simplifying what is
today a complex two-track appeal process into one process. While both
CMS and the MA industry will benefit from simplifying this process, MA
organizations also obtain an additional level of review under the
combined approach since MA organizations will be afforded a
reconsideration appeal step for medical record review determinations
that is today--not part of the existing RADV appeal process. Shortening
the existing two-track appeal process should also reduce the resources
and level of effort needed from both MA organizations and CMS in
participating in a RADV appeal proceeding. Under this proposal, MA
organizations can simply request to appeal their RADV audit findings
one time and specify whether they want to appeal either their medical
record review determination(s), payment error calculation, or both. The
specific details regarding this proposed process follow. We propose
these changes based upon our experience with RADV appeals and because
we hope to reduce the burden associated with undertaking RADV appeals
on both MA organizations and CMS. The details of this proposed policy
and procedure follows.
(1) Issues Eligible for RADV Appeal
Current regulations at Sec. 422.311(c)(2) et seq., and Sec.
422.311(c)(3) et seq., specify RADV-related medical record review and
payment error calculation documents and issues eligible for the medical
record review determination and payment error calculation appeal
processes. We propose to amend the policies and procedures around
issues eligible for RADV appeals at Sec. 422.311(c)(2) and Sec.
422.311(c)(3) by combining proposed policies and procedures for the
existing two-pronged appeal approach into one set of policies and
procedures for RADV appeals at the new Sec. part 422.311(c)(2)(iv). At
Sec. 422.311(c)(2)(i), we propose that as a general rule, MA
organizations may appeal RADV medical record review determinations and
RADV payment error calculation, though in order to be eligible to
pursue these appeals, we specify at proposed Sec. 422.311(c)(2)(i)(A)
and (B) that MA organizations must adhere to established RADV audit
procedures and requirements and adhere to RADV appeals procedures and
requirements. At Sec. 422.311(c)(2)(ii) we propose that failure to
follow RADV audit procedures and requirements and RADV appeals
procedures and requirements will render the MA organization's request
for RADV appeal invalid. Furthermore, at proposed Sec.
422.311(c)(2)(iii) we stipulate that the

[[Page 2003]]

MA organization's written request for medical record review
determination appeal must specify the audited HCC(s) that have been
identified pursuant to RADV audit as being in error, and further
specify that MA organizations must provide a justification in support
of the audited HCC(s) that the MA organization elects to appeal. At
Sec. 422.311(c)(2)(i) (iv) we propose that for each audited HCC, MA
organizations may appeal one medical record that has undergone RADV
medical record review and that if an attestation was submitted to cure
a signature or credential issue, that attestation may likewise be
included in the HCC appeal. For example, if an MA organization
submitted a medical record that did not contain a signature and/or
credential--and the MA organization submitted an attestation to cure
the error that CMS subsequently failed to accept--the MA organization
could choose to appeal CMS's determination to not accept the submitted
attestation. We reiterate that the purpose of CMS-generated
attestations is to cure signature and credential errors associated with
an eligible submitted medical record and not to provide an opportunity
for a provider or supplier to attest that a beneficiary has a certain
medical condition. Evidence for the existence of the medical condition
is found in a medical record.
We are proposing to modify our language at Sec.
422.311(c)(2)(i)(v) to clarify existing RADV appeals provisions which
stipulate that MA organizations must adhere to the ``one best medical
record'' policy. Under changes to the RADV audit methodology announced
by CMS in February 2012, we now allow MA organizations to submit more
than one medical record (that is, more than the ``one best medical
record'') during the RADV audit process to validate an audited CMS-HCC.
However, for purposes of appealing a CMS medical record review
determination, we will not permit organizations to appeal multiple
medical records but will instead--require that MA organizations
identify a record from amongst those records submitted, and to submit
that record for appeal. For each audited HCC, MA organizations may
appeal only one medical record that has undergone RADV review. This
policy was published in the February 2012 White Paper and is not
included in this proposed rule.
At Sec. 422.311(c)(2)(vi) we propose that a written request for
RADV payment error calculation appeal must clearly specify the MA
organization's own RADV payment error calculation and must also specify
where the payment error calculation was erroneous.
(2) Issues Not Eligible for RADV Appeals
At Sec. 422.311(c)(3) we propose documents and issues that are
ineligible for RADV appeals. Consistent with the overall approach of
combining into one RADV appeals process what was heretofore two
separate RADV appeals processes--by way of this new proposed section,
we propose to amend existing regulations at Sec. 422.311(c)(3). At new
Sec. 422.311(c)(3), we propose that MA organizations' request for
appeal may not include HCCs, medical records or other documents beyond
the audited HCC, selected medical record and any accompanying
attestation that the MA organization chooses to appeal. We specify at
Sec. 422.311(c)(3)(ii) that the MA organizations may not appeal CMS's
medical record review determination methodology or CMS's payment error
calculation methodology. This is a clarification to existing RADV
regulations at Sec. 422.311(c)(3)(D) which specifies that MA
organizations may not appeal CMS's payment error calculation
methodology. At Sec. 422.311(c)(3)(iii) we specify that MA
organizations may not appeal RADV medical record review-related errors
when appealing RADV error-calculation issues since medical record
review determination issues must be resolved before we can calculate
RADV payment errors. And at Sec. 422.311(c)(3)(iv) we specify that
RADV errors that result from an MA organization's failure to submit a
medical record are not eligible for appeal.
(3) Manner and Timing of a Request for RADV Appeal
We propose to replace existing RADV regulations at Sec.
422.311(c)(2)(iii) et seq., and Sec. 422.311(c)(3)(iii) et seq.,
regarding the manner and timing of a request for RADV appeals. Again,
at Sec. 422.311(c)(5), we propose to combine the formerly two separate
sets of requirements and procedures into one RADV appeals process
addressing the request for RADV appeal. At Sec. 422.311(c)(5)(i) we
propose that at the time the Secretary issues her RADV audit report,
the Secretary notifies audited MA organizations that they may appeal
RADV HCC errors that are eligible for medical record review
determination appeal and may appeal the Secretary's RADV payment error
calculation. At Sec. 422.311(c)(5)(ii) we specify that MA
organizations have 30 days from the date of CMS's issuance of the RADV
audit report to file a written request with CMS for RADV appeal. This
request for RADV appeal must specify whether the MA organization
requests medical record review determination appeal, whether the MA
organization requests RADV payment error calculation appeal, or whether
the MA organization requests both medical record review determination
appeal and RADV payment error calculation appeal-- and in each
instance-- the issues with which the MA organization disagrees, and the
reasons for the disagreements. See proposed regulations at Sec.
422.311(c)(6) et seq.
At new Sec. 422.311(c)(5)(ii) we specify that while MA
organizations may now elect to appeal either medical record review
determination, payment error calculation, or both--they must notify CMS
which issues they will appeal at the same time. This new provision
replaces existing RADV appeals requirements regarding notification at
Sec. 422.311(c)(2)(iii) and Sec. 422.311(c)(3)(iii)(C).
For MA organizations that elect both medical record review
determination appeal and RADV payment error calculation appeal, we
specify at Sec. 422.311(c)(5)(iii)(A) and (B) that the Secretary will
adjudicate the request for RADV payment error calculation following
conclusion of reconsideration of the MA organization's request for
medical record review determination appeal. This is necessary because
RADV payment error calculations are based upon the outcomes of medical
record review determinations. For example, for an MA organization that
appeals both medical record review determinations and payment error
calculations, the reconsideration official would first adjudicate and
rule on the medical record review determinations and then proceed to
recalculate the RADV payment error.
(4) Reconsideration Stage
Under current RADV appeals procedures, only the RADV payment error
calculation appeal process contains a reconsideration step. We propose
to amend existing regulations at Sec. 422.311(c)(3)(iii)(C) and Sec.
422.311(c)(3)(v), (vi), and (vii) by proposing a new reconsideration
stage for RADV appeals at Sec. 422.311(c)(6) et seq. Reconsideration
is the first stage of the new RADV appeals process and will apply to
both medical record review determinations and error calculation issues
being appealed. Therefore, MA organizations that elect to appeal RADV
audit findings de facto begin the appeal process with the
reconsideration step. At proposed Sec. 422.311(c)(6)(i) we specify
that a MA organization's written request for medical record review

[[Page 2004]]

determination reconsideration must specify the audited HCC identified
as being in error that the MA organization wishes to appeal; and to
provide a justification in support of the audited HCC chosen for
appeal. At proposed Sec. 422.311(c)(6)(ii) we specify that the MA
organizations' written request for payment error calculation
reconsideration must include the MA organization's own RADV payment
error calculation that clearly indicates where the RADV payment error
calculation was erroneous. The request for payment error calculation
reconsideration may also include additional documentary evidence
pertaining to the calculation of the error that the MA organization
wishes the reconsideration official to consider.
At proposed Sec. 422.311(c)(6)(iii) we describe the conduct of the
reconsideration process that is being proposed. We specify that for
medical record review determination reconsideration, a medical record
review professional who was not involved in the initial medical record
review determination of the disputed HCC reviews the medical record and
accompanying dispute justification; and reconsiders the initial audited
HCC medical record review determination. For payment error calculation
reconsideration, CMS ensures that a third party not involved in the
initial RADV payment error calculation reviews the RADV payment error
calculation, reviews the MA organization's own RADV payment error
calculation, and recalculates the payment error in accordance with
CMS's RADV payment error calculation procedures.
At proposed Sec. 422.311(c)(6)(iv), we specify that the
reconsideration official issues a written reconsideration decision to
the MA organization, and that the reconsideration official's decision
is final unless the MA organization disagrees with the reconsideration
official's decision. If the MA organization disagrees with the
reconsideration official's decision, it may request a hearing.
(5) Hearing Stage
Existing regulations at Sec. 422.311(c)(2)(iv) through (ix) and
Sec. 422.311(C)(4) et seq., specify the procedures under which CMS
conducts hearings under the RADV appeals process for medical record
review and payment error calculation. We propose to replace these
provisions with new hearing requirements and procedures at Sec.
422.311(c)(7)(iv).
At Sec. 422.311(c)(7)(i), we propose that at the time the RADV
appeals reconsideration official issues his/her reconsideration
determination to the MA organization, the reconsideration official
notifies the MA organization of any RADV audited HCC errors and or
payment error calculations that are eligible for RADV hearing. At Sec.
422.311(c)(7)(ii), we specify that a MA organization that requests a
hearing officer review must do so in writing in accordance with
procedures established by CMS. At Sec. 422.311(c)(7)(iii), we specify
that a written request for a hearing must be filed with the Hearing
Officer within 30 days of the date the MA organization receives the
reconsideration officer's written reconsideration decision. If the MA
organization appeals the medical record review reconsideration
determination, the written request for RADV hearing must include a copy
of the written decision of the reconsideration official; must specify
the audited HCCs that the reconsideration official confirmed as being
in error; and must specify a justification as to why the MA
organization disputes the reconsideration official's determination. If
the MA organization appeals the RADV payment error calculation, the
written request for RADV hearing must include a copy of the written
decision of the reconsideration official and must include the MA
organization's own RADV payment error calculation that clearly
specifies where the CMS's payment error calculation was erroneous.
At Sec. 422.311(c)(7)(iv), we propose that a CMS hearing officer
conduct the RADV hearing. At Sec. 422.311(c)(7)(v), we specify terms
and conditions under which a hearing officer may be disqualified. A
hearing officer may not conduct a hearing in a case in which he or she
is prejudiced or partial to any party or has any interest in the matter
pending for decision. A party to the hearing who objects to the
assigned hearing officer must notify that officer in writing at the
earliest opportunity. The hearing officer must consider the objections,
and may, at his or her discretion, either proceed with the hearing or
withdraw. If the hearing officer withdraws, another hearing officer
will conduct the hearing. If the hearing officer does not withdraw, the
objecting party may, after the hearing, present objections and request
that the officer's decision be revised or a new hearing be held before
another hearing officer. The objections must be submitted in writing to
CMS.
At Sec. 422.311(c)(7)(vi) we propose that the hearing officer
reviews the medical record and any accompanying attestation that the MA
organization selected for review, the reconsideration official's
payment error calculation (if appealed), the reconsideration official's
written determination, and the written justification submitted by the
MA organization and CMS in response to the reconsideration official's
determination.
At Sec. 422.311(c)(7)(vii) we propose RADV appeal hearing
procedures. We propose that the hearing officer has full power to make
rules and establish procedures, consistent with the law, regulations,
and rulings. These powers include the authority to dismiss the appeal
with prejudice and take any other action which the hearing officer
considers appropriate, including for failure to comply with RADV audit
and appeals rules and procedures. We propose that the hearing be
altogether on the record unless the hearing officer, at his or her full
discretion, approves a parties request for a live or telephonic hearing
regarding some or all of the medical records in dispute, or if the
hearing office schedules a live or telephonic hearing on its own
motion. The hearing officer's review will be solely limited to the
record. The record is comprised of the RADV reviewed medical record and
any accompanying attestation that the MA organization selected for
review, the reconsideration official's payment error calculation (if
appealed), the reconsideration official's written determination, the
written justification submitted by the MA organization in response to
the reconsideration official's determination, and written briefs from
the MA organization explaining why they believe the reconsideration
official's determination was incorrect. In addition, the record will be
comprised of a brief from CMS that responds to the MA organization's
brief.
In terms of specifying the conduct of the hearing, we propose at
Sec. 422.311(c)(7)(vii)(B) that the hearing officer neither receives
testimony nor accepts any new evidence that is not part of the record.
At Sec. 422.311(c)(7)(vii) we propose that the hearing officer be
given the authority to decide whether to uphold or overturn the
reconsideration official's decision, and pursuant to this decision--to
send a written determination to CMS and the MA organization, explaining
the basis for the decision.
At Sec. 422.311(c)(7)(ix), we propose that in accordance with the
hearing officer's decision, a third party not involved in the initial
RADV payment error calculation recalculate the MA organization's RADV
payment error and issue a new RADV audit report to the appellant MA
organization and CMS. For MA organizations appealing the

[[Page 2005]]

RADV payment error calculation only, we propose that a third party not
involved in the initial RADV payment error calculation recalculate the
MA organization's RADV payment error and issue a new RADV audit report
to the appellant MA organization and CMS. At Sec. 422.311(c)(7)(x) we
propose that the hearing officer's decision be final unless the
decision is reversed or modified by the CMS Administrator.
(6) CMS Administrator Review Stage
Existing regulations at Sec. 422.311(c)(2)(x) et seq., and Sec.
422.311(C)(4)(vi) et seq., specify the CMS Administrator-level review
procedures that CMS adheres to under the current RADV appeals process
for medical record review determinations and payment error calculation.
We propose to replace these regulations with new RADV appeal-related
CMS Administrator review requirements and procedures at Sec.
422.311(c)(8).
At Sec. 422.311(c)(8)(i) and (ii), we propose that a request for
CMS Administrator review must be made in writing within 30 days of
receipt of the hearing officer's decision; and must be filed with the
CMS Administrator by CMS or an MA organization. At Sec.
422.311(c)(8)(iii), we propose that after receiving a request for
review, the CMS Administrator has the discretion to elect to review the
hearing officer's decision or to decline to review the hearing
officer's decision. At Sec. 422.311(c)(8)(iv) we propose that if the
CMS Administrator elects to review the hearing decision--the
Administrator acknowledges the decision to review the hearing decision
in writing and notifies CMS and the MA organization of their right to
submit comments within 15 days of the date of the notification. At
Sec. 422.311(c)(8)(iv)(B), we propose that the CMS Administrator be
limited to the review of the record and that the record be comprised of
the hearing record, and written arguments from the MA organization and/
or CMS explaining why either or both parties believe the hearing
officer's determination was correct or incorrect.
Regarding Administrator-level review procedures at Sec.
422.311(c)(8)(vi), we propose that the Administrator reviews the record
and determines whether the hearing officer's determination should be
upheld, reversed, or modified. At Sec. 422.311(c)(8)(v), we propose
that the Administrator render his or her final decision in writing to
the parties within 60 days of acknowledging his or her decision to
review the hearing officer's decision. At Sec. 422.311(c)(8)(vi), we
propose that the decision of the hearing officer become final if the
Administrator declines to review the hearing officer's decision or does
not make a decision within 60 days.
Combining these existing RADV medical record review determination
and payment error calculation appeals policies and processes improves
the overall appeals process by strengthening the depth and integrity of
these procedures. We also believe that doing so improves overall RADV
appeals procedures by providing clarity that leads to greater
efficiencies in adjudicating RADV appeals. We welcome comments on these
proposals.
f. Proposal To Expand Scope of RADV Audits
Federal regulations at Sec. 422.311(a) specify that RADV audits
are conducted by CMS. We propose to amend this regulation at Sec.
422.311(a) by specifying that the Secretary of the Department of Health
and Human Services, along with CMS, may conduct RADV audits beginning
with the effective date of this regulation. We also propose to amend
RADV definitions at Sec. 422.2 to specify that The Secretary of the
Department of Health and Human Services, along with CMS, may conduct
RADV audits. We welcome comment on this proposal.
g. Proposal To Clarify the RADV Medical Record Review Determination
Appeal Burden of Proof Standard
Our regulations at Sec. 422.311(c)(3)(iv) specify that for RADV
payment error calculation appeals, MA organizations bear the burden to
prove that CMS failed to follow its stated RADV payment error
calculation methodology. However, RADV regulations do not specify a
burden of proof standard for the RADV medical record review
determination appeal process. The absence of a clearly-defined burden
of proof standard for RADV medical record review determination appeals
creates an appeal environment where MA organizations, CMS and RADV
appellate officials are free to interpret and apply different burden of
proof standards when arguing or reviewing appeals cases. We propose to
amend the rule with new Sec. 422.311(c)(4) which specifies that the
burden of proof for all RADV determinations--be they payment error
calculation or RADV medical record review determinations--is on MA
organizations to prove, based on a preponderance of the evidence, that
CMS's determination was erroneous.
This approach would stand in contrast to a burden of proof standard
in which the MA organization were to prove that a valid diagnoses
exists on the record, and that therefore, the audited HCC has been
validated. This proposed amendment to the rule provides the medical
record review determination process a clear burden of proof standard
which more aligns with the existing RADV payment error calculation
appeals burden of proof standard. Doing so also improves the overall
RADV appeals procedures by providing clarity that leads to greater
efficiencies in adjudicating RADV appeals. We invite comment on this
proposal.
h. Proposal To Change RADV Audit Compliance Date
Currently, the compliance date for RADV audits is the due date when
MA organizations selected for RADV audit must submit medical records to
CMS or its contractors. We are proposing to change the compliance date
for meeting RADV audit requirements for the validation of risk
adjustment data to the due date when MA organizations selected for RADV
audit must submit medical records to the Secretary--and not only CMS.
See proposed regulation language at Sec. 422.311(b)(2).

B. Improving Payment Accuracy

8. Recovery Audit Contractor (RAC) Determination Appeals (Proposed Part
422 Subpart Z and Part 423 Subpart Z)
a. Background
Section 306 of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (MMA) required the Secretary to conduct a
demonstration to determine whether recovery auditors could be used
effectively to identify improper payments paid under Medicare Part A
and Part B claims. We conducted the demonstration from March 2005 to
March 2008 in six states. The Recovery Audit demonstration established
recovery auditors as a successful tool in the identification and
prevention of improper Medicare payments.
In December 2006, the Tax Relief and Health Care Act of 2006
(TRHCA) (Pub. L. 109-432) was enacted. Section 302(a) of the TRHCA
created a permanent Medicare Recovery Audit Contractor (RAC) program
and added a new paragraph (h) to section 1893 of the Social Security
Act (the Act) that required us to establish a national recovery audit
program for Medicare Part A and Part B. The national Medicare Fee-For-
Service (FFS) Recovery Audit program was established on January 1,
2010.
Section 6411(b) of the Affordable Care Act amended section
1893(h)(1) of the Act by requiring the establishment of recovery audit
programs for Medicare

[[Page 2006]]

Parts C and D, in addition to the RAC program already in place for
Medicare A and B.
On December 27, 2010, we published a notice in the Federal Register
(75 FR 81278) requesting comments on how to best implement the RAC
program for Parts C and D. Analysis of the comments received assisted
us with implementation of the Part C and D RACs.
In January 2011, we entered into a recovery audit contract for Part
D. The Part D RAC began recouping identified overpayments in 2012. On
December 7, 2012, we published a Request for Quotation (RFQ) via the
General Services Administration's (GSA) eBuy seeking quotations on the
implementation of a Medicare Part C RAC. We anticipate the award of a
Part C RAC contract in FY 2014.
Given that we began recouping overpayments determined by the Part D
RAC in 2012, and we anticipate recouping overpayments in Part C after
awarding a Part C RAC contract in FY 2014, it is appropriate to provide
a codified administrative appeals process to allow for plans to
challenge the overpayment findings generated by the RACs just as we
provide for challenges to overpayment determinations elsewhere in the
Medicare program. In crafting our proposed appeals process for Parts C
and D RAC determinations, we reviewed existing appeals processes in
other areas, including Parts A and B RAC determinations, Part C RADV
Audits, Part D payments, etc.
b. Proposed RAC Appeals Process
After reviewing the agency's existing appeal processes, we
determined that the general mechanisms set forth in Sec. 422.311 and
Sec. 423.350 offered the most appropriate models for the Part C and D
RAC appeals process.
The Part D RAC currently reviews PDE data to identify overpayments
and underpayments that are paid back to the plans. When overpayments
are identified, Part D plans are notified and funds are recovered. If
plans disagree with the calculated overpayment amounts or whether the
overpayments are proper, they may appeal the Part D RAC's determination
directly to the CMS Center for Program Integrity.
A multilevel independent appeals process is an important component
of the Part C and Part D RAC program as it allows plans to appeal
determinations they contend are made in error. The administrative
appeals mechanisms in this proposed rule would apply to all Part C and
Part D RAC determinations. As CMS implements the Part C RAC, we would
determine if additional changes to the proposed appeals process are
necessary.
Based on the foregoing, we propose to add a new subpart Z in Parts
422 and 423, respectively that would include the proposed provisions
discussed in this section. In accordance with CMS direction and
criteria, the Part C or Part D RAC would conduct an issue specific
audit of CMS' payment(s) to plans. An independent validation of all
Part C and Part D RAC-identified improper payments would be conducted.
If both the Part C or Part D RAC and the independent validation
determine that an improper payment was made, the Part C or Part D RAC
would send a notice of improper payment to the plan. If the Part C or
Part D RAC determines an overpayment was made to the plan, it would
send a demand letter requesting repayment. The demand letter would: (1)
Explain the reason for the overpayment determination; (2) explain our
recoupment process; and (3) contain instructions on how the plan may
appeal the Part C or Part D RAC's finding. There would be no minimum
monetary threshold for an appeal at any level.
The following three level process sets forth our proposed
administrative appeals process for overpayment determinations by the
Part C and Part D RACs. Please note that the appeals process set forth
applies to both Sec. 422.2600 and Sec. 423.2600. Because the sections
largely mirror one another, discussions in this preamble would apply to
both programs, unless otherwise noted.
(1) Reconsiderations (Sec. 422.2605 and Sec. 423.2605)
At Sec. 422.2605 and Sec. 423.2605, we propose that if the plan
believes the part C or Part D RAC did not apply CMS' stated payment
methodology correctly, a plan may appeal the determination to an
independent reviewer. CMS' payment methodology itself, however, is not
subject to appeal. That is, while miscalculations and factual or data
errors may be appealed, the plan may not appeal the substantive basis
for the overpayment determination. This is consistent with the approach
to Part D reconciliation appeals at Sec. 423.350(a)(1), which states
that the Part D plan may appeal ``if CMS did not apply its stated
payment methodology correctly.'' The Part D reconciliation appeals
process does not permit the underlying payment methodology to be
appealed.
Examples of appealable issues would include, but are not be limited
to: (1) A Part C or Part D RAC determination that a plan provider/
pharmacy was excluded from Medicare when the service was furnished; (2)
a Part C or Part D RAC determination that a payment was a duplicate
payment; or (3) whether the Part C or Part D RAC miscalculated an
overpayment.
In paragraph (a), we propose that the plan's request for
reconsideration must be filed with the independent reviewer within 60
calendar days from the date of the demand letter. In paragraph (b)(1),
we propose that the request for reconsideration must be in writing and
must provide evidence or reasons or both to substantiate the request.
In paragraph (b)(2), we propose that the plan must include with its
request all supporting documentation, evidence, and substantiation it
wants the independent reviewer to consider. This material must be
submitted in the format requested by CMS. Documentation, evidence, or
substantiation submitted after the filing of the reconsideration
request would not be considered.
In paragraph (c), we propose that CMS may file a rebuttal to the
plan's reconsideration request. The rebuttal must be submitted to the
independent reviewer within 30 calendar days of the independent
reviewer's notification to CMS that it has received the plan's
reconsideration request. CMS would notify and send its rebuttal to the
plan at the same time it is submitted to the independent reviewer. In
paragraph (d), we propose that the independent reviewer would conduct
the reconsideration. Specifically, the independent reviewer would
review the notification of improper payment, the evidence, and findings
upon which it was based, and any evidence that the plan or CMS
submitted in accordance with regulations. In paragraph (e), we propose
that the independent reviewer would inform CMS and the plan of its
decision in writing. In paragraph (f), we propose that a
reconsideration decision would be final and binding unless the plan
requests a hearing in accordance with Sec. 422.2605 and Sec.
423.2605. Finally, in paragraph (g), we propose that a plan that is
dissatisfied with the independent reviewer's reconsideration decision
would be entitled to a review by a hearing official as provided in
Sec. 422.2610 and Sec. 423.2610.
(2) Hearing Official Determinations (Sec. 422.2610 and Sec. 423.2610)
In proposed Sec. 422.2610 and Sec. 423.2610, we outline the
process for requesting review of the record by a CMS hearing official.
In paragraph (a), we propose that a request for review must be filed
with CMS within 15 days from the date of the independent reviewer's
issuance of a determination.

[[Page 2007]]

The request must be in writing and must provide a basis for the
request. In paragraph (b), we propose that the plan must submit with
its request all supporting documentation, evidence, and substantiation
that it wants to be considered. Documentation, evidence, or
substantiation submitted after the filing of the request would not be
considered.
In paragraph (c), we propose that a CMS-designated hearing official
would conduct the review. A hearing would not be conducted, either live
or via telephone, unless the hearing official, in his or her sole
discretion, chooses such a mechanism. In all cases, the hearing
official's review would be limited to information that: (1) The Part C
or Part D RAC used in making its determinations; (2) the independent
reviewer used in making its determinations; (3) the plan submits with
its hearing request; and (4) CMS submits per paragraph (d). Neither the
plan nor CMS would be allowed to submit new evidence.
In paragraph (d), we propose that CMS may file a rebuttal to the
plan's hearing request. The rebuttal must be submitted within 30
calendar days of the plan's submission of its hearing request. CMS
would send its rebuttal to the plan at the same time it is submitted to
the hearing official. In paragraph (e), we propose that the CMS hearing
official would decide the case within 60 days and send a written
decision to the plan and CMS, explaining the basis for the decision. In
paragraph (f), we propose that the hearing official's decision would be
final and binding, unless the decision was reversed or modified by the
CMS Administrator in accordance with Sec. 422.2615 and Sec. 423.2615.
(3) Administrator Review (Sec. 422.2615 and Sec. 423.2615)
In proposed Sec. 422.2615 and Sec. 423.2615, we discuss the
Administrator review process. In paragraph (a), we propose that if a
plan is dissatisfied with the hearing official's decision, the plan may
request that the CMS Administrator review the decision. The request
must be filed with the CMS Administrator within 15 calendar days of the
date of the hearing official's decision. The request must provide
evidence or reasons or both to substantiate the request. In paragraph
(b), we propose that the plan must submit with its request all
supporting documentation, evidence, and substantiation that it wants to
be considered. Neither the plan nor CMS would be allowed to submit new
evidence. Documentation, evidence or substantiation submitted after the
filing of the request would not be considered.
In paragraph (c), we propose that after receiving a request for
review, the Administrator would have the discretion to review the
hearing official's decision in accordance with paragraph (e) or to
decline to review said decision.
In paragraph (d), we propose that the Administrator would notify
the plan of whether he or she intends to review the hearing official's
decision. If the Administrator declines to review the hearing
official's decision, the hearing official's decision is final and
binding. If the Administrator agrees to review the hearing official's
decision, CMS may file a rebuttal statement within 30 days of the
Administrator's notice to the plan that the request for review has been
accepted. CMS would send its rebuttal statement to the plan at the same
time it is submitted to the Administrator. In paragraph (e), we propose
that if the Administrator agrees to review the hearing official's
decision, the Administrator would determine, based upon this decision,
the hearing official record, and any arguments submitted by the plan or
CMS in accordance with this section, whether the determination should
be upheld, reversed, or modified. The Administrator would furnish a
written decision to the plan and to CMS. The Administrator's decision
would be final and binding.

C. Strengthening Beneficiary Protections

1. Providing Good Quality Health Care (Sec. 422.504(a)(3) and Sec.
423.505(b)(27))
Section 1857(e)(1) of the Act, together with section 1860D-12(b)(3)
of the Act, which incorporates its terms for Part D, authorizes CMS to
include terms and conditions in our contracts with MA organizations and
PDP sponsors that are consistent with Part C and Part D requirements,
respectively, and that the Secretary finds are ``necessary and
appropriate.'' Furthermore, the requirements set forth in section
1860D-4(b), (c), and (d) of the Act include specifications for a Part D
sponsor to administer a benefit that not only accurately and
efficiently process claims but also meets beneficiary healthcare needs,
and to take affirmative action to improve outcomes and achieve patient
satisfaction. Under this authority, we propose to add a requirement to
CMS contracts with MA organizations and Part D sponsors that explicitly
requires that Part C and Part D plans demonstrate that they are
providing good quality health care by achieving good or improving
scores on CMS performance standards for outcomes, intermediate
outcomes, process, patient experience, and patient access to care. We
believe that adding this requirement would help ensure our
beneficiaries receive the right care at the right time.
While we believe that we have conveyed this expectation in other
ways, such as through our performance and quality measurement and
rating methodologies, we have never explicitly articulated this
requirement in regulation. In short, we are proposing here that it is
not enough to simply administer a benefit plan, but that Part C and
Part D sponsors should constantly seek out ways to actively promote and
advance the health of its enrollees.
In order to create a requirement that helps ensure that Medicare
beneficiaries are receiving consistently good quality care, and to have
the ability to enforce such a requirement, we sought existing guidance
to shape the meaning of ``good quality health care.'' The Affordable
Care Act required HHS to develop the National Strategy for Quality
Improvement in Health Care (the National Quality Strategy), which, like
our Three-Part Aim, combines the three broad objectives of better
health for the population, better care for individuals, and affordable
care. In addition, our Star Ratings program was developed to include
quality and performance measures to increase the level of
accountability for MA organizations and PDP sponsors to administer a
good quality benefit to Medicare beneficiaries. By linking a concept as
subjective in nature as good quality health care to objective metrics
and measures in the Star Ratings program, we believe plans and sponsors
can reasonably employ tangible strategies that improve the quality of
services and benefits provided to Medicare beneficiaries.
To give concrete and verifiable meaning to this requirement, we
propose to specify that good quality health care refers to MA
organizations and Part D sponsor performance in the five categories
identified in CMS's Star Ratings program--patient outcomes,
intermediate outcomes, patient experience, patient access to care, and
process. Achievement of this type of performance is based on
organizational capability and implementation by the MA organizations
and Part D sponsor. Articulating and codifying this requirement
underscores for the public and our plans and sponsors the critical
importance we place on aligning the administration of Part C and Part D
benefits with the achievement of good quality health care as
illustrated by, but not limited to, these specific performance
standards. Leveraging what

[[Page 2008]]

plans have already put into practice with regard to these five
categories means that plans should not encounter any additional burden
in complying with this proposed regulation. Instead, the proposed
change gives plans an opportunity to demonstrate the value they offer
their enrollees, while providing a means for us to enforce or take
corrective action when a Part C or Part D plan fails to provide good
quality health care.
There are several reasons we propose including in regulation a
contract requirement that plans administer a benefit promoting good
quality health care. We reward MA organizations with quality bonus
payments when they achieve high scores within the Star Ratings. At the
same time, we believe that it is appropriate that we react
correspondingly if an MA organization does not provide good quality
care. In addition, our existing requirements that MA organizations have
a quality improvement (QI) program (Sec. 422.152) and Part D sponsors
have a Medication Therapy Management Program (Sec. 423.153(d)) further
reinforce our belief that MA organizations and Part D sponsors are
already striving to administer a good quality benefit. Moreover, we
examined our authority at Sec. 422.502(b) and Sec. 423.503(b), which
allows us to ensure that plan performance is routinely evaluated. Based
on the methodology we use to calculate plan performance for both MA
organizations and Part D sponsors, we are able to determine which plans
are outliers--that is, those organizations whose performance is
consistently poor. With regard to the particular proposed contractual
requirement to administer a good quality benefit, we can evaluate a
plan's scores in Performance Metrics category within the plan
performance review. Plans are held accountable for achieving good
scores on the review, and this evaluation allows us to appropriately
deny an organization's application to operate if it is determined that
they are an outlier.
Therefore, we propose adding paragraph (b)(27) to Sec. 423.505,
Requirements for contracts, to state, ``A PDP sponsor is required to
administer a PDP benefit that provides good quality health care
demonstrated by scores of 3 or higher on CMS performance standards for
patient outcomes, intermediate outcomes, process, patient experience,
and patient access to care.''
Similarly, we propose adding paragraph (a)(3)(iv) to Sec. 422.504,
Contract Provisions, to state that MA organizations agree to provide
benefits, ``in a manner that provides good quality health care
demonstrated by scores of 3 or higher on CMS performance standards for
patient outcomes, intermediate outcomes, process, patient experience,
and patient access to care.''
2. MA-PD Coordination Requirements for Drugs Covered Under Parts A, B,
and D (Sec. 422.112)
Under Sec. 422.112(b) of the MA program regulations, coordinated
care plans must ensure continuity of care and integration of services
through arrangements with contracted providers. We believe that an
important aspect of this coordination is ensuring that all needed
services, including drug therapies, are provided in a timely manner. We
have become aware of situations in which enrollees' access to needed
Medicare-covered drugs has been delayed or denied due to the MA
organization's failure to effectively coordinate Part B and Part D
benefits for certain drugs, both at the point-of-sale (POS) and during
the coverage determination process.
As defined in Sec. 423.100, ``Part D'' drugs do not include drugs
for which payment as so prescribed and dispensed or administered to an
enrollee is available for that enrollee under Part A or Part B. In
other circumstances, these drugs are covered under the Part D benefit,
but coverage generally cannot be determined based solely on the drug
itself. These drugs include certain infusion agents, oral anti-cancer
therapies, oral anti-emetics, immunosuppressants, and injectables.
We do not believe MA-PD plans are adopting or administering uniform
policies that allow them to expeditiously determine whether a drug is
covered under Part A/Part B or Part D at the POS. The resulting POS
rejection of coverage under the Part D benefit does not uniformly
include messaging that a Part B prior authorization determination is
required, nor consistently result in a corresponding authorization
under Part B. This can result in lengthy drug treatment delays while
the enrollee or his or her provider attempts to determine why the drug
was not covered and then pursues a coverage determination from the MA-
PD plan. For example, an MA-PD enrollee may present a prescription for
a covered chemotherapy drug at his or her pharmacy only to be told that
the claim has been rejected under the Medicare Part D benefit,
resulting in the enrollee leaving the pharmacy counter without his/her
drug. The enrollee may not know that the drug is covered under Part B.
In some cases, the enrollee must take steps on his or her own to find
out why coverage for a prescription was rejected at the POS and then
contact the plan to obtain the Part B-covered medication. Unless the
MA-PD plan has a robust process in place to make a timely and
appropriate payment determination at the POS, there may be unnecessary
delays, during which the enrollee is denied access to the needed
medication.
We have issued guidance in section 20.2.2. Chapter 6 of the
Medicare Prescription Drug Benefit Manual related to how Part D plan
sponsors should make determinations whether a drugs is covered under
Part B or Part D. We have also outlined in Appendix C of Chapter 6
considerations for Part D plan sponsors--and by extension, MA
organizations that offer MA-PD plans--to take into account when making
determinations as to whether a drug is covered under Part B or Part D.
We expect plans to work with network pharmacies and providers to
determine coverage and payment for these drugs with the goal of
limiting disruptions to beneficiaries and pharmacies and ensuring
access to medically necessary prescription drugs. For example, we have
stated in subregulatory guidance that, when adjudicating claims for
these drugs, Part D plan sponsors are permitted to rely on information
submitted on the prescription (for example, to determine whether the
prescription is related to a Medicare covered organ transplant) and may
require their network pharmacies to obtain documentation to determine
whether payment should be made under Part B or Part D.
During recent MA-PD plan audits, we also have seen that some plans
are not adequately coordinating the respective Part D and Part B drug
benefits when an enrollee or his or her provider requests a drug
coverage determination from the plan. For example, in response to a POS
claim rejection for an immunosuppressant drug that cannot be resolved
at the POS, an enrollee's provider may submit a coverage determination
request to the MA organization offering an MA-PD, which is generally
processed under the Part D benefit. In some cases, MA-PD plans deny
coverage and issue a denial notice under the Part D benefit on the
basis that the drug is, or may be, covered by Part B, but the plan
either fails to make a determination regarding Part B coverage or does
not authorize payment under the Part B benefit.
Occurrences like these cause inappropriate and avoidable delays,
or, even worse, result in situations in which the enrollee fails to
receive needed medication altogether. In the case of chemotherapy or

[[Page 2009]]

immunosuppressive drugs, such delays could have rapid and serious
medical consequences for the beneficiary.
Part D drug benefits and drug benefits under Parts A and B should
be coordinated by MA organizations offering MA-PDs so that enrollees
receive needed medications on a timely basis. We are proposing to add a
new paragraph (b)(7) to Sec. 422.112 to require MA-PDs to establish
adequate messaging and processing requirements with network pharmacies
(that is, Part D contracted providers) to ensure that appropriate
payment is assigned at the POS, and to ensure that, when coverage is
denied under Part D due to available coverage under Part A or Part B,
such Part A or Part B coverage is authorized or provided to the
enrollee as expeditiously as the enrollee's health condition requires.
Our proposed regulation would require that MA PDs have systems in place
to accurately and timely adjudicate claims at the POS.
In addition, we would like to ensure that MA-PD plans are
coordinating their drug benefits appropriately during the coverage
determination process. If an MA organization offering Part D denies
Part D coverage due to the availability of Part A or Part B coverage,
we expect the MA organization to ensure the decision results in
authorization or provision of the drug under Part A or Part B pursuant
to the requirements in parts 422 and 423, subpart M under our proposed
regulation. We do not expect MA-PD enrollees to have to request an
initial coverage determination more than once.
To avoid unnecessary delays and inappropriate denials of critical
medications, we have considered requiring MA-PD plans to authorize
coverage of all Part A, Part B and D medications at the POS so that the
enrollee can receive covered medication without delay. The
determination as to whether the drug is covered under Part A, Part B or
Part D and the amount of the appropriate cost sharing would occur later
if necessary. However, we recognize that such a requirement may
interfere with medically appropriate pre-authorization requirements,
and may trigger retrospective enrollee liability depending on the
difference in enrollee cost sharing for coverage under Part A, Part B
and Part D and retrospective TROOP adjustments and Part D
reconciliation.
We solicit comments on our proposal, as well as other possible
approaches to minimizing delays in beneficiary access to needed
medications caused by inadequate coordination of the Part A, Part B and
Part D drug benefits at the POS and during the coverage determination
process. In particular, we would appreciate organizations sharing their
expertise regarding best practices for this benefit coordination at the
POS and plan processes that enhance those coverage determinations. We
also are soliciting comments on challenges MA organizations offering
Part D currently encounter in their efforts to integrate these
benefits.
3. Good Cause Processes (Sec. 417.460, Sec. 422.74 and Sec. 423.44)
Section 1851(g)(3)(B)(i) of the Act provides that MA organizations
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 rules
related to enrollment, disenrollment, and termination for Part D plan
sponsors that are similar to those established for MA organizations
under section 1851 of the Act. In addition, section 1860D-13(a)(7) of
the Act mandates that the premiums paid by individuals with higher
incomes be increased by the applicable Part D Income Related Monthly
Adjustment Amount (Part D IRMAA), for the months in which they are
enrolled in Part D coverage.
Consistent with these sections of the Act, subpart B in both the
Part C and Part D regulations sets forth our requirements with respect
to involuntary disenrollment procedures at Sec. 422.74 and Sec.
423.44, respectively. An MA or Part D plan that chooses to disenroll
beneficiaries for failure to pay premiums must be able to demonstrate
to us that it made a reasonable effort to collect the unpaid amounts by
notifying the beneficiary of the delinquency, providing the beneficiary
a period of no less than 2 months in which to resolve the delinquency,
and advising the beneficiary of the termination of coverage if the
amounts owed are not paid by the end of the grace period.
In addition, current regulations at Sec. 417.460(c) specify that a
Health Maintenance Organization (HMO) or competitive medical plan (cost
plan) may disenroll a member who fails to pay premiums or other charges
imposed by the plan for deductible and coinsurance amounts. While there
is not a grace period parallel to MA and Part D, the other procedural
requirements for cost plans to disenroll a member on this basis are
similar to those for MA and Part D plans. The cost plan must
demonstrate that it made reasonable efforts to collect the unpaid
amount and send the enrollee written notice of the pending
disenrollment at least 20 days before the disenrollment effective date.
In the April 2011 final rule (76 FR 21432) we amended both the
Parts C and D regulations at Sec. 422.74(d)(1)(v), Sec. 423.44(d)(1),
and Sec. 423.44(e)(3) regarding involuntary disenrollment for non-
payment of premiums or Part D-IRMAA to allow for reinstatement of the
beneficiary's enrollment into the plan for good cause. In the April
2012 final rule (77 FR 22071), we extended the policy of reinstatement
for good cause to include beneficiaries enrolled in cost plans in Sec.
417.460(c)(3); thus aligning the cost plan reinstatement provision with
the MA and PDP plan provisions.
These good cause provisions authorize CMS to reinstate a
disenrolled individual's enrollment without an interruption in coverage
in certain circumstances where the non-payment was due to circumstances
that the individual could not reasonably foresee and could not control,
such as unexpected hospitalization. Since the inception of these
provisions, we have received feedback from plans on ways to improve the
good cause process and make it more efficient for both the plans and
us. Over the past year, we have already used this feedback to improve
the operational aspects of the policy by updating Chapter 2 of the
Medicare Managed Care Manual and Chapter 3 of the Medicare Prescription
Drug Benefit Manual to clarify notice language and the process and
timing of receiving payments during the extended grace period, as
outlined in Sec. 417.460(c)(3), Sec. 422.74(d)(1)(v), and Sec.
423.44(d)(1)(vi). In addition, we updated the Complaints Tracking
Module (CTM) Standard Operating Procedures (SOP) to permit plans to
transfer requests for reinstatement for good cause to CMS. We are now
proposing to make additional revisions to Sec. 417.460, Sec. 422.74,
and Sec. 423.44 to make changes to the good cause review process.
The ability for individuals to be reinstated during the extended
grace period for good cause is outlined in Sec. 417.460, Sec. 422.74
and Sec. 423.44. Since its inception, the process of accepting,
reviewing, and processing beneficiary requests for reinstatement for
good cause has been carried out exclusively by CMS. In multiple cases,
individual MA organizations and Part D plans have indicated that they
wanted to be the point of contact for their current and past members.
In addition, several plans have raised concerns regarding complaints by
their members who are seeking reinstatement and who have to contact CMS
instead of the plan to make this request.
In light of this feedback, the experience we have gained since the
initial implementation of the good cause

[[Page 2010]]

process, and in the interest of making the process more efficient, we
solicited public input on improving the process in the draft 2014 Call
Letter issued on February 15, 2013. In the Call Letter, we indicated
that we were considering making changes to the good cause process.
Specifically, we stated that we were exploring expanding the plans'
role in the process to include accepting the initial requests for
reinstatement by former plan members and gathering information prior to
submitting the requests to us. We requested comments from MA
organizations and Part D plan sponsors on our proposal to expand the
plans' role and any other ways we might improve the process to receive
and review good cause requests for reinstatement.
The vast majority of the comments we received from stakeholders in
response to the Call Letter were in favor of expanding the plans' role,
given the fact that plans can readily access a former enrollee's
premium billing and payment history and, as such, are in a position to
identify and efficiently resolve other disenrollment disputes that are
erroneously being received as good cause requests. A number of plans
indicated a preference to independently implement the good cause
process through enhanced subregulatory guidance. A few commenters
indicated that CMS should retain responsibility over all aspects of the
good cause process to ensure objectivity.
In response to this feedback we are proposing to amend Sec.
417.460(c)(3), Sec. 422.74(d)(1)(v), and Sec. 423.44(d)(1)(vi) to
permit an entity acting on behalf of CMS to effectuate reinstatements
when good cause criteria are met. This regulatory change would allow us
to designate another entity, including the plans or an independent
contractor, to complete portions or all of the good cause process. It
is our intent to expand the role of plans to include accepting incoming
requests for reinstatement directly from former enrollees and making
the good cause determinations using the existing regulatory standard.
This proposed change would enable plans to be more responsive to their
current and former members, and lessen the burden the plans have in
coordinating with us regarding the good cause and reinstatement
process. It further aims to lessen the number of complaints generated
due to miscategorization of the reinstatement requests as an allegation
of plan error, which the plans must then resolve and refer back to us
for a good cause determination.
Ensuring objectivity in the review of these cases and equity among
beneficiaries regarding the determination of good cause for cases is
critically important. Thus, we would establish operational policy and
processes in subregulatory guidance to set parameters for the
application of the good cause standard, including the submission to CMS
of certain cases for review to ensure that plans remain impartial and
equitable in their assessment and treatment of former members who have
been disenrolled for nonpayment of premiums. These changes would be
accompanied by the development of an oversight protocol for any
activities currently carried out by us for which we name the plans or
an independent contractor our designee to carry out.
In addition to our proposal here to permit a CMS designee to
determine reinstatements for good cause, we are taking this opportunity
to propose a technical change to the language in Sec. 417.460 to
clarify that good cause protections for enrollees in cost plans apply
to instances where there was a failure to pay either plan premiums or
cost sharing. In extending the good cause provision to cost plans in
the April 2012 final rule, we correctly referenced failure to pay
premiums as a basis for disenrollment from a cost plan, but in two
instances we neglected to include a reference to ``other charges'' as a
basis for disenrollment. We propose to make a technical change to Sec.
417.460(c)(3) and (c)(4) to clarify that the good cause provisions are
applicable to individuals who have been disenrolled for non-payment of
other charges (for example, deductible or coinsurance amounts), in
addition to non-payment of premiums.
4. Definition of Organization Determination (Sec. 422.566)
Based on our updated guidance, program experience, and information
collected during audits of MA organizations, we are proposing to revise
the current regulatory definition of ``organization determination'' set
forth at Sec. 422.566(b) to create a single, uniform definition. As
described later in this proposed rule, the definition of organization
determination referenced in our manual guidance (Chapter 13 of the
Medicare Managed Care Manual, section 30), required plan marketing
documents (such as the EOC), and Part C data requirements (Medicare
Part C Plan Reporting Requirements, Technical Specifications Document--
Measure 6) is more inclusive than the definition currently reflected in
this regulation.
Section 1852(g) of the Act requires MA organizations to have a
procedure for making determinations regarding whether an enrollee is
entitled to receive a health service and the amount (if any) that the
individual is required to pay for such service. Our regulations at 42
CFR part 422, subpart M codify the procedures MA organizations must
follow when processing organization determinations. Section 422.566(b)
defines which actions are considered organization determinations, but
does not currently include all types of coverage decisions made by a
provider under contract with an MA organization.
Our current manual guidance, required model EOC documents, and Part
C plan reporting requirements clarify that organization determinations
include fully favorable, partially favorable, and unfavorable decisions
made by an MA organization concerning payment or provision of an item
or a service. Additionally, requirements elsewhere in Part 422 provide
certain beneficiary protections in the MA program, including a
requirement that MA organizations provide or make payment for all
services covered by Medicare Parts A and B (see Sec. 422.101(a)), and
contract requirements that limit beneficiary financial liability for
fees that the MA organization is legally obligated to pay for services
provided by contract and non-contract providers (see Sec. 422.504(g)).
Our proposed changes would clarify what actions are included and
therefore ensure that enrollees receive required Medicare notices (for
example, notice of termination in certain healthcare settings) and due
process rights.
We are proposing to make minor modifications to regulatory language
at Sec. 422.566(b)(1) through (b)(3) to improve the uniformity of our
guidance on what actions are considered organization determinations. We
are restating these provisions for consistency within this section and
to further underscore an ``organization determination'' includes any
coverage decision--fully favorable, partially favorable, and
unfavorable--made by an MA organization concerning payment or provision
of an item or a service. At Sec. 422.566(b)(1) and (b)(2), we refer to
an organization determination as ``any determination'' by an MA
organization (that is, fully favorable, partially favorable, and
unfavorable). At 422.566(b)(3), we are proposing to replace the
reference to the MA organization's ``refusal to provide or pay'' with
reference to ``any determination not to provide or pay for'' items or
services made by the MA organization to improve consistency of the
regulatory language.
Chapter 13, section 30 of the Medicare Managed Care Manual states
that

[[Page 2011]]

approval for an item or service by the plan or its delegated entity
(that is, provision of an item or service by a contract provider, such
as inpatient admission to a contract hospital) is an organization
determination. We are also proposing to add new language to the
regulation text at Sec. 422.566(b)(6) that clarifies that a provider
under contract with an MA organization that furnishes an item or
service to an enrollee has made a favorable organization determination
on behalf of the MA organization. We believe this clarification to the
regulatory definition is necessary to clearly distinguish when a
contract provider is making an organization determination on behalf of
the MA organization from instances where a contract provider is not
making an organization determination on behalf of the MA organization.
We have repeatedly stated that a contract provider's refusal to furnish
an item or service is a treatment decision, not an adverse organization
determination made on behalf of the MA organization. In a case where a
contract provider refuses to furnish an item or service, the enrollee
has the right to request an organization determination from the MA
organization. In addition, the provider may request the organization
determination on the enrollee's behalf.
The proposed revision to the regulation text at Sec. 422.566(b)(6)
would also clarify that a service or item provided by a noncontract
provider due to a referral from a contract provider constitutes a
favorable organization determination, and therefore ensures that
enrollees would be protected by limitations on their financial
liability. (For more information, see Sec. 422.504(g) of the
regulations and Chapter 4, section 170 of the Medicare Managed Care
Manual). We stated in the January 28, 2005 final rule (70 FR 4618) that
if a network physician performs a service or directs an MA beneficiary
to another provider to receive a plan covered service (regardless of
whether the provider is following the plan's internal procedures, such
as obtaining the appropriate plan pre-authorization), the enrollee
cannot be held liable for more than applicable plan cost sharing for
those services. When a contract provider refers an enrollee out of the
network, the enrollee has a reasonable expectation that the items or
services provided by the non-contract provider will be covered by the
plan. Enrollees cannot be held to a higher standard than plan
contracting providers to adhere to plan rules.
Proposed new paragraph Sec. 422.566(b)(6) would also clarify that
a favorable organization determination has been made if: (1) The MA
organization decides to provide or pay for an item or service,
including a decision to continue providing or paying for an item or
service; or (2) a contract provider or facility, acting on behalf of
the MA organization, furnishes (or continues to furnish) an item or
service.
Together, our proposed revisions to Sec. 422.566(b) are intended
to codify our current guidance, creating a single, uniform definition
of organization determination.
5. MA Organization Extension of Adjudication Timeframes for
Organization Determinations and Reconsiderations (Sec. 422.568, Sec.
422.572, Sec. 422.590, Sec. 422.618, and Sec. 422.619)
Section 1852(g)(2) of the Act requires MA organizations to provide
for reconsideration, or review, of organization determinations within a
timeframe specified by the Secretary, but generally no later than 60
days from the date of receipt of the request for reconsideration.
Section 1852(g)(3)(B) of the Act requires MA organizations to maintain
procedures for expediting organization determinations and
reconsiderations when a physician's request indicates that applying the
standard timeframe could seriously jeopardize the life or health of the
enrollee or the enrollee's ability to regain maximum function or when,
in the case of an enrollee's request, the MA organization makes such a
determination on its own. In expedited cases, the MA organization
generally must issue its decision no later than within 72 hours of
receipt of the request. Section 1852(g)(3)(B)(iii) of the Act permits
the Secretary to extend this 72-hour decision making timeframe in
certain cases.
Our regulations at 42 CFR part 422, subpart M codify the procedures
MA organizations must follow in issuing standard and expedited
organization determinations and reconsiderations. Specifically, the
current regulations at Sec. 422.568(b), Sec. 422.572(b), and Sec.
422.590(a)(1) and (d)(1) set forth the standard and expedited
timeframes within which plans are required to process such decisions
and describe the circumstances under which plans are permitted to
extend decision making timeframes by up to 14 calendar days.
Based on information ascertained during recent MA program audits,
we have found that some MA organizations are routinely and
inappropriately invoking extensions of the adjudication timeframes for
organization determinations and reconsiderations. We have identified
circumstances in which MA organizations are routinely invoking the 14
day extension: (1) In cases where the plan lacks adequate internal
controls to ensure coverage requests are reviewed and adjudicated
within the required regulatory timeframe; and (2) in cases where the
plan is awaiting receipt of supporting clinical documentation from one
of its contract providers. We believe the current language that permits
extension of the adjudication timeframes set forth in Sec. 422.568(b),
Sec. 422.572(b), Sec. 422.590(a)(1) and Sec. 422.590(d)(2) is being
interpreted more broadly than our intent in adopting these rules.
Therefore, we propose to revise these regulatory provisions to more
clearly define our intended standard for when it is appropriate for an
MA organization to extend an adjudication timeframe.
Routinely invoking an extension of the applicable adjudication
timeframe is counter to the intent of the statutory and regulatory
requirements for timely determinations that emphasize the health needs
of the beneficiary in determining the appropriate adjudication
timeframe. Extensions should be permitted only in limited
circumstances, and only if the extension is in the enrollee's interest.
MA organizations are required by regulation to render all coverage
decisions as expeditiously as the enrollee's health condition requires.
When plans choose to subject an item or service to a prior
authorization requirement, we expect them to have the resources to
process those requests in a timely manner.
We believe MA organizations have interpreted existing regulations
to mean that there is a broader set of circumstances in which it would
be appropriate to invoke an extension than we intended, such as the
need for medical evidence from a contract provider. We are proposing to
amend the regulation text to clarify our original intent that an
extension should not be routinely invoked for any category of coverage
request, but in particular not for purposes of obtaining additional
medical evidence from contract providers. Thus, we propose to revise
the extension language in Sec. 422.568(b), Sec. 422.572(b), and Sec.
422.590(a)(1), and to add new Sec. 422.590(e), which would incorporate
and clarify existing text at Sec. 422.590(a)(1) and (d)(2) in order to
more clearly identify when it is appropriate for an MA organization to
invoke an extension of the adjudication timeframe. We also propose
revisions to Sec. 422.590(d) and redesignation of existing
subparagraphs Sec. 422.590(e) through (g) as part these changes.
First, we propose to retain the current provisions in these various
regulations

[[Page 2012]]

that permit an extension at the request of the enrollee. Additionally,
we propose to modify the current regulatory provisions that permit an
extension ``if the organization justifies a need for additional
information and how the delay is in the interest of the enrollee (for
example, the receipt of additional medical evidence from noncontract
providers may change an MA organization's decision to deny).'' Our
proposed revised language would result in two more specific provisions
permitting an extension, which we believe clarifies the intent of our
existing requirements.
Additionally, we propose language to clarify at Sec.
422.568(b)(1)(ii), Sec. 422.572(b)(1)(ii), and Sec. 422.590(e)(1)(ii)
that an extension may be justified and in the enrollee's interest due
to the need to obtain additional medical information that may result in
changing the MA organization's denial of coverage of an item or service
only from a non-contract provider. We believe the arrangement between
an MA organization and its contract providers is such that clinical
documentation should generally be readily available and that there are
mechanisms for an MA organizations to ensure that contract providers
produce necessary documentation in a timely manner (for example, via
their contract). We believe that any delay in decision-making caused by
an extension to obtain additional medical evidence from a contract
provider would be in the plan's interest but not generally in the
interest of the enrollee. Therefore, we are proposing to specify at
Sec. 422.568(b)(1)(ii), Sec. 422.572(b)(1)(ii), and Sec.
422.590(e)(1)(ii) that one circumstance in which it may be appropriate
for an MA organization to invoke an extension is when the extension is
in the enrollee's interest due to the need for additional medical
evidence from a non-contract provider only.
When the MA organization needs additional information that may
change a decision to deny coverage, it is our expectation that the MA
organization promptly solicit necessary clinical documentation in all
cases and that extension of the timeframe not be routinely invoked. It
is also our expectation that the full 14 days not be routinely taken,
even if an extension is warranted, and that all coverage requests be
reviewed, and decisions issued, as expeditiously as the enrollee's
health condition requires within that period, as required by
regulation.
In addition, we propose to include a provision (new language to be
codified at Sec. 422.568(b)(1)(iii), Sec. 422.572(b)(1)(iii), and
Sec. 422.590(e)(1)(iii)) to clarify that an extension of the
adjudication timeframe may be permitted when the extension is justified
due to extraordinary, exigent or other non-routine circumstances, and
it is in the enrollee's interest. We recognize that there may be
limited, non-routine circumstances in which the adjudication timeframe
may need to be extended even if the enrollee does not request the
extension and no additional documentation must be obtained from a non-
contract provider. We emphasize that the extension must be both: (1)
Due to extraordinary, exigent or other non-routine circumstances; and
(2) in the enrollee's interest. For example, a natural or man-made
disaster may impede a contract provider's ability to provide the MA
organization with timely clinical information, and invoking an
extension may be in the enrollee's interest if that information is
necessary to approve coverage. It is our expectation that these
exceptions would be rare. MA organizations that overuse or misuse the
authority to invoke an extension may be subject to corrective action.
In all cases where an extension is invoked, the MA organization is
responsible for documenting the justification for the extension in the
case file, complying with the requirement to notify the enrollee in
writing of the reasons for the delay, and informing the enrollee of the
right to file an expedited grievance if he or she disagrees with the MA
organization's decision to grant an extension.
In an effort to improve clarity in our guidance related to
extensions and to remove duplicative language, we have made
corresponding, technical edits to subpart M. Specifically, we are
proposing in Sec. 422.590 to remove paragraph (d)(2) and add a new
paragraph (e). To correspond with this proposed change, we propose to
update related cross-references and language accordingly. Specifically,
at Sec. 422.618(a)(1), we propose to replace the reference to Sec.
422.590(a)(1) with a reference to Sec. 422.590(e). In Sec.
422.619(a), we propose to replace the reference to Sec. 422.590(d)(2)
with a reference to Sec. 422.590(e). Also, we propose to make
corresponding changes within Sec. 422.568(b), Sec. 422.572(b), and
Sec. 422.590(d) to ensure consistency in the structure and language of
these provisions.

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

1. Two-Year Prohibition When Organizations Terminate Their Contracts
(Sec. 422.502, Sec. 422.503, Sec. 422.506, Sec. 422.508, and Sec.
422.512)
Section 1857(c)(4)(A) of the Act prohibits organizations from re-
entering the MA program in the event that a previous contract with the
organization was terminated at the request of the organization within
the preceding 2-year period, except in circumstances that warrant
special consideration. Furthermore, section 1857(e) of the Act permits
us to add contract provisions that are not inconsistent with Part C of
the Act and that we find necessary and appropriate for the
administration of Medicare Part C. We propose to amend the text and
application of regulations implementing these provisions of the Act. In
the April 15, 2010 final rule (75 FR 19678), we characterized our
current policy on the 2-year ban applicable to voluntary non-renewals
and mutual terminations as applying the ban based on plan type and
service area. We provided the following example to illustrate
application of the rule: an MA organization's non-renewal of a Private
Fee-for-Service MA plan would not prohibit the MA organization from
immediately applying for an MA HMO contract for the same service area.
Similarly, our current policy, absent this proposal, would not apply
the 2-year ban on an MA organization that non-renewed a contract in one
region from applying immediately for the same type of MA product in a
different region.
This current policy unnecessarily narrows the scope of the 2-year
prohibition and precludes us from preventing poor performing MA
organizations from reentering the MA program. We have reconsidered the
wisdom of this policy and believe that the MA program would be better
served if we applied the 2-year ban flowing from non-renewals and
mutual terminations to new contracts or service area expansions
regardless of the product type or service area of the non-renewed or
terminated contract. We note that we are retaining our ability to
exercise discretion in applying the 2-year ban when there are special
circumstances that warrant special consideration, as provided in the
current regulations text at Sec. 422.503(b)(6)(ii), Sec.
422.506(a)(4), and Sec. 422.512(e).
First, we propose to address how a non-renewal or mutual
termination of an MA contract would be treated.

[[Page 2013]]

Specifically, we propose to amend the regulation text at Sec.
422.506(a)(4) and Sec. 422.512(e) to explicitly apply the 2-year
prohibition to applications for service area expansions in addition to
applications for new contracts. These changes to Sec. 422.506 and
Sec. 422.512 would make the text of these regulations consistent with
the text at Sec. 422.503(b)(7) and Sec. 422.508(c) with regard to the
2-year prohibition imposed as a condition of a mutual termination of an
MA contract. We read the current text at Sec. 422.503(b)(7) to permit
us to deny a contract to a MA organization that has participated in a
mutual contract termination, regardless of contract type, product type,
or service area, within the past 2 years. We also note that the current
text of Sec. 422.503(b)(6) is not explicit on this point but may be
read to permit contract denials for new contracts and service area
expansions, consistent with our proposal; we intend to apply this
interpretation to the existing text at Sec. 422.503(b)(6). We also
propose to add the following sentence to paragraphs (c) and (d) of
Sec. 422.508 to make it clear that a mutual termination of a MA
contract would result in a ban of all contract types and service area
expansions: ``This prohibition may apply regardless of the product
type, contract type or service area of the previous contract.'' These
proposed amendments are in harmony with our policy, as articulated in
the preamble to the April 15, 2010 final rule (75 FR 19703) to apply
the 2-year ban consistently in the context of voluntary non-renewals
and mutual terminations.
2. Withdrawal of Stand-Alone Prescription Drug Plan Bid Prior to
Contract Execution (Sec. 423.503)
Occasionally, organizations new to Part D that have qualified for a
Medicare PDP sponsor contract withdraw their bids after we have
announced the low-income subsidy (LIS) benchmark but prior to executing
the contract for the coming plan year. These withdrawals interfere with
our administration of the Part D program, in particular the auto
assignment of LIS beneficiaries. To address this problem, we are
proposing to adopt regulatory provisions that would impose a 2-year
application ban on organizations not yet under contract with us as PDP
sponsors that withdraw their applications and bids after we have issued
our approvals. We are making this proposal under our authority at
section 1860D-12(b)(3)(D) of the Act to adopt additional contract
terms, including the conditions under which we would enter into
contracts, not inconsistent with the Part D statute.
In February of each year, we solicit applications from
organizations seeking to qualify to enter into a contract to offer
stand-alone PDPs in the upcoming plan year. These organizations, along
with current PDP sponsors who wish to continue participating in the
Part D program, submit bids in June for our review and approval. We
review these applications and bids with the expectation that, upon
approval, the organizations would enter into PDP sponsor contracts with
us in September to provide the Part D benefit for the plan year
starting the following January.
As part of the annual bid review, we calculate the LIS benchmark
for each PDP Region based on the bids for basic PDPs submitted annually
by current PDP sponsors that will operate in that region in the coming
year. Sponsors whose monthly premiums fall at or below the benchmark in
a region receive auto-enrollments from us of LIS-eligible beneficiaries
in those regions. We normally announce the LIS benchmark in late July
or early August.
In recent years, some organizations have withdrawn their
applications and bids following the announcement of the LIS benchmark.
Because these organizations withdrew prior to executing a contract, and
we cannot compel them to sign the contract, they are not subject to our
compliance or oversight authority, and nothing in our current
regulations prevents these applicants from withdrawing their
applications late enough in the process to cause significant
disruption. In contrast, when an existing PDP sponsor withdraws its
bid, we treat such an action as an election by the PDP sponsor to non-
renew its contract in that PDP Region, which renders the sponsor
ineligible to submit another application for 2 years, under our
regulations at Sec. 423.507(a)(3). We propose to make a regulatory
change to ensure equal treatment between new applicants and existing
PDP plan sponsors, which would allow us to maintain an accurate
depiction of the contracting landscape. Specifically, we propose to
amend Sec. 423.503 by adding paragraph (d) which would impose a 2-year
Part D application ban on organizations approved by CMS as qualified to
enter into stand-alone PDP sponsor contracts but which elect, after our
announcement of the LIS benchmark, not to enter into such contract and
withdraw their PDP bids. This proposed regulatory change, in effect,
would subject a withdrawing applicant to the same penalty we may apply
to an organization already under contract that elects to terminate or
non-renew its PDP contract.
It is critical that we have an accurate portrayal of the number and
type of plan benefit packages that would be available to beneficiaries
in every PDP Region, especially during the end of the summer when much
of the bid review, both the formulary and actuarial components, has
been completed. During this period, we need to confirm that there are
the required minimum number of plans available in each PDP region. We
also need accurate plan information at the end of the summer so that we
can meet the production deadlines associated with the annual election
period, including publication of the Medicare & You handbook as well as
updating the Medicare Plan Finder Web site and our payment and
enrollment systems. An applicant that withdraws its application late in
the process alters the contracting landscape, potentially disrupting
preparations we have already made, including those related to the auto
assignment of LIS beneficiaries, for the upcoming plan year.
We acknowledge that PDP plan applicants may need to withdraw their
pending contracts for a variety of legitimate business reasons. For
this reason, we afford applicants several months to withdraw their
applications, without penalty, following the application due date in
February and the bid submission deadline of the first Monday in June.
However, in adopting the proposed regulatory authority, we would place
a reasonable limit on prospective PDP sponsors' option to withdraw bids
and applications without penalty. By imposing consequences on
applicants that withdraw their bids following the announcement of the
LIS benchmark, we also would discourage any ``gaming'' of the bid
review and auto assignment processes (for example, by participating in
the bid review process until it learns that it will not qualify for
auto assignments) that can occur when applicants opt out of
participation in the PDP at the last minute.
3. Essential Operations Test Requirement for Part D (Sec. 423.503(a)
and (c), Sec. 423.504(b)(10), Sec. 423.505(b)(28), and Sec. 423.509)
We propose to create, through regulation, a new step in the
application and contracting process with newly contracted entities
operating as stand-alone PDP sponsors or MA organizations offering Part
D plans (MA-PDs). This step will be an ``essential operations'' test
which we would administer to ``newly contracted entities.'' We use the
term ``newly contracted entity'' in this preamble to describe an
organization that has

[[Page 2014]]

entered or applied to enter into a Part D contract with us for the
first time for the upcoming plan year, and neither it, nor another
subsidiary of the organization's parent organization, is offering Part
D benefits during the current benefit year. This would include
organizations that are offering EGWPs for the first time.
Currently, with the exception of the LIS readiness audits, we have
no test for assessing the effectiveness of the arrangements
organizations represent to us in their applications and bids prior to
the actual start of delivery of benefits on January 1. An essential
operations test would allow us to test whether an organization's
arrangements appear likely to allow the organization to effectively
administer its contract. We are proposing to require organizations to
pass an essential operations test either--(1) as a qualification to
contract, with failure to pass the test nullifying our approval of the
application; or (2) after contract execution as a contract requirement
but prior to the start of the benefit year, with a failure to pass the
test triggering an immediate contract termination under Sec. 423.509.
Pursuant to section 1860D-12(b)(3)(D) of the Act, which
incorporates by reference section 1857(e)(1) of the Act, we have the
authority to add contract provisions that are necessary and appropriate
to carry out the Part D program; section 1860D-11(b) provides authority
for the collection of additional information as part of the bid as we
may require to carry out the Part D program. Based on this authority we
propose adding Sec. 423.504(b)(10) and Sec. 423.505(b)(28) to include
passing the essential operations test as a condition to enter into and
a term of the Part D contract. Additionally, pursuant to our authority
at section 1860D-12(b)(3)(B) and (b)(3)(F) of the Act (which
incorporate by reference section 1857(c)(2) and (h) of the Act,
respectively, to apply to the Part D program), the current regulations
at Sec. 423.509(a) and (b)(2)(i), authorize immediate termination of
contracts with Medicare Part D plan sponsors in certain circumstances.
We believe that immediate termination would be authorized under the
standard of section 1857(h)(2) of the Act because the inability of a
plan sponsor to ensure future members' access their drug benefit, as
evidenced by failure to pass the essential operations test, would
constitute an imminent and serious risk to beneficiary health and
safety. We propose adding Sec. 423.509(a)(4)(xii) and (b)(2)(i)(D) to
subpart K to reflect this new cause for immediate termination. (Of
note, we are reorganizing Sec. 423.509(a) to group the statutory basis
for termination together followed by examples of violations that would
meet the statutory basis. This new regulation is an example of a
violation.) Additionally, we propose to explicitly include the
essential operations test as a means to evaluate Part D applicants in
Sec. 423.503(a)(1) and to add Sec. 423.503(c)(4) to subpart K to
establish failure of an essential operations test as grounds for
nullifying a CMS approval of application notice.
The heart of the Part D benefit is the sponsor's ability to process
claims for prescription drugs in real-time because, unlike health
benefits, where claims payment normally follows the delivery of
services, pharmacies require confirmation of claims payment at the
point-of-sale either from an insurer or the covered individual. Success
in Part D claims processing depends largely on the sponsor's ability to
perform enrollment, benefit administration, and claims adjudication
operations seamlessly at the point-of-sale. That is, the sponsor must
be able to do all of the following essential operations in real time
and at the point-of-sale to a satisfactory level: Identify a
beneficiary as a member of one of its Part D plans; determine whether
the drug requested is, in fact, appropriately covered under Part D (for
example, that the drug is not covered: (a) Under Part B, (b) as part of
end-stage renal disease (ESRD) treatment, or (c) as a hospice benefit);
determine the phase of the benefit the beneficiary is currently in; and
provide the pharmacy with instructions so that the beneficiary can be
charged appropriate copays/coinsurance and deductibles.
We are proposing the essential operations test and associated
regulatory changes because of our experience with certain newly
contracted entities in the Part D program that experienced significant
operational difficulties at the start of the benefit year as a result
of their inexperience administering Part D benefits. To prevent the
recurrence of this problem and ensure that new sponsors are prepared to
and actually can deliver Part D benefits at an acceptable level,
starting with the 2015 contract year application cycle, we propose that
we may require newly contracted entities to pass an essential
operations test conducted by us beginning in the fall of 2014.
Often these newly contracted entities have little or no prior
experience in administering health and drug benefit plans.
Unfortunately, by the time deficiencies in the sponsor's operations and
ability to provide the Part D benefit become apparent (typically when
we receive complaints about significant numbers of inappropriately
rejected claims at the pharmacy), the sponsor has already executed an
agreement with us, which has prevented us from moving quickly to remove
the sponsor from the program and prevent further beneficiary harm. In
these instances, we have found it necessary to provide inordinate
amounts of resource-intensive technical assistance to sponsors that
were not prepared to effectively administer Part D benefits when they
signed their contract. The essential operations test would help to
prevent the recurrence of problems of this nature.
The essential operations test for newly contracted entities would
entail testing of sponsors' command of Part D benefit administration
rules and systems related to these areas. Initially, the testing would
consist of scenario testing with sponsors' key staff to show us that
they have a firm grasp of the Part D policies and essential operations.
The test would be able to verify whether an applicant's administrative
and management arrangements, as attested to in its application, are
sufficient for the applicant to carry out functions listed in Sec.
423.504(b)(4)(ii) such as furnishing prescription drug services and
implementing utilization management programs.
Provided we have the resources, in the future, the test would
likely become significantly more sophisticated and involve live testing
of sponsors' systems with test data. The more involved test would also
likely include testing the processes related to enrollment such as MARx
communication and processing; LIS processing and determinations;
coverage determinations, appeals, and grievances (CDAG) processing; and
real-time coordination of benefits data exchange and processing. For
instance, the sponsor would need to demonstrate the ability to pay test
claims correctly in real-time consistent with its CMS-approved benefit
packages (including formulary) and the Part D transition fill policy.
The timing of the essential operations test must fit within the
timeline of the annual Part D contracting process, which is driven
largely by the bid deadline and plan election period dictated by
statute. In preparation for an upcoming benefit year beginning on
January 1, we must solicit and review applications from organizations
seeking a MA-PD or PDP sponsor contract in February of the preceding
year. We issue application determinations (that is, approval or denial)
in May. All existing Part D sponsors and new applicants must submit
their plan

[[Page 2015]]

benefit package (PBP) bids (including formularies) in June. Then, we
complete the bid review approval and negotiation processes at the end
of August. Once we have approved the submitted bids, sponsors can then
execute their contracts with us. Historically, we have executed all
contracts by mid-September so we can finalize preparations for the
marketing season, which begins on October 1, and the annual election
period (AEP), which begins on October 15. These preparations include
publishing the Medicare & You handbook in September, which lists
approved plans; releasing the Medicare Plan Finder Web site using plan-
specific data; reviewing and approving sponsors' marketing materials;
and granting sponsors access to our enrollment systems.
In contrast to an audit, the application process currently only
requires that sponsors demonstrate to us that they have the necessary
legal arrangements in place (for example, a risk-bearing license,
executed contracts with first-tier and downstream entities, pharmacy
network descriptions, etc.). Likewise, bid and formulary approvals
indicate that the plans to be offered by the new sponsor are acceptable
to us, not that the sponsor will necessarily be successful in
implementing those plans.
Under our current schedule, the essential operations test we
propose to require as part of the application and contracting process
would occur after contracts are signed in September but before the
start of the benefit year on January 1. We would most likely complete
the tests by November 15. In the future, we aim to conduct the
essential operations tests prior to signing contracts with applicants
which is why we are also proposing to add passing the test as a
qualification to contract. Ultimately, in the event of an organization
failing the test, we would apply the appropriate proposed regulatory
provision based on the timing of the test administration.
a. Failing Essential Operations Test as Cause for Immediate Termination
Once a sponsor signs its contract, it is obligated to perform all
of the required functions to support the benefits described in the
contract even though the sponsor does not start offering benefits until
January 1. Given the volume of preparations and tight resource
constraints between our approving bids in late August and the start of
the AEP in October, the first opportunity we currently have to devote
resources to the essential operations test is most likely in late
September to November. We are currently not likely to be in the
position to conduct essential operations tests prior to contracting
because it would be challenging to conduct the test prior to approving
the benefit structure against which we would test a sponsor's ability
to process claims accurately. If we find that a sponsor does not have
the requisite systems and processes in place to offer Part D benefits
in real-time, we would consider this cause for immediate termination of
the sponsor's Part D contract in order to protect beneficiaries from
harm at the start of the contract year.
Pursuant to section 1857(h)(2) of the Act (incorporated by
reference into PDP by section 1860D-12(b)(3)(F) of the Act), we have
the authority to immediately terminate a contract with a sponsor
(without notice and opportunity for a hearing) when a delay in
termination would pose an imminent and serious risk to the health of
beneficiaries enrolled in the sponsor's plans. Also, under Sec.
423.509(b)(2)(i) and Sec. 423.652(b)(2), unlike standard CMS
terminations, the effective date of an immediate termination is not
stayed when the sponsor requests a hearing under Sec. 423.650(a)(2).
Because enrollment and accurate benefit administration through real-
time claims processing are so fundamental to the delivery of the Part D
benefit, if a sponsor fails to demonstrate to us that it can perform
these essential operations, we would view this as a substantial failure
to meet the Part D contract requirements on the following grounds: (1)
Evidence that the sponsor was carrying out the contract in a manner
that was inconsistent with the effective and efficient administration
of the plan; and (2) evidence that the sponsor did not substantially
meet the applicable conditions set out in the Part D regulations which
would ultimately justify, depending upon timing of the test, our
termination of a contract consistent with Sec. 423.509(a)(1) through
(3) based on the sponsor's failure to meet our proposed contract terms
at Sec. 423.504(b)(10) and Sec. 423.505(b)(28). We believe that a
newly contracted entity's failure to demonstrate certain critical
capabilities and failing the essential operations test represents a
substantial failure to carry out its Part D contract and is evidence
that the sponsor is not prepared to carry out the contract in a manner
that is consistent with the efficient and effective administration of
the Part D program. Such a failure poses an unacceptable risk to the
new sponsor's future members' access to Part D drugs, which would
constitute an imminent and serious risk to beneficiary health and
safety, justifying our immediate termination of the sponsor's contract.
For MA organizations that must offer Part D benefits pursuant to Sec.
423.104(f)(3)(i), failing the test would support the termination of the
organization's Part D addendum as well as its MA contract under Sec.
422.510(a)(3) because the inability to offer Part D benefits means that
the organization no longer meets the applicable conditions associated
with offering Part C benefits.
Given our experience with sponsors' abilities to resolve systemic
systems problems in a timely manner, we believe that sponsors that fail
the test would most likely not have sufficient time before the start of
the benefit year to remedy the breadth and magnitude of the failures we
would have identified during the test. Even if the sponsor attested
that it had corrected problems we identified, we would not have time to
conduct a second test to validate the sponsor's corrections prior to
the start of the new benefit year. Simply put, we believe the risk of
harm to enrollees' health and safety is too great to move forward with
a sponsor that has such significant and critical problems so close to
the start of the plan year. Thus, an immediate termination of the
contract before the start of the year would be the only way to protect
beneficiaries and ensure successful operation of the Part D program by
absolving the sponsor and us of the responsibilities in the contract.
b. Failing Essential Operations Test as Failure of a Qualification to
Contract and Grounds for Nullification of Approval
If an organization fails an essential operations test we conducted
prior to contract signature, no termination would be necessary as we
would simply nullify our previous conditional approval of the
organization's Part D contract qualification application. Section
423.503(a) describes the mechanisms we use to evaluate an applicant and
determine whether the applicant is qualified to contract. These
mechanisms currently include application review and on-site visits. The
general term ``on-site visit'' is used to describe interactions with
applicants that include our visiting the applicant's facility and vice
versa, either in person or virtually. We are proposing to explicitly
include the essential operations test as a qualification to contract at
Sec. 423.503(a)(1) to authorize our use of the test and any
information learned in the course of the essential operations test in
making the contract determination. Our experience over the

[[Page 2016]]

past few years with newly contracted entities that have passed the
paper-based application, but failed to have fully-functional
administrative and management arrangements in place to effectively
offer benefits in January, has demonstrated to us that implementing an
essential operations test is key to the successful administration of
the Part D program for all beneficiaries.
We would view failure of the essential operations test as a
determination that the applicant would not be qualified to contract
with us. As a result, we would nullify our approval on that basis.
Successful applicants receive a conditional approval at the end of May
of their Part D application pursuant to Sec. 423.503(c)(1). The letter
informs applicants that the conditional approval is based on the
information contained in their application, and if we subsequently
determined that any of the information was inaccurate or that
qualification requirements are not met, we would withdraw the approval
of the application. Through that notice, we preserve the right to
nullify our approval. If that occurs, we would not provide appeal
rights described in subpart N to applicants that have their approval
nullified based on failing the essential operations test.
We are proposing to not afford applicants appeal rights because CMS
would not be able to conduct the appeals process provided for in Part
423, Subpart N, within the timeframe imposed by Sec. 423.650(c), which
requires CMS to have all contract application appeals decided by
September 1 for contracts to be effective on January 1 of the following
year. We could not conduct a test in late August, find that the
applicant failed the test, and move through a fair appeal process for
both parties in less than 2 weeks. Therefore, we would not afford
appeal rights to applicants that fail the test prior to contracting
under our proposal.
4. Termination of the Contracts of Medicare Advantage Organizations
Offering PDP for Failure for 3 Consecutive Years To Achieve 3 Stars on
Both Part C and Part D Summary Star Ratings in the Same Contract Year
(Sec. 422.510)
In the final rule adopted April 12, 2012 (77 FR 22168), we set
forth at Sec. 422.510(a)(14) and Sec. 423.509(a)(13) that a Medicare
contracting organization's consistent failure to achieve at least a 3-
star summary star rating for 3 consecutive years provides a sufficient
basis for us to make a decision to terminate our contract with a MA
organization or stand-alone PDP sponsor. This termination standard was
based on the criteria we used then to mark low-rated contracting
organizations with a ``low performing icon (LPI)'' on the Medicare Plan
Finder Web site. Recently, we revised our LPI assignment criteria for
MA organizations that offer PDP benefits (MA-PDs) to more accurately
reflect their contract performance. We propose here to revise the
contract termination regulation related to consistent low star ratings
to reflect the new LPI assignment methodology announced in the contract
year 2014 Call Letter. Specifically, we are proposing to modify our
existing authority at Sec. 422.510(a) \3\ by clarifying that MA-PD
organizations that do not achieve at least 3 stars in both their Part C
and D ratings in the same year for 3 consecutive years may be subject
to termination.
---------------------------------------------------------------------------

\3\ Elsewhere in this proposed rule, we proposed to reorganize
and renumber Sec. 422.510(a). The discussed provision is current
codified at Sec. 422.510(a)(14) but we are proposing to redesignate
it as Sec. 422.510(a)(4)(xi).
---------------------------------------------------------------------------

In the April 12, 2012 final rule (77 FR 22072), we finalized the
contractual requirement at Sec. 422.504(a)(18) and Sec.
423.505(b)(25) that MA organizations and PDP plan sponsors attain each
year summary ratings of at least 3 stars (the ``average'' performance
rating). We explained that, because the star rating calculations are
based on an organization's performance across a wide array of
operational measures, the summary star ratings are an accurate
indicator of the extent to which the organization has in place
effective administrative and management arrangements necessary to
administer Part C and Part D benefit plans, as required under Sec.
422.504(a)(17) and Sec. 423.505(b)(24).
We further established, as part of the same rulemaking, our
authority at Sec. 422.510(a)(14) and Sec. 423.509(a)(13) to terminate
the contracts of organizations offering MA and stand-alone PDPs when
those organizations fail to achieve at least 3 stars on either their
Part C or Part D summary rating for at least 3 consecutive years. At
the time, we stated that since the measures that make up the star
ratings provide evidence of the sufficiency of a contracting
organization's administrative and management capability, it was
reasonable for us to conclude that an organization receiving a summary
rating below 3 stars for 3 consecutive years had substantially failed
to meet that requirement, providing us justification for terminating
the contract of that organization. We also explained that 3 consecutive
years was sufficient time for sponsors to analyze the underlying causes
of their low ratings and take corrective action that would result in at
least a 3-star summary rating. The rulemaking also called for an MA-PD
organization's Part C summary rating to be tracked separately from its
Part D summary rating. That is, we could terminate an MA-PD
organization contract if it failed for 3 straight years to achieve at
least a 3-star Part C summary rating, regardless of its Part D summary
ratings. Similarly, we could terminate the same organization if it
failed to achieve at least a 3-star Part D summary rating for 3
straight years, regardless of its Part C performance. Since in most
instances an MA organization must also offer Part D benefits,
consistently low Part D summary ratings justify a termination of the
entire MA-PD contract since the organization could no longer meet its
obligation to offer Part D benefits. We stated that we would allow a 3-
year transition period before we would begin using the star rating-
based termination authority to issue termination notices to any
sponsors whose performance met the criteria in late 2014 with an
effective date of January 1, 2015.
At the time we adopted this regulation, we identified certain
organizations on the Medicare Plan Finder (MPF) Web site as
consistently low performing organizations with the display of the LPI
next to the organization's other plan information. In the contract year
2014 Call Letter released in April 2013, we announced a change in the
methodology for assigning the LPI mark to plan sponsors. On page 105 of
the notice, we noted that some stakeholders had raised concerns that
MA-PD contractors could switch back and forth from poor performance on
Part C to poor performance on Part D from year to year without ever
being identified as a poor performer and marked with the LPI. We noted
that such a situation was potentially misleading to beneficiaries, and
we decided to address the matter by revising, effective in 2014, the
criteria for the assignment of the LPI indicator to those organizations
that fail for 3 consecutive years to achieve both Part C and Part D
summary ratings of at least 3 stars in the same year for 3 consecutive
years. We concluded this announcement by observing that MA-PD
organizations are responsible for providing adequate care and services
across both Part C and Part D and that the LPI methodology change
encourages consistent improvement in the quality of care by MA-PD
organizations across all of the Part C and Part D measures.
We believe that the justification for the change in the LPI
methodology also requires a change in the way we would

[[Page 2017]]

apply the standard for MA-PD contract termination based on star rating
performance. The performance of an MA-PD organization must be assessed
across the totality of its obligations under its Medicare contract.
Organizations should not be permitted to target their compliance
efforts from year to year on alternating sets of contract requirements,
just barely meeting our minimum requirements in order to stay one step
ahead of our enforcement authorities. Beneficiaries rightly expect
quality in the delivery of all of their Medicare benefits, covering
both health care and prescription drugs. MA-PD organizations that
alternate their low star ratings from year-to-year between Part C and
Part D are in fact subjecting their members to substandard performance
every year. This is an unacceptable outcome that does not promote the
best interests of Medicare beneficiaries.
If an MA-PD organization is not able to achieve at least an
``average'' star rating across all of its Part C and Part D operations
in at least 1 year out of 3, it would become clear that the
organization had both substantially failed to meet the administrative
and management requirements of a Medicare contractor and could not take
effective corrective action over the same 3-year period.
The artificiality of the division between Part C and Part D star
rating performance becomes apparent when one notes the extent to which
the measures for each part assess the MA-PD organization's performance
of similar functions or responsibilities. According to the most recent
methodology we used to calculate star ratings, ``The Medicare Health &
Drug Plan Quality and Performance Ratings--2013 Part C & Part D
Technical Notes,'' (http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/PerformanceData.html) the Part C
measures are divided into 5 domains and the Part D measures into 4.
Three of the Part C domains are virtually identical to those of Part D,
with variations where necessary to reflect differences in terminology
and features between health and drug plans. For example, Domain 1 for
Part D, ``Drug Plan Customer Service,'' consists of measures that
largely correspond to those of Part C's Domain 5, ``Health Plan
Customer Service.'' Both contain measures that reflect call center
performance (including foreign language availability) and processing of
appeals. The Part D Domain 2, ``Member Complaints, Problems Getting
Services, and Improvement in the Drug Plan's Performance,'' measures an
organization's performance in largely the same categories as Part C's
Domain 4, ``Member Complaints, Problems Getting Services, and
Improvement in the Health Plan's Performance.'' Both domains consist of
measures that reflect beneficiaries' complaints about the plan, their
access to benefits, their decision to leave the plan, and the plan's
quality improvement. Domain 3 of both the Part C and Part D measures
are entitled ``Member Experience with the Health/Drug Plan'' and
reflect plan members' experience with their plans such as assessment of
their ability to access covered services (needed prescription drugs in
the case of Part D, physician appointments, and coordination of care in
the case of Part C). Domain 4 for Part D, ``Patient Safety and Accuracy
of Drug Pricing,'' corresponds to Part C's Domain 1, ``Staying Healthy:
Screenings, Tests and Vaccines,'' and Domain 2, ``Managing Chronic
(Long Term) Conditions,'' in that they all capture an MA-PD
organization's attention to the clinical impact of the Medicare
services they provide to their members. The Part D measures in Domain 4
reflect the extent to which plan members maintain adherence to their
medication regimens and receive prescriptions for high risk
medications. The Part C Domains 1 and 2 address clinical performance as
it is carried out by a health plan, including the extent to which it
has conducted screenings of its members for breast cancer, colorectal
cancer, and high cholesterol and manages long term conditions such as
diabetes, high blood pressure, and rheumatoid arthritis.
The similarity in the Part C and Part D measures means that the
operations associated with these 2 programs are not so different as to
justify separate Part C and Part D analyses of MA-PD organization's
delivery of Medicare benefits to the same set of beneficiaries in the
same service area. MA-PD organizations do not contract with us to
provide separate Part C and Part D benefits. Rather, it is more correct
to say that their contract obligates them to provide effective customer
service, access to care, and promote clinical outcomes across the
entire range of Medicare benefits. Therefore, the better way to assess
an MA-PD organization's administrative and management compliance is not
to see whether it can meet Part C or Part D requirements, but whether
it can meet the customer service, access to care, and clinical
performance requirements in the delivery of all types of Medicare
benefits. The only way to accurately measure the performance of such
functions is to examine the organization's ratings in the Part C and
Part D measures in the related domains. For example, an MA-PD
organization cannot be said to be providing satisfactory customer
service to its members if it achieves a 3-star rating in only its Part
C operations.
Therefore, we propose to revise Sec. 422.510(a) \4\ to clarify
that MA-only contracts are subject to CMS termination when they fail
for 3 consecutive years to achieve a Part C star rating of at least 3
stars. Additionally, we propose to add a subparagraph to Sec.
422.510(a) to establish as a basis for termination of MA-PD contracts
the failure for 3 consecutive years of the contract to achieve at least
3 stars in both its Part C and D ratings in the same year. When we
first adopted the star rating-based contract termination authority in
April 2012, we stated that we would afford organizations a 3-year
transition period before we would use that authority to make contract
termination decisions. This period was necessary to allow organizations
to make adjustments to their operations to reflect the dramatic
increase in the consequences associated with low star rating
performance created by our new termination authority. Accordingly, the
regulation states that we may use only those star ratings issued after
September 1, 2012, to make a decision to terminate a contract based on
consistently low star ratings. Thus, organizations that fail to achieve
at least a 3-star rating upon the release in September 2014 of the 2015
ratings would be the first group of Medicare contractors eligible for
termination under our new authority. We are not proposing to extend
this grace period as part of this proposed adjustment to the current
policy, because there is no reason why failures under the current
regulations (which contain the ``loophole'' we are closing here) should
not count towards the 3-year mark along with failures under the revised
standard once in place.
---------------------------------------------------------------------------

\4\ Elsewhere in this proposed rule, we would reorganize and
renumber Sec. 422.510(a) and Sec. 423.509(a) to better reflect the
bases for contract termination in connection with our statutory
authority to terminate. Using the current numbering, this proposal
would be codified as Sec. 422.510(a)(14) but under our proposal
here, it would be codified as Sec. 422.510(a)(4)(xi).

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

[[Page 2018]]

III. Provisions of the Proposed Regulation

E. Implementing Other Technical Changes

1. Requirements for Urgently Needed Services (Sec. 422.113)
Our regulations at Sec. 422.113(b) require MA organizations to
cover urgently needed services furnished outside a plan's service area
or contracted network of providers when the enrollee is in need of such
services but is outside of the service area or is in the service area
but the plan network is temporarily unavailable due to extraordinary
and unusual circumstances. Further requirements built in to the
definition of ``urgently needed services'' specify additional criteria
for out-of-network coverage of these services: (1) The need for
services was a result of unforeseen illness, injury or condition; and
(2) it is not reasonable, given the circumstances, for the enrollees to
obtain the services through the organization offering the MA plan.
In the preamble to our June 29, 2000 final rule implementing the
current requirements (65 FR 40199), we clarified the intended meaning
of ``extraordinary and unusual circumstances'' as ``an earthquake or
strike.'' However, it is our experience in administering the MA program
that there are other much less severe circumstances in which the plan
network may be unavailable or inaccessible to an enrollee who is in the
authorized service area and needs immediate care due to an unforeseen
illness, injury or condition. Examples of such circumstances include
the need for urgent care outside of the network's business hours, (for
example, during the weekend or at night).
Many MA plans have responded to the need for urgently needed
services by contracting with clinics that have hours of operation well
beyond those of traditional physicians' offices to furnish services to
their enrollees when the plan network is not available.
To better align the regulations with current practices regarding
access to urgently needed care services, we are proposing to revise the
regulation by removing the phrase ``under extraordinary and unusual
circumstances'' at Sec. 422.113(b)(1)(iii). The proposed regulatory
language would read as follows:
(iii) Urgently needed services means covered services that are not
emergency services as defined in this section, provided when an
enrollee is temporarily absent from the MA plan's service (or, if
applicable, continuation) area (or provided when the enrollee is in the
service or continuation area but the organization's provider network is
temporarily unavailable or inaccessible) when the services are
medically necessary and immediately required--
2. Skilled Nursing Facility Stays (Sec. 422.101 and Sec. 422.102)
Under section 1814(a)(2)(B) of the Act, Medicare Part A generally
only covers skilled nursing facility services (SNF) following a
qualifying 3-day hospital stay. However, under section 1812(f) of the
Act, we may authorize Part A coverage of SNF care without a prior
hospital stay if two conditions are met. First, the coverage of these
services must not result in any increase in Medicare program payments,
and second, the coverage must not alter the acute care nature of the
benefit. For reasons discussed later in this proposed rule, in an
August 22, 2003 final rule (68 FR 50847), we exercised this authority
under section 1812(f) of the Act with respect to SNF services covered
under MA plans.
The reason that we took this step is that, in the absence of this
exercise of this authority, MA organizations could only cover SNF
services without a 3-day prior hospital stay as a supplemental benefit.
In such a case, if an MA enrollee is in a SNF pursuant to such coverage
in the middle of a 100-day covered stay, and disenrolls from the MA
plan, or the MA plan is terminated or non-renewed during such a stay,
the beneficiary would lose SNF coverage, as it would not be covered
under Medicare Part A because it would not have met the condition for
coverage of a 3-day prior hospital stay. By exercising the authority
under section 1812(f) of the Act to make the stay a Part A covered
benefit, the stay would remain covered even if the individual is no
longer enrolled in the MA plan.
Our determination that SNF services provided by MA organizations
without a 3-day prior hospital stay met the two tests in section
1812(f) of the Act was based on the fact that MA organizations are paid
a monthly per-Medicare enrollee payment to provide all contracted
services. Thus, Medicare costs would not be affected by permitting SNF
services to be covered by Medicare without the prior 3-day hospital
stay for so long as the beneficiary was enrolled in the MA plan because
the plan is paid a fixed amount without regard to services received. We
determined that this would provide incentives for the MA organizations
to provide care more cost effectively. Some evidence at the time
indicated that MA organizations, particularly coordinated care plans,
could shorten hospital stays and shift patients to post-acute or
subacute settings, such as SNFs, more quickly than under the original
Medicare program. If SNF care is the appropriate level of care, MA
organizations are then able to use SNF care rather than more expensive
hospital care for similar patients requiring posthospital care. For
some patients and diagnoses, the MA organization is able to bypass the
hospital stay and admit the beneficiary directly to a SNF.
Because the previously discussed rulemaking exercised authority
under section 1812(f) of the Act to authorize Part A coverage in the
absence of an otherwise-required 3-day prior hospital stay, the
regulations addressing ``basic benefits'' (which include benefits under
Part A) at Sec. 422.101 were revised to include provision for this
Part A coverage at Sec. 422.101(c).
Notwithstanding the fact that, when the option under Sec.
422.101(c) is elected by an MA organization, the services are covered
under Part A, at least some MA organizations did not include the costs
of such stays in the Part A portion of their adjusted community rate
(ACR) submissions, and in later years, in their bids. Rather, they
continued to treat these Part A-covered services as ``supplemental
benefits.'' We understand why MA organizations did this, as the
services (other than in the case described previously when an MA
enrollee receiving such services is no longer enrolled in an MA plan
covering them) would not be covered under Part A if the enrollee were
not enrolled in the MA plan. However, because of the section 1812(f) of
the Act waiver, these services technically were services ``covered
under Part A,'' included under Sec. 422.101(a), not supplemental
benefits under Sec. 422.102.
We had determined in promulgating the August 2003 final rule that
the services in this situation had to be treated as covered under Part
A in order to protect coverage for a beneficiary who changes from MA
coverage to original Medicare coverage mid-stay. However, in light of
the fact that MA organizations have, over a period of years, been
treating these benefits as supplemental benefits, we have determined
that we can protect a beneficiary in the situation described without
requiring an MA organization to include a SNF stay without a 3-day
prior hospitalization as a Part A benefit under its MA plan by
modifying our exercise of section 1812(f) of the Act authority to waive
the 3-day prior hospitalization requirement only in cases in which an
MA enrollee receiving SNF services without a 3-day

[[Page 2019]]

prior hospital stay changes from coverage under the MA plan to Medicare
coverage under Original Medicare (or another MA plan that does not
cover such stays as a supplemental benefit). This addresses the concern
we were addressing in our August 2003 final rule without requiring MA
organizations to change their treatment of this MA plan benefit.
In order to effectuate this proposed change in the scope of our
section 1812(f) waiver, we are proposing to move the provision
describing an MA organizations' authority to furnish covered SNF stays
without the qualifying inpatient hospital stay required under original
Medicare to a new Sec. 422.102(f) in the section of the regulations
governing supplemental benefits.
We also propose to make a conforming revision in the cross-
reference to this provision that currently appears at Sec.
409.30(b)(2)(ii), to--(1) reflect this provision's relocation from
Sec. 422.101 to Sec. 422.102; and (2) reflect the fact that the Part
A coverage provided for thereunder is not for the entire ``duration of
the SNF stay'', but only for the period after the individual is no
longer enrolled in the MA plan offering the coverage of the SNF stay as
a supplemental benefit.
3. Agent and Broker Training and Testing Requirements (Sec. 422.2274
and Sec. 423.2274)
Pursuant to our authority under sections 1851(h)(2), 1860D-
1(b)(1)(B)(vi), 1851(j)(2)(E), and 1860D-4(l)(2) of the Act, we
previously codified agent and broker training and testing requirements
at Sec. 422.2274(b) and (c) and Sec. 423.2274(b) and (c) to require
all agents and brokers selling Medicare products be trained and tested
annually through a CMS endorsed or approved training program, or as
specified by us, on Medicare rules and regulations specific to the plan
products they intend to sell.
Since the training and testing requirements were implemented, we
have embarked on various activities to improve and ensure the efficacy
of training and testing. Specifically, we launched an online training
and testing pilot in 2009 to increase understanding of the standardized
Medicare program requirements. Although the pilot was successful, our
ability to accommodate all agents and brokers nationally is limited and
maintaining the training and testing module requirements creates a
significant financial burden. Additionally, endorsing other entities
limits our oversight of training and testing information, and assurance
of consistency among program requirements. Moreover, through our
monitoring efforts, we have found that MA organizations and Part D
sponsors are complying with the annual guidance released by us.
Specifically, we found that plans provided adequate detail on the level
of information that must be covered in agent and broker training and
testing materials. As a result, we propose to revise Sec. 422.2274(b)
and (c) and Sec. 423.2274(b) and (c) to accomplish several things (i)
remove CMS endorsed or approved training and testing as an option; (ii)
require that agents and brokers be trained annually on Medicare rules
and regulations; and details specific to the plan products they intend
to sell: And (iii) require agents and brokers to be tested annually to
ensure appropriate knowledge and understanding of the training topics.
We believe this proposed change continues to ensure that all agents and
brokers selling Medicare products have a comprehensive understanding of
Medicare program rules. We previously proposed (see the provisions for
``Reducing the Burden of the Compliance Program Training Requirements
(Sec. 422.503(b)(4)(vi)(C) and Sec. 423.504(b)(4)(vi)(C)'') to
require a standardized compliance training program. Under those
provisions, MA organizations and Part D sponsors will not be permitted
to develop and implement plan specific training materials or
supplemental materials. The proposed change in this section is
exclusive to the requirements for conducting marketing activities under
the MA and Part D program.
4. Deemed Approval of Marketing Materials (Sec. 422.2266 and Sec.
423.2266)
Sections 1851(h) and 1860D-1(b)(1)(B)(vi) of the Act establish the
requirements regarding the review and approval of marketing materials
created by MA organizations and Part D sponsors. Sections Sec.
422.2266 and Sec. 423.2266 provide the regulatory requirements for
materials that are deemed approved. If we have not disapproved the
distribution of marketing materials and forms submitted by an MA
organization or Part D sponsor with respect to the plan in the area, we
are deemed not to have disapproved in all other areas covered by the MA
organization or Part D sponsor except with regard to any portion of the
material or form that is specific to the particular area. Sections
Sec. 422.2262 and Sec. 423.2262 also provide the requirements for the
review and distribution of marketing materials. The provisions stated
in Sec. 422.2266 and Sec. 423.2266 are also part of the review and
distribution process of marketing materials, and therefore should be
moved to align with the requirements in Sec. 422.2262 and Sec.
423.2262. Therefore, we propose moving the substance of the current
requirements in Sec. 422.2266 and Sec. 423.2266 to Sec. 422.2262
(a)(2) and Sec. 423.2262(a)(2), respectively. We propose reserving
Sec. 422.2266 and Sec. 423.2266.
In addition, we also believe that the current regulatory
requirements in Sec. 422.2266 and Sec. 423.2266 do not clearly state
when and to what extent marketing materials are considered deemed
approved. Therefore, we propose to simplify the language presently
contained in Sec. 422.2266 and Sec. 423.2266 by stating, ``if CMS
does not approve or disapprove marketing materials within the specified
review timeframe, the materials will be deemed approved. Deemed
approved means that an MA organization or Part D sponsor may use the
material.'' We believe this change clarifies the present regulatory
requirement for deemed marketing materials.
5. Cross-Reference Change in the Part C Disclosure Requirements (Sec.
422.111)
Prior to the publication of subpart V, Medicare Marketing
Requirements, marketing-related rules were found in subpart B,
Eligibility, Election, and Enrollment. These rules (codified in Sec.
422.80) included review of marketing materials and election forms. With
the publication of our September 18, 2008 final rule (73 FR 54208), the
marketing-related requirements were moved into the new subpart V and
Sec. 422.80 was removed. Since that time, we have discovered an
incorrect cross-reference to Sec. 422.80 at Sec. 422.111(d)(1) for
procedures MA organizations must follow when submitting its rules
changes to us for review. The correct reference should be subpart V,
Medicare Advantage Marketing Requirements. We are proposing in these
regulations to correct the reference contained in Sec. 422.111(d)(1).
6. Managing Disclosure and Recusal in P&T Conflicts of Interest:
Formulary Development and Revision by a Pharmacy and Therapeutics
Committee Under Part D (423.120(b)(1))
Section 1860D-4(b)(3)(A)(ii) of the Act requires Part D sponsors
who use formularies to include on their P&T committees at least one
practicing physician and at least one practicing pharmacist, each of
whom is independent and free of conflict with respect to the sponsor
and the plan and who has expertise in the care of elderly or disabled
persons. In our August 3,

[[Page 2020]]

2004 proposed rule (69 FR 46659), we proposed to interpret
``independent and free of conflict'' to mean that such P&T committee
members could have no stake, financial or otherwise, in formulary
determinations. In our January 28, 2005 final rule (70 FR 4256), we
adopted this interpretation, and clarified that we would consider a P&T
committee member not to be free of conflict of interest if he or she
had any direct or indirect financial interest in any entity--including
Part D plans and pharmaceutical manufacturers--that would benefit from
decisions regarding plan formularies.
In a recent report (``Gaps in Oversight of Conflicts of Interest in
Medicare Prescription Drug Decisions,'' OEI-05-10-00450), the HHS OIG
recommended improvements in our requirements for Part D plan P&T
committees. Specifically, the OIG report recommended that we establish
minimum standards to ensure that these committees have clearly
articulated and objective processes to determine whether disclosed
financial interests are conflicts and to manage recusals due to
conflicts of interests. The OIG report also suggested that we tell
sponsors that they need to designate an objective party, such as a
compliance officer, to flag and enforce the necessary recusals. In
other words, the identification and evaluation of whether a disclosed
financial interest represents a conflict of interest should be made by
a knowledgeable and accountable representative of the sponsor's
organization, such as the compliance officer, and not solely by the P&T
committee members themselves. We concurred that P&T committees should
have clearly articulated and objective processes to determine whether
disclosed financial interests are conflicts, and to manage recusals
arising from any such conflicts. Therefore, to address these
recommendations, we propose to revise our formulary requirements
pertaining to development and revision by a P&T committee at Sec.
423.120(b)(1) to make it clear that the sponsor must establish such
processes. Moreover, we propose that these processes must be clearly
articulated and documented, and enforced by an objective party.
In our response to the OIG report, we noted that statutory and
regulatory provisions (section 1860D-4(b)(3) of the Act and 42 CFR
Sec. 423.120(b)) indicate that it is the plan sponsor's responsibility
to meet the formulary requirements, which include development of these
processes. We also noted that we believe the agency's current Part D
formulary review provides appropriate protections to beneficiaries from
any adverse effects resulting from potential conflicts of interest. The
agency thoroughly reviews Part D formularies to prevent discrimination
against Medicare beneficiaries based on age, disease, or setting in
which they receive care. The review process ensures inclusion of a
broad distribution of therapeutic categories and classes by using
reasonable benchmarks to ensure drug lists are robust. Further, we
ensure that cost-sharing levels and utilization management strategies
are appropriate and non-discriminatory. We identify potential outliers
at each review step for further investigation and require reasonable
clinical justification when outliers appear to create beneficiary
access problems. We devote extensive resources to plan formulary
oversight--and reserve the right to reject any formulary--to ensure
compliance with industry best practices for formulary development and
to ensure beneficiaries' access to clinically appropriate therapies.
Therefore, if a P&T committee, while operating under a potential
conflict of interest were to create a formulary representative of such
conflicts, the formulary would likely be discriminatory. Because a
discriminatory formulary would not be approved, the only potential
impact we can envision would be that the bid could be more expensive
and, therefore, less competitive. However, in this case, beneficiaries
could easily evaluate these higher premiums in the marketplace and
choose a more efficient plan to meet their needs. As a result, we would
expect that, given our level of formulary review, a conflict of
interest in the P&T committee would disadvantage the sponsor rather
than the beneficiary or the Medicare program.
We have also been asked to consider whether the practicing
physician and the practicing pharmacist on the P&T committee who must
be free of conflict of interest from Part D plans and pharmaceutical
manufacturers should also be free of conflict of interest from Pharmacy
Benefit Managers (PBMs). As discussed previously, we believe that our
current formulary review process confers appropriate protections to
beneficiaries from any potential adverse effects of conflicts of
interest. Additionally, we have devoted extensive resources to the
oversight of plan formularies and audit of P&T committee proceedings to
ensure that they comply with industry best practices for development
and management, and ensure beneficiaries' access to clinically
appropriate therapies.
P&T committees must first base their clinical decisions on the
strength of scientific evidence and standards of practice, including
assessing peer-reviewed medical literature, pharmacoeconomic studies,
outcomes research data, and other such information as it determines
appropriate, consistent with the program goal of maintaining a
competitive market. Therefore, given that sponsors must balance both
quality and costs in developing formularies, and that PBMs are the
entities that negotiate for price concessions on behalf of sponsors, we
believe that it is appropriate that PBMs have an interest in formulary
decisions. However, we solicit comment on the pros and cons of defining
PBMs as entities that could benefit from formulary decisions from which
one practicing and one practicing pharmacy on the P&T committee must be
free of conflict of interest.
As discussed previously, we believe the potential effects of
conflicts of interest would theoretically result in either
discriminatory or inefficiently priced plans. However, our formulary
review process prevents discrimination, and higher priced plans will be
subject to competition on premiums in the marketplace. Nonetheless
there may be risks to formularies that we have not anticipated. In
addition, we believe that sponsors should be accountable for
objectively managing potential conflicts of interest as directed by the
statute. Therefore, we propose revising our regulations at Sec.
423.120(b)(1) to renumber the existing provisions and add a new
paragraph (b)(1)(iv) to require that the sponsor's P&T committee
clearly articulates and documents processes to determine that the
requirements under paragraphs (b)(1)(i), through (iii) have been met,
including the determination by an objective party of whether disclosed
financial interests are conflicts of interest and the management of any
recusals due to such conflicts.
7. Definition of a Part D Drug (Sec. 423.100)
Section 1860D-2(e) of the Act defines a covered Part D drug as a
drug that may be dispensed only upon a prescription and that is
described in subparagraph (A)(i), (A)(ii), or (A)(iii) of section
1927(k)(2) of the Act; or a biological product described in clauses (i)
through (iii) of subparagraph (B) of such section, or insulin described
in subparagraph (C) of such section and medical supplies associated
with the injection of insulin (as defined in regulations of the
Secretary), and such term includes a

[[Page 2021]]

vaccine licensed under section 351 of the Public Health Service Act
(and, for vaccinations administered on or after January 1, 2008), its
administration, and any use of a covered Part D drug for a medically
accepted indication (as defined in paragraph (4)). We codified this
definition in Sec. 423.100.
a. Combination Products
The FDA approves and regulates many products that include drug-drug
and drug-device combinations. However, for the purposes of the Part D
program, only combination products approved and regulated by the FDA as
drugs, vaccines, or biologics (or any approved combinations of these)
are potentially eligible for Part D coverage, in line with the Part D
drug definition. We have previously addressed the status of combination
products through guidance, including initially a published Q&A response
and later in Section 10.3 of Chapter 6 of the Medicare Prescription
Drug Benefit Manual (Part D Manual). This guidance has specified that
combination products that contain at least one Part D drug component
are Part D drugs when used for a medically accepted indication, unless
such product, as a whole, belongs in one of the categories of drugs
excluded from coverage under the Part D program. We now propose to
address this issue in regulation to codify and clarify our policy.
We propose to add paragraph (vii) under the definition of a Part D
drug to further clarify that only those combination products approved
and regulated in its combination form by the FDA as a drug, vaccine,
insulin, or biologic, as described in paragraph (i), (ii), (iii), or
(v) of the Part D drug definition, may be eligible for Part D coverage.
Our proposal would make it clear that the definition of a Part D drug
excludes products where a combination of items are bundled or packaged
together for convenience (such as one box packaging together multiple
products, each in separate bottles), where the bundle has not been
evaluated and approved by the FDA. This proposal would not affect
products where multiple active ingredients (including at least one Part
D eligible prescription-only ingredient) are incorporated into a single
pill or single injection, as such products would have had to go through
FDA approval in this combined form, meeting the Part D requirement.
Combination products that are FDA approved would then be treated like
other Part D drugs, eligible for coverage only when being used for a
medically accepted indication and not otherwise excluded from Part D
coverage (for example, because it is covered as prescribed and
dispensed or administered under Medicare Part B).
This proposed policy is intended to clarify that a combination
product containing at least one constituent ingredient that would, if
dispensed separately, meet the definition of a Part D drug is eligible
for Part D coverage only if it has received FDA approval in its
combined form. Combination products not FDA approved as drugs under the
Federal Food, Drug, and Cosmetics Act would not satisfy section
1927(k)(2)(A)(i) of the Act, defining covered outpatient drugs as those
approved for safety and effectiveness as a prescription drug.
Combination vaccines not licensed as a vaccine under section 351 of the
Public Health Service Act similarly would not satisfy the definition of
a Part D drug as defined in section 1927(k)(6).
Our proposal would not require that all constituent ingredients of
a combination product be FDA-approved prescription drugs. An example
would be an FDA-approved prescription drug that combines a Part D drug
with a non-Part D covered vitamin. Conversely, a product combining a
Part D drug with a medical food, dietary supplement, or another Part D
drug, where the combined product has not received FDA approval as a
prescription drug, vaccine, or biologic would not be eligible for Part
D coverage.
b. Barbiturates and Benzodiazepines
We also propose to amend the definition of a Part D drug to address
certain exclusions by revising paragraph (2)(ii). When the Part D
benefit started in 2006, all uses of barbiturates and benzodiazepines
were excluded from coverage by statute. In 2008, section 175 of the
MIPPA amended section 1860D-2(e)(2)(A) of the Act to include coverage
for barbiturates when used in the treatment of epilepsy, cancer, or a
chronic mental health disorder and for benzodiazepines when used for
any medically accepted indication, effective January 1, 2013. In 2010,
section 2502 of the Affordable Care Act amended section 1927(d) of the
Act, to remove barbiturates and benzodiazepines from the list of drugs
subject to exclusion from coverage, effective for services provided on
or after January 1, 2014. Thus, this subsequent statutory change
effectively includes barbiturates as a Part D drug for all medically
accepted indications. The proposed revision to Sec. 423.100 would
conform our definition of Part D drug to the new statutory requirement.
c. Medical Foods
We propose to add paragraph (2)(iii) to the list of exclusions from
the definition of Part D drug to specify that medical foods, as defined
in 21 U.S.C. 360ee, are not Part D drugs. Medical foods are not
described in subparagraphs A(i), A(ii) or A(iii) of section 1927(k)(2)
of the Act, and therefore do not meet the statutory definition of a
covered Part D drug, nor do they fall under other categories eligible
for Part D coverage listed in the Part D drug definition, such as
biologics, vaccines, and insulin.
Moreover, as described previously in the section on combination
products, a product with relevant components including some or all
ingredients meeting the definition of a Part D drug would not be
eligible for Part D coverage unless the combined product has also been
approved by the FDA as a drug, vaccine, or biologic.
The proposed clarifications involving coverage for approved
combination products and non-coverage of medical foods would not affect
current policies surrounding Part D coverage of parenteral nutrition.
(See the Part D manual guidance, Chapter 30.7 regarding the payment for
parenteral and enteral nutrition items and services.) Extemporaneously
compounded prescription drug products (addressed separately in Chapter
6 of the Part D manual and in Sec. 423.120) also would not be affected
by the proposed changes. Part D coverage for extemporaneously
compounded prescriptions is available for the ingredients that
independently meet the definition of a Part D drug when the product
needed is one requested by the provider to meet a specific medical
need, where there is no commercially available alternative. The
convenience packaging of unapproved combination products for broad
distribution does not meet the criteria set out specifically for
extemporaneously compounded prescriptions.
8. Thirty-Six Month Coordination of Benefits (COB) Limit (Sec.
423.466(b))
In our April 15, 2010 final rule (75 FR 19819), we exercised our
authority under sections 1860D-23 and 1860D-24 of the Act to impose a
timeframe on the coordination of benefits between PDP sponsors and
other payers including State Pharmaceutical Assistance Programs
(SPAPs), other providers of prescription drug coverage, or other
payers. In the preamble of the final rule, we explained our approach to
determining the 3-year timeframe,

[[Page 2022]]

including the benefits derived from its establishment.
We stated, ``PDP sponsors must coordinate benefits with SPAPs,
other entities providing prescription drug coverage, beneficiaries, and
others paying on the beneficiaries' behalf for a period not to exceed 3
years from the date on which the prescription for a covered PDP drug
was filled.'' The phrase ``a period not to exceed 3 years'' has caused
confusion among some sponsors, who interpreted this to mean that the
coordination of benefits period could be shorter than 3 years, and have
consequently imposed tighter timeframes for coordination of benefits.
To clarify the requirement and avoid further confusion, we are
proposing to remove from the regulation the phrase ``not to exceed,''
and adding the word ``of.'' This would clarify that sponsors must
employ a coordination of benefits period of 3 years, and would remove
any uncertainty about whether they may impose a shorter coordination of
benefits period.
We also propose to revise the heading of Sec. 423.466 to reference
claims adjustments, which are addressed in Sec. 423.466(a).
9. Application and Calculation of Daily Cost-Sharing Rates (Sec.
423.153)
We are proposing technical changes to the daily cost-sharing rate
rule to clarify the application and calculation of daily cost-sharing
rates and cost-sharing under the rule. We reminded Part D sponsors in
the contract year 2014 Final Call Letter that, beginning January 1,
2014, in accordance with Sec. 423.153(b)(4)(i), they must establish
and apply a daily cost-sharing rate whenever a prescription is
dispensed by a network pharmacy for less than a 30 days' supply, unless
the drug is excepted in the regulation. These provisions were finalized
in a rule entitled ``Medicare Program; Changes to the Medicare
Advantage and the Medicare Prescription Drug Benefit Programs for
Contract Year 2013 and Other Changes'' (77 FR 22072) (``April 12, 2012
final rule''). We provided information in the contract year 2014 Final
Call Letter about changes to the PBP to accommodate a mandatory Daily
Copayment field for any tier where the plan enters a Copayment Field to
assist sponsors that have been confused about how to calculate daily
cost-sharing rates. We also noted in the contract year 2014 Final Call
Letter that the daily cost-sharing rate rule does not address how
pharmacy dispensing fees are to be negotiated, calculated, or paid. We
did so because we had heard that some sponsors are prorating dispensing
fees as part of implementing the LTC short-cycle dispensing requirement
of Sec. 423.154 effective beginning January 1, 2013 and may be
incorrectly referencing the upcoming daily cost-sharing rate rule as
the reason. We made clear that there is no necessary connection between
daily cost-sharing rates charged to beneficiaries and how dispensing
fees are paid to pharmacies. Nothing in the daily cost-sharing rate
rule at Sec. 423.153(b)(4) requires the proration of dispensing fees,
and we proposed a prohibition on the proration of dispensing fees in
the LTC setting in another section of this proposed rule, because we
believe it encourages inefficient dispensing in LTC facilities. In
light of continuing confusion among some Part D sponsors about the
daily cost-sharing rate rule, we believe technical changes to the rule
are warranted.
Currently, under Sec. 423.100, in cases when a copayment is
applicable, ``daily cost-sharing rate'' is defined as the ``monthly
copayment under the enrollee's Part D plan, divided by 30 or 31 and
rounded to the nearest lower dollar amount, if any, or to another
amount, but in no event to an amount that would require the enrollee to
pay more for a month's supply of the prescription than would otherwise
be the case.'' When we drafted this definition, we used the numbers
``30'' and ``31,'' as these are the numbers of days that are typically
in a month's supply in Medicare Part D prescription drug benefit plans.
However, we clarified in the Call Letter that the maximum amount that
can be entered for the Daily Copayment field in the PBP will be based
on the 1-month copayment amount divided by the actual number of days
entered for the 1-month supply for that specific tier. Therefore, we
are proposing to replace these numbers with the phrase ``the number of
days in the approved month's supply for the drug dispensed'' to address
how Part D sponsors that have other days' supplies as their month's
supplies are to calculate daily cost-sharing rates.
Also, under our existing definition of ``daily cost sharing rate''
in Sec. 423.100, as noted above, and with respect to copayments, the
daily copayment cannot be an amount that would require the enrollee to
pay more for a month's supply of the prescription than would otherwise
be the case. For example: If a plan uses a 31-day supply as its 1-month
supply and establishes a one-month copayment of $70 for Tier 3, then
the Daily Copayment field entry for that tier could not be higher than
$2.25 ($70/31 = $2.258). Thus, if a plan must round the daily cost-
sharing rate to a dollar and cents figure, the highest amount the plan
could round to would be the nearest lower dollar and cents amount, as
shown in the example. If a plan rounded the daily cost-sharing rate up,
then if an enrollee eventually received a month's supply of a
medication, the enrollee would pay more than ``would otherwise be the
case,'' meaning more than the 1-month cost sharing specified in the
approved benefit package. In the example, if a plan were to round the
daily cost-sharing rate up to $2.26, an enrollee who eventually
receives a month's supply of the medication would pay $70.06, which is
higher than the approved $70 copay for that tier. In other words,
rounding up is not permitted under the current definition of ``daily
cost-sharing rate'' and this has been another cause of confusion for
some Part D sponsors.
While our original intention was to prohibit significant increases
in cost sharing, such as charging the full 30-day copay for both the
trial supply and any subsequent refill of a medication, the current
limitation on any increase in cost sharing over the 30-day supply
amount has reportedly led to unnecessarily complicated programming, as
well as proration of other amounts on the claim, such as the dispensing
fees, as discussed previously. Therefore, we are proposing to replace
the language ``lower dollar amount, if any, or to another amount,''
with ``the nearest cent.'' We believe this language would be the
simplest way to convey the concept of rounding, while realizing this
language would allow Part D sponsors to round daily cost-sharing rates
up or down to the nearest 2 decimal places. For instance, in the
example provided previously, the daily cost-sharing rate would actually
be rounded to $2.26, as this amount would be the nearest cent. For the
reasons we describe in the following paragraph, we believe this slight
change in policy is not significant and that the proposed revised
regulation text would address current confusion about the daily cost-
sharing rate rule. The revised definition of ``daily cost-sharing
rate'', if adopted, would read with respect to copayments: ``as
applicable, the established monthly copayment under the enrollee's Part
D plan, divided by the number of days in the approved month's supply
for the drug dispensed and rounded to the nearest cent.''
As noted previously, the daily cost-sharing rate rule applies
whenever a prescription is dispensed by a network pharmacy for less
than a 30 days' supply, unless the drug is excepted in the regulation.
However, as detailed in

[[Page 2023]]

the preamble to the April 12, 2012 final rule (77 FR 22072), it is
primarily expected to incentivize Part D enrollees to talk with their
prescribers about trial supplies, when they are prescribed an expensive
chronic medication for the first time. By obtaining a less-than-30-
days' supply, beneficiaries reduce their cost sharing when the
medication is discontinued in the first month due to poor tolerance or
side effects, which also benefits the Part D program by reducing costs
of unused medications. In addition, as noted in the April 12, 2012
final rule (77 FR 22072), we believe some enrollees will be encouraged
to request that their pharmacists assist them with synchronizing the
refill dates of multiple medications, because they could do so without
having to pay a full month's cost sharing for the shortened days'
supplies necessary to synchronize refill dates. Although permitted
under the rule, we do not foresee enrollees choosing to continue to
receive chronic medications incrementally on a sequential basis. We
anticipate that enrollees who tolerate a chronic medication would
obtain months' supplies after the first incremental fill, and enrollees
who are synchronizing medications are expected to do so through one
incremental fill of all medications except one. Therefore, even though
the proposed revised definition of ``daily cost-sharing rate'' could
result in an enrollee who receives the remainder of month's supply
after receiving an incremental fill paying slightly more than he or she
otherwise would have for a month's supply, we believe such cases would
be rare, if any, and the amounts involved are nominal anyway. We are
more concerned that the regulation text with respect to rounding is
clearer, and in this regard, we solicit comments on whether sponsors
need any additional rounding guidance.
We are also proposing other technical changes to the daily cost-
sharing rate rule at Sec. 423.153(b)(4)(i) to improve the regulation's
clarity. First, we are proposing to consolidate the language of Sec.
423.153(b)(4)(i)(A) into Sec. 423.153(b)(4)(i) and to consolidate
Sec. 423.153(b)(4)(i)(B)(1) and (2) into a new paragraph Sec.
423.153(b)(4)(ii). Second, we are proposing that the language in Sec.
423.153(b)(4)(i) that addresses the application of the daily cost-
sharing rate in the case of a monthly copayment be revised for clarity,
and moved to a new paragraph (b)(4)(iii)(A). This paragraph would state
that in the case of a drug that would incur a copayment, the Part D
sponsor must apply cost-sharing as calculated by multiplying the
applicable daily cost-sharing rate by the days' supply actually
dispensed when the beneficiary receives less than a 30 days' supply.
Again, this is not a change in policy but is merely a technical change
to the regulation text for better clarity. Third, we are proposing that
Sec. 423.153(b)(4)(iii)(B) would state that, in the case of a drug
that would incur a coinsurance percentage, the Part D sponsor shall
apply the coinsurance percentage for the drug to the days' supply
actually dispensed. We note that this means, with respect to dispensing
fees, that the enrollee's portion of additional dispensing fees for the
incremental supply would be calculated by application of this
percentage. We believe all the foregoing technical clarifications will
assist sponsors in correctly setting, calculating, and applying daily
cost-sharing rates in the retail and LTC settings beginning January 1,
2014 whenever a prescription is dispensed by a network pharmacy for
less than a 30 days' supply, unless the drug is excepted in the
regulation.
10. Technical Change To Align Regulatory Requirements for Delivery of
the Standardized Pharmacy Notice (Sec. 423.562)
The current regulations at Sec. 423.562(a)(3) require Part D plan
sponsors to make arrangements with their network pharmacies to
distribute notices instructing enrollees how to contact their plans to
obtain a coverage determination or request an exception. This is
accomplished through delivery of a standardized notice, CMS-10147--
``Medicare Prescription Drug Coverage and Your Rights'' (``pharmacy
notice''). Section 423.562(a)(3) cross-references Sec.
423.128(b)(7)(iii), added in our April 2011 final rule (76 FR 21432),
which requires plans to have a system in place that transmits codes to
network pharmacies so the pharmacy is notified to deliver the pharmacy
notice at the point of sale (POS) in designated circumstances where the
prescription cannot be filled as written.
Pursuant to the 2011 regulatory change, we issued subsequent
guidance (HPMS memoranda dated October 14, 2011 (``Revised Standardized
Pharmacy Notice'') and December 27, 2012 (``Revised Guidance for
Distribution of Standardized Pharmacy Notice'') which clarifies that
distribution of the pharmacy notice is required upon receipt of certain
transaction responses indicating that the claim is not covered by Part
D, as well as revised manual guidance in Chapter 18, section 40.3.1 of
the Medicare Prescription Drug Benefit Manual related to
operationalization of this requirement specific to a variety of
specialty pharmacy settings.
In practice, we have never based distribution of or referral to the
pharmacy notice on whether or not the enrollee disagrees with
information provided by the pharmacist, but rather on whether the drug
in question can be provided under Part D and whether the enrollee is
able to obtain the covered drug at the pharmacy counter. Because the
existing regulation text at Sec. 423.562(a)(3) ties delivery of the
pharmacy notice to the enrollee's disagreement with information
provided by the pharmacist, we are proposing to remove this reference.
This proposed technical change would not alter the circumstances
under which the pharmacy notice must be delivered to an enrollee and
will align the regulation and the operational requirements for
distribution of the pharmacy notice. In addition, this proposed change
would be consistent with both the current OMB-approved instructions
regarding the pharmacy notice and current CMS manual guidance.
We do not prohibit distribution of the pharmacy notice in any
circumstance, so pharmacies may choose to also provide a copy of the
notice in circumstances where the enrollee disagrees with the
information provided (for example, if the enrollee believes they are
being charged an incorrect cost-sharing amount), but the notice is not
required under the standards established in Sec. 423.128(b)(7)(iii).
Provision of the pharmacy notice is not a prerequisite for an enrollee
to request a coverage determination or access the appeals process.
Similarly, a plan sponsor's failure to comply with the requirements of
Sec. 423.128(b)(7)(iii) or Sec. 423.562(a)(3) does not in any way
limit an enrollee's right to request a coverage determination or
appeal.
11. Special Part D Access Rules During Disasters or Emergencies (Sec.
423.126)
Section 1860D-4(b) of the Act requires us to ensure beneficiaries
have access to covered Part D drugs. When a disaster strikes or is
imminent, beneficiaries may find they have trouble accessing drugs
through normal channels or must move to safer locations far away from
their regular pharmacies. In order to ensure that beneficiaries do not
run out of their medications during or as a result of a disaster or
emergency, we issued guidance on December 18, 2009 identifying when, in
the course of a disaster, Part D sponsors would be

[[Page 2024]]

expected to relax ``refill-too-soon'' (RTS) edits. We now propose to
codify a revised version of that policy. Proposed Sec.
423.126(a)(1)(i) would require Part D sponsors to relax RTS edits in
the event of any imminent or occurring disaster or emergency that would
hinder an enrollee's access to covered Part D drugs. By this we mean
that there is an anticipated or actual disaster or emergency, as
evidenced by a declaration of a disaster or emergency issued by an
appropriate federal, state, or local official, and it is reasonable to
conclude that such disaster or emergency or preparation therefore would
make it difficult for beneficiaries to obtain refills of their
medications because the disaster or emergency or anticipation thereof
has affected, or will affect, their ability to have timely access to
their usual pharmacies. For example, if federal, state or local
authorities issue mandatory evacuation orders to populations or
segments of the population in a geographic area, it would be reasonable
to conclude that the evacuation would hinder an LTC resident's ability
to get a refill after he or she is evacuated from the facility. In such
an instance, then, Part D sponsors with enrollees in the affected area
would be required to relax RTS edits so that the LTC pharmacies could
provide beneficiaries with refills to take with them to the location to
which they are being evacuated. Our proposed requirement would apply to
one refill for each drug the beneficiary is taking for refills sought
within 30 days of the date the plan sponsor began relaxing RTS edits.
We believe this timeframe would be sufficient to ensure that
beneficiaries who are unable to obtain refills during the emergency or
disaster will be able to do so as soon as they can safely access a
network pharmacy. We solicit comment as to whether 30 days after the
date of the triggering declaration provides an appropriate amount of
time to ensure that beneficiaries do not run out of their medications.
In particular, we would be interested in learning about any situations
in which a beneficiary affected by an actual or impending disaster or
emergency would be likely to go to a pharmacy more than 30 days after
the triggering declaration such that the resumption of RTS edits after
30 days would be problematic. We also solicit comment as to how it
would be feasible for Part D sponsors to identify pharmacies or
beneficiaries located in affected areas for which they would be
required to relax edits and, how long it might then take to program the
necessary changes.
Although we believe our proposal provides a general framework for
when RTS edits must be relaxed, we solicit comment on whether we should
impose more particular requirements in cases where a disaster or
emergency could result in a voluntary or mandatory evacuation of an LTC
facility. We are also concerned that if a disaster strikes the area in
which an LTC facility is located but not the area in which its
servicing LTC pharmacy is located, the appropriate edits may not be
relaxed. Accordingly, we solicit comment as to whether it would be more
feasible to establish beneficiary specific edits limited to residents
of LTC facilities in affected areas given that evacuation decision-
making is rarely a straightforward, linear process (for example, not
just based on the declaration of a disaster or emergency), but rather,
often involves a myriad of facility-specific factors. In particular, we
solicit comment on the practicality of requiring Part D sponsors to
relax RTS edits for residents of a particular LTC facility after that
facility decides on its own initiative to evacuate through use of
National Council on Prescription Drug Programs (NCPDP) Submission
Clarification Code (SCC) code 13, which conveys that there is an
emergency. We solicit comment as to whether use of this code number,
13, is specific enough to signal that sponsors need to loosen RTS edits
and whether it would be practical for LTC facilities to request that
their LTC pharmacies enter the SCC code 13. Lastly, we would be
interested in any other ideas on how to structure workable edits or
institute manual procedures to best target only enrollees who live in
LTC facilities located in areas affected by a disaster.
We would also be interested in hearing from any commenters who
would recommend any other triggering events that would require Part D
sponsors to relax RTS edits. In particular, we solicit comment as to
whether it would be feasible to require sponsors to relax edits after
the issuance by the National Weather Service (NWS) of a Hurricane or
Tropical Storm watch or warning. The NWS typically issues watches 36
hours in advance of adverse weather conditions possibly hitting an
area, while the NWS issues watches 48 hours (2 days) in advance of
those conditions possibly hitting an area. All watches/warnings are
posted on the NWS Web site immediately after their issuance. We solicit
comment as to whether watch/warnings would require RTS overrides in the
whole state, or just areas under the watch or warning. We are also
interested in comments regarding the time generally needed to move
residents of LTC facilities with their medication supplies to safety.
Lastly, we believe that sponsors are in the best position to
determine how to relax the specific RTS edits when required under our
proposal. However, we also wish to ensure that all sponsors relax RTS
edits in a consistent manner in order that enrollees have the same
critical access to drugs when disasters and emergencies are imminent or
have occurred--regardless of the specific plan in which they are
enrolled. Accordingly, we solicit comments on the types of situations
that might arise and the extent to which sponsors should be allowed to
exercise some discretion in complying with this proposed requirement.
And, as has been the case under our current guidance, Part D
sponsors may consider extending the implementation of the RTS edits but
are not required to do so. However, if sponsors choose to reinstate the
RTS edits, they need to work closely with enrollees who indicate that
they are still displaced or otherwise impacted by the disaster or
emergency.
12. MA Organization Responsibilities in Disasters and Emergencies
(Sec. 422.100)
Section 1852(d) of the Act requires MA organizations to provide
proper and continued access to services, including making medically
necessary benefits available and accessible 24 hours a day and 7 days a
week. When a disaster occurs or is imminent, beneficiaries may find
they have trouble accessing services through normal channels or must
move to safer locations that are outside of their service areas. To
date, we have relied on issuing subregulatory guidance for MA
organizations through the HPMS system and have included that guidance
in Chapter 4 of the Medicare Managed Care Manual. During a disaster, we
expect MA organizations to continue to follow applicable standing
regulations, including ensuring continuing access to care in addition
to complying with our subregulatory guidance.
We are proposing to add paragraph (m) to Sec. 422.100 to codify
and further clarify an MA organization's responsibilities when health
plan services are affected by public health emergencies or disasters.
This provision is intended to ensure that beneficiaries continue to
have access to care in situations where normal business operations are
disrupted due to public health emergencies, disasters and warnings of
imminent disasters. The proposed new paragraph (m) requires MA
organizations to ensure access to

[[Page 2025]]

covered services that are furnished at non-contracted facilities and to
charge no more cost sharing for services obtained by enrolled
beneficiaries out-of-network than they would pay in-network. These
requirements provide protections for enrolled beneficiaries, including
those who move to safer locations that are outside of their service
areas, who have trouble accessing services through normal channels due
to the unusual circumstances created by the disaster or emergency.
Additionally, the proposed new paragraph (m) provides MA organizations
with guidance on the bases for determining the beginning and end of a
disaster or emergency and requires that the organization post on its
Web site and convey to enrollees and contracted providers at least
annually, the disaster and emergency policies in order to facilitate
enrollee access to needed services while normal care delivery is
unavailable. In addition, this enables out-of-network providers to be
informed of the terms of payment for furnishing services to affected
enrollees.
13. Termination of a Contract Under Parts C and D (Sec. 422.510 and
Sec. 423.509)
a. Cross-Reference Change (Sec. 423.509(d))
Section 1857(h)(1)(B) and 1860D-12(b)(3)(F) of the Act describes
the procedures for termination for both Part C and Part D plan sponsors
respectively. These statutory provisions give an organization an
opportunity for a hearing before its contract is terminated.
We codified organizations' appeal rights under subpart N of parts
422 and 423. Under the Part C Sec. 422.510(d), a reference to the
appeal rights ``in accordance with subpart N'' is made. However, in the
corresponding section for Part D Plan sponsors at Sec. 423.509(d), the
reference to the appeal rights reads ``in accordance with Sec.
423.642.'' The Part C and Part D references should be the same. We are
proposing to align the Part C and Part D appeal rights language under
Sec. 422.510(d) and Sec. 423.509(d) by replacing the inconsistent
language at Sec. 423.509(d) to now read ``in accordance with subpart N
of this part.'' This change is proposed only to ensure consistent
wording is used in both regulatory sections and in no way changes the
meaning or policy encompassed in this provision.
b. Terminology Changes (Sec. 422.510 and Sec. 423.509)
Sections 1857(c) and 1860D-12(b)(3)(B) of the Act authorize
contract terminations for Part C MA organizations and Part D plan
sponsors respectively. In the current termination regulations at Sec.
422.510 and Sec. 423.509, there is inconsistent use of the terms
``days'' and ``calendar days''. Calendar days are the appropriate term
that should be used consistently throughout these sections. Therefore,
we are proposing to replace the word ``days'' with ``calendar days'' in
both Sec. 422.510 and Sec. 423.509. This change is proposed only to
ensure consistent wording is used in Sec. 422.510 and Sec. 423.509
and in no way changes the meaning or policy encompassed in these
provisions.
c. Technical Change To Align Paragraph Headings (Sec. 422.510(b)(2))
Sections 1857(c)(2) and 1860D-12(b)(3)(B) of the Act provide us
with the authority to terminate contracts, for Part C and Part D
sponsors respectively. The Part C paragraph heading at Sec.
422.510(b)(2) incorrectly reads ``Expedited termination of contract by
CMS.'' The Part D corresponding paragraph heading at Sec.
423.509(b)(2) correctly reads ``Immediate termination of contract by
CMS''. The Part C and Part D paragraph headings should be the same.
Therefore, we are proposing to revise the paragraph of Sec.
422.510(b)(2) to read ``Immediate termination of contract by CMS''.
This change is proposed only to ensure consistent wording is used in
both regulatory sections and in no way changes the meaning or policy
encompassed in this provision.
d. Terminology Change (Sec. 423.509(b)(2)(C)(ii))
Sections 1857(c)(2) and 1860D-12(d)(3)(B) of the Act provide us
with the authority to terminate contracts, for Part C and Part D
sponsors respectively. In Sec. 423.509(b)(2)(C)(ii) the regulation
incorrectly references ``MA organization.'' This section concerns Part
D, so the correct reference is ``Part D Plan Sponsor''. Therefore, we
are proposing to change Sec. 423.509(b)(2)(C)(ii) to appropriately
reference Part D plan sponsor; not MA organization (Part C), as it
currently states. This change is proposed only to ensure accurate
wording is used in both regulatory sections and in no way changes the
meaning or policy encompassed in this provision.
14. Technical Changes To Align Part C and Part D Contract Determination
Appeal Provisions (Sec. 422.641 and Sec. 422.644)
Sections 1857(h) and 1860D-12(b)(3)(F) of the Act describe the
procedures for termination for both Part C MA organizations and Part D
Plan sponsors, respectively. These statutory provisions provide an
organization with an opportunity for a hearing before its contract is
terminated. Appeal procedures were established under sections
1856(b)(2) and 1860D-12(b)(3) of the Act for both Part C and Part D
sponsors, respectively. Sections 422.641 and 423.641, list the types of
Part C and Part D contract determinations that may be appealed.
(a) Technical Change (Sec. 422.641)
Currently in Sec. 422.641, the contract termination is discussed
in paragraph (b) and contract non-renewal is discussed in (c).
Conversely, in Sec. 423.641 the contract terminations are discussed in
(c) and contract non-renewal is discussed in (b). Therefore, we are
proposing to align the Part C list order for (b) and (c) in the
contract determinations section at Sec. 422.641 with its Part D
corresponding section at Sec. 423.641. This change is proposed only to
ensure consistency between the two parts and in no way changes the
meaning or policy encompassed in this provision.
(b) Technical Changes (Sec. 422.644(a) and (b))
Sections 1857(h)(1)(B) and 1860D-12(b)(3)(F) of the Act describe
the procedures for termination for both Part C and Part D sponsors,
respectively. These statutory provisions provide an organization with
an opportunity for a hearing before its contract is terminated. Appeal
procedures were established under Sec. 1856(b)(2) of the Act for both
Part C and Part D sponsors. In Sec. 423.642 we specify that the notice
is based upon a contract determination made ``under Sec. 423.641.''
Therefore, since Part C and Part D language should be consistent the
same reference should be made in the Part C corresponding Sec.
422.644. To remedy this error, we are proposing to insert ``under Sec.
422.641'' into Sec. 422.644(a) for Part C contract determinations.
This change is proposed only to ensure consistent wording is used in
both regulatory sections and in no way changes the meaning or policy
encompassed in this provision.
In addition, the Part D Plan sponsor language in Sec. 423.642(b)
states that ``(b) The notice specifies the--(1) Reasons for the
determination; and''. The Part C language in Sec. 422.644(b) states
that ``(b) The notice specifies--(1) The reasons for the determination;
and''. Part C and Part D language should be consistent, therefore, the
same reference should be made in the Part C corresponding section Sec.
422.644. To remedy this error, we are proposing to align the Part C
language at Sec. 422.644(b) with that of the Part D language at Sec.
423.642(b) for consistency between both the Part C and

[[Page 2026]]

Part D termination regulations. Specifically, we propose to change
Sec. 422.644(b) by deleting the word ``the'' and revising it to read
``(b) The notice specifies the--(1) Reasons for the determination;
and''. This change is proposed only to ensure consistent wording is
used in both regulatory sections and in no way changes the meaning or
policy encompassed in this provision.
15. Technical Changes To Align Parts C and D Appeal Provisions (Sec.
422.660 and Sec. 423.650)
Sections 1857(h)(1)(B) and 1860D-12(b)(3)(F) of the Act describe
the procedures for termination for both Part C and Part D,
respectively. These statutory provisions provide organizations with an
opportunity for a hearing before its contract is terminated. Appeal
procedures were established under Sec. 1856(b)(2) of the Act for both
Part C and Part D sponsors. We propose to make technical changes in our
regulations at Sec. 422.660(a)(2), Sec. 422.660(a)(3), and Sec.
423.650(a)(2) to ensure consistency. Specifically, we are proposing to
replace the term ``under'' with the phrase ``in accordance with'' in
Sec. 422.660(a)(2), Sec. 422.660(a)(3), and Sec. 423.650(a)(2). This
change is proposed only to ensure consistent wording is used in Sec.
422.660 and Sec. 423.650 and in no way changes the meaning or policy
encompassed in these provisions.
In addition, we are proposing to make a technical change in our
regulations at Sec. 423.650(a)(4) to ensure consistency with the
authorizing language contained in sections 1856(b)(2), 1857(h), and
1860D-12(d)(3)(F) of the Act which gives us the authority to terminate
contracts for both Part C and Part D sponsors. Under the Part C Sec.
422.660(a)(4), a reference to imposing intermediate sanctions and civil
money penalties ``in accordance with Sec. 422.752(a) through (b) of
this part'' is made. The corresponding section for Part D is at Sec.
423.650(a)(4). However, the reference to imposing intermediate
sanctions and civil money penalties reads ``in accordance with Sec.
423.752(a) and (b)''. The Part C and Part D references should be the
same and both state ``(a) through (b)''. Specifically, we are proposing
to replace the word ``and'' with ``through'' in Sec. 423.650(a)(4).
This change is proposed only to ensure consistent wording is used in
both regulatory sections and in no way changes the meaning or policy
encompassed in this provision.
Sections 422.660(b)(4) and 423.650(b)(4) give a general reference
to Sec. 422.752 and Sec. 423.752, but do not refer the reader to the
applicable paragraphs contained in those sections. Therefore, we are
proposing to modify Sec. 422.660(b)(4) and Sec. 423.650(b)(4) to add
the language ``Sec. 422.752(a) through (b)'' and ``Sec. 423.752(a)
through (b)'', respectively, to refer the reader to the applicable
regulations for intermediate sanctions. This change is proposed only to
accurately reflect applicable regulatory requirements and in no way
changes the meaning or policy encompassed in this provision.
16. Technical Changes Regarding Intermediate Sanctions and Civil Money
Penalties
Sections 1857(g) and 1860D-12(b)(3)(E) of the Act provides us with
the authority to impose intermediate sanctions (sanctions) and CMPs on
Part C and Part D sponsors, respectively.
a. Technical Changes to Intermediate Sanctions Notice Receipt
Provisions (Sec. 422.756(a)(2) and Sec. 423.756(a)(2))
Under Sec. 422.756(a)(2) and Sec. 423.756(a)(2) the current
language states that written requests for rebuttal by the MA
organization or Part D plan sponsor must be received within ``10
calendar days from the receipt of notice''. This language is
inconsistent with other the language that appears in other sections
within subpart O, the appeals section in subpart N and the termination
sections in subpart K. In those sections we state that written requests
must be received within ``10 calendar days after receipt of the
notice''. The language in all sections should be consistent. Therefore,
we are proposing to modify the language at Sec. 422.756(a)(2) and
Sec. 423.756(a)(2) to state ``10 calendar days after receipt of the
notice''. This change is proposed only to ensure consistent wording is
used in all sections and in no way changes the meaning or policy
encompassed in this provision.
In addition, we are proposing to correct the grammatical error that
exists in current Sec. 422.756(a)(2) and Sec. 423.756(a)(2). The Part
C and Part D language currently reads, ``CMS considers receipt of
notice as the day after notice is sent by fax, email, or submitted for
overnight mail''. To fix the grammatical errors we are proposing to
revise the language in both Sec. 422.756(a)(2) and Sec. 423.756(a)(2)
to read ``CMS considers receipt of the notice as the day after the
notice is sent by fax, email, or submitted for overnight mail.'' This
change is proposed only to make a grammatical correction and in no way
changes the meaning or policy encompassed in this provision.
b. Cross-Reference Changes (Sec. 422.756(b)(4) and Sec.
423.756(b)(4))
Under Sec. 422.756(b)(4) and Sec. 423.756(b)(4), we furnish our
procedures for imposing intermediate sanctions and civil money
penalties on MA organizations and Part D sponsors, respectively. The
current language at Sec. 422.756(b)(4) states that MA organizations,
if sanctioned, must follow the right to a hearing procedure as
specified at Sec. 422.660 and Sec. 422.684. The current language at
Sec. 423.756(b)(4) states that Part D sponsors, if sanctioned, must
follow the right to a hearing procedure as specified at Sec. 423.650
and Sec. 423.662. However, MA organizations and Part D sponsors must
adhere to procedures promulgated within subpart N of the regulations,
not just Sec. 422.660 and Sec. 422.684; and Sec. 423.650 and Sec.
423.662, respectively. Therefore, we are proposing to modify the
language at Sec. 422.756(b)(4) and Sec. 423.756(b)(4) to state that
MA organizations and Part D sponsors ``must follow the right to a
hearing procedures as specified in subpart N''. This change is proposed
only to accurately reflect applicable regulatory requirements and in no
way changes the meaning or policy encompassed in this provision.
c. Technical Changes (Sec. 422.756(d) and Sec. 423.756(d))
In Sec. 422.756(d) and Sec. 423.756(d) we provide alternatives to
sanctions, including non-renewal or termination of the organizations
contract. However, the paragraph heading of both Sec. 422.756(d) and
Sec. 423.756(d) only refers to terminations by CMS. Therefore, we are
proposing to revise the paragraph heading to ``Non-renewal or
termination by CMS'' in both sections to reflect the content specified
within the provision. This change is proposed only to accurately
reflect applicable regulatory requirements and in no way changes the
meaning or policy encompassed in this provision.
Within Sec. 422.756(d) and Sec. 423.756(d) we state that we may
decline to authorize the renewal of an organization's contract in
accordance with Sec. 422.506(b)(2) and (b)(3) for MA organizations and
in accordance with Sec. 423.507(b)(2) and (b)(3) for Part D sponsors.
However, in both Sec. 422.756(d) and Sec. 423.756(d), all of
paragraph (b) applies to the provisions. Therefore, we are proposing to
change both provisions Sec. 422.756(d) and Sec. 423.756(d) to read
``Sec. 422.506(b)'' and ``Sec. 423.507(b)'', respectively. This
change would accurately reflect that all of paragraph (b) applies in
both provisions. This

[[Page 2027]]

change is proposed only to accurately reflect applicable regulatory
requirements and in no way changes the meaning or policy encompassed in
this provision.
Within Sec. 422.756(d) and Sec. 423.756(d), we refer to the
sanctions described in paragraph (c) of each section but in each
section, paragraph (c) refers to the effective date and duration of
sanctions, rather than sanctions which are described in Sec. 422.750
and Sec. 423.750, respectively. Therefore, we are proposing to change
the current language at Sec. 422.756(d) to read ``In addition to or as
an alternative to the sanctions described in Sec. 422.750 . . .'' and
change the language at Sec. 423.756(d) to read ``In addition to or as
an alternative to the sanctions described in Sec. 423.750.'' This
change would accurately reflect the applicable provision referenced in
both Sec. 422.756(d) and Sec. 423.756(d). This change is proposed
only to accurately reflect applicable regulatory requirements and in no
way changes the meaning or policy encompassed in this provision.
d. Technical Changes To Align the Civil Money Penalty Provision With
the Authorizing Statute (Sec. 422.760(a)(3) and Sec. 423.760(a)(3))
The provisions at Sec. 422.760(a)(3) and Sec. 423.760(a)(3)
state, ``the harm which resulted or could have resulted from conduct of
an MA organization'' and ``the harm which resulted or could have
resulted from conduct of a Part D plan sponsor'', respectively.
However, this language is not consistent with the authorizing statutory
provisions, nor is it consistent with other provisions in the
corresponding sections. Therefore, we are proposing to align the
language with paragraph (b) in both Sec. 422.760(a)(3) and Sec.
423.760(a)(3). The language would be revised to state ``The adverse
effect to enrollees which resulted or could have resulted . . .'' in
both Sec. 422.760(a)(3) and Sec. 423.760(a)(3). This change is
proposed only to accurately reflect applicable statutory requirements
and in no way changes the meaning or policy encompassed in this
provision.
e. Technical Changes To Align the Civil Money Penalty Hearing Notice
Receipt Provisions (Sec. 422.1020(a)(2), Sec. 423.1020(a)(2), Sec.
422.1016(b)(1), and Sec. 423.1016(b)(1))
Sections 1857(g)(4) and 1860D-12(b)(3)(E) of the Act provides us
with the authority to impose civil money penalties on Part C and Part D
sponsors, respectively. Under Sec. 422.1020(a)(2) and Sec.
423.1020(a)(2), we discuss our procedures for appealing CMPs. The
current language in both sections state written requests for appeal by
the MA organization or legal representative or authorized official must
be filed within 60 calendar days from the receipt of notice of initial
determination, to request a hearing before the Administrative Law Judge
to appeal any CMS decision. However, this language does not align with
the appeal language in subpart N. Therefore, we are proposing to change
the language at Sec. 422.1020(a)(2) and Sec. 423.1020(a)(2) to align
it with the language within subpart N for appeals. Specifically, we are
changing both Sec. 422.1020(a)(2) and Sec. 423.1020(a)(2) to state
``within 60 calendar days after receipt of the notice of initial
determination''. This change is only to ensure consistent wording is
used in all sections and in no way changes the meaning or policy
encompassed in this provision.
In addition, under Sec. 422.1016 and Sec. 423.1016, we furnish
our procedures for filing briefs with the Administrative Law Judge or
Departmental Appeals Board, and opportunity for rebuttal. The
provisions at Sec. 422.1016(b)(1) and Sec. 423.1016(b)(1) state,
``the other party will have 20 days from the date of mailing or
personal service to submit any rebuttal statement or additional
evidence''. However, this language is not consistent with provisions in
other corresponding sections. Therefore, we are proposing to revise the
language at Sec. 422.1016(b)(1) and Sec. 423.1016(b)(1) to state
``The other party will have 20 days from the date of mailing or in
person filing''. This change is proposed only to ensure consistent
wording is used in all sections and in no way changes the meaning or
policy encompassed in this provision.
17. Technical Change to the Restrictions on Use of Information Under
Part D (Sec. 423.322)
We are proposing a technical change to Sec. 423.322 due to section
6402(b)(1) of the Affordable Care Act which amended section 1860D-
15(f)(2) of the Act. For background, most of the payment provisions for
the Part D program are found in section 1860D-15 of the Act.
Subsections (d) and (f) of section 1860D-15 of the Act authorize the
Secretary to collect any information needed to carry out this section.
However those subsections, as originally enacted, also stated that
``information disclosed or obtained under [section 1860D-15 of the Act]
may be used by officers, employees, and contractors of [HHS] only for
the purpose of, and to the extent necessary, in carrying out [section
1860D-15 of the Act].'' Thus, section 1860D-15 of the Act contains
provisions that limit the use of information disclosed or obtained
under its authority.
Section 6402(b)(1) of the Affordable Care Act amended section
1860D-15(f)(2) of the Act to relax the limitation on the use of
information that is disclosed or obtained under section 1860D-15 of the
Act. Specifically, the Affordable Care Act removed the word ``only''
from subsection (f)(2)(A) and added a new subsection (ii) which states
that information disclosed or obtained under section 1860D-15 of the
Act may be used by officers, employees, and contractors of HHS for the
purposes of, and to the extent necessary, in ``conducting oversight,
evaluation, and enforcement under this title.'' Section 6402(b)(1) also
added a new subsection (B) which states that information disclosed or
obtained pursuant to section 1860D-15 of the Act may be used ``by the
Attorney General and the Comptroller General of the United States for
the purposes of, and to the extent necessary in, carrying out health
oversight activities.'' Thus, the Affordable Care Act considerably
broadened the purposes for which HHS, its contractors, and the Attorney
General and Comptroller General may use the information disclosed or
obtained pursuant to section 1860D-15 of the Act by removing the word
``only'' in subsection (A) and adding a new clause (ii) and a new
subsection (B). However, we note, that the Affordable Care Act did not
change the existing restriction on the use of information under
subsection (d).
In light of the Affordable Care Act amendment to section 1860D-
15(f) of the Act, we are proposing to make conforming changes to Sec.
423.322.

IV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.

[[Page 2028]]

Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of these issues for the
following sections of this document that contain information collection
requirements (ICRs).

A. ICRs Related to Eligibility of Enrollment for Individuals Not
Lawfully Present in the United States (Sec. 417.2, Sec. 417.420,
Sec. 417.422, Sec. 417.460, Sec. 422.1, Sec. 422.50, Sec. 422.74,
Sec. 423.1, Sec. 423.30, and Sec. 423.44)

We are proposing to amend Sec. 417.2, Sec. 417.420, Sec.
417.422, Sec. 417.460, Sec. 422.1, Sec. 422.50, Sec. 422.74, Sec.
423.1, Sec. 423.30, and Sec. 423.44 to include the eligibility
requirement of citizenship or lawful presence to enroll in MA, Part D,
or cost plans. To implement these regulations, we would relay data
regarding an individual's lawful presence status to plans through the
MARx system so that the plans will be aware of an individual's
eligibility when requesting enrollment and notify plans when current
members lose lawful presence status. This data is already available to
us; thus no new data will be collected, and there is no new information
collection or burden on organizations.

B. ICRs Related to Improper Prescribing Practices and Patterns (Sec.
424.535(a)(13) and (14))

Our proposed additions of Sec. 424.535(a)(13) and (14) would
result in an increase in revocations and associated appeals. However,
we are unable to estimate the number of revocations and appeals. We do
not have data available that can be used to make such a projection, as
each situation would have to be carefully reviewed and addressed on a
case by case basis. Since we would invoke Sec. 424.535(a)(8)(iii) only
in the most egregious of circumstances, we believe that the number of
revocations under this provision would be small. The concomitant
increase in the ICR burden would therefore be minimal.

C. ICRs Related to Applicants or Their Contracted First Tier,
Downstream, or Related Entities To Have Experience in the Part D
Program Providing Key Part D Functions (Sec. 423.504(b)(8)(i) Through
(iii))

Proposed Sec. 423.504(b)(8)(i) through (iii) would require that
Part D organizations seeking a new Medicare contract must have
arrangements in place such that either the applicant or a contracted
entity that will be performing certain key Part D functions has at
least 1 full benefit year of experience providing the function or
providing the function for another Part D plan sponsor. The burden
associated with this requirement is the time and effort put forth by
Part D applicants to answer questions about such experience as part of
the Part D application process. For entities that hold an existing Part
D contract, or whose parent or another subsidiary of that parent has
already held a Part D sponsor contract for at least a year, it is
estimated that it will take each Part D applicant for a new contract 2
minutes to provide 1 or 2 new sentences in the organizational history
section of the application, and 1 minute to respond to yes-no questions
about experience with the 3 functions for which experience is required,
for a total of 3 minutes per applicant. For entities new to Part D, it
is estimated that it will take each Part D applicant for a new contract
2 minutes to provide 1 or 2 new sentences in the organizational history
section of the application, 1 minute to respond to yes-no questions
about experience with the 3 functions for which experience is required,
and 1 additional minute to provide at least 1 contract number of an
existing or recent Part D sponsor under which the entity to provide the
key function obtained its experience, for a total of 4 minutes. Based
on the number of Part D applications we receive each year, we would
anticipate no more than 60 Part D applications for a new contract, of
which no more than 15 would be entities new to Part D. Thus, the burden
for the 45 existing entities at 3 minutes each, plus the burden for the
15 new entities at 4 minutes each, brings the total burden hours to
approximately 3.25 hours. If approved, the new application questions
would be addressed under currently approved OMB control number (OCN)
0938-0936.

D. ICRs Related to Eligibility of Enrollment for Incarcerated
Individuals (Sec. 417.460, Sec. 422.734, and Sec. 423.44)

We are proposing to amend Sec. 417.460(b)(2)(i), Sec.
417.460(f)(1)(i), Sec. 422.74(d)(4)(i)(A), Sec. 422.74(d)(4)(v), and
Sec. 423.44(d)(5) to clarify the eligibility requirement for residing
in the plan's service area related to incarceration for the purposes of
enrolling into and remaining enrolled in MA, Part D, and Medicare cost
plans. To implement these regulations, we would relay data to plans
regarding an individual's incarceration through the MARx system so that
the plans would be aware of the individual's eligibility when
requesting enrollment and notify the plans of loss of eligibility for
current members. This data is already available to us. Thus no new data
would be collected, and there is no new information collection or
burden on organizations.

E. ICRs Related to Rewards and Incentives Program Regulations for Part
C Enrollees (Sec. 422.134)

This requirement does not impose any new information collection
requirements. This is an existing recordkeeping requirement in which MA
organizations must retain information pertaining to any rewards and
incentives programs in accordance with our regulations at 42 CFR
422.118. We believe the burden associated with this requirement is
exempt from the PRA under 5 CFR 1320.3(b)(2) as we believe this is a
usual and customary business practice. Furthermore, any requests to
furnish the information in a form and manner we designate are unique,
that is, non-standardized and specific to each individual MA
organization.

F. ICRs Related to Expanding Quality Improvement Program Regulations
(Sec. 422.152)

This requirement does not impose any new information collection
requirements. PRA approval is current under OCN 0938-1023.

G. ICRs Related to Revisions to Good Cause Processes (Sec. 417.460,
Sec. 422.74, and Sec. 423.44)

We are proposing to amend Sec. 417.460, Sec. 422.74, and Sec.
423.44 to establish the ability for us to designate an entity other
than CMS to implement the good cause process. To implement these
regulations, the plan will already have the enrollment data necessary
to make the good cause determinations within the process. Thus no new
data would be collected. However, there would be additional burden to
the plan in terms of completing the operational process, such as
responding to requests for reinstatement from former members, gathering
the attestation from the individual regarding his or her reason for not
paying the plan premiums within the grace period, making the
determination as to whether the individual meets the good cause
criteria and maintaining the case notes and documentation to support
its determination should it need to be reviewed. As plans already
provide customer service to their current and past members, we estimate
that this burden would be approximately 30 minutes for each
reinstatement request. According to the most recent wage data provided
by the Bureau of Labor Statistics (BLS) for May 2012, the mean

[[Page 2029]]

hourly wage for the category of ``Customer Service Representatives''--
which we believe, considering the common point of entry for all issues
at the plan, is the most appropriate category--is $15.92. With fringe
benefits and overhead, the per hour rate is $24.03. It is calculated
that the cost for 30 minutes would be $12.01. Not all plans disenroll
for non-payment of premiums. However, for those who do implement this
voluntary policy, it results in an average of 20,000 disenrollments
each month. In response, we receive an average of 698 requests for
reinstatement per month. The plan representative cost of $12.01 for
each case is multiplied by 698 cases. Therefore, based on the proposed
change, handling of these requests would result in a total monthly cost
of $8,383 for all plans in the MA, Part D, and cost plan programs.

H. ICRs Related to the Definition of Organization Determination (Sec.
422.566)

The burden associated with this proposal is the time necessary for
MA organizations to process organization determination requests, issue
a decision and, where appropriate, effectuate any approved coverage
decision. When an MA organization issues an adverse organization
determination, it must give the enrollee written notice pursuant to the
requirements in Sec. 422.568(d) and (e) and Sec. 422.572(e). This
requirement is subject to the PRA, and the burden associated with it is
currently approved under OCN 0938-0829. The information collection
requirements are not expected to change because the proposed revisions
to the definition of organization determination would not alter the
frequency with which the current OMB-approved notice is required, nor
the time required to issue the notice. The proposed change to Sec.
422.566(b)(3) would codify certain adverse decisions which MA
organizations already treat operationally as adverse organization
determinations subject to the standardized denial notice. The proposed
addition of Sec. 422.566(b)(6) applies only to favorable organization
determinations which do not require written notice.

I. ICRs Related to Skilled Nursing Facility Stays (Sec. 422.101 and
Sec. 422.102)

We propose to relocate the MA regulation language currently located
at Sec. 422.101(c), ``Requirements Related to Basic Benefits'' to
Sec. 422.102(a)(5), ``Supplemental Benefits.'' We are proposing to
move the provision because it describes MA organizations' authority to
furnish covered SNF stays without the qualifying inpatient hospital
stay required under original Medicare. For the past 10 years, MA
organizations have offered the waiver of the 3-day inpatient hospital
stay as a supplemental benefit. Thus, placing the provision in the
section related to supplemental benefits is appropriate.
We also propose to make a conforming revision in the cross-
reference to this provision that currently appears at Sec.
409.30(b)(2)(ii), in order to reflect this provision's relocation from
Sec. 422.101 to Sec. 422.102. This is a simple relocation of current
regulation. There are no new PRA requirements.

J. ICRs Related to Changes to Audit and Inspection Authority (Sec.
422.503(d)(2) and Sec. 423.504(d)(2))

We are proposing a change to Sec. 422.503(d)(2) and Sec.
423.504(d)(2) to include authority that will permit CMS to require MA
organizations and Part D sponsors to hire an independent auditor to
conduct full or partial program audits and/or perform validation
exercises to confirm correction of deficiencies found during an audit.
We currently conduct these audits and validation exercises, and collect
data associated with these activities under OCN 0938-1000. We do not
believe that requiring MA organizations and Part D sponsors to hire an
independent auditor to conduct these audits or validation exercises
will impose any additional burden on MA organizations and Part D
sponsors.

K. ICR Related to Recovery Audit Contractor Determinations (Part 422,
Subpart Z and Part 423, Subpart Z)

The information collection burden associated with our proposed
requirements consists of the submission of requests for: (1)
Reconsiderations; (2) CMS hearing official determinations; and (3) CMS
Administrator reviews. Based on existing Part D appeals data, we
estimate that plans will file the following numbers of requests on an
annual basis:

Table 7-- Estimated Number of Part C & D RAC Appeal Requests
------------------------------------------------------------------------
Number of
Type of request requests per
year
------------------------------------------------------------------------
Reconsideration......................................... 104
CMS Hearing Official.................................... 10
Administrator Review.................................... 2
---------------
Total................................................. 116
------------------------------------------------------------------------

The reasons for the decrease in requests at higher appeal levels
are that: (1) The plan may succeed in its appeal and thus have no need
to appeal to the next level; and (2) the plan may simply wish to forgo
further appeals. We stress that the figures in Table 7 are mere
projections, though, again, they are based on the number of Part D
appeals that have been submitted to date.
We estimate that it would take a plan 5 hours to prepare and file
an appeal request. In terms of cost, it has been our experience that
most appeals have been prepared by high-level officials of the plan.
According to the most recent wage data provided by the Bureau of Labor
Statistics (BLS) for May 2012, the mean hourly wage for the category of
``General and Operations Managers''--which we believe, considering the
variety of officials who have submitted appeals, is the most
appropriate category--is $55.22. With fringe benefits and overhead, the
per hour rate is $83.35. Multiplying this figure by 580 hours (or 116
submissions x 5 hours) results in a projected annual cost burden of
$48,343, as outlined in Table 8.

Table 8--Estimated Annual Reporting/Recordkeeping Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
OMB Burden per Total Hourly labor labor cost Total
Regulation section(s) Control Respondents Responses response annual cost of of capital/ Total
No. (hours) burden reporting reporting maintenance cost ($)
(hours) ($) ($) costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 422.2605.......................... N/A 52 52 5 260 83.35 83.35 0 21,671.00
Sec. 422.2610.......................... N/A 5 5 5 25 83.35 83.35 0 2083.75
Sec. 422.2615.......................... N/A 1 1 5 5 83.35 83.35 0 416.75
Sec. 423.2605.......................... N/A 52 52 5 260 83.35 83.35 0 21,671.00
Sec. 423.2610.......................... N/A 5 5 5 25 83.35 83.35 0 2083.75

[[Page 2030]]

Sec. 423.2615.......................... N/A 1 1 5 5 83.35 83.35 0 416.75
--------------------------------------------------------------------------------------------------------------
Total................................ N/A 116 116 N/A 580 ............ .......... 0 48,343
--------------------------------------------------------------------------------------------------------------------------------------------------------

If you comment on these information collection and recordkeeping
requirements, please do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this proposed rule; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget,

Attention: CMS Desk Officer, CMS-4159-P
Fax: (202) 395-6974; or
Email: [email protected]

V. Response to Comments

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

VI. Regulatory Impact Analysis

A. Statement of Need

The purpose of this proposed rule is to make revisions to the MA
program (Part C) and Prescription Drug Benefit Program (Part D),
implement provisions specified in the Affordable Care Act, 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.

B. Overall Impact

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. A regulatory impact analysis (RIA) must be prepared for
major rules with economically significant effects ($100 million or more
in any 1 year). This proposed rule has been designated an
''economically significant'' rule under section 3(f)(1) of Executive
Order 12866. Accordingly, we have prepared a regulatory impact analysis
that details the anticipated effects (costs, savings, and expected
benefits), and alternatives considered by proposed requirement.
Finally, in accordance with the provision of the Executive Order 12866,
this proposed rule was reviewed by the Office of Management and Budget.
Two provisions result in a total of 4,768 annual burden hours and a
total annualized monetized impact of $148,939. See sections IV.G. and
IV.K. of this proposed rule for details regarding the burden associated
with the requirements of this proposed rule. 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). Individuals and states
are not included in the definition of a small entity. This proposed
rule primarily affects the Federal government, Medicare Advantage
plans, and Part D Sponsors.
Part D sponsors and MA plans, entities that will be affected by the
provisions of this rule, are not generally considered small business
entities. MA plans and Part D sponsors must meet 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. We determined that there were very few MA plans and Part D
sponsors that fell below the size thresholds for ''small'' businesses
established by the Small Business Administration (SBA). Currently, the
SBA size threshold is $7 million in total annual receipts for health
insurers (North American Industry Classification System, or NAICS, Code
524114) and we have confirmed that most Part D sponsors have Part D
receipts above the $7 million threshold.
While a very small rural plan could fall below the threshold, we do
not believe that there are more than a handful of such plans. A
fraction of MA organizations and sponsors are considered small
businesses because of their non-profit status. HHS uses as its measure
of significant economic impact on a substantial number of small
entities, a change in revenue of more than 3 to 5 percent.
Consequently, we do not believe that this threshold would be reached by
the proposed requirements in this proposed rule because this proposed
rule would have minimal impact on small entities. Therefore, an
analysis for the RFA will not be prepared because the Secretary has
determined that this proposed rule

[[Page 2031]]

would 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 603 of the RFA. For purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital that
is located outside of a metropolitan statistical area and has fewer
than 100 beds. We are not preparing an analysis for section 1102(b) of
the Act because the Secretary has determined that this proposed rule
would 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 2013, that threshold is approximately $141 million. This
proposed rule is not expected to reach this spending threshold.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on state
and local governments, preempts state law, or otherwise has Federalism
implications. Based on CMS Office of the Actuary estimates, we do not
believe that this proposed rule imposes substantial direct requirement
costs on state and local governments, preempts state law, or otherwise
has Federalism implications.
Table 14 details the proposed rule's impacts by entity, including
the federal government and MA organizations and Part D sponsors. We
note that the estimated savings do not represent net social benefits
because they consist of transfers of value from drug manufacturers,
pharmacies, incarcerated individuals and individuals not lawfully
present in the United States to the federal government, MA
organizations, Part D sponsors and beneficiaries who continue in the
programs.

C. Anticipated Effects

1. Effects of Closing Cost Contract Plans to New Enrollment
In our proposal to ensure that organizations do not move enrollees
from one of their cost or MA plan types to another based on financial
or some other interest, we propose to revise Sec. 422.503(b)(5) so
that an entity seeking to contract as an MA organization must ``not
accept new enrollees under a section 1876 reasonable cost contract in
any area in which it seeks to offer an MA plan if the MA organization
and reasonable cost contract are offered by the same parent
organization.'' We believe this provision will have minimal or no
financial impact as only a handful of parent organizations currently
offer MA and cost plans in the same service area. In addition, as the
regulation requires that affected cost plans close to new enrollment,
not that they terminate operations, we believe that there will be
little or no impact to beneficiaries.
2. Effects of Two-year Limitation on Submitting a New Bid in an Area
Where an MA Has Been Required To Terminate a Low-Enrollment MA Plan
Under Sec. 422.506(b)(1)(iv), we must non-renew a MA plan that
does not have a sufficient number of enrollees to establish that it is
a viable independent plan option. We have established the threshold for
termination due to insufficient number of enrollees at fewer than 500
enrollees for non SNPs and fewer than 100 enrollees for SNPs over a
specified time period of 3 years. If we did not implement this, an MA
organization required to terminate or consolidate one of its MA plans
due to sustained low enrollment could avoid the consequences of such a
requirement by submitting a bid for a new plan in the same service
area.
We are proposing to amend the MA regulations at Sec. 422.
504(a)(19) to impose a contractual requirements that when CMS non
renews, or asks the MA organization to terminate an MA plan due to
sustained low enrollment pursuant to Sec. 422.506(b)(1)(iv), the MA
organization may not introduce any new MA plan in that service area for
2 contract years. We believe this requirement will enhance our ongoing
efforts to ensure that MA organization offerings in a service area
present beneficiaries with viable plans that are responsive to their
needs. We see no financial impact on MA organizations as this
requirement has very limited application and imposes no independent
financial burden.
3. Effects of Authority To Impose Intermediate Sanctions and Civil
Money Penalties
We are proposing to make two changes to existing authority for the
imposition of intermediate sanctions and civil money penalties (CMPs).
First, under the Affordable Care Act, new authority was provided to the
Secretary, which now permits CMS to impose intermediate sanctions for
additional contract violations in the areas of marketing and
enrollment. This new authority further permits CMS to impose
intermediate sanctions on contracting organizations' that employ or
contract with organizations, agents, and suppliers who commit any of
the contract violations contained in Sec. 422.752 and Sec. 423.752.
Second, we are clarifying our authority to impose CMPs for the
aforementioned contract violations. Current regulations designate the
OIG as the sole government agency with the authority to impose CMPs for
the contract violations contained in Sec. 422.752 and/or Sec.
423.752. We are modifying the language of these provisions to clarify
that CMS or the OIG may impose CMPs for these contract violations
except the provision that relates to the misrepresentation of
falsification of information furnished to CMS, an individual or entity.
We believe these provisions would not result in additional burden
to sponsors nor would they have a financial impact on sponsors.
4. Effects of Contract Termination Notification Requirements and
Contract Termination Basis
In current regulations, we are required to provide 90-day notice to
organizations whose contracts are being terminated by CMS. The
authorizing statute at section 1857(h)(1)(B) and 1860D-12(b)(3)(F) of
the Act states that the Secretary must provide reasonable notice and
opportunity for hearing (including the right to appeal the initial
determination) before terminating a contract (except under certain
circumstances). We are proposing to modify the notice timeframe from 90
days to 45 days. We believe these provisions would not result in
additional burden to sponsors nor would it have a financial impact on
sponsors.
5. Effects of Reducing the Burden of the Compliance Program Training
Requirements
We are proposing to lessen the burden placed on contracting
organizations and their first tier, downstream and related entities
(FDRs). Current regulations specify that contracting organizations are
required to provide general compliance program training for their FDRs
upon initial contracting and annually thereafter. To lessen this
burden, we would require all contracting organizations to accept a

[[Page 2032]]

certificate of completion of the CMS Standardized General Compliance
Program Training and Education Module as evidence of satisfaction of
this program requirement. Under this program change, contracting
organizations would not be permitted (or required) to develop or
implement organization specific training for FDRs. We anticipate that
this would greatly reduce the burden on various sectors of the industry
including, but not limited to, insurance providers, hospitals,
suppliers, pharmacists and physicians. We anticipate that this change
would actually provide savings for sponsors and the FDRs since FDRs
would only have to take one training as opposed to the possible
numerous trainings they may take under current requirements.
Additionally, sponsors would save because they would not be required to
provide training materials to each FDR with which they contract.
We believe these provisions would not result in additional burden
to sponsors nor would they have a financial impact on sponsors.
6. Effects of Audit and Inspection Authority
We are proposing two changes to Sec. 422.503(d)(2) and Sec.
423.504(d)(2) that would allow CMS to require sponsors (MA
organizations and Part D sponsors) to hire an independent auditor to
conduct full or partial program audits of the sponsors' operational
areas and/or correction validation exercises. We currently conduct
program audits of approximately 30 sponsors per year. Under this
proposal, each MA organization and/or Part D sponsor would be required
to hire an independent auditor to perform a full or partial program
audit at least every 3 years. There are currently 298 sponsors in the
Parts C & D programs. Under this new authority, approximately 99, or
one-third of these organizations would be required to hire an
independent auditor to perform a program audit, beginning in contract
year 2015. Once the sponsor's audit is concluded in the year in which
it was chosen, the sponsor would not be subject to another audit until
its third year occurs (that is, plans selected for audit in contract
year 2015, would not be selected for audit again until contract year
2018); unless the sponsor demonstrates behavior that we believe poses a
risk to Medicare beneficiaries, the Trust Fund or both. Sponsors
demonstrating this type of noncompliance may be subjected to a CMS
program audit at any time in order to identify and mitigate any risk of
potential harm to our beneficiaries. This proposal ensures that all
sponsors will be audited on at least a 3-year cycle while continuing to
maintain the integrity of the program by allowing CMS to continue to
conduct audits when it believes beneficiaries are at risk.
Each independent auditor would work within CMS' specifications and
guidelines. We would make available to the sponsors all of the methods
of evaluations, methodologies and protocols to be used by the
independent auditor when conducting the audit. We would also provide
technical assistance to auditors as necessary.
We currently conduct program audits that examine the following
operational areas:
Formulary and Benefits Administration (Part D)
Coverage Determinations, Appeals & Grievances (Part D)
Organization Determinations, Appeals & Grievances (Parts C)
Compliance Program effectiveness (Parts C & D)
Outbound Enrollment Verification (OEV) (Parts C & D)
Special Needs Plan Model of Care (SNP MOC) implementation
(Parts C & D)

We estimate that the independent auditor hired will need to have a team
consisting of the following professionals:
Formulary and Benefits Administration--pharmacist, a
senior claims analyst, and a senior auditor.
Coverage Determinations, Part D Appeals, Part D
Grievances--pharmacist, senior auditor.
Organization Determinations, Part C Appeals, Part C
Grievances--nurse practitioner, senior auditor, auditor.
Compliance Program effectiveness--two auditors (at least
one senior).
Outbound Enrollment Verification (OEV)--two auditors (at
least one senior).
Special Needs Plan Model of Care (SNP MOC)
implementation--two auditors (at least one senior).
We used the most recent (2010) wage statistics supplied by the
Department of Labor, Bureau of Labor Statistics to develop estimates of
direct wages. We also added fringe benefits, overhead costs, and
general and administrative expenses using percentages that are
consistent with CMS contracts. Based on our experience and in
consultation with program experts, we developed an estimate of the
hourly burden. The estimated mean cost per hour for each sponsor is
$35.80 (wages, fringe benefits, and overhead). The team of 14
professionals (listed previously) is necessary for the performance of
each program audit. The estimated mean number of hours the team will
need to perform the audit per sponsor is 160. The mean cost per sponsor
to procure and support the auditor is therefore: 14 x 160 x $35.80 =
$80,192. The auditing costs will be allowable costs in the plan's bid.
Since, sponsors will only be subjected to these audits every 3 years;
it is our expectation that sponsors will include one-third of this cost
in its bid each year. Therefore, each plan year, the total cost
included in a sponsors bid is: $80,192 / 3 = $26,731.
The total annual estimated burden hours related to the time and
effort for all sponsors being audited is estimated to be 298 sponsors x
$26, 731 per sponsor, per year = $7,965,838. Therefore, the estimated
annual cost for this requirement is $7,965,838.
We are also proposing to revise our regulations to permit CMS to
require MA organizations or Part D sponsors with audit results that
reveal non-compliance with CMS requirements to hire an independent
auditor to validate that correction has occurred. As mentioned
previously, under our existing authority we currently conduct
approximately 30 audits per year. Based on our experience, the number
of deficiencies identified and requiring corrective action can vary
widely from sponsor to sponsor, which therefore affects the time and
effort required for subsequent correction validation. Therefore, we
have decided to provide an estimate that assumes that each sponsor
audited has failed 50 percent of all elements audited; thereby
requiring correction validation. We recognize that some sponsors may
have far fewer elements that require validation and some sponsors may
have more elements that require validation, but we believe that this is
the most accurate estimate we can provide of the number of sponsors
that will undergo validation and the associated effort required with
that validation.
Under these circumstances we estimate that the independent auditor
hired will need to have a team consisting of the following
professionals:
Formulary and Benefits Administration--pharmacist, a
senior claims analyst, and a senior auditor.
Coverage Determinations, Part D Appeals, Part D
Grievances--pharmacist, senior auditor.
Organization Determinations, Part C Appeals, Part C
Grievances--nurse practitioner, senior auditor.
Compliance Program effectiveness--one senior auditor.
Outbound Enrollment Verification (OEV)--one senior
auditor.

[[Page 2033]]

Special Needs Plan Model of Care (SNP MOC)
implementation--one senior auditor.
We used the same wage statistics provided previously to develop an
estimate of the hourly burden (which includes fringe benefits, overhead
costs, and general and administrative expenses that use percentages
that are consistent with CMS contracts). The estimated mean cost per
hour for these sponsors is $35.80. A team of 10 professionals (listed
previously) is necessary for the performance of each correction
validation. The average hourly cost for a validation with a team of 10
professionals is the same as the average hourly cost of an initial
audit with a team of 14 professionals because in both scenarios, the
mix of auditors to specialists (or non-auditors) is roughly 70 percent
auditors and 30 percent specialists. Since the need for specialists can
vary widely (that is, in some validations they may not be needed at
all, and in other cases, all of the specialists from the original audit
may be needed), we determined that the average breakdown of the team is
the same for initial audit and validation. Therefore, the average
hourly cost has not changed, despite the change in the number of team
members. The estimated mean number of hours the team will need to
perform the correction validation per sponsor is 80. The mean cost per
sponsor to procure and support the independent auditor is therefore: 10
x 80 x $35.80 = $28,640. The validation costs will be allowable costs
in the plan's bid. Under existing regulations the total annual
estimated burden hours related to the time and effort for sponsors to
perform the correction validation is estimated to be 30 sponsors x
$28,640 per sponsor, per year = $859,200. Therefore, the estimated
annual cost for this requirement under existing regulations is
$859,200.
If the provision proposing that we acquire the authority to require
sponsors to hire an independent auditor to conduct program audits is
finalized, the number of sponsors being audited per year will increase
from 30 (current) to 99 (proposed). Using the same weighted data
assuming that each sponsor audited has failed at least 50 percent of
audited elements, the estimated mean cost per sponsor to procure and
support the independent auditor is: 10 x 80 x $35.80 = $28,640. The
correction validation costs will be allowable costs in the plan's bid.
Since, sponsors will only be subjected to these audits/validations
every 3 years; it is our expectation that sponsors will include one-
third of this cost in its bid each year. Therefore, each plan year, the
total cost included in a sponsors bid is: $28,640 / 3 = $9,547. The
total annual estimated burden hours related to the time and effort for
all sponsors being audited to perform the correction validation is
estimated to be 99 sponsors x $9,547 per sponsor, per year = $945,120.
Therefore, the potential estimated annual cost for this requirement is
$945,120.
7. Effects of Procedures for Imposing Intermediate Sanctions and Civil
Money Penalties Under Parts C and D
We are proposing to make changes to our authority for imposing
intermediate sanctions and for determining when such sanctions will be
lifted. Sections 1857(g) and 1860D-12(b)(3)(E) of the Act provide the
Secretary the ability to impose intermediate sanctions on MA
organizations and PDP sponsors. Intermediate sanctions consist of
suspension of enrollment, suspension of marketing and suspension of
payment. Current regulations governing intermediate sanctions are
contained in subparts O of part 422 and part 423. Sections 422.756 and
Sec. 423.756 provide specific procedures for imposing intermediate
sanctions, and include provisions which address the duration of the
sanction and the standard that we apply when determining if a sanction
should be lifted. As specified in the Act and regulations, when
intermediate sanctions are imposed on contracting organizations, the
sanctions remain in place until the Secretary/CMS is satisfied that the
basis for the sanction determination has been corrected and is not
likely to recur.
In the October 2009 proposed rule (74 FR 54634), we proposed a
change that included a rule that allows us to require a plan under a
marketing and/or enrollment sanction to market or accept enrollments or
both for a limited period of time. As we explained in that proposed
rule, the purpose of the test period is to assist us in making a
determination as to whether the deficiencies that are the bases for the
intermediate sanctions have been corrected and are not likely to recur.
The test period provides us with the opportunity to observe a
sanctioned plans ability to enroll or market to Medicare beneficiaries
prior to lifting the sanction.
We are proposing to extend the applicability of such a test period
to include all intermediate sanctions and to clarify that while we may
require a sponsor to receive enrollments during this test period, the
sponsor would not receive any LIS annual or auto facilitated
reassignments.
We believe these provisions would not result in additional burden
to sponsors nor would they have a financial impact on sponsors.
8. Effects on Timely Access to Mail Order Services
We believe it is necessary and appropriate to establish mail order
fulfillment requirements defining maximum turnaround times from when
the pharmacy receives the prescription order to when it is shipped.
This would underscore the importance of consistent and reliable access
to medications, protecting beneficiaries from inconsistent or
unreliable practices that may otherwise jeopardize timely access to
prescriptions. The proposed standards are in alignment with
requirements already in place in the market, and as such we do not
expect significant financial impacts to implement.
9. Effects of Collections of Premiums and Cost Sharing
In the proposed provision, ``Waivers and Incorrect Collections of
Premiums and Cost Sharing,'' we propose to codify our existing guidance
pertaining to the waiver of premiums and cost sharing by Part D
sponsors and to specifically require sponsors to refund incorrect
collections of premiums and cost sharing or retroactively collect
underpayments of cost sharing. Since our policy on waivers of premiums
and cost sharing has been specified in informal guidance since the
beginning of the Part D program and the timeframe for sponsor refunds
and recoveries is codified in regulations at Sec. 423.466(a)
indicating that such refunds and collections are required, we do not
believe the proposed changes would result in any additional costs.
10. Effects of Enrollment Eligibility for Individuals Not Lawfully
Present in the United States
In section III.A.10. of this proposed rule, we discuss our
proposals to add 'citizenship or lawful presence' as an eligibility
requirement to enroll and remain enrolled in MA, Part D, and section
1876 cost contracts to align with section 401 of the PRWORA mandating
that aliens not lawfully present in the United States are not eligible
to receive any federal benefit. In CY 2012, there were close to 50
million Medicare beneficiaries. Approximately 34.4 million
beneficiaries were enrolled in MA plans, PDPs or cost plans, which
accounted for 68.8 percent of the total Medicare population. In the
same year, an average of 4,285 Medicare beneficiaries enrolled in MA or
Part D plans were identified by SSA as being unlawfully present. By
directing MA

[[Page 2034]]

plans, PDPs, and cost plans to disenroll individuals who, at the time
of notification from CMS, are not lawfully present, we intend to
prevent improper payment for these individuals to MA plans, PDPs, and
cost plans for periods when these individuals were ineligible to
receive such services. Based on data for capitation payments for MA and
PDPs, as well as the prepayments provided to cost plans, we estimate
that the disenrollment of individuals who are unlawfully present would
result in a decrease in payments made by CMS and would result in a cost
savings of $10 million in 2015. We estimate, based on the numbers
previously mentioned, that this change could save the MA program
approximately $5 million in 2015, increasing to $8 million in 2019, and
could save the Part D program (includes the Part D portion of MA-PD
plans) approximately $5 million in 2015, increasing to $9 million in
2019. As cost plans are paid based on the reasonable costs delivering
Medicare-covered services to their enrollees, instead of the fixed
capitation amounts paid to MA plans and PDPs, we believe the impact to
cost plans associated with this provision to be negligible.

Table 9--Projected Number of Individuals Disenrolled Due to Loss of Lawful Presence and Estimated Savings to the Medicare Advantage Program by Provision
for Calendar Years 2015 Through 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals (CYs
2015 2016 2017 2018 2019 2105-2019)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected number of unlawfully present beneficiaries 1,118 1,247 1,375 1,503 1,632 6,875
enrolled in MA plans...................................
Projected federal impact due to unlawfully-present \1\ -$5 \1\ -$6 \1\ -$6 \1\ -$7 \1\ -$8 -$32
individuals disenrolled 6 months sooner................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 lawful presence data provided by the SSA.
\1\ Million.

Table 10--Projected Number of Individuals Disenrolled Due to Loss of Lawful Presence and Estimated Savings to the Medicare Part D Program by Provision
for Calendar Years 2015 Through 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals (CYs
2015 2016 2017 2018 2019 2015-2019)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected number of unlawfully present beneficiaries 5,780 6,276 6,771 7,267 7,762 33,856
enrolled in Part D plans (including MA-PDs)............
Projected federal impact due to unlawfully-present \1\ -$5 \1\ -$6 \1\ -$7 \1\ -$8 \1\ -$9 \1\ -$35
individuals disenrolled 6 months sooner................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 lawful presence data provided by the SSA.
\1\ Million.

11. Effects of Part D Notice of Changes
This section would codify current guidance for Part D sponsors to
inform beneficiaries about changes to plan benefits from year to year
and also correct an oversight whereby such a regulation currently
exists for Part C but not for Part D. We anticipate that this proposal
would result in no additional costs because Part D sponsors already
typically provide this information.
12. Effects of Separating the Annual Notice of Change (ANOC) From the
Evidence of Coverage (EOC)
Currently, members must receive the plan's combined ANOC/EOC prior
to the Annual Election Period (AEP). We propose to separate the
distribution and dissemination requirements, such that, the ANOC is
received by beneficiaries before the AEP and the EOC is received closer
to the enrollment effective date. This way, beneficiaries who choose to
leave their current plans and enroll in other plans will only receive
an EOC from the plan in which they have enrolled. We believe that this
will reduce confusion among beneficiaries about which EOC is for the
plan in which they have enrolled. It eliminates the unnecessary waste
from the production of EOCs that end up being discarded. It also allows
MA organizations and Part D sponsors additional time to develop better
quality documents.
We propose to revise the language in Sec. 422.111(a)(3) and Sec.
423.128(a)(3) to allow the EOC to be sent to members a few months after
the ANOC. We believe this provision will have minimal or no financial
impact as the proposal would merely change the timing of notices that
MA organizations and Part D sponsors already provide. Further, the
delay in providing the EOC could result in savings as MA organizations
and Part D sponsors have additional time to ensure that these documents
are accurate, thus eliminating the need for updates and correction
notices.
13. Effects of the Modification of the Agent/Broker Compensation
Requirements
The current independent agent compensation structure (as originally
published as CMS-4138-IFC2 in November 2008) is comprised of a 6-year
cycle and is scheduled to end December 31, 2013. MA organizations and
Part D sponsors provide an initial compensation payment to independent
agents for new enrollees or unlike plan changes (Year 1), and pay a
renewal rate (equal to 50 percent of the initial year compensation) for
Years 2 through 6. CMS is proposing to revise this existing
compensation structure. MA Organizations and PDP sponsors would have
the discretion to decide, on an annual basis, whether to pay initial
and/or renewal compensation payments to their independent agents. For
new or unlike plan change enrollments, MA Organizations and PDP
sponsors could make an initial payment that is no greater than the fair
market value (FMV)

[[Page 2035]]

amount for such services, set annually by CMS in guidance interpreting
these regulations. For renewals in Year 2 and subsequent years, the MA
organization or PDP sponsor could pay up to 35 percent of the FMV
amount for that year. We are proposing that recovery of compensation
payments not happen when the disenrollment does not result from the
agent's behavior. In addition to the agent and broker compensation
structures, we are amending the training and testing requirements and
setting limits on referral fees for agents and brokers.
We do not believe that any of these revisions will add additional
burden or have financial impact. We are simply revising the existing
compensation structure under which MA organizations may pay independent
agents and believe that the total compensation amounts will generally
remain unaffected. Furthermore, we believe these proposed changes would
actually lessen the burden and impact on MA organizations by
simplifying the compensation structure for independent agent brokers.
14. Effects of Drug Categories or Classes of Clinical Concern and
Exceptions
We believe that this proposed provision to establish new criteria
for identifying Part D drug categories or classes of clinical concern
would generate significant Part D savings. This provision would require
that Part D sponsors include all Part D drugs on their formularies in
categories or classes of clinical concern that CMS specifies for a
typical individual with a disease or condition treated by the drugs in
the category or class meet the following proposed criteria: (1)
hospitalization, persistent or significant disability or incapacity, or
death likely will result if initial administration (including self-
administration) of a drug in the category or class does not occur
within 7 days of the date the prescription for the drug was presented
to the pharmacy to be filled; and (2) more specific CMS formulary
requirements will not suffice to meet the universe of clinical drug-
and-disease-specific applications due to the diversity of disease or
condition manifestations and associated specificity or variability of
drug therapies necessary to treat such manifestations.
The expected savings to the Part D program would result from
reducing the number of categories or classes of drugs for which Part D
sponsors currently must include all Part D drugs on their formularies,
as compared to existing requirements. Specifically, in applying the
proposed criteria to all categories and classes of Part D drugs, CMS
has determined that three existing categories and classes of Part D
drugs would meet the new criteria and that no additional categories or
classes of drugs would meet the criteria. Specifically, we determined
that only the antineoplastic, antiretroviral and anticonvulsant
categories and classes would meet the new criteria. This means that
Part D sponsors would no longer be required to include all Part D drugs
from within the antidepressant and immunosuppressant (used for
transplants rejection) classes on their formularies. Relative to the
antipsychotic class, however, we are deferring any change in formulary
requirements for the antipsychotic class at this time and will continue
to require that all drugs within the antipsychotic class be included on
all Part D formularies, subject to the exceptions that get finalized in
Sec. 423.120(b)(2)(vi).
Based upon this determination, we estimated that full
implementation (including the antipsychotic class) of this provision
would result in federal savings to the Medicare Part D program of $720
million for the period CY 2015 through CY 2019, with most of these
savings generated from the antipsychotic class (see table 14). We note
this estimate is based upon the information that is available.
Projected savings are based upon full implementation of the criteria
and do not reflect that changes for the antipsychotic class of drugs
are deferred at this time. However, there could be additional savings
when new drugs enter the market and compete with each other by
providing higher rebates.
A consensus panel applied our proposed criteria to determine the
categories or classes of clinical concern. Our consensus panel
determined that of the current six categories or classes of clinical
concern, three met both of the proposed criteria, three did not, and no
new drug categories or classes met both criteria. Finally, we estimated
the impact on drug expenditures for those drugs that ultimately met the
criteria, as well as those drug categories or classes that no longer
qualify as categories or classes of clinical concern.
To arrive at the cost estimate for the implementation of the
categories or classes of clinical concern, we began by putting drug
spending into three groupings: (1) Drugs that were already included in
the six categories or classes of clinical concern; (2) drugs with a
greater likelihood of being affected by this change because formularies
without them would be acceptable under our formulary review process;
(3) drugs with a lesser likelihood of being affected by this statutory
change because formularies without them would not be acceptable under
our formulary review process; and (4) drugs in the research and
development pipeline in the six categories or classes of clinical
concern that would be affected by this statutory change. Because we
reduced the number of categories or classes of clinical concern
relative to the six for which we currently require formulary inclusion
of all Part D drugs, we expect Part D sponsors' negotiating power to
increase. As a result, Part D sponsors could incur lower drug costs and
could lower their bids, which could result in lower premiums and co-
pays. We also believe that direct savings would be generated by the
increasing generic utilization by removing brand products from
formularies. Although, based on other categories and classes of drugs
that exhibit generic saturation, we have reason to believe that some
plans would still cover the brand products. Moreover, we believe that
the program would avoid future costs because some drugs in the research
and development pipeline would not be required on formularies as a
result of this change.
To support the panel's conclusion that our formulary checks could
efficiently require adequate access to these categories and classes
without requiring that every drug in them be included on Part D
formularies, we compared a Part D formulary to other formularies. To
accomplish this, we took an approved CY 2014 formulary containing the
average number of RxNorm Concept Unique Identifiers (RxCUIs). This
formulary includes the following: 23 Generic (ANDA) antidepressant drug
entities, 7 brand (NDA) antidepressant drug entities, 18 generic
antipsychotic drug entities, and 9 brand antipsychotic drug entities.
We then reviewed the drugs comprising the previously mentioned list
against our formulary review requirements standards for treatment
guidelines, common Medicare drugs, and the discrimination review. We
found that the formulary could have passed these checks with 9 generic
antidepressant drug entities, and 6 generic antipsychotic drug
entities. No brands were necessary to meet the formulary review
requirements. Thus, this formulary includes an excess of 16 brand drug
entities and 26 generic drug entities within these two classes of
medications. Because all these products are currently required on all
Part D formularies, there is significantly less need for manufacturers
to restrain list prices or offer rebates to sponsors for formulary
placement. In contrast, under our proposal, 100 percent of the brands

[[Page 2036]]

(16/16) and 63 percent of the generics (26/41) would be expected to
meet or exceed the price concessions applicable to the least expensive
products in those classes to remain competitive. If manufacturers
increased price concessions in response, sponsors might elect to keep
the products on the formulary. Otherwise, we would expect sponsors to
take those products off formulary. Thus, individuals on brand versions
of these drugs or on the 63 percent of generic versions would in most
cases either stay on the drug at that more competitive price, or switch
to an even cheaper alternative that remains on formulary. Either way,
the beneficiary's drug costs and costs to the program would decrease.
Moreover, to evaluate whether plans would continue to offer brand drugs
(because new generic drugs would be available), and therefore whether
any rebates would be available, we evaluated CY 2014 formularies for
three classes of drugs that face saturation by generics. We found that
even though the majority of drugs in those classes were generic, some
plans continued to offer brand drugs. We also propose to establish
exceptions that we believe permit Part D sponsors to apply meaningful
utilization management to these drugs without compromising access.
Although these exceptions are generally similar to existing policy, we
propose to permit prior authorizations for drugs in the categories and
classes of clinical concern to verify medically accepted indications or
in Part A/B versus D situations. These lower costs could be reflected
in bids submitted to CMS by Part D sponsors and could result in
decreased premiums for Medicare beneficiaries.
Although Part D sponsors would be required to include all Part D
drugs on their formularies in fewer categories or classes than are
currently required, we believe that our formulary review processes are
sufficient to ensure that the implementation of this provision would
not negatively impact beneficiary access to drugs or enrollment in Part
D plans. Moreover, robust transition, exceptions and coverage
determination, appeals and grievances processes ensure beneficiary
access in the event that they have enrolled, either self-enrolled or
auto-enrolled, in a plan where their drugs are not on formulary. We
also do not believe that the proposed provisions would lead to greater
beneficiary confusion or any increased difficulty in making enrollment
decisions. We continue to believe that overall enrollment would
increase given demographic trends and the increasing cash prices for
drugs paid by beneficiaries who must pay cash because they do not
enroll. Accordingly, we believe Medicare beneficiaries would continue
to find Part D to be a cost efficient method of obtaining robust drug
coverage at a range of acceptable costs.
We plan on working closely with Part D sponsors as our guidance in
this area develops to ensure that they continue to provide high quality
prescription drug coverage at the most economical price. It is not
clear to us whether PBMs would experience a decrease in administrative
costs. On one hand, the provisions in this rule may decrease formulary
maintenance expenses, such as managing a small formulary. This may
result in PBMs decreasing their fees to Part D sponsors. On the other
hand, these provisions may increase exception requests, appeals, prior
authorizations, and outreach to Part D sponsors, thereby increasing
PBMs' administrative costs. However, because these types of
administrative costs exist for PBMs today, it is unclear how much of an
increase we would see specifically as a result of these provisions.
Similar to our ongoing communications with our Part D sponsors, we
intend to work closely with the industry to minimize the likelihood of
any unanticipated increases in beneficiary costs.
15. Effects of Medication Therapy Management Program (MTMP) Under Part
D
Current regulations require that Part D sponsors must have
established a Medication Therapy Management Program that targets
beneficiaries who: (1) Have multiple chronic diseases with three
chronic diseases being the maximum number a Part D plan sponsor may
require for targeted enrollment; (2) are taking multiple Part D drugs,
with eight Part D drugs being the maximum number of drugs a Part D plan
sponsor may require for targeted enrollment; and (3) are likely to
incur costs for covered Part D drugs in an amount greater than or equal
to $3000, as increased by an annual percentage. We specified in
guidance that while Part D sponsors are permitted to target
beneficiaries with select chronic diseases, they must include at least
five of nine core chronic diseases in their criteria. These provisions
have generated wide variability in MTM programs. Moreover, despite opt-
out enrollment, completion rates for comprehensive medication reviews
(CMR) remain very low.
We propose to broaden the MTM criteria to require that Part D
sponsors now target beneficiaries who have two or more chronic diseases
and are taking two or more covered Part D drugs. We propose to set the
annual cost threshold at an amount commensurate with the annual amount
of Part D costs incurred by individuals that meet the first two
criteria regarding multiple chronic conditions and use of multiple
covered Part D drugs. Applying this methodology, we would set the cost
threshold at $620, which is the approximate cost of filling two generic
prescriptions. We propose to revise this number periodically to reflect
more up-to-date information regarding the drug spending of
beneficiaries that have two or more chronic conditions and use two
covered Part D drugs. We estimate that 2.5 million beneficiaries are
currently eligible for MTM services, 13 percent opt-out of the MTM
program, and 10 percent of participating beneficiaries will receive an
annual CMR. We also estimate that an average CMR requires 35 minutes to
complete and the average hourly compensation (including fringe
benefits, overhead, general, and administrative expenses and fee) of
the MTM provider is $120 (labor cost per CMR is $70), and that it costs
$0.91 to print and mail a CMR summary in CMS' standardized format.
Therefore, the estimated total annual cost of providing CMRs in all
settings is $15,422,925 ($70.91/CMR x 217,500 CMRs). Previously, prior
to the availability of more precise opt-out and CMR rates, we estimated
that the total burden associated with conducting CMRs and delivering
the CMR written summary in CMS' standardized format was 1,192,429 hours
with a cost of $143,363,555, including delivery of 1,896,500 CMRs in
all settings under the current eligibility criteria, and implementation
and mailing costs for the CMR summary in standardized format (see OMB
Control No. 0938-1154). We do not currently have data or estimates to
determine the costs associated with quarterly targeted medication
reviews and follow-up interventions, if necessary.
We estimate that 18 million beneficiaries would be eligible for MTM
services based on the proposed criteria. Using the same opt-out, CMR,
and expense rates as before, the estimated total annual cost of
providing CMRs in all settings is $111,045,060 ($70.91/CMR x 1,566,000
CMRs). This is below previous estimates.
Additionally, there is currently no requirement to ensure that
beneficiaries in special populations receive focused targeting,
outreach, or engagement for enrollment or participation in MTM.
Moreover, the opt-out method of enrolling targeted beneficiaries into
MTM at 42 CFR 423.153(d)(1)(v) may only partly address the increased

[[Page 2037]]

barriers to care faced by some beneficiaries. Without being
prescriptive about what strategies must be employed, we are proposing
that sponsors develop an effective strategy to ensure access to
services for all MTM-eligible beneficiaries. We would expect to see
details concerning sponsors' specialized strategies regarding outreach
and service provisions in their bids. We believe that current plan
reporting requirements, along with other CMS data sources, will be
sufficient for us to evaluate the impact of such strategies.
We cannot definitively score this proposal because the portion of
the administrative costs attributable to MTM is not a specific line
item that can be easily extracted from the bid. Although the increase
in the number of CMRs is estimated to cost $111 million, mounting
evidence shows that MTM services may generate overall medical savings.
Supporting this conclusion, a recent study conducted in conjunction
with the Center for Medicare and Medicaid Innovation (``CMMI MTM
study'') (available at http://innovation.cms.gov/Files/reports/MTM-Interim-Report-01-2013.pdf) found that MTM programs effectively
targeted high risk individuals who had problems with their drug-therapy
regimens and had high rates of hospital and emergency room visits
before enrollment as well as those that experienced a recent visit to
the hospital or emergency room. The study also found that individuals
enrolled in MTM programs--particularly those who received annual CMRs--
experienced significant improvements in drug therapy outcomes when
compared to beneficiaries who did not receive any MTM services, thus
supporting the hypothesis that the annual CMR may be one of the more
crucial elements of MTM. Significant cost savings associated with all-
cause hospitalizations at the overall PDP and MA-PD levels were found,
which may be due to MTM's comprehensive rather than disease-specific
approach. This research supports statements in a recent Congressional
Budget Office report that programs and services that manage the benefit
well or improve prescription drug use might result in medical savings
(Congressional Budget Office, ``Offsetting Effects of Prescription Drug
Use on Medicare's Spending for Medical Services'', November 2012,
available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/43741-MedicalOffsets-11-29-12.pdf).
We anticipate that many more beneficiaries will have access to MTM
services under the proposed revisions to the eligibility criteria, and
believe that these changes will simplify the MTM criteria and minimize
beneficiary confusion when choosing or transitioning between plans.
Moreover, we believe these changes will reduce disparity and allow more
beneficiaries with drug therapy problems to receive MTM services.
Similarly, we expect the proposed requirement that sponsors develop an
effective strategy to ensure access to services for all MTM-eligible
beneficiaries will help to ensure that beneficiaries in special
populations receive focused targeting, outreach, or engagement for
enrollment or participation in MTM.
16. Effects of Business Continuity for MA Organizations and Part D
Sponsors
Proposed Sec. 422.504(o) and Sec. 423.505(p) would, respectively,
require MA organizations and Part D sponsors to develop and maintain
business continuity plans which assess risks posed by disasters and
contain strategies to mitigate those risks. We also would require that
essential functions--including at a minimum benefit authorization,
claim adjudication, call center and supporting operations--be restored
within 24 hours after such functions fail or are disrupted.
Business continuity plans are well established in the business
community, and we believe that most MA organizations and Part D
sponsors already have business continuity plans in place which cover
the basic proposed subject areas. We estimate that 5 percent of the
contracting entities (532 MA organizations and Part D sponsors in
2013), or about 27 entities, will be affected by this requirement,
resulting in an initial burden of 2,080 hours.
We estimate the first year burden of an emergency management
director to help design the plan would be a burden of 56,160 hours (27
x 2,080). The estimated cost associated with such expert is the
estimated number of hours multiplied by the estimated hourly rate of
$36.50 (hourly rate for an emergency management director, General
Medical and Surgical Hospitals, according to May 2012 wage data from
Bureau of Labor Statistics Occupational Employment Statistics) plus 48
percent for fringe benefits and overhead, which equals a first year
cost of $3,033,763.
In subsequent years, the burden associated with this proposed
requirement would be the costs of an emergency management director
working on a part time basis for an ongoing burden of 28,080 (27 x
1,040). The estimated cost associated with such expert is the estimated
number of hours multiplied by the estimated hourly rate of $36.50 plus
48 percent for fringe benefits and overhead, which equals an annual
cost of $1,516,882 for subsequent years.
We do expect that the burden would, should a disaster or other
disruption of business occur, ultimately result in savings from
planning that would avoid even more losses, but such offsets cannot be
calculated here.
Requiring business continuity plans would benefit Medicare
beneficiaries in these Part C and Part D plans because planning helps
to negate problems: The more prepared that MA organizations and Part D
sponsors are for disasters and other disruptions to business, the more
likely it would be that these organizations would address timely any
problems encountered and ultimately return to regular operations and
the less likely it would be that individuals would lose access to
benefits as a result of disruptions. Requiring the restoration of
essential functions within 24 hours after failure would help by
providing a clear deadline by which priority operations must be
available to beneficiaries. Our proposal to deem as essential benefit
authorization certain minimum functions, including claim adjudications,
and all supporting operations would benefit individuals by providing
the means to ensure beneficiaries access to their Medicare benefits--
and therefore health care and drugs. Designating operation of the call
center as essential would provide beneficiaries real time customer
support which could be critical to ensuring access to benefits in times
of disaster or other disruption. For instance, if beneficiaries could
not get to their regular places of business or found their claims were
rejected at point of sale, customer service representatives could then
send them to providers and pharmacies that could provide them with
benefits or resolve questions in real time such that they would be more
likely to leave pharmacies with any appropriate drugs in hand.
17. Effects of Requirement for Applicants or Their Contracted First
Tier, Downstream, or Related Entities to Have Experience in the Part D
Program Providing Key Part D Functions
Based on CMS' authority at section 1860D-12(b)(3)(D) of the Act to
adopt additional contract terms, not inconsistent with the Part C and D
statutes, that are necessary and appropriate to administer the Part D
program, we are proposing at Sec. 423.504(b)(8)(i) through (iii) that
Part D organizations seeking a new Medicare contract must have
arrangements in place such that either the applicant, or

[[Page 2038]]

a contracted entity that will be performing certain key Part D
functions, has at least one full benefit year of experience providing
key Part D functions. This proposal ensures that applicants take
advantage of the abundant Part D industry expertise and experience that
exists today in the development of their Part D program operations,
rather than relying on technical assistance from CMS and having their
inexperience place beneficiaries' access to prescription drugs at risk.
We believe this provision will have a very minor savings impact on the
federal budget, based on savings of time and effort (staff time and
contracted auditor time and resources) that the government would spend
on overseeing the disproportionate level of problems experienced by
organizations operating Part D plans without prior Part D experience.
For each inexperienced organization allowed into the program in the
absence of this proposal, we would anticipate a savings of 1,000 staff
hours at an average rate of $50 per hour, for a total of $50,000 in
employee time, plus an additional savings of $200,000 in contractor
dollars to conduct an emergency audit, for a total of $250,000. In the
absence of this proposal, we would anticipate no more than two such
inexperienced entities beginning Part D operations per year, for a
total annual savings of $500,000.
The burden associated with this proposal on industry would be
minimal, with a total estimated number of labor hours of 3.25 to submit
information during the Part D application process. Using the same
average hourly salary as previously mentioned, the total cost to Part D
applicants would be $162.50. We do not believe there are any non-
administrative costs to industry associated with this proposal, as Part
D applicants are already required to have arrangements in place to
perform the key Part D functions discussed in our proposal.
The main anticipated effect from this proposal is ensuring that
only entities with some experience with Part D in critically important
functional areas are permitted to offer new Part D contracts, thus
strengthening the Part D program by enhancing the qualification
criteria. We considered the alternate proposal of requiring the prior
Part D experience to be tied to specific quality outcomes. We rejected
the alternative because we believed it added unnecessary complexity and
burden to the process, and we believe a simple experience requirement
is currently sufficient.
18. Effects of Requirement for Applicants for Stand Alone Part D Plan
Sponsor Contracts To Be Actively Engaged in the Business of the
Administration of Health Insurance Benefits
Based on CMS' authority at section 1860D-12(b)(3)(D) of the Act to
adopt additional contract terms, not inconsistent with the Part C and D
statutes, that are necessary and appropriate to administer the Part D
program, we proposed at Sec. 423.504(b)(9)(i) through (ii) that
organizations seeking to offer a stand-alone prescription drug plans
(PDP) for the first time must have either: (i) Actively offered health
insurance or health benefits coverage for 2 continuous years
immediately prior to submitting an application, or (ii) actively
managed prescription drug benefits for a company offering health
insurance or health benefits coverage for 5 continuous years
immediately prior to submitting an application. This proposal would
ensure that applicants have substantial experience in administering
health insurance benefits prior to becoming a Part D sponsor. We
believe this provision will have a very minor savings impact on the
federal budget, based on savings of time and effort (staff time and
contracted auditor time and resources) that the government would spend
on overseeing the disproportionate level of problems experienced by
organizations operating stand-alone PDPs without prior health insurance
administration experience. For each inexperienced organization not
allowed into the program in the absence of this proposal, we would
anticipate a savings of 1,000 staff hours at an average rate of $50 per
hour, for a total of $50,000 in employee time, plus an additional
savings of $200,000 in contractor dollars to conduct an emergency
audit, for a total of $250,000. In the absence of this proposal, we
would anticipate no more than two such inexperienced entities beginning
Part D operations per year, for a total annual savings of $500,000.
The burden associated with this proposal on industry would be
minimal, with a total estimated number of labor hours of 3.25 to submit
information during the Part D application process. Using the same
average hourly salary as previously mentioned, the total cost to Part D
applicants would be $162.50. We do not believe there are any non-
administrative costs to industry associated with this proposal, as Part
D applicants are already required to be licensed in at least one state
prior to offering Part D benefits.
The main anticipated effect from this proposal is ensuring that
only entities with some experience administering health insurance
benefits will be permitted to offer new stand-alone PDPs, thus
strengthening the Part D program by enhancing the qualification
criteria. CMS considered the alternate proposal of requiring the prior
health insurance benefit administration experience to be tied to
specific quality outcomes. We rejected this alternative because we
believed it added unnecessary complexity and burden to the process, and
we believe a simple experience requirement is currently sufficient.
19. Effects of Limit Parent Organizations to One Prescription Drug Plan
(PDP) Sponsor Contract per PDP Region
This provision has no quantifiable impact because the savings that
might be achieved likely will be offset by the burden necessary with
the consolidation activities and legal work necessary to implement
these changes.
20. Effects of Limit Stand-Alone Prescription Drug Plan Sponsors To
Offering No More Than Two Plans per PDP Region
This provision has no quantifiable impact because the savings that
might be achieved likely will be offset by the burden necessary with
the consolidation activities and legal work necessary to implement
these changes.
21. Effects of Efficient Dispensing and in Long Term Care Facilities
and Other Changes
We are proposing the following specific changes to the LTC short-
cycle dispensing requirements at Sec. 423.154: (1) Add a prohibition
on payment arrangements that penalize the offering and adoption of more
efficient LTC dispensing techniques; (2) eliminate language that has
been misinterpreted as requiring the proration of dispensing fees; (3)
incorporate an additional waiver for LTC pharmacies using restock and
reuse dispensing methodologies under certain conditions; and (4) make a
technical correction to eliminate the requirement that Part D sponsors
report on the nature and quantity of unused brand and generic drugs.
Medicare Part D plan sponsors are already required to comply with the
LTC short-cycle dispensing requirements.
The prohibition on payment arrangements that penalize the offering
and adoption of more efficient LTC dispensing techniques is a
clarification of the Congress' intent in enacting section 1860D-4(c)(3)
of the Act, and we

[[Page 2039]]

do not believe it will impose any new costs on stakeholders. Indeed,
this proposal should reduce Part D sponsors' costs by preventing Part D
sponsors from penalizing the most efficient LTC dispensing techniques.
The resulting reduction in brand drug costs should offset or surpass
increases in dispensing fees.
22. Effects of Applicable Cost-Sharing for Transition Supplies:
Transition Process Under Part D
We propose to add at Sec. 423.120(b)(3)(vi) a paragraph clarifying
that a Part D sponsor must charge cost sharing as follows: (a) For low-
income subsidy (LIS) enrollees, a sponsor must not charge higher cost
sharing for transition supplies than the statutory maximum copayment
amounts; (b) for non-LIS enrollees, a sponsor must charge: (1) The same
cost sharing for non-formulary Part D drugs provided during the
transition that would apply for non-formulary drugs approved under a
coverage exception; and (2) the same cost sharing for formulary drugs
subject to utilization management edits provided (for example, prior
authorization and step therapy) during the transition that would apply
once the utilization management criteria are met.
Because increases or decreases in cost sharing during transition
supplies under the various circumstances are likely to offset one
another, we anticipate that there would be no cost impact on plans.
23. Effects of Medicare Coverage Gap Discount Program and Employer
Group Waiver Plans
The regulation amends Sec. 423.2325 by adding a new paragraph (h),
``Medicare Coverage Gap Discount Program and Employer Group Waiver
Plans''. This new provision requires Part D sponsors to fully disclose
to each employer group the projected and actual manufacturer discount
payments under the Discount Program attributable to the employer
group's enrollees.
We believe that the provision will have negligible regulatory
impact because, in the interest of Full Disclosure requirements, the
great majority of sponsors with employer group clients have likely
already integrated Discount Program data into their existing client
reporting. This additional reporting has enabled employer groups to
begin to incorporate the manufacturer payments into their benefit
packages. Also, for those few Part D sponsors that have not already
incorporated the discounts into client reports, the provision creates a
minimal financial burden. The requirement does not entail development
or gathering of any new data as currently, Part D sponsors report
beneficiary-level discounts to CMS on Prescription Drug Event (PDE)
data, and report aggregated enrollee utilization to employer group
clients. The new provision requires only that sponsors who have not yet
modified their existing reports provide the aggregated discount amounts
to each employer group, and use the existing processes for report
dissemination.
In estimating the associated regulatory costs we assumed that 80
percent of the sponsors were already supplying employer group clients
with Discount Program information and that 20 percent of the plans
would need to modify the reports as a result of this provision. We used
2013 data to determine the number of sponsors that would be affected by
this new requirement. In 2013, 131 Part D sponsors operated one or more
EGWP plans. If 20 percent of these Part D sponsors were required to
change their client reporting, approximately 26 sponsors would be
affected. Our research indicates that it would take each sponsor
employing a mid-level analyst about 2-business days to aggregate the
manufacturer discounts for each client and modify the existing reports
to include the discount payments. Assuming an average hourly wage and
benefits of $50,\5\ the cost of these 16 hours would be $50 x 16 = $800
for each Part D sponsor or a total of $800 x 26 = $20,800 for all 26
sponsors combined. In subsequent years we do not believe that there
will be any incremental costs associated with the regulation as
sponsors will update the discount data per their existing processes.
---------------------------------------------------------------------------

\5\ Depart of Labor quarterly census of Employment and Wages
indicates that the average 2011 wage for private health insurance
plans was $74,431. To project a 2015 wage this figure was increased
3 percent per year to $83,772 in 2015. This lead to an hourly wage
projection of $40.27 or with 20 percent benefits an hourly rate of
$48.33, which was in turn rounded upward to derive an hourly rate of
$50.
---------------------------------------------------------------------------

There is no quantifiable monetary value to CMS. Rather, requiring
Part D sponsors to report amounts they receive on behalf of employer
group enrollees will enable the employer group to use the payments in a
way that best serves retirees.
24. Effects of Interpreting the Non-Interference Provision
We are proposing to formally interpret section 1860D-11(i) of the
Act, referred to as the non-interference provision. This provision
prohibits CMS from interfering with the negotiations between drug
manufacturers and pharmacies and Part D sponsors, and requiring a
particular formulary or instituting a price structure for the
reimbursement of covered part D drugs. We have not previously
interpreted the statutory provision, which has resulted in different
stakeholders having different views about its scope. Consequently, we
believe that a clear interpretation of the statutory provision will
remove ambiguity. We do not believe there is any regulatory impact
because we are codifying an existing requirement that currently
prohibits CMS from interfering in certain activities between Part D
sponsors, pharmacies and manufacturers without adding any new
requirements.
25. Effects of Pharmacy Price Concessions in Negotiated Prices
We propose to revise the definition of negotiated prices at Sec.
423.100 to specify that all pharmacy price concessions must be included
in the negotiated price. This would preclude the differential reporting
that is taking place today in the realm of reporting drug costs and
price concessions from network pharmacies. This proposal would change
current policy that permits sponsors to elect to take some price
concessions from pharmacies in forms other than the negotiated price
and report them outside the PDE. This practice currently allows price
concessions to be applied disproportionately to costs that plans are
liable for, and thus may shift more low-income cost-sharing subsidy and
reinsurance costs to the government, as well as to manufacturers in the
calculation of coverage gap discount payments. A sponsor that engages
in this practice can reduce its bid and achieve a competitive advantage
relative to a sponsor that applies all price concessions to the
negotiated price--a competitive advantage stemming not from greater
efficiency, but from a technical difference in how costs are reported
to CMS. Meanwhile, the higher the negotiated price, the higher
beneficiary coinsurance will be, the faster the beneficiary is moved
through the benefit, and the higher government subsidies for low-income
cost sharing (LICS) and reinsurance subsidies will be. Our proposal
would impose consistent treatment of drug price reporting.
Our proposal to require all price concessions to be reflected in
the negotiated price received by the pharmacy would not necessarily
change the level of price concessions received from network pharmacies,
but would impose a single consistent price concession reporting process
on all Part

[[Page 2040]]

D sponsors. Therefore, it is not clear that any contractual
arrangements between a subset of sponsors and network pharmacies would
require renegotiation, since only the form of the price concession,
rather than its level, would be affected by this proposal.
In addition, when price concessions from pharmacies are in forms
other than the negotiated price, the degree of price concession that
the pharmacy has agreed is no longer reflected in the negotiated prices
available at point of sale or reflected on the Medicare Prescription
Drug Plan Finder (Plan Finder) tool. Thus, the true price of drugs at
individual pharmacies is no longer transparent to the market.
Consequently, consumers cannot efficiently minimize both their costs
(cost sharing) and costs to the taxpayers by seeking and finding the
lowest-cost drug/pharmacy combination. This proposal would ensure that
the actual level of price competition is transparent to the Part D
market.
Under current policy, a sponsor may be able to offer a lower bid
than its competitors and may achieve a competitive advantage stemming
not from greater efficiency, but from a technical difference in how
costs are reported to CMS. When this happens, such differential
reporting may result in bids that are no longer comparable, and in
premiums that are no longer valid indicators of relative plan
efficiency. The changes we are proposing would lead to Part D bids
being more accurately comparable and premiums more accurately
reflecting relative plan efficiencies. The lowest premiums would more
accurately direct beneficiaries to the plans that have the lowest costs
to the program overall.
We do not collect sufficient detail in price concession data
reported to CMS to quantify the impact of this proposed change to
standardize price concession reporting. We believe that only certain
sponsors are engaging in the differential reporting practices today,
and these sponsors face close competition from larger competitors that
do not appear to be employing the same strategies. Consequently, if the
sponsors employing these tactics increase their bids to maintain
margin, they could likely risk losing market share. Therefore, we would
expect these sponsors to carefully consider the risk of losing market
share before raising their bids in response to our regulatory
proposals, particularly those that are committed to the LIS market.
We expect that the effect of our proposal to require consistent and
transparent pricing would not only provide higher-quality information
to the Part D market, but also promote increased price competition
among network pharmacies. This expectation is consistent with economic
theory that holds that increased price transparency will increase price
competition. We believe pharmacies will support including the full
price concession in the point-of-sale price, and fully transparent
price competition will align beneficiary and taxpayer interests in
minimizing costs. Our proposal would not change the level of price
concessions and therefore costs under the program as a whole, but would
apply consistency to how these are reported to CMS and treated in
bidding and payment processes. Therefore, we anticipate that there
would be no cost impact on plans.
26. Effects of Payments to PDP Plan Sponsors for Qualified Prescription
Drug Coverage and Payments to Sponsors of Retiree Prescription Drug
Plans
This section is not anticipated to have any significant impact
since it is only a conforming change, necessary to align with the
proposed definition change in another section of the regulation.
27. Effects of Preferred Cost Sharing
We propose to require that sponsors may offer reduced copayments or
coinsurance for covered Part D drugs obtained through a subset of
network pharmacies, as long as such preferred cost sharing is in return
for consistently lower negotiated prices relative to the same drugs
when obtained in the rest of the pharmacy network. Therefore, we intend
to clarify that preferred cost sharing should consistently be aligned
with and accurately signal lower costs. We propose that by
``consistently lower'' we mean that sponsors must offer better prices
on all drugs in return for the lower cost sharing. In practice we
believe this would mean that whatever pricing standard is used to
reimburse drugs purchased from network pharmacies in general, a lower
pricing standard must be applied to drugs offered at the preferred
level of cost sharing. Our analysis shows that most sponsors offering
preferred cost sharing are currently achieving these levels of savings,
and therefore our proposed policy would only require a change in price
concession levels or reporting for a limited number of sponsors. Our
proposal would apply a consistent expectation across all sponsors to
compete on the same basis on negotiated prices, including in related-
party pharmacy operations.
Instead of consistently passing through lower costs available
through economies of scale or steeper discounts, some (but not the
majority of) sponsors are actually charging the program higher
negotiated prices in some cases. In other cases, the negotiated prices
offered for preferred cost sharing are only slightly lower than the
prices in the rest of the network. When either higher prices or very
nearly the same prices are combined with significantly lower cost
sharing, such pricing increases the proportion of costs borne by the
plan and the government. Moreover, the lower cost sharing provides a
defective price signal that distorts market behavior. In these cases,
the lower cost sharing does not incent enrollees to select pharmacies
with lower prices and thus make more efficient choices in the market,
but the exact opposite. This would be expected to result in higher
costs to the Part D program overall. Therefore, we believe our proposed
policy change to require consistently lower negotiated prices in return
for preferred cost sharing may not only decrease overall price levels
in certain sponsor's networks, but would also encourage beneficiaries
to make drug purchase decisions that are better aligned with lower
costs to the program overall. However, we do not have enough
information on how negotiated prices might change--particularly in
combination with the requirements for all price concessions from
pharmacies to be reflected in negotiated prices, and for any-willing-
pharmacy terms and conditions to include minimum price concession terms
for preferred cost sharing--to predict the overall change in Part D
costs.
28. Effects of Maximum Allowable Cost Pricing Standard
We are proposing a change to the regulations at Sec.
423.505(b)(21) and Sec. 423.505(i)(3) governing the disclosure and
updating of prescription drug pricing standards used by Part D sponsors
to reimburse network pharmacies to make clear that drug pricing based
on maximum allowable cost (MAC) is subject to these regulations. In the
final rule at 76 FR 54600 (September 1, 2011), we did not estimate a
regulatory impact for Part D sponsors to comply with the prescription
drug pricing standard requirements, and we do not believe these
proposed changes would result in any regulatory impact. Read together,
the new provisions in Sec. 423.501, Sec. 423.505(b)(21), and Sec.
423.505(i)(3)(viii) require sponsors, when applicable, to include
provisions in network pharmacy contracts, to address the disclosure of
MAC prices themselves to be updated to the applicable pharmacies

[[Page 2041]]

in advance of their use for reimbursement of claims, because the source
of the MAC prices is not publicly available. Addressing prices that
will be paid to a subcontractor is an activity undertaken in the normal
course of business. Also, whether to use MAC prices is voluntary for
Part D sponsors. Finally, sponsors must have procedures, systems, and
technology currently in place to use these prices for reimbursement of
pharmacy claims in the normal course of business. These systems would
have to be adapted to also disclose the prices to pharmacies in advance
of their use, which we believe would involve negligible effort for Part
D sponsors' existing employees and/or subcontractors. Therefore, we
estimate the impact of these provisions to be negligible.
29. Effects of Any Willing Pharmacy Standard Terms & Conditions
Proposed changes to Sec. 423.120(a)(8) would require Part D
sponsors to offer the contract terms and conditions (T&C) for every
level of cost sharing offered under a Part D plan (preferred, standard
retail, mail order, etc.) to any willing pharmacy. We expect the burden
for Part D sponsors to amend contracts, where necessary, to offer every
level of cost sharing would be negligible. Sponsors already must meet
any willing pharmacy requirements for retail and mail order cost
sharing. In 2013, nearly half of non-employer group Part D sponsors
were designing and marketing plans with T&C for preferred cost sharing
levels. For these sponsors, the only change associated with this
proposal will be to ensure that now T&C for all levels of cost sharing,
including preferred, are being offered (if they are not already) to all
interested pharmacies. For the other half of Part D sponsors not
currently offering preferred cost sharing options, this proposal does
not require them to start.
Part D sponsors already negotiate contracts regularly with
pharmacies in order to meet network access requirements. We estimate
that for sponsors who currently offer benefit packages with a preferred
cost sharing level (approximately 500 plans), an estimated new burden
of 5,000 legal hours (500 plans x 10 hours) for revising contract
language and 2,000 hours (500 plans x 4 hours) for additional contract
support staff time negotiating with and assisting pharmacies
contracting at the preferred cost sharing level for the first time. The
estimated cost associated with this change is the estimated number of
hours multiplied by available average hourly rates ($62.93 per hour for
a lawyer, $32.22 per hour for a financial specialist [May 2012 wage
data from Bureau of Labor Statistics Occupational Employment
Statistics]), plus 48 percent for fringe benefits and overhead, which
equals a first year cost of $561,053.20. Once a sponsor has revised
contracts to meet the proposed requirement, no extraordinary additional
expenses are anticipated for subsequent years. For a plan not currently
offering preferred cost sharing levels, it is expected that preferred
cost sharing terms and conditions would be offered to any willing
pharmacy if they ever decide to offer them.
Any new burden on pharmacies is similarly expected to be
negligible, as they are already reviewing and implementing terms from
contracts, often annually. Pharmacies are not being directed to choose
one set of T&C over another, but rather are gaining the option to
review and implement terms for preferred cost sharing, if they so
choose to accept the applicable negotiated pricing terms.
Beneficiaries are expected to benefit from an increased number of
pharmacies offering preferred cost sharing levels.
30. Effects of Enrollment Requirements for the Prescribers of Part D
Covered
Our proposal is that prescribers must be enrolled in Medicare in
order for their prescriptions to be coverable under the Part D program.
This will entail Part D sponsors or their designated PBMs checking the
prescriber's individual NPI to determine whether the prescriber's is
validly enrolled in Medicare before paying a claim from a network
pharmacy or request for reimbursement from a beneficiary.
When we promulgated the NPI PDE requirement in a final regulation
published on April 12, 2012 (77 FR 22072), we estimated the impact for
PBMs and plan organizations to contract for or build prescriber ID
validation services. Thus, while this proposal entails a new
requirement for Part D sponsors, we do not believe it would have any
new or additional impact because Part D sponsors must already have
prescriber validation capabilities to meet the NPI PDE requirement.
Additionally, under our proposal, we do not estimate any savings.
We presume that if a beneficiary's prescriber is not enrolled or does
not enroll in Medicare, the beneficiary will find a new prescriber who
is enrolled, rather than go without needed medications. Therefore, we
do not estimate any savings from this proposal.
31. Effects of Improper Prescribing Practices and Patterns
Our proposed revisions in Sec. 424.530(a)(11) and Sec.
424.535(a)(13) would likely result in additional application denials
and revocations. The DEA Web site found at http://www.deadiversion.usdoj.gov/crim_admin_actions/index.html contains a
list of physicians, eligible professionals, and pharmacies that have
had their DEA Certificate of Registration suspended or revoked since
2000. Based on our review of this data, we believe that approximately
200 Medicare-enrolled physicians and eligible professionals would be
affected by proposed Sec. 424.535(a)(13). However, we do not have data
available to assist us in calculating the potential costs to physicians
and eligible professionals in lost potential billings or the potential
costs or savings to the government arising from this provision; nor are
we able to estimate the number of denials per year that would result
from proposed Sec. 424.530(a)(11).
Our proposed Sec. 424.535(a)(14) would result in an increase in
the total number of revocations under Sec. 424.535(a). We are unable,
though, to project the number of providers and suppliers that would be
revoked under Sec. 424.535(a)(14) because we do not have data
available that can be used to make such an estimate. Thus, we cannot
project: (1) The potential costs to providers and suppliers in lost
billings, or (2) the potential costs or savings to the government
arising from our proposed provision.
32. Effects of the Transfer of TrOOP Between Part D Sponsors Due to
Enrollment Changes During the Coverage Year
We do not expect that codifying the requirement for Part D sponsors
to report TrOOP-related data to a subsequent plan in which a
beneficiary enrolls during the coverage year, and for the new plan to
accept that data and use it to position the beneficiary in their
benefit would generate savings or increase costs.
We expect the requirement to report TrOOP-related data and to
accept and use the data to position a beneficiary in a new plan benefit
when the member changes plans during the coverage year would ensure the
Part D benefit is correctly administered by the new plan and prevent a
beneficiary who has already moved through the initial phase(s) of the
Part D benefit from starting the benefit anew as a result of the
enrollment change.

[[Page 2042]]

33. Effects of Broadening the Release of Part D Data
We are proposing to revise our regulations governing the release of
Part D data to expand the release of unencrypted prescriber, plan and
pharmacy identifiers contained in prescription drug event (PDE) records
to external researchers, as well as to make other changes to our
policies regarding release of PDE data, as currently codified at Sec.
423.505(f)(3) and (m). This proposal does not impose any new costs on
any stakeholders. Medicare Part D plan sponsors are already required
to, and do, submit the information that may be released in accordance
with this proposal. Therefore, we are not including any assessment of
this proposal for the regulatory impact statement.
34. Effects of Establish Authority to Directly Request Information From
First Tier, Downstream, and Related Entities
Pursuant to sections 1857(d)(2) and 1860D 12(b)(3)(c) of the Act,
we are now proposing to specify at Sec. 422.504(i)(2)(ii) and Sec.
423.505(i)(2)(ii) that HHS, the Comptroller General, or their designees
have the right to audit, evaluate, collect, and inspect any records
directly from any first tier, downstream, or related entity. This
proposed regulatory change would not grant CMS (or the MEDIC, the
contractor that conducts fraud investigations on our behalf) any
oversight authority beyond what we already possess.
In enabling CMS or its designee(s) to directly request information
from a first tier, downstream, or related entity, we would provide a
more efficient avenue to obtain necessary information. This proposal
would change the current policy, which requires going through the plan
sponsor in order to collect information. Our proposal would save money
and time for CMS as well as the plan sponsor.
We anticipate that adoption of this proposal would result in cost
savings for plan sponsors. Under the current regulatory structure,
assuming that the MEDIC (the CMS contractor that typically would put
forth such requests) puts forth 1000 requests per year to Part C and D
sponsors, each request requires the plan sponsor to spend 5 hours
developing and making the request for information from its first tier,
downstream, or related entity, and communicating the results of that
request back to CMS. At a rate of $55 per hour, plan sponsors may save
a total of $275,000 in employee costs in the aggregate. Additionally,
we believe this provision will have a very minor savings impact on the
federal budget. This calculation is based on the savings in time and
effort the MEDIC will experience (2 hours per information request)
resulting from the ability to request information directly from first
tier, downstream, and related entities. The 2 hours reflects the time
the MEDIC currently spends resolving ambiguities in the request or in
the information provided in response that are created by the presence
of an intermediary (that is, the plan sponsor) between the requestor
(MEDIC) and the custodian of the information (that is; first tier,
downstream, or related entity).
In addition to cost savings, this proposed regulatory change will
reduce the administrative burden on plan sponsors. The plan sponsor
will no longer have to act as the gatekeeper between the MEDIC and its
first tier, downstream, or related entity.
We do not anticipate any additional burden relating to the proposed
requirement that we alert the plan sponsor that we are contacting its
first tier, downstream or related entity since CMS will be merely
copying the plan sponsor on the request.
35. Effects of Eligibility of Enrollment for Incarcerated Individuals
We are proposing to amend Sec. 417.460(b)(2)(i), Sec.
417.460(f)(1)(i), Sec. 422.2, Sec. 422.74(d)(4)(i)(A), Sec.
422.74(d)(4)(v), Sec. 423.4, and Sec. 423.44(d)(5) to clarify the
eligibility requirement for residing in the plan's service area related
to incarceration for the purposes of enrolling into and remaining
enrolled in MA, Part D, and Medicare cost plans. We expect the impact
of this change to be primarily that of savings to the MA and Part D
programs. In CY 2012, there were close to 50 million Medicare
beneficiaries. Approximately 34.4 million of those beneficiaries were
enrolled in MA plans, PDPs, or cost plans which accounts for 68.8
percent of the total Medicare population. In the same year, an average
of 21,329 Medicare beneficiaries enrolled in MA or Part D plans were
identified by SSA as being incarcerated.
We issued guidance to MA plans and PDPs to investigate each
individual's incarcerated status and disenroll the individual for no
longer residing in the plan's service area if the plan confirmed
incarcerated status. If the MA plan or PDP could not confirm the
incarcerated status, those plans were to continue to investigate each
instance of incarceration for up to 6/12 months and disenroll the
individuals at the end of that time following Sec. 422.74(b)(4)(ii)/
Sec. 423.44(b)(5)(ii) if they couldn't verify the incarcerated status
sooner. As a result, the plan received capitated payments when the
individual was ineligible to receive payment of Medicare benefits.
Section 1876 Cost contracts had no such instructions to disenroll
individuals who are incarcerated. By directing MA plans, PDPs, and cost
plans to disenroll incarcerated individuals at the time of notification
from CMS, we intend to prevent improper payment for these individuals
to MA plans, PDPs, and cost plans for periods when they were ineligible
to receive such services. Based on the data for capitation payments for
MA and PDPs, as well as the prepayments provided to cost plans, we
estimate that the disenrollment of incarcerated individuals would
result in a decrease in payments made by CMS and would result in a cost
savings of $70 million in 2015.
We estimate, based on the numbers mentioned previously, that this
change could save the MA program approximately $27 million in 2015,
increasing to $62 million in 2019, and could save the Part D program
(includes the Part D portion of MA-PD plans) approximately $46 million
in 2015, increasing to $90 million in 2019. As cost plans are paid
based on the reasonable costs delivering Medicare-covered services to
their enrollees, instead of the fixed capitation amounts paid to MA and
PDPs, we believe the impact to cost plans associated with this
provision to be negligible.

Table 11--Projected Number of Individuals Disenrolled Due to Incarceration and Estimated Savings to the Medicare Advantage Program by Provision for
Calendar Years 2015 Through 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals (CYs
2015 2016 2017 2018 2019 2105-2019)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected number of incarcerated beneficiaries enrolled 6,280 7,750 9,221 10,691 12,162 46,104
in MA plans............................................

[[Page 2043]]

Projected federal impact due to incarcerated individuals \1\-$27 \1\-$35 \1\-$43 \1\-$52 \1\-$62 \1\-$219
disenrolled 6 months sooner............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA.
\1\ Million.

Table 12--Projected Number of Individuals Disenrolled Due to Incarceration and Estimated Savings to the Medicare Part D Program by Provision for
Calendar Years 2015 through 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals (CYs
2015 2016 2017 2018 2019 2015-2019)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected number of incarcerated beneficiaries enrolled 49,275 55,970 62,666 69,362 76,058 \1\ 313,331
in Part D plans (including MA-PDs).....................
Projected federal impact due to incarcerated individuals \2\-$46 \2\-$55 \2\-$65 \2\-$77 \2\-$90 \2\-$333
disenrolled 12 months sooner...........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA.
\1\ Accumulated; not unique individuals.
\2\ Million.

36. Effects of Rewards and Incentives Program Regulations for Part C
Enrollees
This proposal would permit plans to provide limited rewards and
incentives to enrollees who participate in activities that focus on
promoting improved health, preventing injuries and illness, and
promoting efficient use of health care resources. While there would be
a cost associated with providing rewards and incentives, we anticipate
that there may be savings as a result of healthier beneficiary
behavior. Because plans are not required to provide rewards and
incentives and CMS does not have a means of calculating the costs and
benefits of rewards/incentives at this time, we are not providing an
impact analysis for this provision.
37. Effects of Expand Quality Improvement Program Regulations
The proposed regulation changes are only technical changes for the
established quality improvement program requirements. These changes
would clarify how MA organizations report quality improvement program
information to CMS. As MA organizations are already reporting this
information to CMS and the changes are only to codify the process, the
changes will not increase costs for MA organizations.
38. Effects of Authorization of Expansion of Automatic or Passive
Enrollment Non-Renewing Dual Eligible SNPs (D-SNPs) to Another D-SNP To
Support Alignment Procedures
We propose to modify the situations in which CMS may passively
enroll beneficiaries to include the situation when a Medicare Advantage
Dual Eligible SNP (D-SNP) is non-renewing. More specifically, passive
enrollment would be permitted for full-benefit dual eligible
beneficiaries in the non-renewing D-SNP when there is another D-SNP in
the service area that offers substantially similar benefits, network,
and cost-sharing as the non-renewing D-SNP, and that also offers the
Medicaid managed care organization in which the beneficiary is
enrolled.
SNPs are due to sunset in 2014. Consequently, we are not scoring
this provision for contract years 2015 through 2019.
39. Effects of Improving Payment Accuracy: Reporting Overpayments, RADV
Appeals, Part D Payment Reopening, LIS Cost Sharing, and Coverage Gap
Discount Program
This proposed section proposes only technical changes for
overpayment reporting, RADV appeals, Part D payment reopening, LIS cost
sharing, and the Coverage Gap Discount Program. These technical changes
will not result in costs to MA organizations and Part D sponsors, nor
do we expect the impact of these technical changes to result in
savings.
40. Effects of Part C and Part D RAC Determination Appeals
In section III.B.x of this proposed rule, to establish an
administrative appeals process for overpayment determinations by the
Part C and Part D RACs. The cost associated with these provisions
involves the preparation and submission of appeal requests by plans. We
estimate this cost to be $48,343 as summarized in the following Table
13.

Table 13--Summary of RAC Determination Appeals Costs and Benefits
----------------------------------------------------------------------------------------------------------------
Costs (in
Provision description $millions) Benefits
----------------------------------------------------------------------------------------------------------------
Submission of MA plans' first level Request 0.02167 Administrative appeal rights and accuracy in
for Reconsideration. recovery demands.
Submission of Part D plans' first level 0.02167 Administrative appeal rights and accuracy in
Request for Reconsideration. recovery demands.
Submission of MA plans' second level Request 0.00208 Administrative appeal rights and accuracy in
for Review. recovery demands.

[[Page 2044]]

Submission of Part D plans' second level 0.00208 Administrative appeal rights and accuracy in
Request for Review. recovery demands.
Submission of MA plans' third level Request 0.0004 Administrative appeal rights and accuracy in
for Review by the CMS Administrator. recovery demands.
Submission of Part D plans' third level 0.0004 Administrative appeal rights and accuracy in
Request for Review by the CMS Administrator. recovery demands.
----------------------------------------------------------------------------------------------------------------

41. Effects of Requirement To Provide High Quality Health Care
The proposal to add contractual requirements for MA plans and Part
D plans to provide high quality health care proposes to include in the
terms and conditions in our contracts with Part D sponsors and explicit
requirement that Part D plans administer a benefit that promotes and
supports high quality care. We believe that we have conveyed this
expectation in other ways, such as through our performance and quality
measurements and methodologies. This proposal provides a basis for
enforcement or corrective action for low-performing plans. Therefore,
we do not believe there is an impact associated with this proposal.
42. Effects of MA-PD Coordination Requirements for Drugs Covered Under
Part D
To ensure that Part A, Part B and Part D drug benefits are
coordinated by MA-PDs so that enrollees receive needed medications on a
timely basis, we are proposing to add a new section (b)(7) to Sec.
422.112 to require MA-PDs to establish adequate messaging and
processing requirements with network pharmacies to ensure that
appropriate payment is assigned at the point of sale (POS) and to
ensure that when coverage is denied under Part D due to available
coverage under Part A or Part B, that such coverage is authorized
expeditiously so that the drug may be provided to the enrollee as his
or her health condition requires. Our proposed regulation requires that
MA-PDs have systems in place to accurately and timely adjudicate claims
at the POS.
In addition, we would like to ensure that MA-PD plans are
coordinating their benefits appropriately during the coverage
determination process. If an MA-PD denies PDP coverage due to the
availability of Part A or Part B coverage, we expect the MA
organization to ensure that the decision results in authorization or
provision of the drug under Part B pursuant to the requirements in
parts 422 and 423, subpart M. We do not expect MA-PD enrollees to have
to request an initial Part A or B versus Part D coverage determination
more than once. We are soliciting comments about our proposal, as well
as other possible approaches to minimizing delays in beneficiary access
to needed medications caused by inadequate coordination of Part A, Part
B and Part D benefits at the POS and during the coverage determination
process. In particular, we would appreciate organizations sharing their
expertise regarding best practices for benefit coordination at the POS
and plan processes that enhance those coverage determinations. We also
are soliciting comments on challenges MA-PDs currently encounter in
their efforts to integrate these benefits. Under Medicare regulations
MA-PD plans are already required to coordinate member coverage for both
Part A and B and Part D covered drugs. It is our understanding that the
majority of MA-PDs are effectively performing this activity. However,
we are aware that some MA-PDs have been less successful. With this
regulation we propose to identify drug coverage standards that all MA-
PDs can follow that have proven to be both cost effective and
efficient. This proposed regulation does impose any new requirements or
costs but rather will assist low performing MA-PDs in clarifying the
necessary actions to meet existing regulatory requirements for the
effective coordination of Part A, Part B and Part D covered drugs.
43. Effects of Revisions to Good Cause Processes
We are proposing to revise Sec. 417.460, Sec. 422.74, and Sec.
423.44 to allow an entity acting on behalf of CMS to conduct good cause
reviews. Shifting responsibility for this activity from CMS to entities
such as MA, Part D and cost plans would not change the number of
individuals requesting reinstatement for good cause nor the number of
those individuals who meet the criteria for reinstatement. While some
plans may increase their bids to cover the costs to complete this work,
the administrative burden to plans is negligible. Therefore, we do not
expect this change to have a monetary impact to the Medicare Trust
Funds or affect enrollment, as the policies permitting involuntary
disenrollment for non payment of premiums and allowing beneficiaries to
request reinstatement for good cause have been in existence for some
time.
44. Effects of the Definition of Organization Determination
The proposed revisions at Sec. 422.566 are intended to clarify the
meaning of organization determination and to maintain consistency
between the regulatory definition of organization determination and the
definition used elsewhere in CMS documents and subregulatory guidance.
Specifically, we are seeking to include additional types of coverage
decisions that are subject to Medicare appeals processing requirements
set forth in subpart M. In other words, cases where a provider under
contract with an MA organization provides a service directly to an
enrollee and when a contract provider refers an enrollee to a non-
contract provider for an item or service. Because this proposed change
codifies the existing definition of organization determination, this
proposal does not represent any new burden on MA organizations or
burden for small businesses, rural hospitals, states or the private
sector.
45. Effects of MA Organization Extension of Adjudication Timeframes for
Organization Determinations and Reconsiderations
The proposed changes to Sec. 422.568(b), Sec. 422.572(b), and
Sec. 422.590 would clarify the limited circumstances in which MA
organizations are permitted to extend the adjudication timeframe for
organization determinations and reconsiderations. We believe these
proposed changes would have a minimal impact on MA organizations,
because they are not likely to alter the number of coverage requests
plans would receive or the required clinical resources to process each
request. During audits of MA organizations, we identified cases where
plans are improperly extending the applicable adjudication timeframe
(for example,

[[Page 2045]]

where clinical documentation is needed from a contract provider or
where the plan has failed to develop and review the case during the
required timeframe) but we do not have data on the overall frequency
with which extensions are being invoked and what percentage of those
cases involve the scenarios described.
46. Effects of Two-Year Prohibition When Organizations Terminate Their
Contracts
As part of a group of proposals intended to strengthen our ability
to distinguish stronger applicants for Part C participation we propose
to revise the regulation text at Sec. 422.506 and Sec. 422.512 to
explicitly apply the 2-year prohibition on re-application after an
organization has terminated its contract to applications for service
area expansions in addition to applications for new contracts. These
changes to Sec. 422.506 and Sec. 422.512would make the text of these
regulations consistent with the language of a similar provision at
Sec. 422.503 and Sec. 422.508 (which bans re-application for 2 years
after we have terminated an organization's contract). We believe this
provision will have minimal financial impact as it only affects those
organizations that choose to non-renew or mutually terminate a contract
with CMS. This provision will not affect current beneficiaries as it
only applies when an organization is applying for a new contract or to
expand the service area of its existing contract; beneficiaries who are
currently enrolled in an organization's existing contracts are
therefore not affected.
47. Effects of Withdrawal of Stand Alone Prescription Drug Plan Bid
Prior to Contract Execution
This provision is not anticipated to have any significant impacts,
as the withdrawn bids that this provision would not relate to any
existing enrollees.
48. Effects of Essential Operations Test Requirement for Part D
This provision has no quantifiable impact because the requirement
affects unknown individuals/entities in the future. Nevertheless, we
believe this proposal to require new Part D sponsors to pass an
essential operations test prior to being permitted to accept
enrollments will enhance our ability to ensure that beneficiaries are
permitted to choose only from among those Part D plans offered by
sponsors truly qualified to administer the full range of benefits to
which beneficiaries are entitled. This approach will reduce both the
likelihood of disruptions in beneficiaries' access to outpatient
prescription drugs and the resources CMS has to dedicate to addressing
such disruptions.
49. Effects of Termination of the Contracts of Medicare Advantage
Organizations Offering Part D for Failure for Three Consecutive Years
To Achieve Three Stars on Both Part C and Part D Summary Star Ratings
in the Same Contract Year
This provision has no quantifiable impact because this affects
unknown individuals/entities in the future. We believe the proposal to
authorize the termination of contracts that fail to achieve three-star
ratings for both Part C and D within three years is consistent with our
overall emphasis on ensuring that beneficiaries receive quality
services from their plan sponsors. Eliminating poor performing
contracts will promote beneficiary satisfaction with the Part C and D
programs and reduce the amount of effort we must apply to overseeing
and correcting the performance of organizations that consistently fail
to demonstrate a commitment to quality.
50. Effects of Requirements for Urgently Needed Services
The proposed revisions of Sec. 422.113(b)(1)(iii) removes the
requirement of ``extraordinary and unusual'' for in-service-area, out-
of-network coverage for urgent needed services. Typically, this will
mean that enrollees with non-emergent weekend medical problems will now
be covered for services furnished out of network thus eliminating the
need for beneficiaries to seek out-of-network care. Many plans already
contract with 24/7 walk-in clinics providing in-network coverage.
Historically, the alternative to plan coverage has been emergency-room
care. We therefore expect minimal cost and possible savings as a result
of this change.
51. Effects of Skilled Nursing Facility Stays
Our proposal that would relocate the MA regulation language
currently located at Sec. 422.101(c), ``Requirements Related to Basic
Benefits'' to Sec. 422.102(a)(5), ``Supplemental Benefits'' is a
technical change only and would have no financial impact.
52. Effects of Agent and Broker Training and Testing Requirements
At Sec. 422.2274 and Sec. 423.2274, we are proposing to revise
Sec. 422.2274(b) and (c) and Sec. 423.2274(b) and (c) to remove the
concept of a CMS endorsed or approved training and testing, and require
instead that agents be trained and tested annually, as specified by
CMS. We believe this proposed change continues to ensure that all
agents/brokers selling Medicare products have a comprehensive
understanding of Medicare program rules. The changes made to this
regulation will not result in any additional costs for MA plans or Part
D plans, or a new collection of information. We are simply revising the
existing language to remove an obligation for CMS to endorse or approve
a training program in favor of CMS providing such training directly.
53. Effects of Deemed Approval of Marketing Materials
At Sec. 422.2266 and Sec. 423.2266, CMS provides the regulatory
requirements for materials that are deemed approved. It also provides
the requirements for the review and distribution of marketing
materials. We are proposing to move the current requirements in
Sec. Sec. 422.2266 and 423.2266 to Sec. Sec. 422.2262(a)(2) and
423.2262(a)(2), respectively. We also propose to simplify the language
in Sec. Sec. 422.2266 and 423.2266 by stating if CMS does not approve
or disapprove marketing materials within the specified review
timeframe, the materials will be deemed approved. Deemed approved means
that a MA organization or Part D sponsor may use the material. Changes
to this regulation will not result in additional. We are simply
revising the existing language to clarify the existing requirements for
deemed approved materials.
54. Effects of Part C Disclosure Requirements
This provision would simply replace the current, incorrect,
reference in Sec. 422.111 to the marketing materials and elections
form requirements at Sec. 422.80, with the correct reference to
subpart V, Medicare Advantage Marketing Requirements. This is a
technical change and represents no costs or impact.
55. Effects of Managing Disclosure and Recusal in P&T Conflicts of
Interest: Formulary Development and Revision by a Pharmacy and
Therapeutics Committee Under Part D
We propose to revise our regulations at Sec. 423.120(b)(1) to
reorder the existing provisions and add a new paragraph (b)(1)(iv) to
require that a Part D sponsor's P&T committee clearly articulates and
documents processes to determine that the requirements under paragraphs
(b)(1)(i), (ii), and (iii) have been met, including the determination
by an objective party of whether disclosed financial interests are

[[Page 2046]]

conflicts of interest and that management of any recusals due to such
conflicts of interest.
Because plans were previously required to have these processes in
place, and we are only asking that they document them, we anticipate
that there would be no cost impact on plans.
56. Effects of the Technical Changes to the Definition of Part D Drug
There is no impact associated with this provision as it is a
technical change to regulation language.
57. Effects of Thirty Sixth Month Coordination of Benefits (COB) Limit
There is no impact associated with this provision as it is a
technical change to regulation language.
58. Effects of Application and Calculation of Daily Cost-Sharing Rates
There is no impact associated with this provision, as it is a
technical change to regulation language.
59. Effects of Technical Change To Align Regulatory Requirements for
Delivery of the Standardized Pharmacy Notice
Our proposed revision to Sec. 423.562(a)(3) is a technical change
and does not represent a burden for small businesses, rural hospitals,
states, or the private sector.
60. Effects of Special Part D Access Rules During Disasters
In proposed Sec. 423.126(a), we would codify requirements similar
to existing guidance that pertains to relaxing ``refill-too-soon''
(RTS) edits to permit one refill in the event of any imminent or
occurring disaster or emergency that would hinder an enrollee's access
to covered Part D drugs.
The proposed changes would not result in any additional costs. For
one, we currently expect through guidance that sponsors will relax
edits after the issuance of certain federal declarations. We also do
not anticipate that providing a general framework for when sponsors
must relax RTS edits would necessitate an increase in resources because
it is currently not uncommon for Part D sponsors to relax edits for
particular individuals under certain circumstances.
The proposed provisions would require Part D sponsors to relax
``refill-too-soon'' (RTS) edits when, as evidenced by a declaration of
a disaster or emergency or its imminence by an appropriate federal,
state, or local official, it is reasonable to conclude that an
occurring or imminent disaster or emergency would make it difficult for
beneficiaries to obtain refills of their medications. Relaxing RTS
edits in these circumstances would benefit beneficiaries by better
ensuring that they do not run out of their medications when a disaster
is imminent or after it strikes.
61. Effects of MA Organization Responsibilities in Disasters and
Emergencies
The proposed addition of section Sec. 422.100(m) requires plan
activities during disasters that are currently recommended in our
guidance. Since plans are already cooperating with our recommendations
we expect no impact as a result of this requirement. Additionally, we
are requiring a dedicated Web page for disasters on plan Web sites.
Since plans already have Web sites and technical staff supporting them,
we expect minimal cost, if any, for the additional page. We are also
requiring plans to annually notify enrollees about disaster
preparation. Since plans, as required at Sec. 422.111, already
annually notify beneficiaries using the Evidence of Coverage template,
we expect minimal cost, if any, for the additional notification about
disasters.
62. Effects of the Technical Changes Regarding the Termination of a
Contract, Contract Determination and Other Appeals, and Intermediate
Sanctions and Civil Money Penalties Under Parts C and D
Sections III.E.13. and 14 this proposed rule include provisions
making minor technical and clarifying changes. These changes include
making language consistent, aligning titles and correcting references.
These technical and clarifying changes will not result in additional
burden to sponsors nor will they have a financial impact on sponsors.
63. Effects of Technical Change to the Restrictions on use of
Information Under Part D
There is no impact associated with this provision as it is a
technical change to regulation language to reflect the expansion,
pursuant to section 6402(b)(1) of the Affordable Care Act, in the
purposes for which HHS, its contractors, and the Attorney General, and
Comptroller General may use information disclosed or obtained pursuant
to section 1860D-15 of the Act.

Table 14--Estimated \1\ Aggregate Costs and Savings to the Health Care Sector by Provision for Calendar Years 2015 Through 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Calendar year ($ in millions) Total ($ in
Provision Regulation section(s) -------------------------------------------------- millions) CYs
2015 2016 2017 2018 2019 2015-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impacts to MA Organizations and Part D Sponsors
--------------------------------------------------------------------------------------------------------------------------------------------------------
A.6. Changes to Audit and Inspection.......... Sec. 422.503(d)(2), Sec. 8.9 8.9 8.9 8.9 8.9 44.5
423.504(d)(2).
-----------------------------------------------------------------
Total ($ in millions)..................... ...................................... 8.9 8.9 8.9 8.9 8.9 44.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Government (Medicare) Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
A.10. Enrollment Eligibility for Individuals Sec. 422.1, Sec. 422.50, AND Sec. -10 -12 -13 -15 -17 -67
Not Lawfully Present in the United States \2\. 422.74; Sec. 423.1, Sec. 423.30,
and Sec. 423.44.
--------------------------------------------------------------------------------------------------------------------------------------------------------
A.14. Drug Categories or Classes of Clinical Sec. 423.102(b)(2)(v)-(vi).......... 0 -30 -50 -220 -420 -720
Concern and Exceptions \3\.
A.35. Eligibility of Enrollment for Sec. 422.74......................... -73 -90 -108 -129 -152 -552
Incarcerated Individuals \4\.
-----------------------------------------------------------------

[[Page 2047]]

Total ($ in millions)..................... ...................................... -83 -132 -171 -364 -589 -1,339
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ Estimates of costs and savings reflect scoring by the CMS, Office of the Actuary. Also, only provisions with savings or cost exceeding $1,000,000
are listed. Other provisions either have no expected savings or cost, or, have a savings or cost under $1,000,000. Details on these savings and cost
may be found in the RIA narrative.
\2\ Supporting 2012 lawful presence data provided by SSA.
\3\ Projected savings are based upon full implementation of the criteria and do not reflect that changes for the antipsychotic class of drugs are
deferred at this time.
\4\ Supporting 2012 incarceration data provided by the SSA.

D. Expected Benefits

1. Drug Categories or Classes of Clinical Concerns and Exceptions
(Sec. 423.102(b)(2)(v)-(vi)
Proposed codification of the categories or classes of clinical
concern provisions would assist PBMs in applying the Part D plans and
managing the Part D sponsor's benefit packages more efficiently.
2. Medication Therapy Management Program under Part D
We anticipate that many more beneficiaries will have access to MTM
services and believe that the proposed changes will simplify the MTM
criteria and minimize beneficiary confusion when choosing or
transitioning between plans. Moreover, we believe the proposed changes
would reduce disparity and allow more beneficiaries with drug therapy
problems to receive MTM services. Similarly, we expect the proposed
requirement that sponsors develop an effective strategy to ensure
access to services for all MTM-eligible beneficiaries will help to
ensure that beneficiaries in special populations receive focused
targeting, outreach, or engagement for enrollment or participation in
MTM.

E. Alternatives Considered

1. Separating the Annual Notice of Change from the Evidence of Coverage
We considered reverting back to requirements in place prior to the
2009 contract year, which allowed issuing EOCs as late as January 31 of
the applicable contract year. We determined the EOC should be received
by members before the effective date of their coverage for that
contract year, beginning on January 1, in order for members to have
full disclosure of plan rules prior to the beginning of the contract
year.
2. Modifying the Agent/Broker Compensation Requirements
In the preamble we outlined a few alternative compensation
schedules. Ultimately we determined that the best approach was a two
tier payment schedule, incorporating an initial payment and a
continuous renewal payment.
3. Medicare Coverage Gap Discount Program and Employer Group Waiver
Plans
In the preamble we outlined the alternative approaches we
considered in our efforts to make sure that the discounts were used to
benefit enrollees. Ultimately we determined that the best approach
would be to make sure that employer groups have the information needed
to incorporate the payments into their benefit packages.
4. Prescription Drug Pricing Standards and Maximum Allowable Cost
No alternatives were considered.
5. Access to Covered Part D drugs (c) Use of Standardized Technology
No alternatives were considered.
6. Any Willing Pharmacy Standard Terms & Conditions
We considered the alternative of maintaining the current process
where Part D plans can limit pharmacy access to preferred cost-sharing
contracts. We have observed this in practice to be limiting market
competition, creating a barrier to entry, and further, not producing
the savings to the program that were initially anticipated.
7. Negotiated Prices
We did not identify any alternatives that both maintained
consistent reporting among sponsors leading to comparable bids, and
maximized price competition.
8. Preferred Cost Sharing
We considered whether a methodology that was based on lower average
costs (or any other function of costs in the rest of the network) in
return for preferred cost sharing would suffice to meet the statutory
requirement. While such a methodology might technically meet the
requirement not to increase CMS payments to plans, whether it did so or
not would be dependent on the actual negotiated prices paid and could
be determined only long after a coverage year had ended and complete
the PDE data was available. We believe that to promote price
competition, the relative levels of negotiated prices offered for
preferred cost sharing and in the rest of the network should be
transparent and verifiable at the point of sale, as well as to CMS
oversight at any point prior to and during a coverage year. We were
unable to identify any methodology other than our proposal to
accomplish these goals. We solicit comments on alternative approaches
to ensuring that the offering of preferred cost sharing does not
increase CMS payments. We believe that any alternative methodology must
be based solely on the level of negotiated prices and thus consistent
with our proposal to amend that definition. We also solicit comments on
whether we should also establish standards on how much lower drug costs
should be in return for preferred cost sharing.
9. Transfer of TrOOP Between Part D Sponsors Due to Enrollment Changes
During the Coverage Year
No alternative proposals were considered.
10. Part D Notice of Changes
We did not consider any alternatives for the proposed provision
because it proposes to codify a longstanding policy.

[[Page 2048]]

11. Special Part D Access Rules During Disasters or Emergencies
We did not consider alternatives to requiring Part D sponsors to
lift ``refill too soon'' (RTS) edits in the event of any imminent or
occurring disaster or emergency that would hinder an enrollee's access
to covered Part D drugs. It is important for the well-being and health
of beneficiaries that they be able to obtain their medications after
disasters strike. Furthermore, given the complexities of moving large
numbers of people with different health conditions to safer locations,
we also believed we had no alternative but to require Part D sponsors
to relax RTS edits when a disaster is imminent and access to services
might be jeopardized rather than waiting for it to strike.
12. Business Continuity for MA Organizations and Part D Sponsors
We did not consider any alternatives for the initial part of the
provision found in Sec. Sec. 422.504(o)(1) and 423.505(p)(1) that
would, respectively, require MA organizations and Part D sponsors to
develop and maintain business continuity plans. Creating such a plan is
an accepted business practice and we would require MA organizations and
Part D sponsors to address a standard list of areas; in short, we know
of no other options.
In contrast, we considered other options when drafting proposed
Sec. Sec. 422.504(o)(2) and 423.505(p)(2), which would require the
restoration of essential functions within 24 hours after failure. We
considered requiring MA organizations and Part D sponsors to restore
even more functions, but decided disruptions to business would
presumably limit resources and that it was important to focus on only
the most vital functions. We also considered paring down the list of
essential functions, but found that we could not do so without
jeopardizing the mandate of the Act--to ensure access to health care
and covered Part D drugs through the provision of appropriate Medicare
benefits. Benefit authorization, claim adjudications, and call center
operations are all essential to providing appropriate Medicare coverage
for beneficiaries both living inside and outside of areas hit by
disasters and other disruptions.
Lastly, we considered the option of requiring restoration of
essential functions to occur for a shorter or longer time period than
24 hours after failure proposed. We decided that 12 hours might present
operational challenges for MA organizations and Part D sponsors;
conversely, requiring beneficiaries to wait more than 24 hours to
access their coverage and therefore health care and drug benefits,
seemed to pose an undue risk to both their present and possibly future
health and well-being.
13. Drug Categories or Classes of Clinical Concerns and Exceptions
The critical policy decision was how broadly or narrowly to
establish criteria and exceptions to those criteria pursuant to
Affordable Care Act provisions. Broad criteria might easily encompass
many classes of drugs and significantly increase costs to the Part D
program by eliminating the need for manufacturers to aggressively
rebate their products for formulary placement. Only narrow criteria
would limit the number of categories or classes of clinical concern
receiving additional protections under the Affordable Care Act.
Similarly, broad exceptions further limit the products within those
categories or classes of clinical concern that would receive additional
protection under the Affordable Care Act.
14. Medication Therapy Management Program (MTM) Under Part D
We considered leaving the maximum number of multiple chronic
diseases a plan may require for targeted enrollment at three, but
believed this threshold significantly limited the number of
beneficiaries who qualified for MTM services and was inconsistent with
literature concerning the relative risk of the combination of multiple
disease states and the need for access to MTM interventions. Similarly,
we considered other numbers of Part D drugs less than eight, but again
believed these thresholds decreased access to MTM services, contributed
to beneficiary confusion, and led to racial disparities in access to
MTM services. We also considered other cost thresholds less than
$3,000, for example, $900 or $1,200, which roughly coincide with cost
thresholds achieved by taking 3 or 4 generic drugs, and we solicit
stakeholder comment on where the threshold might alternatively be set.
Relative to the requirement for sponsors to establish effective
strategies for reaching all MTM-eligible beneficiaries, we do not
believe it is appropriate at this time to prescribe outreach activities
for Part D sponsors to effectively reach diverse, special populations
of their enrolled beneficiaries. Rather, we propose that sponsors
develop an effective strategy to ensure access to MTM services for all
MTM-eligible beneficiaries. We will continue to monitor the efficacy of
such programs and the impact of any change to the requirements and will
consider other options as may be necessary.
15. Requirement for Applicants or Their Contracted First Tier,
Downstream, or Related Entities To Have Experience in the Part D
Program Providing Key Part D Functions
Based on CMS' authority at section 1860D-12(b)(3)(D) of the SSA to
adopt additional contract terms that are necessary and appropriate to
administer the Part D program, we proposed at Sec. 423.504(b)(8)(i)
through (iii) that Part D organizations seeking a new Medicare contract
must have arrangements in place such that either the applicant or a
contracted entity that will be performing certain key Part D functions
has at least one full benefit year of experience providing the function
for another Part D plan sponsor. This proposal ensures that applicants
take advantage of the abundant Part D industry expertise and experience
that exists today in the development of their Part D program
operations, rather than relying on technical assistance from CMS and
having their inexperience place beneficiaries' access to prescription
drugs at risk. We believe this provision will have a very minor savings
impact on the federal budget, based on savings of time and effort
(staff time and contracted auditor time and resources) that the
government would spend on overseeing the disproportionate level of
problems experienced by organizations operating Part D plans without
prior Part D experience. For each inexperienced organization allowed
into the program in the absence of this proposal, we would anticipate a
savings of 1,000 staff hours at an average rate of $50 per hour, for a
total of $50,000 in employee time, plus an additional savings of
$200,000 in contractor dollars to conduct an emergency audit, for a
total of $250,000. In the absence of this proposal, we would anticipate
no more than two such inexperienced entities beginning Part D
operations per year, for a total annual savings of $500,000.
The burden associated with this proposal on industry would be
minimal, with a total estimated number of labor hours of 3.25 to submit
information during the Part D application process. Using the same
average hourly salary as previously mentioned, the total cost to Part D
applicants would be $162.50. We do not believe there are any non-
administrative costs to industry associated with this proposal, as Part
D applicants are already required to have arrangements in place to
perform the key Part D functions discussed in our proposal.
The main anticipated effect from this proposal is ensuring that
only entities

[[Page 2049]]

with some experience with Part D in critically important functional
areas are permitted to offer new Part D contracts, thus strengthening
the Part D program by enhancing the qualification criteria. CMS
considered the alternate proposal of requiring the prior Part D
experience to be tied to specific quality outcomes. CMS rejected the
alternative because we believed it added unnecessary complexity and
burden to the process, and we believe a simple experience requirement
is currently sufficient.

F. Accounting Statement and Table

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a0004/a-4/pdf), in Table 15, we have
prepared an accounting statement showing the classification of the
expenditures, costs, and savings associated with the provisions of this
proposed rule for CYs 2015 through 2019.

Table 15--Accounting Statement: Classifications of Estimated Costs and Transfers From Calendar Years 2015 to
2019
[$ in millions]
----------------------------------------------------------------------------------------------------------------
Transfers
-----------------------------------------------------------------
Category Discount rate
-------------------------- Period covered
7% 3%
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers (Federal)...... -$251.23 -$260.49 CYs 2015-2019.
-----------------------------------------------------------------
Whom to Whom? Federal Government, MA Organizations and Part D Sponsors
----------------------------------------------------------------------------------------------------------------

Costs (all other provisions)
-----------------------------------------------------------------
Discount rate
-------------------------- Period covered
7% 3%
----------------------------------------------------------------------------------------------------------------
Annualized Costs to MA Organizations and Part $8.9 $8.9 CYs 2015-2019.
D Sponsors.
----------------------------------------------------------------------------------------------------------------
Note: Monetized Figures in 2014 Dollars.

G. Conclusion

We estimate the savings to the federal government from implementing
these provisions will be $83 million in CY 2015. The savings will
increase annually. In CY 2019, the federal government savings from
implementing these provisions will be $589 million. For the entire
estimated period, CYs 2015 through 2019, we estimate the total federal
government (Medicare) impact to result in savings of approximately
$1.34 billion in 2014 dollars. The cost impact to MA organizations and
Part D sponsors is estimated at $8.9 million annually during CYs 2015
through 2019. We note that these savings do not represent net social
benefits because they consist of transfers of value from drug
manufacturers, pharmacies, incarcerated individuals and individuals not
lawfully present in the United States to the federal government, MA
organizations, Part D sponsors and beneficiaries who continue in the
programs.

List of Subjects

42 CFR Part 409

Health facilities and Medicare.

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

42 CFR Part 424

Administrative practice and procedure, Emergency medical services,
Health facilities, Health maintenance organizations (HMO), Health
professionals, Medicare, Penalties, Privacy, Reporting and record
keeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR Chapter IV as follows:

PART 409--HOSPITAL INSURANCE BENEFITS

0
1. The authority citation for part 409 continues to read as follows:

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

0
2. Section 409.30 is amended by revising paragraph (b)(2)(ii) to read
as follows:

Sec. 409.30 Basic requirements.

(b) * * *
(2) * * *
(ii) If, upon admission to the SNF, the beneficiary was enrolled in
an M+C plan, as defined in Sec. 422.4 of this chapter, offering the
benefits described in Sec. 422.102(a)(5) of this chapter, the
beneficiary will be considered to have met the requirements described
in paragraphs (a) and (b) of this section, and also in Sec.
409.31(b)(2), for the duration of the SNF stay.

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

0
3. 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

[[Page 2050]]

Public Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9), and
31 U.S.C. 9701.

0
4. Section 417.1 is amended by revising the definition of ``service
area'' to read as follows:

Sec. 417.1 Definitions.

* * * * *
Service area means a geographic area, defined through zip codes,
census tracts, or other geographic measurements, that is the area, as
determined by CMS, within which the HMO furnishes basic and
supplemental health services and makes them available and accessible to
all its enrollees in accordance with Sec. 417.106(b). Facilities in
which individuals are incarcerated are not included in the geographic
service area of an HMO or CMP plan.
* * * * *
0
5. Section 417.2 is amended by revising paragraph (b) to read as
follows:

Sec. 417.2 Basis and scope.

* * * * *
(b) Subparts G through R of this part set forth the rules for
Medicare contracts with, and payment to, HMOs and competitive medical
plans (CMPs) under section 1876 of the Act and 8 U.S.C. 1611.
* * * * *

Sec. 417.420 [Amended].

0
6. In Sec. 417.420, paragraph (a) is amended by removing the phrase
``Individuals who are entitled to'' and adding in its place the phrase
``Eligible individuals who are entitled to''.
0
7. Section 417.422 is amended--
0
A. In the introductory text, by removing the phrase ``any individual
who--'' and adding in its place the phrase ``any individual who meets
all of the following:''
0
B. In paragraphs (a) through (e), by removing the ``;'' and adding in
its place ``.''.
0
C. In paragraph (f), by removing the ``; and'' and adding in its place
``.''.
0
D. Adding paragraph (h).
The addition reads as follows:

Sec. 417.422 Eligibility to enroll in an HMO or CMP.

* * * * *
(h) Is a United States citizen or qualified alien who is lawfully
present in the United States as determined in 8 CFR 1.3.
0
8. Section 417.460 is amended--
0
A. Revising paragraph (b)(2)(i).
0
B. In paragraph (b)(2)(iii), by removing ``; or'' and adding in its
place ``;''.
0
C. By removing the period at the end of (b)(2)(iv) and adding ``; or''
in its place.
0
D. By adding paragraph (b)(2)(v).
0
E. In paragraph (b)(3), by removing the cross-reference ``paragraphs
(c) through (i)'' and adding in its place the cross-reference
``paragraphs (c) through (j)''.
0
F. By revising paragraph (c)(3).
0
G. In paragraph (c)(4), by removing the phrase ``non-payment of
premiums.'' and adding in its place the phrase ``non-payment of
premiums or other charges.''.
0
H. By adding new paragraphs (f)(1)(i)(A) through (C).
0
I. By adding paragraph (j).
The revisions and the additions read as follows:

Sec. 417.460 Disenrollment of beneficiaries by an HMO or CMP.

* * * * *
(b) * * *
(2) * * *
(i) Moves out of the HMO's or CMP's geographic area or is
incarcerated.
* * * * *
(v) Loses qualified alien status or lawful presence in the United
States.
* * * * *
(c) * * *
(3) Good cause and reinstatement. When an individual is disenrolled
for failure to pay premiums or other charges imposed by the HMO or CMP
for deductible and coinsurance amounts for which the enrollee is
liable, CMS (or its designee) may reinstate enrollment in the plan,
without interruption of coverage, if the individual shows good cause
for failure to pay and pays all overdue premiums or other charges
within 3 calendar months after the disenrollment date. The individual
must establish by a credible statement that failure to pay premiums or
other charges was due to circumstances for which the individual had no
control, or which the individual could not reasonably have been
expected to foresee.
* * * * *
(f) * * *
(1) * * *
(i) * * *
(A) Incarceration. The HMO or CMP must disenroll an individual if
the HMO or CMP establishes, on the basis of evidence acceptable to CMS,
that the individual is incarcerated per Sec. 417.1.
(B) Notification by CMS of incarceration. When CMS notifies an HMO
or CMP of disenrollment due to an incarceration as per Sec. 417.1,
disenrollment is effective the first of the month following the start
of incarceration, unless otherwise specified by CMS.
(C) Exception. The exception in paragraph (f)(2) of this section
does not apply to individuals who are incarcerated.
* * * * *
(j) Loss of qualified alien status. Disenrollment is effective the
first day of the month following the last month of lawful presence or
qualified alien status in the United States.

PART 422--MEDICARE ADVANTAGE PROGRAM

0
9. 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).
0
10. Section 422.1 is amended by revising paragraph (a) to read as
follows:

Sec. 422.1 Basis and scope.

(a) Basis. This part is based on the indicated provisions of the
following:
(1) The following provisions of the Act:

1128J(d)--Reporting and Returning of Overpayments.
1851--Eligibility, election, and enrollment.
1852--Benefits and beneficiary protections.
1853--Payments to Medicare Advantage (MA) organizations.
1854--Premiums.
1855--Organization, licensure, and solvency of MA organizations.
1856--Standards.
1857--Contract requirements.
1858--Special rules for MA Regional Plans.
1859--Definitions; enrollment restriction for certain MA plans.

(2) 8 U.S.C. 1611--Aliens who are not qualified aliens ineligible
for Federal public benefits
* * * * *
0
11. Section 422.2 is amended by--
0
A. Revising the definition of ``Attestation process''.
0
B. Removing the definition of ``Initial Validation Contractor (IVC)''.
0
C. Adding the definitions of ``Parent organization'' and ``RADV appeal
process''.
0
D. Removing the definition of ``RADV payment error calculation appeal
process''.
0
E. Revising the definition of ``Risk adjustment data validation (RADV)
audit''.
0
F. Revising introductory text of the definition of ``Service area''.
0
G. Removing the definition of ``The one best medical record for the
purposes of Medicare Advantage Risk Adjustment Validation (RADV)''.
The revisions and additions read as follows:

[[Page 2051]]

Sec. 422.2 Definitions.

* * * * *
Attestation process means a CMS-developed RADV audit-related
process that is part of the medical record review process that enables
MA organizations undergoing RADV audit to submit CMS-generated
attestations for eligible medical records with missing or illegible
signatures or credentials. The purpose of the CMS-generated
attestations is to cure signature and credential issues. CMS-generated
attestations do not provide an opportunity for a provider or supplier
to replace a medical record or for a provider or supplier to attest
that a beneficiary has the medical condition.
* * * * *
Parent organization means a legal entity that owns one or more
other subsidiary legal entities.
* * * * *
RADV appeal process means an administrative process that enables MA
organizations that have undergone RADV audit to appeal the Secretary's
medical record review determinations and the Secretary's calculation of
an MA organization's RADV payment error.
* * * * *
Risk adjustment data validation (RADV) audit means a payment audit
of a MA organization administered by the Secretary that ensures the
integrity and accuracy of risk adjustment payment data.
* * * * *
Service area means a geographic area that for local MA plans is a
county or multiple counties, and for MA regional plans is a region
approved by CMS within which an MA-eligible individual may enroll in a
particular MA plan offered by an MA organization. Facilities in which
individuals are incarcerated, with the exclusion of Institutions for
Mental Disease, are not included in the service area of an MA plan.
Each MA plan must be available to all MA-eligible individuals within
the plan's service area. In deciding whether to approve an MA plan's
proposed service area, CMS considers the following criteria:
* * * * *
0
12. Section 422.50 is amended--
0
A. In paragraph (a) introductory text, by removing the phrase ``if he
or she--'' and adding in its place the phrase ``if he or she meets all
of the following:''
0
B. In paragraphs (a)(1) and (4), by removing ``;'' and adding in its
place ``.''.
0
C. In paragraph (a)(5), by removing ``; and'' and adding in its place
``.''.
0
D. By adding paragraph (a)(7).
The addition reads as follows:

Sec. 422.50 Eligibility to elect an MA plan.

* * * * *
(a) * * *
(7) Is a United States citizen or qualified alien who is lawfully
present in the United States as determined in 8 CFR 1.3.
* * * * *
0
13. Section 422.60 is amended by redesignating paragraphs (g)
introductory text through (g)(3) as paragraphs (g)(1) through (4), and
by revising newly redesignated paragraph (g)(1) to read as follows:

Sec. 422.60 Election process.

* * * * *
(g) * * *
(1) Passive enrollment by CMS. CMS may implement passive enrollment
procedures (as described in paragraph (g)(2) of this section) in any of
the following situations:
(i) Immediate terminations as provided in Sec. 422.510(a)(5).
(ii) Other situations in which CMS determines that remaining
enrolled in a plan poses potential harm to the members.
(iii) Situations which meet all of the following criteria:
(A) A specialized MA plan for special needs individuals in which
the individual is enrolled will no longer be offered following the end
of the current calendar year,
(B) The individual is a--
(1) Special needs individual 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; and
(2) Full-benefit dual eligible beneficiary, as defined in section
1935(c) of the Act.
(C) The passive enrollment is into a specialized MA plan for
special needs individuals with a network and benefits that are
substantially similar, as determined by CMS, to the non-renewing plan,
and where the sponsoring organization also offers the Medicaid managed
care organization in which the individual is also enrolled.
* * * * *
0
14. Section 422.74 is amended by--
0
A. Adding paragraph (b)(2)(v).
0
B. Revising paragraphs (d)(1)(v) and (d)(4)(i)(A).
0
C. Adding paragraphs (d)(4)(v)and (d)(8).
The additions and revisions read as follows:

Sec. 422.74 Disenrollment by the MA organization.

* * * * *
(b) * * *
(2) * * *
(v) The individual loses qualified alien status or is no longer
lawfully present in the United States.
* * * * *
(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 (or its designee) 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.
* * * * *
(4) * * *
(i) * * *
(A) Out of the MA plan's service area or is incarcerated as
specified in paragraph (d)(4)(v) of this section.
* * * * *
(v) Incarceration. (A) The MA organization must disenroll an
individual if the MA organization establishes, on the basis of evidence
acceptable to CMS, that the individual is incarcerated as specified
Sec. 422.2 or when notified of the incarceration by CMS as specified
paragraph (d)(4)(v)(B) of this section.
(B) Notification by CMS of incarceration. When CMS notifies the MA
organization of the disenrollment due to an incarceration as specified
in Sec. 422.2, disenrollment is effective the first of the month
following the start of incarceration, unless otherwise specified by
CMS.
* * * * *
(8) Loss of qualified alien status. Disenrollment is effective with
the month following the last month of lawful presence or qualified
alien status in the United States.
* * * * *
0
15. Section 422.100 is amended by adding paragraph (m) to read as
follows:

Sec. 422.100 General requirements.

* * * * *
(m) Special requirements during a disaster or emergency. (1) When a
state of disaster is declared as described in paragraph (m)(2) of this
section, an MA organization offering an MA plan must, until one of the
conditions described in

[[Page 2052]]

paragraph (m)(3) of this section occurs, ensure access to benefits in
the following manner:
(i) Cover Medicare Parts A and B services and supplemental Part C
plan benefits furnished at non-contracted facilities subject to Sec.
422.204(b)(3).
(ii) Waive, in full, requirements for gatekeeper referrals where
applicable.
(iii) Provide the same cost-sharing for the enrollee had the
service or benefit been furnished at a plan-contracted facility.
(iv) Make changes that benefit the enrollee effective immediately
without the 30-day notification requirement at Sec. 422.111(d)(3).
(2) Declarations of disasters. A declaration of disaster will
identify the geographic area affected by the event and may be made as
one of the following:
(i) Presidential declaration of a disaster or emergency under the
either of the following:
(A) Stafford Act.
(B) National Emergencies Act.
(ii)(A) Secretarial declaration of a public health emergency under
section 319 of the Public Health Service Act.
(B) If the President has declared a disaster as described in
paragraph (m)(2)(i) or (2)(ii) of this section, then the Secretary may
also authorize waivers or modifications under section 1135 of the Act.
(iii) Declaration by the Governor of a State or Protectorate.
(3) End of the disaster. The public health emergency or state of
disaster ends when any of the following occur:
(i) The source that declared the public health emergency or state
of disaster declares an end.
(ii) The CMS declares an end of the public health emergency or
state of disaster.
(iii) Thirty days have elapsed since the declaration of the public
health emergency or state of disaster and no end date was identified in
paragraph (m)(3)(i) or (3)(ii) of this section.
(4) MA plans unable to operate. An MA plan that cannot resume
normal operations by the end of the public health emergency or state of
disaster must notify CMS.
(5) Disclosure. In addition to other requirements of annual
disclosure under Sec. 422.111, an organization must do all of the
following:
(i) Indicate the terms and conditions of payment during the public
health emergency or disaster for non-contracted providers furnishing
benefits to plan enrollees residing in the state-of-disaster area.
(ii) Annually notify enrollees of the information listed in
paragraphs (m)(1) through (3) and (m)(5) of this section.
(iii) Provide the information described in paragraphs (m)(1)
through (3) and (m)(4)(i) of this section on its Web site.

Sec. 422.101 [Amended]

0
16. Section 422.101 is amended by removing and reserving paragraph (c).
0
17. Section 422.102 is amended by adding paragraph (a)(5) to read as
follows:

Sec. 422.102 Supplemental benefits.

(a) * * *
(5) MA organizations may elect to furnish, as part of their
Medicare covered benefits, coverage of post hospital SNF care as
described in subparts C and D of this part, in the absence of the prior
qualifying hospital stay that would otherwise be required for coverage
of this care.
* * * * *
0
18. Section 422.111 is amended by revising paragraphs (a)(3) and (d)(1)
to read as follows:

Sec. 422.111 Disclosure requirements.

(a) * * *
(3) At the time of enrollment and at least annually thereafter by
December 31 for the following contract year.
* * * * *
(d) * * *
(1) Submit the changes for CMS review under procedures of Subpart V
of this part.
* * * * *
0
19. Section 422.112 is amended by adding paragraph (b)(7) to read as
follows:

Sec. 422.112 Access to services.

* * * * *
(b) * * *
(7) With respect to drugs for which payment as so prescribed and
dispensed or administered to an individual may be available under Part
A or Part B, or under Part D, MA-PD plans must coordinate all benefits
administered by the plan and--
(i) Establish and maintain a process to ensure timely and accurate
claims adjudication at the point-of-sale; and
(ii) Issue the determination and authorize or provide the benefit
under Part A or Part B or as a benefit under Part D as expeditiously as
the enrollee's health condition requires, in accordance with the
requirements of part 422, subpart M and Part 423, subpart M, as
appropriate, when a party requests a coverage determination.
* * * * *
0
20. Section 422.113 is amended by revising paragraph (b)(1)(iii)
introductory text 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) * * *
(1) * * *
(iii) Urgently needed services means covered services that are not
emergency services as defined in this section, provided when an
enrollee is temporarily absent from the MA plan's service (or, if
applicable, continuation) area (or provided when the enrollee is in the
service or continuation area but the organization's provider network is
temporarily unavailable or inaccessible) when the services are
medically necessary and immediately required--
* * * * *
0
21. Section 422.134 is added to subpart C to read as follows:

Sec. 422.134 Reward and incentive programs.

(a) General rule. The MA organization may create one or more
programs consistent with the standards of this section that provide
rewards and incentives to enrollees in connection with participation in
activities that focus on promoting improved health, preventing injuries
and illness, and promoting efficient use of health care resources.
(b) Non-discrimination. Reward and incentive programs--
(1) Must not discriminate against enrollees based on race, gender,
chronic disease, institutionalization, frailty, health status or other
impairments;
(2) Must be designed so that all enrollees are able to earn
rewards; and
(3) Are subject to sanctions at Sec. 422.752(a)(4).
(c) Requirements. (1) A rewards and incentives program must meet
all of the following:
(i) Be offered in connection with completion of the entire service
or activity.
(ii) Be offered to all eligible members without discrimination.
(iii) Have a monetary cap, as determined by CMS, of a value that
may be expected to impact enrollee behavior but not exceed the value of
the health related service or activity itself.
(iv) Otherwise comply with all relevant fraud and abuse laws,
including, when applicable, the anti-kickback statute and civil money
penalty prohibiting inducements to beneficiaries.
(2) Reward and incentive items may not--
(i) Be offered in the form of cash or other monetary rebates; or
(ii) Be used to target potential enrollees.

[[Page 2053]]

(3) The MA organization must make information available to CMS upon
request about the form and manner of any rewards and incentives
programs it offers and any evaluations of the effectiveness of such
programs.
0
22. Section 422.152 is amended as follows:
0
A. Paragraph (a) introductory text is amended by:
0
i. Removing the phrase ``for each of those plans'' and adding in its
place the phrase ``for each plan''.
0
.ii. Removing the phrase ``a plan must--'' and adding in its place the
phrase ``a plan must do all of the following:''
0
B. By redesignating paragraphs (a)(1) through (3) as (a)(2) through
(4), respectively.
0
C. By adding a new paragraph (a)(1).
0
D. In newly redesignated paragraph (a)(2), by removing the ``;'' and
adding in its place ``.''.
0
E. In newly redesignated paragraph (a)(3), by removing the ``; and''
and adding in its place ``.''.
0
F. By revising paragraphs (c), (g) introductory text, and (h).
The addition and revisions read as follows:

Sec. 422.152 Quality improvement program.

(a) * * *
(1) Create a quality improvement program plan that sufficiently
outlines the elements of the plan's quality improvement program.
* * * * *
(c) Chronic care improvement program requirements. (1) Develop
criteria for a chronic care improvement program. These criteria must
include all of the following:
(i) Methods for identifying MA enrollees with multiple or
sufficiently severe chronic conditions that would benefit from
participating in a chronic care improvement program.
(ii) Mechanisms for monitoring MA enrollees that are participating
in the chronic improvement program and evaluating participant outcomes
such as changes in health status.
(iii) Performance assessments that use quality indicators that are
objective, clearly and unambiguously defined, and based on current
clinical knowledge or research.
(iv) Systematic and ongoing follow-up on the effect of the program.
(2) The organization must report the status and results of each
program to CMS as requested.
* * * * *
(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),
as defined under Sec. 422.101(f), to CMS for NCQA evaluation and
approval, in accordance with CMS guidance. In addition to the
requirements under paragraphs (a) and (f) of this section, a SNP must
conduct a quality improvement program that meets all of the following:
* * * * *
(h) Requirements for MA private-fee-for-service plans and Medicare
medical savings account plans. MA PFFS and MSA plans are subject to the
requirement that may not exceed the requirement specified in Sec.
422.152(e).

Sec. 422.300 [Amended]

0
23. Section 422.300 is amended by removing the phrase ``and 1858 of the
Act.'' and adding in its place the phrase ``1858, and 1128J(d) of the
Act.''
0
24. Section 422.310 is amended by:
0
A. Redesignating the text of paragraph (e) as paragraph (e)(2) and
adding new paragraph (e)(1) following current paragraph (e) subject
heading.
0
B. Adding new paragraph (e)(1).
0
C. Revising paragraph (g)(2).
0
D. Adding paragraph (g)(3).
The additions and revision read as follows:

Sec. 422.310 Risk adjustment data.

* * * * *
(e) * * *
(1) Any medical record reviews conducted by an MA organization must
be designed to determine the accuracy of diagnoses submitted under
Sec. 422.308(c) and Sec. 422.310(g).
* * * * *
(g) * * *.
(2) After the payment year is completed, CMS recalculates the risk
factors for affected individuals to determine if adjustments to
payments are necessary.
(i) Prior to calculation of final risk factors for a payment year,
CMS allows a reconciliation process to account for risk adjustment data
submitted after the March deadline until the final risk adjustment data
submission deadline in the year following the payment year.
(ii) After the final risk adjustment data submission deadline,
which is announced by CMS, an MA organization can submit data to
correct overpayments but cannot submit diagnoses for additional
payment.
(3) Submission of corrected risk adjustment data in accordance with
overpayments after the final risk adjustment data submission deadline,
as described in paragraph (g)(2) of this section, must be made as
provided in Sec. 422.326.
0
25. Section 422.311 is amended as follows:
0
A. In paragraph (a), by removing the phrase ``CMS annually'' and adding
in its place the phrase ``the Secretary annually''.
0
B. In paragraph (b)(2), by removing the phrase ``to CMS or its
contractors'' and adding in its place the phrase ``to the Secretary''.
0
C. By removing paragraph (b)(3).
0
D. By revising paragraph (c).
The revision read as follows:

Sec. 422.311 RADV audit dispute and appeal processes.

* * * * *
(c) RADV audit appeals. (1) Appeal rights. MA organizations that do
not agree with their RADV audit results may appeal.
(2) Issues eligible for RADV appeals. (i) General rules. MA
organizations may appeal RADV medical record review determinations and
the Secretary's RADV payment error calculation. In order to be eligible
for RADV appeal, MA organizations must adhere to the following:
(A) Established RADV audit procedures and requirements.
(B) RADV appeals procedures and requirements.
(ii) Failure to follow RADV rules. Failure to follow the
Secretary's RADV audit procedures and requirements and the Secretary's
RADV appeals procedures and requirements will render the MA
organization's request for appeal invalid.
(iii) RADV appeal rules. The MA organization's written request for
medical record review determination appeal must specify the following:
(A) The audited HCC(s) that the Secretary identified as being in
error.
(B) A justification in support of the audited HCC selected for
appeal.
(iv) Number of medical records eligible for appeal. For each
audited HCC, MA organizations may appeal one medical record that has
undergone RADV review. If an attestation was submitted to cure a
signature or credential-related error, the attestation may be included
in the HCC appeal.
(v) Selection of medical record for appeal. The MA organization
must select the medical record that undergoes appeal.
(vi) Written request for RADV payment error calculation appeal. The
written request for RADV payment error calculation appeal must clearly
specify the following:
(A) The MA organization's own RADV payment error calculation.

[[Page 2054]]

(B) Where the Secretary's RADV payment error calculation was
erroneous.
(3) Issues ineligible for RADV appeals. (i) MA organizations'
request for appeal may not include HCCs, medical records or other
documents beyond the audited HCC, RADV-reviewed medical record, and any
accompanying attestation that the MA organization chooses for appeal.
(ii) MA organizations may not appeal the Secretary's medical record
review determination methodology or RADV payment error calculation
methodology.
(iii) As part of the RADV payment error calculation appeal--MA
organizations may not appeal RADV medical record review-related errors.
(iv) MA organizations may not appeal RADV errors that result from
an MA organization's failure to submit a medical record.
(4) Burden of proof. The MA organization bears the burden of proof
by a preponderance of the evidence in demonstrating that the
Secretary's medical record review determination(s) or payment error
calculation was incorrect.
(5) Manner and timing of a request for RADV appeal. (i) At the time
the Secretary issues its RADV audit report, the Secretary notifies
audited MA organizations of the following:
(A) That they may appeal RADV HCC errors that are eligible for
medical record review determination appeal.
(B) That they may appeal the Secretary's RADV payment error
calculation.
(ii) MA organizations have 30 days from date of issuance of the
RADV audit report to file a written request with CMS for RADV appeal.
This request for RADV appeal must specify one of the following:
(A) Whether the MA organization requests medical record review
determination appeal, the issues with which the MA organization
disagrees, and the reasons for the disagreements.
(B) Whether the MA organization requests RADV payment error
calculation appeal, the issues with which the MA organization
disagrees, and the reasons for the disagreements.
(C) Whether the MA organization requests both medical record review
determination appeal and RADV payment error calculation appeal, the
issues with which the MA organization disagrees, and the reasons for
the disagreements.
(iii) For MA organizations that appeal both medical record review
determination appeal and RADV payment error calculation appeal:
(A) The Secretary adjudicates the request for RADV payment error
calculation following conclusion of reconsideration of the MA
organization's request for medical record review determination appeal.
(B) MA organizations may not appeal their RADV payment error
calculation until appeals of RADV medical record review determinations
filed by the MA organization have been completed and the decisions are
final.
(6) Reconsideration stage. (i) Written request for medical record
review reconsideration. A MA organization's written request for medical
record review determination reconsideration must specify the following:
(A) The audited HCC that the Secretary identified as being in error
that the MA organization wishes to appeal.
(B) A justification in support of the audited HCC chosen for
appeal.
(ii) Written request for payment error calculation. The MA
organization's written request for payment error calculation
reconsideration--
(A) Must include the MA organization's own RADV payment error
calculation that clearly specifies where the Secretary's RADV payment
error calculation was erroneous; and
(B) May include additional documentary evidence pertaining to the
calculation of the payment error that the MA organization wishes the
reconsideration official to consider.
(iii) Conduct of the reconsideration. (A) For medical record review
determination reconsideration, a medical record review professional who
was not involved in the initial medical record review determination of
the disputed audited HCCs does the following:
(1) Reviews the medical record and accompanying dispute
justification.
(2) Reconsiders the initial audited medical record review
determination.
(B) For payment error calculation reconsideration, CMS ensures that
a third party not involved in the initial RADV payment error
calculation does the following:
(1) Reviews the Secretary's RADV payment error calculation.
(2) Reviews the MA organization's RADV payment error calculation;
(3) Recalculates the payment error in accordance with CMS's RADV
payment error calculation procedures.
(iv) Effect of the reconsideration official's decision. (A) The
reconsideration official issues a written reconsideration decision to
the MA organization.
(B) The reconsideration official's decision is final unless the MA
organization disagrees with the reconsideration official's decision.
(C) If the MA organization disagrees with the reconsideration
official's decision, they may request a hearing in accordance with
paragraph (c)(8) of this section.
(7) Hearing stage. (i) Errors eligible for hearing. At the time the
reconsideration official issues his or her reconsideration
determination to the MA organization, the reconsideration official
notifies the MA organization of any RADV HCC errors or payment error-
calculations that are eligible for RADV hearing.
(ii) General hearing rules. A MA organization that requests a RADV
hearing must do so in writing in accordance with procedures established
by CMS.
(iii) Written request for hearing. The written request for a
hearing must be filed with the Hearing Officer within 30 days of the
date the MA organization receives the reconsideration officer's written
reconsideration decision.
(A) If the MA organization appeals medical record review
reconsideration determination, the written request for RADV hearing
must--
(1) Include a copy of the written decision of the reconsideration
official;
(2) Specify the audited HCCs that the reconsideration official
confirmed as being in error; and
(3) Specify a justification why the MA organization disputes the
reconsideration official's determination.
(B) If the MA organization appeals the RADV payment error
calculation, the written request for RADV hearing must include the
following:
(1) A copy of the written decision of the reconsideration official.
(2) The MA organization's own RADV payment error calculation that
clearly specifies where the Secretary's payment error calculation was
erroneous.
(iv) Designation of hearing officer. A hearing officer will conduct
the RADV hearing.
(v) Disqualification of the hearing officer. (A) A hearing officer
may not conduct a hearing in a case in which he or she is prejudiced or
partial to any party or has any interest in the matter pending for
decision.
(B) A party to the hearing who objects to the designated hearing
officer must notify that officer in writing at the earliest
opportunity.
(C) The hearing officer must consider the objections, and may, at
his or her discretion, either proceed with the hearing or withdraw.
(D) If the hearing officer withdraws, another hearing officer
conducts the hearing.
(E) If the hearing officer does not withdraw, the objecting party
may, after the hearing, present objections and

[[Page 2055]]

request that the officer's decision be revised or a new hearing be held
before another hearing officer. The objections must be submitted in
writing to the Secretary.
(vi) Hearing Officer review. The hearing officer reviews the
following:
(A) For medical record review determination appeal all of the
following:
(1) The RADV-reviewed medical record and any accompanying
attestation that the MA organization selected for review.
(2) The reconsideration official's written determination.
(3) The written brief submitted by the MA organization or the
Secretary in response to the reconsideration official's determination.
(B) For payment error calculation appeal all of the following:
(1) A copy of the written decision of the reconsideration official
that clearly specifies whether the Secretary's payment error
calculation was erroneous.
(2) Briefs addressing the reconsideration decision.
(vii) Hearing procedures. (A) Authority of the Hearing Officer. The
hearing officer has full power to make rules and establish procedures,
consistent with the law, regulations, and the Secretary rulings. These
powers include the authority to dismiss the appeal with prejudice and
take any other action which the hearing officer considers appropriate,
including for failure to comply with such rules and procedures.
(B) The hearing is on the record. (1) Except as specified in
paragraph (c)(viii)(B)(2), the hearing officer is limited to the review
of the record.
(2)(i) Subject to the hearing officer's full discretion, the
parties may request a live or telephonic hearing regarding some or all
of the disputed medical records.
(ii) The hearing officer may, on his or her own-motion, schedule a
live or telephonic hearing.
(3) The record is comprised of the following:
(i) Documents described at paragraphs (c)(6)(iv) and (7)(vi) of
this section.
(ii) Written briefs from the MA organization explaining why they
believe the reconsideration official's determination was incorrect.
(iii) The Secretary's optional brief that responds to the MA
organization's brief--
(4) The hearing officer neither receives testimony nor accepts any
new evidence that is not part of the record.
(5) Either the MA organization or the Secretary may ask the hearing
officer to rule on a motion for summary judgment.
(viii) Hearing Officer decision. The hearing officer decides
whether to uphold or overturn the reconsideration official's decision,
and sends a written determination to CMS and the MA organization,
explaining the basis for the decision.
(ix) Computations based on hearing decision. (A) Once the hearing
officer's decision is considered final pursuant to subsection (x), a
third party not involved in the initial RADV payment error calculation
recalculates the MA organization's RADV payment error and issues a new
RADV audit report to the appellant MA organization and CMS.
(B) For MA organizations appealing the RADV error calculation only,
a third party not involved in the initial RADV payment error
calculation recalculates the MA organization's RADV payment error and
issues a new RADV audit report to the appellant MA organization and
CMS.
(x) Effect of the Hearing Officer's decision. The hearing officer's
decision is final unless the decision is reversed or modified by the
CMS Administrator.
(8) CMS Administrator review stage. (i) A request for CMS
Administrator review must be made in writing and filed with the CMS
Administrator.
(ii) CMS or a MA organization that has received a hearing officer's
decision and requests review by the CMS Administrator must do so within
30 days of receipt of the hearing officer's decision.
(iii) After receiving a request for review, the CMS Administrator
has the discretion to elect to review the hearing officer's decision or
to decline to review the hearing officer's decision.
(iv) If the CMS Administrator elects to review the hearing
decision--
(A) The CMS Administrator acknowledges the decision to review the
hearing decision in writing and notifies CMS and the MA organization of
their right to submit comments within 15 days of the date of the
notification; and
(B) The CMS Administrator is limited to the review of the record.
The record is comprised of the following:
(1) The record is comprised of documents described at paragraphs
(c)(6)(iv), (7)(vii), and (7)(ix) of this section.
(2) The hearing record.
(3) Written arguments from the MA organization or CMS explaining
why either or both parties believe the hearing officer's determination
was correct or incorrect.
(C) The CMS Administrator reviews the record and determines whether
the hearing officer's determination should be upheld, reversed, or
modified.
(v) The CMS Administrator renders his or her final decision in
writing to the parties within 60 days of acknowledging his or her
decision to review the hearing officer's decision.
(vi) The decision of the hearing officer is final if the CMS
Administrator--
(A) Declines to review the hearing officer's decision; or
(B) Does not make a decision within 60 days.
0
26. Section 422.326 is added to subpart G to read as follows:

Sec. 422.326 Reporting and returning of overpayments.

(a) Terminology. For purposes of this section--
Applicable reconciliation occurs on the date of the annual final
deadline for risk adjustment data submission described at Sec.
422.310(g), which is announced by CMS each year.
Funds means any payment that an MA organization has received that
is based on data submitted by the MA organization to CMS for payment
purposes, including Sec. 422.308(f) and Sec. 422.310.
Overpayment means any funds that an MA organization has received or
retained under title XVIII of the Act to which the MA organization,
after applicable reconciliation, is not entitled under such title.
(b) General rule. If an MA organization has identified that it has
received an overpayment, the MA organization must report and return
that overpayment in the form and manner set forth in this section.
(c) Identified overpayment. The MA organization has identified an
overpayment if it has actual knowledge of the existence of the
overpayment or acts in reckless disregard or deliberate ignorance of
the existence of the overpayment. An MA organization must exercise
reasonable diligence to determine the accuracy of information it
receives that an overpayment may exist.
(d) Reporting and returning of an overpayment. An MA organization
must report and return any overpayment it received no later than 60
days after the date on which it identified it received an overpayment.
(1) Reporting. An MA organization must notify CMS, of the amount
and reason for the overpayment, using a notification process determined
by CMS.
(2) Returning. An MA organization must return identified
overpayments in a manner specified by CMS.
(3) Enforcement. Any overpayment retained by an MA organization
after the 60-day deadline for reporting and returning is an obligation
under 31 U.S.C. 3729(b)(3).

[[Page 2056]]

(e) Look-back period. An MA organization must report and return any
overpayment identified for the 6 most recent completed payment years.
Overpayments resulting from fraud are not subject to this limitation of
the look-back period.

Sec. 422.502 [Amended]

0
27. Section 422.502(b)(3) is amended by removing the phrase ``CMS may
deny an application based on the applicant's'' and adding in its place
the phrase ``CMS may deny an application for a new contract or service
are expansion based on the applicant's''.
0
28. Section 422.503 is amended by--
0
A. Adding paragraph (b)(4)(vi)(C)(3).
0
B. Adding and reserving paragraph (b)(4)(vi)(G)(4).
0
C. Revising paragraph (b)(4)(vi)(G)(5).
0
D. In paragraph (d)(2) introductory text, removing the phrase ``has the
right to:'' and adding in its place the phrase ``has the right to
timely do all of the following:''.
0
E. In paragraph (d)(2)(i), removing the ``;'' and adding in its place a
``.''.
0
F. In paragraph (d)(2)(ii), removing the ``; and'' and adding in its
place a ``.''.
0
G. Adding paragraph (d)(2)(iv).
The revisions and additions are as follows:

Sec. 422.503 General provisions.

* * * * *
(b) * * *
(4) * * *
(vi) * * *
(C) * * *
(3) An MA organization must require all of its first tier,
downstream and related entities to take the CMS training and accept the
certificate of completion of the CMS training as satisfaction of this
requirement. MA organizations are prohibited from developing and
implementing their own training or providing supplemental training
materials to fulfill this requirement.
* * * * *
(G) * * *
(5) Not accept, or share a corporate parent organization with an
entity that accepts, new enrollees under a section 1876 reasonable cost
contract in any area in which it seeks to offer an MA plan.
(d) * * *
(2) * * *
(iv) CMS may require that the MA organization hire an independent
auditor to conduct full or partial program audits or to provide CMS
with information to determine if deficiencies found during an audit or
inspection have been corrected and are not likely to recur. The
independent auditor must work in accordance with CMS specifications and
must be willing to attest that a complete and full independent review
has been performed.
* * * * *
0
29. Amend Sec. 422.504 by:
0
A. Adding paragraphs (a)(3)(iv) and (a)(19).
0
B. Redesignating paragraph (i)(2)(ii) as (i)(2)(iii).
0
C. Adding new paragraph (i)(2)(ii) and paragraphs (1)(5) and (o).

Sec. 422.504 Contract provisions.

* * * * *
(a) * * *
(3) * * *
(iv) Such benefits and access in a manner that provides good
quality health care demonstrated by scores of three or higher on CMS
performance standards for patient outcomes, intermediate outcomes,
process, patient experience, and patient access to care.
* * * * *
(19) That it will not submit a bid for the same type of MA plan
that is non-renewed under Sec. 522.506(b)(1)(iv) in the service area
of the non-renewed plan for 2 years.
* * * * *
(i) * * *
(2) * * *
(ii) HHS, the Comptroller General, or their designees have the
right to audit, evaluate, collect, and inspect any records under
(i)(2)(i) of this section directly from any first tier, downstream, or
related entity.
* * * * *
(l) * * *
(5) Certification of accuracy of data for overpayments. The CEO,
CFO, or COO must certify (based on best knowledge, information, and
belief) that the information provided for purposes of reporting and
returning of overpayments under Sec. 422.326 is accurate, complete,
and truthful.
* * * * *
(o) Business continuity. (1) The MA organization agrees to develop,
maintain, and implement a business continuity plan containing policies
and procedures to ensure the continuation of business operations during
disruptions to business operations which would include natural or man-
made disasters, system failures, emergencies, and other similar
circumstances and the threat of such occurrences. To meet the
requirement, the business continuity plan must, at a minimum, include
the following:
(i) Risk assessment. Identify threats and vulnerabilities that
might affect business operations.
(ii) Mitigation strategy. Design strategies to mitigate hazards.
Identify essential functions in addition to those specified in
paragraph (o)(2) of this section and prioritize the order in which to
restore all other functions to normal operations. At a minimum, each MA
organization must do the following:
(A) Identify specific events that will activate the business
continuity plan.
(B) Develop a contingency plan to maintain, during any business
disruption, the availability and, as applicable, confidentiality of
communication systems and essential records in all forms (including
electronic and paper copies). The contingency plan must do the
following:
(1) Ensure that during any business disruption the following
systems will operate continuously or, should they fail, be restored to
operational capacity on a timely basis:
(i) Information technology (IT) systems including those supporting
claims processing at point of service.
(ii) Provider and enrollee communication systems including
telephone, Web site, and email.
(2) With respect to electronic protected health information, comply
with the contingency plan requirements of the Health Insurance
Portability and Accountability Act of 1996 Security Regulations at 45
CFR 160 and 164, Subparts A and C.
(C) Establish a chain of command.
(D) Establish a business communication plan that includes emergency
capabilities and procedures to contact and communicate with the
following:
(1) Employees.
(2) First tier, downstream, and related entities.
(3) Other third parties (including pharmacies, providers,
suppliers, and government and emergency management officials).
(E) Establish employee and facility management plans to ensure that
essential operations and job responsibilities can be assumed by other
employees or moved to alternate sites as necessary.
(F) Establish a restoration plan including procedures to transition
to normal operations.
(G) Comply with all applicable Federal, State, and local laws.
(iii) Testing and revision. On at least an annual basis, test and
update the business operations continuity plan to ensure the following:
(A) That it can be implemented in emergency situations.
(B) That employees understand how it is to be executed.
(iv) Training. On at least an annual basis, educate all employees,
including contract staff about the business

[[Page 2057]]

continuity plan and their own respective roles.
(v) Records. (A) Develop and maintain records documenting the
elements of the business continuity plan described in paragraphs
(o)(1)(i) through (iv) of this section.
(B) Make the information specified in paragraph (o)(1)(v)(A) of
this section available to CMS upon request.
(2) Restoration of essential functions. Every MA organization must
restore essential functions within 24 hours after any of the essential
functions fail or otherwise stop functioning as usual. In addition to
any essential functions that the MA organization identifies under
paragraph (o)(1)(ii) of this section, for purposes of this paragraph
(o)(2) of the section essential functions include, at a minimum, the
following:
(i) Benefit authorization (if not waived), adjudication, and
processing of health care claims for services furnished at a hospital,
clinic, provider office or other place of service.
(ii) Operation of an enrollee exceptions and appeals process
including coverage determinations.
(iii) Operation of call center customer services.
0
30. Section 422.506 by revising paragraphs (a)(4) and (b)(1)(iv) to
read as follows:

Sec. 422.506 Nonrenewal of contract.

(a) * * *
(4) If an MA organization does not renew a contract under this
paragraph (a) of this section, CMS may deny an application for a new
contract or a service area expansion from the MA organization for 2
years unless there are special circumstances that warrant special
consideration, as determined by CMS. This prohibition may apply
regardless of the product type, contract type or service area of the
previous contract.
* * * * *
(b) * * *
(1) * * *
(iv) The contract must be non-renewed as to an individual MA plan
if that plan does not have a sufficient number of enrollees to
establish that it is a viable independent plan option.
* * * * *
0
31. Section 422.508 is amended by revising paragraphs (c) and (d)
introductory text to read as follows:

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

* * * * *
(c) Agreement to limit new MA applications. As a condition of the
consent to a mutual termination CMS requires, as a provision of the
termination agreement, language prohibiting the MA organization from
applying for new contracts or service area expansions for a period of 2
years, absent circumstances warranting special consideration. This
prohibition may apply regardless of the product type, contract type or
service area of the previous contract.
(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 does not contract with an organization
whose covered persons also served as covered persons for the mutually
terminating sponsor. This prohibition may apply regardless of the
product type, contract type or service area of the previous contract. A
``covered person'' as used in this paragraph means one of the
following:
* * * * *
0
32. Amend Sec. 422.510 as follows;
0
A. By redesigating paragraphs (a)(4) through (15) as paragraphs
(a)(4)(i) through (xii).
0
B. By adding new paragraph (a)(4) introductory text.
0
C. In newly redesignated paragraphs (a)(4)(ii), (v), (vi), and (viii)
by removing the term ``fails'' and adding in its place the term
``failed''.
0
D. In newly redesignated paragraphs (a)(4)(iii), (iv), (vii), (ix), and
(x), by removing the term ``Fails'' and adding in its place the term
``Failed''.
0
E. By revising newly redesignated paragraphs (a)(4)(xi) and (xii).
0
F. In paragraph (b)(1)(i), by removing the phrase ``90 days'' and
adding in its place the phrase ``at least 45 calendar days''.
0
G. By revising paragraph (b)(1)(iii) and the heading for paragraph
(b)(2).
0
H. In paragraph (b)(2)(i)(C), by removing the cross-reference ``(a)(4)
of this section'' and adding in its place the cross reference
``(a)(4)(i) of this section''.
0
I. In paragraph (c)(2)(iii), by removing the cross reference ``(a)(4)
of this section'' and adding in its place the cross reference
``(a)(4)(i) of this section''.
The additions and revisions read as follows:

Sec. 422.510 Termination of Contract by CMS.

* * * * *
(a) * * *
(3) * * *
(4) CMS may make a determination under paragraph (a)(1), (2), or
(3) of this section if the MA organization has had one or more of the
following occur:
* * * * *
(xi) Achieves a Part C summary plan rating of less than 3 stars for
3 consecutive contract years. Plan ratings issued by CMS before
September 1, 2012, are not included in the calculation of the 3-year
period.
(A) Holds a MA contract that does not include a Part D addendum and
achieves a Part C summary plan rating of less than 3 stars for 3
consecutive contract years.
(B) Holds a MA contract that includes a Part D addendum and fails
for three consecutive years to achieve both Part C and D summary
ratings of 3 or more stars in the same year.
(xii) Has failed to report MLR data in a timely and accurate manner
in accordance with Sec. 422.2460 or that any MLR data required by this
subpart is found to be materially incorrect or fraudulent.
* * * * *
(b) * * *
(1) * * *
(i) CMS notifies the MA organization in writing at least 45
calendar days before the intended date of the termination.
(ii) The MA organization notifies its Medicare enrollees of the
termination by mail at least 30 calendar days before the effective date
of the termination.
(iii) The MA organization notifies the general public of the
termination at least 30 calendar days before the effective date of the
termination by releasing a press statement to news media serving the
affected community or county and posting the press statement
prominently on the organization's Web site.
(2) Immediate termination of contract by CMS.
* * * * *
0
33. Section 422.512 is amended by revising paragraph (e)(1) to read as
follows:

Sec. 422.512 Termination of contract by the MA organization.

* * * * *
(e) * * *
(1) CMS may deny an application for a new contract or a service
area expansion from an MA organization that has terminated its contract
within the preceding 2 years unless there are circumstances that
warrant special consideration, as determined by CMS. This prohibition
may apply regardless of the contract type, product type, or service
area of the previous contract.
* * * * *
0
34. Amend Sec. 422.566 by revising paragraphs (b) introductory text,
and (b)(1) through (3) and adding paragraph (b)(6) to read as follows:

[[Page 2058]]

Sec. 422.566 Organization determinations.

* * * * *
(b) Actions that are organization determinations. The following
actions by an MA organization are organization determinations:
(1) Any determination with respect to payment for temporarily out
of the area renal dialysis services, emergency services, post-
stabilization care, or urgently needed services.
(2) Any determination with respect to payment for any other health
services furnished by a provider other than the MA organization that
the enrollee believes--
(i) Are covered under Medicare; or
(ii) If not covered under Medicare, should have been furnished,
arranged for, or reimbursed by the MA organization.
(3) Any determination by the MA organization not to provide or pay
for services, in whole or in part, including the type, level or
duration of services, that the enrollee believes should be furnished or
arranged for by the MA organization.
* * * * *
(6) Any determination by the MA organization to provide or pay for
an item or service, including the initial or continued provision of an
item or service by a contract provider of the MA organization.
* * * * *
0
35. Section 422.568 is amended by revising paragraph (b) to read as
follows:

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

* * * * *
(b) Timeframe for requests for service. Except as provided in
paragraph (b)(1) of this section, when a party has made a request for a
service, the MA organization must notify the enrollee of its
determination as expeditiously as the enrollee's health condition
requires, but no later than 14 calendar days after the date the
organization receives the request for a standard organization
determination.
(1) Extensions. The MA organization may extend the timeframe by up
to 14 calendar days if--
(i) The enrollee requests the extension;
(ii) The extension is justified and in the enrollee's interest due
to the need for additional medical evidence from a noncontract provider
that may change an MA organization's decision to deny an item or
service; or
(iii) The extension is justified due to extraordinary, exigent, or
other non-routine circumstances and is in the enrollee's interest.
(2) Notice of extension. When the MA organization extends the
timeframe, it must notify the enrollee in writing of the reasons for
the delay, and inform the enrollee of the right to file an expedited
grievance if he or she disagrees with the MA organization's decision to
grant an extension. The MA organization must notify the enrollee of its
determination as expeditiously as the enrollee's health condition
requires, but no later than upon expiration of the extension.
* * * * *
0
36. Section 422.572 is amended by revising paragraph (b) to read as
follows:

Sec. 422.572 Timeframes and notice requirements for expedited
organization determinations.

* * * * *
(b) Extensions. (1) The MA organization may extend the 72-hour
deadline by up to 14 calendar days if--
(i) The enrollee requests the extension;
(ii) The extension is justified and in the enrollee's interest due
to the need for additional medical evidence from a noncontract provider
that may change an MA organization's decision to deny an item or
service; or
(iii) The extension is justified due to extraordinary, exigent, or
other non-routine circumstances and is in the enrollee's interest.
(2) Notice of extension. When the MA organization extends the
deadline, it must notify the enrollee in writing of the reasons for the
delay and inform the enrollee of the right to file an expedited
grievance if he or she disagrees with the MA organization's decision to
grant an extension. The MA organization must notify the enrollee of its
determination as expeditiously as the enrollee's health condition
requires, but no later than upon expiration of the extension.
* * * * *
0
37. Section 422.590 is amended as follows:
0
A. By revising paragraph (a)(1).
0
B. In paragraph (d)(1), by removing the cross reference ``(d)(2)'' and
adding in its place the cross-reference ``(e)''.
0
C. By removing paragraph (d)(2).
0
D. By redesignating paragraphs (d)(3) through (5) as paragraphs (d)(2)
through (4), respectively.
0
E. By redesignating paragraphs (e) through (g) as paragraphs (f)
through (h), respectively;
0
F. By adding new paragraph (e).
The additions and revisions read as follows:

Sec. 422.590 Timeframes and responsibility for reconsiderations.

(a) * * *
(1) Except as provided in paragraph (e) of this section, if the MA
organization makes a reconsidered determination that is completely
favorable to the enrollee, the MA organization must issue the
determination (and effectuate it in accordance with Sec. 422.618(a))
as expeditiously as the enrollee's health condition requires, but no
later than 30 calendar days from the date it receives the request for a
standard reconsideration.
* * * * *
(e) Extensions. (1) As described in paragraphs (e)(1)(i) through
(e)(1)(iii) of this section, the MA organization may extend the
standard or expedited reconsideration deadline by up to 14 calendar
days if--
(i) The enrollee requests the extension; or
(ii) The extension is justified and in the enrollee's interest due
to the need for additional medical evidence from a noncontract provider
that may change an MA organization's decision to deny an item or
service; or
(iii) The extension is justified due to extraordinary, exigent or
other non-routine circumstances and is in the enrollee's interest.
(2) Notice of extension. When the MA organization extends the
deadline, it must notify the enrollee in writing of the reasons for the
delay and inform the enrollee of the right to file an expedited
grievance if he or she disagrees with the MA organization's decision to
grant an extension. The MA organization must notify the enrollee of its
determination as expeditiously as the enrollee's health condition
requires, but no later than upon expiration of the extension.
* * * * *

Sec. 422.618 [Amended]

0
38. In paragraph (a), removing the cross-reference ``Sec.
422.590(a)(1)'' and adding in its place the cross-reference ``Sec.
422.590(e)''.

Sec. 422.619 [Amended]

0
39. In paragraph (a), removing the cross-reference ``Sec.
422.590(d)(2)'' and adding in its place the cross-reference ``Sec.
422.590(e)''.
0
40. Amend Sec. 422.641 by revising paragraphs (b) and (c) to read as
follows:

Sec. 422.641 Contract determinations.

* * * * *
(b) A determination not to authorize a renewal of a contract with
an MA organization in accordance with Sec. 422.506(b).
(c) A determination to terminate a contract with an MA organization
in accordance with Sec. 422.510(a).
* * * * *

[[Page 2059]]

0
41. Amend Sec. 422.644 by revising paragraphs (a), (b)(1), and (c)(1)
to read as follows:

Sec. 422.644 Notice of contract determination.

* * * * *
(a) When CMS makes a contract determination under Sec. 422.641, it
gives the MA organization written notice.
(b) * * *
(1) Reasons for the determination; and
* * * * *
(c) * * *
(1) General rule. Except as provided in (c)(2) of this section, CMS
mails notice to the MA organization 45 calendar days before the
anticipated effective date of the termination.
* * * * *
0
42. Amend Sec. 422.660 by revising paragraphs (a)(2), (a)(3), and
(b)(4) to read as follows:

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

* * * * *
(a) * * *
(2) An MA organization whose contract has been terminated in
accordance with Sec. 422.510.
(3) An MA organization whose contract has not been renewed in
accordance with Sec. 422.506.
(b) * * *
(4) During a hearing to review the imposition of an intermediate
sanction as described at Sec. 422.750, the MA organization has the
burden of proving by a preponderance of the evidence that CMS'
determination was inconsistent with the requirements of Sec.
422.752(a) and (b).
* * * * *
0
43. Amend Sec. 422.752 by adding paragraphs (a)(9) through (12) and
revising paragraphs (c)(1) and (c)(2)(ii) to read as follows:

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

(a) * * *
(9) Except as provided under Sec. 423.34 of this chapter, enrolls
an individual in any plan under this part without the prior consent of
the individual or the designee of the individual.
(10) Transfers an individual enrolled under this part from one plan
to another without the prior consent of the individual or the designee
of the individual or solely for the purpose of earning a commission.
(11) Fails to comply with marketing restrictions described in
subpart V or applicable implementing guidance.
(12) Employs or contracts with any individual, agent, provider,
supplier or entity who engages in the conduct described in paragraphs
(a)(1) through (11) of this section.
* * * * *
(c) * * *
(1) CMS. In addition to, or in place of, any intermediate
sanctions, CMS may impose civil money penalties in the amounts
specified in the following:
(i) Section 422.760(b) for any of the determinations at Sec.
422.510(a), except Sec. 422.510(a)(4)(i).
(ii) Section 422.760(c) for any of the determinations at Sec.
422.752(a) except Sec. 422.752(a)(5).
(2) * * *
(ii) Determinations made under Sec. 422.510(a)(4)(i).
0
44. Amend Sec. 422.756 by revising paragraphs (a)(2), (b)(4), and (d)
to read as follows:

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

(a) * * *
(2) Opportunity to respond. CMS allows the MA organization 10
calendar days after receipt of the notice to provide a written
rebuttal. CMS considers receipt of the notice as the day after the
notice is sent by fax, email, or submitted for overnight mail.
(b) * * *
(4) The MA organization must follow the right to a hearing
procedure as specified in subpart N of this part.
* * * * *
(d) Non-renewal or termination by CMS. In addition to or as an
alternative to the sanctions described in Sec. 422.750, CMS may--
(1) Decline to authorize the renewal of an organization's contract
in accordance with Sec. 422.506(b); or
(2) Terminate the contract in accordance with Sec. 422.510.
* * * * *
0
45. Amend 422.760 by revising paragraph (a)(3) and the heading of
paragraph (b) and adding paragraph (c) to read as follows:

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

(a) * * *
(3) The adverse effect to enrollees which resulted or could have
resulted from the conduct of MA organization;
(b) Amount of penalty imposed by CMS. * * *
* * * * *
(c) Amount of penalty imposed by CMS or OIG. CMS or the OIG may
impose civil money penalties in the following amounts for a
determination made under Sec. 422.752(a):
(1) Civil money penalties of not more than $25,000 for each
determination made.
(2) With respect to a determination made under Sec. 422.752(a)(4)
or (a)(5)(i), not more than $100,000 for each such determination,
except with respect to a determination made under Sec. 422.752(a)(5),
an assessment of not more than the amount claimed by such plan or MA
organization based upon the misrepresentation or falsified information
involved.
(3) Plus with respect to a determination made under Sec.
422.752(a)(2), double the excess amount charged in violation of such
paragraph (and the excess amount charged must be deducted from the
penalty and returned to the individual concerned).
(4) Plus with respect to a determination made under Sec.
422.752(a)(4), $15,000 for each individual not enrolled as a result of
the practice involved.
0
46. Amend Sec. 422.1016 by revising the first sentence of paragraph
(b)(1) to read as follows:

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

* * * * *
(b) * * *
(1) The other party will have 20 calendar days from the date of
mailing or in person filing to submit any rebuttal statement or
additional evidence. * * *
* * * * *
0
47. Amend Sec. 422.1020 by revising paragraph (a)(2) to read as
follows:

Sec. 422.1020 Request for hearing.

(a) * * *
(2) The MA organization or its legal representative or other
authorized official must file the request, in writing, to the
appropriate Departmental Appeals Board office, with a copy to CMS,
within 60 calendar days after receipt of the notice of initial
determination, to request a hearing before an ALJ to appeal any
determination by CMS to impose a civil money penalty.
* * * * *
0
48. Amend Sec. 422.2262 by adding paragraph (a)(2) to read as follows:

Sec. 422.2262 Review and Distribution of marketing materials.

(a) * * *
(2) If CMS does not approve or disapprove marketing materials
within the specified review timeframe, the materials will be deemed
approved. Deemed approved means that the MA organization may use the
material.
* * * * *

[[Page 2060]]

Sec. 422.2266 [Removed and Reserved]

0
49. Section 422.2266 is removed and reserved.
0
50. Amend Sec. 422.2274 by:
0
A. Revising the introductory text.
0
B. Redesignating paragraphs (a) through (f) as (b) through (g).
0
C. Adding new paragraph (a).
0
D. Revising newly redesignated paragraphs (b) through (d).
0
E. Adding paragraph (h).
The revisions and addition read as follows:

Sec. 422.2274 Broker and agent requirements.

If an MA organization uses agents and brokers to sell its Medicare
plans, the following requirements in this section are applicable:
(a) Definitions. For purposes of this section, the following
definitions are applicable:
Compensation (1) Includes monetary or non-monetary remuneration of
any kind relating to the sale or renewal of a policy including, but not
limited to--
(i) Commissions;
(ii) Bonuses;
(iii) Gifts;
(iv) Prizes or Awards; or
(v) Referral or Finder fees.
(2) Does not include--
(i) Payment of fees to comply with State appointment laws,
training, certification, and testing costs;
(ii) Reimbursement for mileage to, and from, appointments with
beneficiaries; or
(iii) Reimbursement for actual costs associated with beneficiary
sales appointments such as venue rent, snacks, and materials.
Like plan type means one of the following:
(1) PDP replaced with another PDP.
(2) MA or MA-PD replaced with another MA or MA-PD.
(3) Cost plan replaced with another cost plan.
Unlike plan type means one of the following:
(1) PDP replaced with a MA-PD or a MA-PD replaced with a PDP.
(2) PDP replaced with a cost plan or a cost plan replaced with a
PDP.
(3) MA-PD replaced with a cost plan or a cost plan replaced with a
MA-PD.
Plan year means the year beginning January 1 and ending December
31.
Renewal year means all years following the initial enrollment year
in a like plan type.
(b) Compensation rules. A MA organization must compensate
independent brokers and agents, if compensation is paid, only according
to the following rules in this section.
(1) Compensation amounts. (i) For an initial year enrollment of a
Medicare beneficiary into an MA plan, the compensation must be at or
below the fair market value of such services, published annually as a
cut-off amount by CMS.
(ii) For renewal years, compensation may be up to 35 percent of the
current fair market value cut-off amounts published annually by CMS.
(2) Aggregate compensation. (i) An entity must not provide
aggregate compensation to its agents or brokers greater than the
renewal compensation payable by the replacing plan on renewal policies
if an existing policy is replaced with a like plan at any time.
(ii) An agent or broker must not receive aggregate compensation
greater than the renewal compensation payable by the replacing plan on
renewal policies if an existing policy is replaced with a like plan
type at any time.
(iii) The initial compensation is paid for replacements between
unlike plan types.
(3) Compensation payment and payment recovery. (i) Compensation may
only be paid for the enrollee's months of enrollment during a plan
year.
(ii)(A) Subject to paragraph (b)(3)(iii) of this section,
compensation payments may be made at one time for the entire current
plan year or in installments throughout the year.
(B) Compensation may not be paid until January 1 of the
compensation year and, if paid at all, must be paid in full by December
31 of the compensation year.
(iii) When a beneficiary disenrolls from an MA plan, compensation
paid to agents and brokers must be recovered for those months of the
plan year for which the beneficiary is not enrolled. For disenrollments
occurring within the first 3 months, the entire compensation must be
recovered when the disenrollment was the result of agent or broker
behavior.
(4) Compensation structure. (i) The MA organization must establish
a compensation structure for new and replacement enrollments and
renewals effective in a given plan year. Compensation structures must
be in place by the beginning of the plan marketing period, October 1.
(ii) Compensation structures must be available upon CMS request
including for audits, investigations, and to resolve complaints.
(c) Annual training. The MA organization must ensure that all
agents and brokers selling Medicare products are trained annually on
the following:
(1) Medicare rules and regulations.
(2) Details specific to the plan products they intend to sell.
(d) Annual testing. It must ensure that all agents and brokers
selling Medicare products are tested annually, to ensure the following:
(1) Appropriate knowledge and understanding of Medicare rules and
regulations.
(2) Details specific to the plan products they intend to sell.
* * * * *
(h) Finder's (referral) fees. Finder's (referral) fees paid to all
agents and brokers--
(1) May not exceed an amount CMS determines could reasonably be
expected to affect enrollee behavior while not exceeding the value of
the health-related service or activity itself; and
(2) Must be included in the total compensation not to exceed the
fair market value for that calendar year.

Subpart Y--[Reserved]

0
51. Part 422 is amended by adding reserved subpart Y.
0
52. Part 422 is amended by adding subpart Z to read as follows:
Subpart Z--Part C Recovery Audit Contractor Appeals Process
Sec.
422.2600 Payment appeals.
422.2605 Request for reconsideration.
422.2610 Hearing official review.
422.2615 Review by the Administrator.

Subpart Z--Part C Recovery Audit Contractor Appeals Process

Sec. 422.2600 Payment appeals.

If the Part C RAC did not apply its stated payment methodology
correctly, an MA organization may appeal the findings of the applied
methodology. The payment methodology itself is not subject to appeal.

Sec. 422.2605 Request for reconsideration.

[[Page 2061]]

(c) CMS rebuttal. CMS may file a rebuttal to the MA organization's
reconsideration request.
(1) The rebuttal must be submitted within 30 calendar days of the
review entity's notification to CMS that it has received the MA
organization's reconsideration request.
(2) CMS sends its rebuttal to the MA organization at the same time
it is submitted to the independent reviewer.
(d) Review entity. An independent reviewer conducts the
reconsideration. The independent reviewer reviews the demand for
repayment, the evidence and findings upon which it was based and any
supporting documentation that the MA organization or CMS submitted in
accordance with this section.
(e) Notification of decision. The independent reviewer informs the
CMS and the MA organization of its decision in writing.
(f) Effect of decision. A reconsideration decision is final and
binding unless the MA organization requests a hearing official review
in accordance with Sec. 422.2610.
(g) Right to hearing official review. An MA organization that is
dissatisfied with the independent reviewer's reconsideration decision
is entitled to a hearing official review as provided in Sec. 422.2610.

Sec. 422.2610 Hearing official review.

(a) Time for filing a request. A MA organization must file with CMS
a request for a hearing official review within 15 calendar days from
the date of the independent reviewer's issuance of a reconsideration
determination.
(b) Content of the request. (1) The request must be in writing and
must specify the findings or issues in the reconsideration decision
with which the MA organization disagrees and the reasons for the
disagreements.
(2) The MA organization must submit with its request all supporting
documentation, evidence, and substantiation that it wants to be
considered.
(3) No new evidence may be submitted.
(4) Documentation, evidence, or substantiation submitted after the
filing of the request will not be considered.
(c) CMS rebuttal. CMS may file a rebuttal to the MA organization's
hearing official review request.
(1) The rebuttal must be submitted within 30 calendar days of the
MA organization's submission of its hearing official review request.
(2) CMS sends its rebuttal to the MA organization at the same time
it is submitted to the hearing official.
(d) Conducting a review. A CMS-designated hearing official conducts
the hearing on the record.
(1) The hearing is not to be conducted live or via telephone unless
the hearing official, in his or her sole discretion, requests a live or
telephonic hearing.
(2) In all cases, the hearing official's review is limited to
information that meets one or more of the following:
(i) The Part C RAC used in making its determinations.
(ii) The independent reviewer used in making its determinations.
(iii) The MA organization submits with its hearing request.
(iv) CMS submits in accordance with paragraph (c) of this section.
(3) Neither the MA organization nor CMS may submit new evidence.
(e) Hearing official decision. The CMS hearing official decides the
case within 60 days and sends a written decision to the MA organization
and CMS, explaining the basis for the decision.
(f) Effect of hearing official decision. The hearing official's
decision is final and binding, unless the decision is reversed or
modified by the CMS Administrator in accordance with Sec. 422.2615.

Sec. 422.2615 Review by the Administrator.

(a) Request for review by Administrator. If an MA organization is
dissatisfied with the hearing official's decision, it may request that
the CMS Administrator review the decision.
(1) The request must be filed with the CMS Administrator within 15
calendar days of the date of the hearing official's decision.
(2) The request must provide evidence or reasons to substantiate
the request.
(b) Content of request. The MA organization must submit with its
request all supporting documentation, evidence, and substantiation that
it wants to be considered.
(1) Documentation, evidence, or substantiation submitted after the
filing of the request will not be considered.
(2) Neither the MA organization, nor CMS may submit new evidence.
(c) Discretionary review. After receiving a request for review, the
CMS Administrator has the discretion to review the hearing official's
decision in accordance with paragraph (e) of this section or to decline
to review said decision.
(d) Notification of decision whether to review. The Administrator
notifies the MA organization within 45 days of receiving the MA
organization's hearing request of whether he or she intends to review
the hearing official's decision.
(1) If the Administrator agrees to review the hearing official's
decision, CMS may file a rebuttal statement within 30 days of the
Administrator's notice to the plan that the request for review has been
accepted. CMS sends its rebuttal statement to the plan at the same time
it is submitted to the Administrator.
(2) If the CMS Administrator declines to review the hearing
official's decision, the hearing official's decision is final and
binding.
(e) CMS Administrator's review. If the CMS Administrator agrees to
review the hearing official's decision, he or she determines, based
upon this decision, the hearing record, and any arguments submitted by
the MA organization or CMS in accordance with this section, whether the
determination should be upheld, reversed, or modified. The
Administrator furnishes a written decision, which is final and binding,
to the MA organization and to CMS.

PART 423--MEDICARE PROGRAM; MEDICARE PRESCRIPTION DRUG PROGRAM

0
53. 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).

0
54. Amend Sec. 423.1 by adding new references in numerical order to
paragraph (a)(1) and by adding paragraph (a)(3) to read as follows:

Sec. 423.1 Basis and scope.

(a) * * *
(1) * * *
1128J(d). Reporting and Returning of Overpayments.
* * * * *
1860D-14A. Medicare coverage gap discount program.
* * * * *
1860D-43. Condition for coverage of drugs under this part.
* * * * *
(3) Section 8 of the United States Code regarding aliens who are
not qualified aliens ineligible for Federal public benefits.
* * * * *
0
55. Section 423.10 is added to subpart A to read as follows:

Sec. 423.10 Prohibition on intervention in negotiations with
manufacturers.

(a) General rule. CMS promotes fair private market competition in
the market for Part D drugs.
(b) No interference in negotiations. (1) Except as necessary to
enforce CMS requirements, CMS is not--
(i) A party to discussions between drug manufacturers and
pharmacies or

[[Page 2062]]

between prescription drug manufacturers and Part D sponsors; nor
(ii) An arbiter of the meaning of or compliance with the terms and
conditions of agreements reached between these parties.
(2) Nothing in paragraph (b)(1) of this section limits CMS's
authority to--
(i) Require documentation of and access to all agreements
referenced in paragraph (b)(1)(ii) of this section; or
(ii) Require inclusion of terms and conditions in such agreements
when necessary to implement requirements under the Act.
(c) No establishment of formulary drug product selection. CMS does
not determine the specific drug products to be included on Part D
sponsor formularies or any tier placement of such products, except as
necessary to comply with Sec. 423.120(b)(1)(v) or Sec. 423.272(b)(2).
(d) No establishment of Part D drug price reimbursement
methodologies. (1) CMS does not establish specific drug product pricing
standards (as defined in Sec. 423.505(b)(21)) or the dollar amount of
price concessions at any stage in the drug distribution channel for
Part D drugs.
(2) Nothing in this section limits CMS authority to require full
disclosure or uniform treatment and reporting of drug costs, prices, or
price concessions consistent with rules established by CMS.
0
56. Amend Sec. 423.30 as follows:
0
A. In paragraph (a)(1) introductory text, by removing the phrase ``if
he or she:'' and adding in its place the phrase ``if he or she does all
of the following:''.
0
B. In paragraph (a)(1)(i), by removing ``; and'' and adding in its
place ``.''.
0
C. By adding paragraph (a)(1)(iii).
The addition reads as follows:

Sec. 423.30 Eligibility and enrollment.

(a) * * *
(1) * * *
(iii) Is a United States citizen or qualified alien who is lawfully
present in the United States as determined in 8 CFR 1.3.
* * * * *

Sec. 423.44 [Amended]

0
57. Amend Sec. 423.44 as follows:
0
A. By adding paragraph (b)(2)(vi).
0
B. In paragraph (d)(1)(vi), by removing the phrase ``CMS may
reinstate'' and adding in its place the phrase ``CMS (or its designee)
may reinstate''.
0
C. By adding paragraph (d)(8).
The additions read as follows:

Sec. 423.44 Involuntary disenrollment from Part D coverage.

* * * * *
(b) * * *
(2) * * *
(vi) The individual loses qualified alien status or is no longer
lawfully present in the United States.
* * * * *
(d) * * *
(8) Loss of qualified alien status. Disenrollment is effective with
the month following the last month of lawful presence or qualified
alien status in the United States.
* * * * *

Sec. 423.100 [Amended]

0
58. Amend Sec. 423.100 as follows:
0
A. By revising the definition of ``Daily cost-sharing rate''.
0
B. By revising the definition of ``Negotiated prices''.
0
C. By removing the definition of ``Non-preferred pharmacy''.
0
D. In the definition of ``Part D drug''--
0
i. By revising paragraph (1) introductory text.
0
ii. By adding paragraph (1)(vii).
0
iii. In paragraph (2) introductory text, by removing the phrase ``Does
not include--'' and adding in its place the phrase ``Does not include
any of the following:''
0
iv. In paragraph (2)(i), by removing ``; and'' and adding in its place
``.''.
0
vi. By adding paragraph (2)(iii).
0
E. By adding the definition of ``Preferred cost sharing''.
0
F. By removing the definition of ``Preferred pharmacy''.
The additions and revisions read as follows:

Sec. 423.100 Definitions.

* * * * *
Daily cost-sharing rate means, as applicable, the established--
(1) Monthly copayment under the enrollee's Part D plan, divided by
the number of days in the approved month's supply for the drug
dispensed and rounded to the nearest cent; or
(2) Coinsurance percentage under the enrollee's Part D plan.
* * * * *
Negotiated prices means prices for covered Part D drugs that meet
all of the following:
(1) The Part D sponsor (or other intermediary contracting
organization) and the network dispensing pharmacy or other network
dispensing provider have negotiated as the amount such network entity
will receive, in total, for a particular drug.
(2) Are inclusive of all price concessions and any other fees
charged to network pharmacies; and
(3) Include any dispensing fees; but
(4) May exclude additional contingent amounts, such as incentive
fees, only if these amounts increase prices and cannot be predicted in
advance.
(5) May not be rebated back to the Part D sponsor (or other
intermediary contracting organization) in full or in part.
* * * * *
Part D drug * * *
(1) Unless excluded under paragraph (2) of this definition, any of
the following, or any FDA-approved combinations of the following, if
used for a medically accepted indication (as defined in section 1860D-
2(e)(4) of the Act).
* * * * *
(vii) A combination product approved and regulated by the FDA as a
drug, vaccine, or biologic (or any approved combinations of these)
described in paragraphs (i), (ii), (iii), or (v) of the Part D drug
definition.
(2) Does not include any of the following:
* * * * *
(iii) Medical foods, defined as a food that is formulated to be
consumed or administered enterally under the supervision of a physician
and which is intended for the specific dietary management of a disease
or condition for which distinctive nutritional requirements, based on
recognized scientific principles, are established by medical
evaluation, and that are not regulated as drugs under section 505 of
the Federal Food, Drug, and Cosmetic Act.
* * * * *
Preferred cost sharing means lower cost sharing for certain covered
Part D drugs at certain network pharmacies offered in accordance with
the requirements of Sec. 423.120(a)(9).
* * * * *
0
59. Amend 423.120 by:
0
A. Revising paragraphs (a)(3), (8), and (9).
0
B. Redesignating paragraphs (b)(1)(iv) through (x) as (b)(1)(v) through
(xi), respectively.
0
C. Adding a new paragraph (b)(1)(iv).
0
D. Revising paragraphs (b)(2)(v), (vi)(B), and (C).
0
E. Adding new paragraphs (b)(2)(vi)(D) through (G) and (3)(vi).
0
F. Redesignating paragraphs (c)(5)(i) through (v) as paragraphs
(c)(5)(i)(A) through (E), respectively.
0
G. Adding paragraph (c)(5)(i) introductory text.
0
H. In newly resdesignated paragraphs (c)(5)(i)(A) and (B), removing the
cross-reference ``(c)(5)(iii) of this section'' and adding in its place
the cross-reference ``(c)(5)(i)(C) of this section''
0
I. In newly redesignated paragraph (c)(5)(i)(D), removing the cross-
reference

[[Page 2063]]

``(c)(5)(ii) and (iii) of this section'' and adding in its place the
cross-reference ``(c)(5)(i)(B) and (C) of this section''.
0
J. Adding a new paragraph (c)(5)(ii).
0
K. Adding paragraph (c)(6).
The revisions and additions read as follows:

Sec. 423.120 Access to covered Part D drugs.

* * * * *
(a) * * *
(3) Access to non-retail pharmacies. A part D sponsor's contracted
pharmacy network may be supplemented by non-retail pharmacies,
including pharmacies offering home delivery via mail order and
institutional pharmacies, provided the requirements of paragraph (a)(1)
of this section are met. Sponsors that contract with mail order
pharmacies, and pharmacies offering home delivery via mail order, must
ensure that the pharmacies meet the following fulfillment standards:
(i) For prescriptions adjudicated and filled without requiring
additional review, the time of shipment must not be more than 3
business days from order receipt by the mail order pharmacy.
(ii) For prescriptions requiring additional review before shipping,
the time of shipment must not be more than 5 business days from order
receipt by the mail order pharmacy.
* * * * *
(8) Pharmacy network contracting requirements. In establishing its
contracted pharmacy network, a Part D sponsor offering qualified
prescription drug coverage must comply with all of the following
requirements:
(i) Must offer and publicly post standard terms and conditions for
network participation for each type of pharmacy in the network, subject
to paragraphs (a)(8)(ii) and (iii) of this section.
(ii) May not require a pharmacy to accept insurance risk as a
condition of participation in the Part D sponsor's contracted pharmacy
network.
(iii) Must offer payment terms for every level of cost sharing
offered under the sponsor's plans consistent with CMS limitations on
the number and type of cost sharing levels (preferred, standard,
extended day), and for every type of similarly situated retail
pharmacy.
(iv) Must contract with any willing pharmacy able to meet one set
of the terms and conditions offered by that plan for that type of
pharmacy.
(9) Preferred cost-sharing in network pharmacies. A Part D sponsor
offering a Part D plan that provides coverage other than defined
standard coverage may reduce copayments or coinsurance for covered Part
D drugs obtained through a subset of network pharmacies, as long as
such preferred cost sharing is offered in accordance with the
requirements of Sec. 423.120(a)(8) and for Part D drugs with
consistently lower negotiated prices than the same Part D drugs when
obtained in the rest of the pharmacy network.
* * * * *
(b) * * *
(1) * * *
(iv) Clearly articulates and documents processes to determine that
the requirements under paragraphs (b)(1)(i) through (iii) of this
section have been met, including the determination by an objective
party of whether disclosed financial interests are conflicts of
interest and the management of any recusals due to such conflicts.
* * * * *
(2) * * *
(v) Effective contract year 2015, except as provided in paragraph
(b)(2)(vi) of this section, a Part D sponsor's formulary must include
without restriction at point of sale all Part D drugs in a category or
class that CMS has determined for a typical individual with a disease
or condition treated by the drugs in the category or class meets the
all of the following criteria:
(A) Hospitalization, persistent or significant disability or
incapacity, or death will likely result if initial administration
(including self-administration) of a drug in the category or class does
not occur within 7 days of the date the prescription for the drug was
presented to the pharmacy to be filled.
(B) More specific CMS formulary requirements will not suffice to
meet the universe of clinical drug-and-disease-specific applications
due to the diversity of disease or condition manifestations and
associated specificity or variability of drug therapies necessary to
treat such manifestations.
(vi) * * *
(B) Drug products that are primarily covered under Medicare Part A
or B.
(C) Part D Compounds as described in Sec. 423.120(d).
(D) Fixed combination dosage form prescription drugs other than
antiretrovirals, including co-packaged drug products, as defined by 21
CFR 300.50.
(E) Certain types of Part D drugs, including the following:
(1) Multisource brands of the identical molecular structure.
(2) Extended-release products when the immediate-release product is
included.
(3) Products that have the same active ingredient or moiety.
(4) Dosage forms that do not provide a unique route of
administration (for example, tablets and capsules versus tablets and
transdermals).
(F) Point-of-sale utilization management safety edits consistent
with the FDA approved label.
(G) Prior authorization requirements used to verify a drug is being
used for a medically accepted indication (as defined in Sec. 423.100)
or to verify a drug is not covered under Medicare Parts A or B as
prescribed and dispensed or administered.
(3) * * *
(vi) A Part D sponsor must charge cost sharing for a temporary
supply of drugs provided under its transition process such that the
following conditions are met:
(A) For low-income subsidy (LIS) enrollees, a sponsor must not
charge higher cost sharing for transition supplies than the statutory
maximum copayment amounts.
(B) For non-LIS enrollees, a sponsor must charge--
(1) The same cost sharing for non-formulary Part D drugs provided
during the transition that would apply for non-formulary drugs approved
through a formulary exception in accordance with Sec. 423.578(b); and
(2) The same cost sharing for formulary drugs subject to
utilization management edits provided during the transition that would
apply once the utilization management criteria are met.
* * * * *
(c) * * *
(5)(i) Before January 1, 2015--
* * * * *
(ii) Beginning January 1, 2015--
(A) A Part D sponsor must deny or must require its PBM to deny a
pharmacy claim for a Part D drug if an active and valid physician or
eligible professional (as defined in section 1848(k)(3)(B)(i) or (ii)
of the Act) National Provider Identifier is not contained on the claim.
(B) A Part D sponsor must deny or require its PBM to deny a
pharmacy claim for a Part D drug if the physician or eligible
professional--
(1) Is not enrolled in the Medicare program in an approved status;
and
(2) Does not have a valid opt-out affidavit on file with an A/B
MAC.
(C) To receive payment for a drug, a beneficiary's request for
reimbursement from a Part D sponsor must be for a Part D drug that was
dispensed in accordance with a prescription written by a physician or,
when permitted under applicable State law, other eligible professional
(as defined in section 1848(k)(3)(B)(i) or (ii) of the Act) who--

[[Page 2064]]

(1) Is identified by his or her legal name in the request; and
(2)(i) Is enrolled in Medicare in an approved status; or
(ii) Has a valid opt-out affidavit on file with an A/B MAC.
* * * * *
(6)(i) In order for a Part D sponsor to submit to CMS a
prescription drug event record, the PDE must pertain to a claim for a
Part D drug that was dispensed in accordance with a prescription
written by a physician or, when permitted under applicable State law,
an eligible professional (as defined in section 1848(k)(3)(B)(i) or
(ii) of the Act) who is either of the following:
(A) Is enrolled in Medicare in an approved status.
(B) Has a valid opt-out affidavit on file with an A/B MAC.
(ii) To receive payment for a drug, a beneficiary's request for
reimbursement from a Part D sponsor must be for a Part D drug that was
dispensed in accordance with a prescription written by a physician or,
when permitted, other eligible professional (as defined in section
1848(k)(3)(B)(i) or (ii) of the Act) who--
(A)(1) Is identified by his or her legal name in the request; and
(2) Is enrolled in Medicare in an approved status; or
(B) Has a valid opt-out affidavit on file with an A/B MAC.
(iii) A Part D sponsor must deny or must require its PBM to deny
the following:
(A) A pharmacy claim for a drug, if the claim does not meet the
requirements of paragraph (c)(6)(i) of this section.
(B) A request for reimbursement from a Medicare beneficiary for a
drug, if the request does not meet the requirements of paragraph
(c)(6)(ii) of this section.
* * * * *
0
60. Section 423.126 is added to read as follows:

Sec. 423.126 Special access rules during disasters or emergencies.

(a) Special access rules during disasters or emergencies. A Part D
sponsor must relax ``refill-too-soon'' (RTS) edits to allow an enrollee
to obtain one early refill of each covered Part D drug he or she is
taking in the event of an anticipated or actual disaster or emergency,
as evidenced by a declaration of a disaster or emergency issued by an
appropriate Federal, State, or local official, and it is reasonable to
conclude that such disaster or emergency or preparation therefore would
make it difficult for beneficiaries to obtain refills of their
medications because the disaster or emergency or anticipation thereof
has affected, or will affect, their ability to have timely access to
their usual pharmacies.
(b) Duration of relaxed edits. A Part D sponsor must continue to
relax the RTS edits as described in paragraph (a) of this section until
the 30 days after the date of the triggering emergency or disaster
declaration.
0
61. Amend Sec. 423.128 by revising paragraph (a)(3) and adding
paragraph (g) to read as follows:

Sec. 423.128 Dissemination of Part D information.

* * * * *
(a) * * *
(3) At the time of enrollment, and at least annually thereafter by
December 31 for the following contract year.
* * * * *
(g) Changes in rules. If a Part D sponsor intends to change its
rules for a Part D plan, it must do all of the following:
(1) Submit the changes for CMS review under the procedures of
Subpart V of this part.
(2) For changes that take effect on January 1, notify all enrollees
at least 15 days before the beginning of the Annual Coordinated
Election Period as defined in section 1860D-1(b)(1)(B) of the Act.
(3) Provide notice of all other changes in accordance with notice
requirements as specified in Part 423.
0
62. Amend Sec. 423.153 by revising paragraphs (b)(4), (d)(1)(v), and
(d)(2)(i) through (iii) to read as follows:

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

* * * * *
(b) * * *
(4)(i) Daily cost sharing rate. Subject to paragraph (b)(4)(ii) of
this section, establishes a daily cost-sharing rate (as defined in
Sec. 423.100) and applies it to a prescription presented to a network
pharmacy for a covered Part D drug that is dispensed for a supply less
than 30 days, if the drug is in the form of a solid oral dose and may
be dispensed for a supply less than 30 days under applicable law.
(ii) Exceptions. The requirements of paragraph (b)(4)(i) of this
section do not apply to either of the following:
(A) Solid oral doses of antibiotics.
(B) 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.
(iii) Cost-sharing--(A) Copayments. In the case of a drug that
would incur a copayment, the Part D sponsor must apply cost-sharing as
calculated by multiplying the applicable daily cost-sharing rate by the
days' supply actually dispensed when the beneficiary receives less than
a 30 days' supply.
(B) Coinsurance. In the case of a drug that would incur a
coinsurance percentage, the Part D sponsor must apply the coinsurance
percentage for the drug to the days' supply actually dispensed.
* * * * *
(d) * * *
(1) * * *
(v) Must do both of the following:
(A) Have an outreach strategy designed to effectively engage at-
risk beneficiaries enrolled in the plan.
(B) Enroll targeted beneficiaries using an opt-out method of
enrollment only.
* * * * *
(2) * * *
(i) Have two or more chronic diseases. At least one of the chronic
diseases must be one from the following list of core chronic diseases:
(A) Cardiovascular disease
(B) Diabetes.
(C) Dyslipidemia.
(D) Respiratory disease.
(E) Bone disease-arthritis.
(F) Mental health.
(G) Alzheimer's disease.
(H) End-stage renal disease.
(ii) Are taking two or more covered Part D drugs.
(iii) Are likely to incur annual costs for covered Part D drugs
that are commensurate with the drug spending of beneficiaries with two
or more chronic diseases that take two covered Part D drugs.
* * * * *
0
62. Amend Sec. 423.154 by:
0
A. Revising paragraphs (a)(2) and (c).
0
B. Removing paragraph (e).
0
D. Redesignating paragraph (f) as (e).
0
E. Adding a new paragraph (f).
The revisions and addition read as follows:

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

(a) * * *
(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.
* * * * *
(c) Waivers. CMS waives the requirements under paragraph (a) of
this section for any of the following:
(1) Pharmacies when they service intermediate care facilities for
the mentally retarded (ICFs/IID) and

[[Page 2065]]

institutes for mental disease (IMDs) as defined in Sec. 435.1010 of
this chapter.
(2) I/T/U pharmacies (as defined in Sec. 423.100).
(3)(i) Institutional pharmacies that--
(A) Subject to paragraph (c)(3)(iii) of this section, exclusively
use a dispensing technique that returns all unused medications to stock
for reuse;
(B) Issues full credit of the ingredient costs of unused medication
to the Part D sponsor; and
(C) For drugs that cannot be returned to stock for reuse under
applicable law use a dispensing methodology that results in the
delivery of no more than a 14 days' supply of a drug at a time.
(ii) The waiver in paragraph (c)(3)(i) of this section does not
apply to a pharmacy organization that is contracted to use this
dispensing technique at some of its pharmacies, but only to the
qualifying pharmacies themselves.
* * * * *
(f) Prohibition on proration of dispensing fees. A Part D sponsor
must not, or must require its intermediary contracting organization not
to, do the following:
(1) Not penalize long-term care facilities' choice of more
efficient uniform dispensing techniques described in paragraph
(a)(1)(ii) of this section by prorating dispensing fees based on days'
supply or quantity dispensed.
(2) Ensure that any difference in payment methodology among long-
term care pharmacies incentivizes more efficient dispensing techniques.
0
64. Amend Sec. 423.265 as follows:
0
A. By redesignating paragraph (b)(3) as (b)(4).
0
B. By adding a new paragraph (b)(3).
0
C. In newly redesignated paragraph (b)(4), by adding a paragraph
heading.
The additions read as follows:

Sec. 423.265 Submission of bids and related information.

* * * * *
(b) * * *
(3) Number of bids. Starting with bids submitted during 2015 for
plans to be offered during coverage year 2016, CMS will not accept more
than two bids for a coverage year from a stand-alone PDP sponsor in
each PDP region.
(4) Declining a bid. * * *
* * * * *
0
65. Section 423.294 is added to subpart F to read as follows:

Sec. 423.294 Collections of premiums and cost sharing.

(a) Refunds of incorrect collections--(1) Definitions. As used in
this section the following definitions are applicable:
Amounts incorrectly collected. (i) Means amounts that exceed the
monthly beneficiary Part D premium limits under Sec. 423.286 or exceed
permissible cost-sharing amounts as specified Sec. 423.104(d) through
(f); and
(ii) Includes amounts collected from an enrollee who was believed
to be entitled to Medicare benefits but was later found not to be
entitled.
Other amounts due means amounts due for covered Part D drugs that
were--
(i) Accessed at an out-of-network pharmacy in accordance with the
requirements at Sec. 423.124; or
(ii) Initially denied but, upon appeal, found to be covered Part D
drugs the enrollee was entitled to have provided by the Part D plan.
(2) General rule. A Part D plan must refund all amounts incorrectly
collected from its Medicare enrollees, or from others on behalf of the
enrollees, and to pay any other amounts due the enrollees or others on
their behalf within the timeframe specified at Sec. 423.466(a).
(3) Refund methods--(i) Lump-sum payment. The Part D plan must use
lump-sum payments for the following:
(A) Amounts incorrectly collected that were not collected as
premiums.
(B) Other amounts due.
(C) All amounts due if the Part D plan is going out of business or
terminating its Part D contract for a prescription drug plan(s).
(ii) Premium adjustment, lump-sum payment, or both. If the amounts
incorrectly collected were in the form of premiums, or included
premiums as well as other charges, the Part D plan may refund by
adjustment of future premiums or by a combination of premium adjustment
and lump-sum payments.
(iii) Refund when enrollee has died or cannot be located. If an
enrollee has died or cannot be located after reasonable effort, the
Part D plan must make the refund in accordance with State law.
(4) If the Part D plan does not make the refund required under this
section within the timeframe specified at Sec. 423.466(a), the Part D
plan may receive compliance notices from CMS or, depending on the
significance of the non-compliance, be the subject of an intermediate
sanction (for example, suspension of marketing and enrollment
activities) in accordance with part 423, subpart O.
(b) Retroactive collection of cost-sharing amounts--(1) General
rule. A Part D plan must make a reasonable effort to collect cost
sharing from a beneficiary or to bill cost sharing to another
appropriate party.
(2) Timeframe. Recovery efforts must be initiated in accordance
with the timeframe specified at Sec. 423.466(a).
(c) Reduction or waiver of premiums and cost sharing--(1) General
rule. Part D plans, directly, or indirectly through related entities as
defined at Sec. 423.501, are prohibited from reducing or waiving the
collection of enrollee premiums or cost sharing or both.
(2) Failure to collect premiums and cost sharing. Failure to
collect premiums, collect cost sharing at the time the service is
provided, or attempt to collect cost sharing from a beneficiary or to
bill cost sharing to another appropriate party after the fact, is in
violation of the uniform benefit provisions set forth in Sec.
423.104(b).
0
66. Amend Sec. 423.308 by revising the definition of ``Actually paid''
to read as follows:

Sec. 423.308 Definitions and terminology.

* * * * *
Actually paid means that the costs must be actually incurred by the
Part D sponsor and must be net of any direct or indirect remuneration
(including discounts, incentive payments, charge backs or rebates, cash
discounts, free goods contingent on a purchase agreement, up-front
payments, goods in kind, free or reduced-price services, grants, or
other price concessions or similar benefits offered to some or all
purchasers) from any source other than pharmacies (including
manufacturers, enrollees, or any other person) that would serve to
decrease (or increase) the costs incurred under the Part D plan.
(1) Direct and indirect remuneration includes discounts, incentive
payments, chargebacks or rebates, cash discounts, free goods contingent
on a purchase agreement, up-front payments, goods in kind, free or
reduced-price services, grants, or other price concessions or similar
benefits from manufacturers or similar entities obtained by an
intermediary contracting organization with which the Part D plan
sponsor has contracted, regardless of whether the intermediary
contracting organization retains all or a portion of the direct and
indirect remuneration or passes the entire direct and indirect
remuneration to the Part D plan sponsor and regardless of the terms of
the contract between the plan sponsor and the intermediary contracting
organization.
(2) Direct and indirect remuneration may include additional
payments to pharmacies, such as for incentive payments, but may not
include any other price concessions from pharmacies.
* * * * *

[[Page 2066]]

0
67. Amend Sec. 423.322 by revising paragraph (b) to read as follows:

Sec. 423.322 Requirement for disclosure of information.

* * * * *
(b) Restrictions on use of information. (1) Officers, employees,
and contractors of the Department of Health and Human Services may use
the information disclosed or obtained in accordance with the provisions
of this subpart for the purposes of, and to the extent necessary--
(i) In carrying out this subpart, including, but not limited to,
determination of payments, and payment-related oversight and program
integrity activities.
(ii) In conducting oversight, evaluation, and enforcement under
Title XVIII of the Act.
(2) The United States Attorney General and the Comptroller General
of the United States may use the information disclosed or obtained in
accordance with the provisions of this subpart for purposes of, and to
the extent necessary in, carrying out health oversight activities.
(3) The restrictions described in paragraphs (b)(1) and (2) of this
section do not limit either of the following:
(i) OIG's authority to fulfill the Inspector General's
responsibilities in accordance with applicable Federal law.
(ii) CMS' ability to use data regarding drug claims in accordance
with section 1848(m) of the Act.

Sec. 423.329 [Amended]

0
68. Amend Sec. 423.329 (d)(1), by removing the phrase ``the amount
described in Sec. 423.782.'' and adding in its place the phrase ``the
difference between the Part D cost-sharing for a non-low-income subsidy
eligible beneficiary under the Part D plan and the statutory cost-
sharing for a low-income subsidy eligible beneficiary.''
0
69. Section 423.346 is amended by revising paragraphs (a) through (c)
to read as follows:

Sec. 423.346 Reopening.

(a) CMS may reopen an initial final payment determination
(including a determination on the final amount of direct subsidy
described in Sec. 423.329(a)(1), final reinsurance payments described
in Sec. 423.329(c), the final amount of the low income subsidy
described in Sec. 423.329(d), or final risk corridor payments as
described in Sec. 423.336) one time within 5 years after the date of
the notice of the initial determination to the Part D sponsors.
(b) CMS may reopen the Coverage Gap Discount Reconciliation (as
described at Sec. 423.2320 (b), one time within 5 years after the date
of the notice of the Coverage Gap Discount Reconciliation to the Part D
sponsors.
(c) CMS does not reopen as a result of a change in legal
interpretation or administrative ruling upon which the final
determination was made.
* * * * *
0
70. Amend Sec. 423.350 as follows:
0
A. In paragraph (a)(1)(iii), by removing ``; or'' and adding in its
place ``.''.
0
B. In paragraph (a)(1)(iv), by removing '').'' adding in its place
``.''.
0
C. By adding paragraph (a)(1)(v).
0
D. By revising paragraph (a)(2).
0
E. By adding paragraph (b)(1)(iv).

Sec. 423.350 Payment appeals.

(a) * * *
(1) * * *
(v) The reconciled coverage gap discount payment under Sec.
423.2320(b).
(2) Payment information not subject to appeal. Payment information
submitted to CMS under Sec. 423.322 and reconciled under Sec. 423.343
or submitted and reconciled under Sec. 423.2320(b) is final and may
not be appealed nor may the appeals process be used to submit new
information after the submission of information necessary to determine
retroactive adjustments and reconciliations.
(b) * * *
(1) * * *
(iv) For the Coverage Gap Discount Program, the date of the final
reconciled payment under Sec. 423.2320(b).
* * * * *
0
71. Section 423.360 is added to subpart G to read as follows:

Sec. 423.360 Reporting and returning of overpayments.

(a) Definitions. For the purposes of this section the following
definitions are applicable:
Applicable reconciliation means the later of either the annual
deadline for submitting--
(i) PDE data for the annual Part D payment reconciliations referred
to in Sec. 423.343(c) and (d); or
(ii) Direct and indirect remuneration data.
Funds for purposes of this section, means any payment that a Part D
sponsor has received that is based on data submitted by the Part D
sponsor to CMS for payment purposes, including data submitted under
Sec. 423.329(b)(3), Sec. 423.336(c)(1), Sec. 423.343, and data
provided for purposes of supporting allowable costs as defined in Sec.
423.308 which includes data submitted to CMS regarding direct or
indirect remuneration.
Overpayment means funds that a Part D sponsor has received or
retained under title XVIII of the Act to which the Part D sponsor,
after applicable reconciliation, is not entitled under such title.
(b) General rule. If a Part D sponsor has identified that it has
received an overpayment, the Part D sponsor must report and return that
overpayment in the form and manner set forth in this section.
(c) Identified overpayment. A Part D sponsor has identified an
overpayment if it has actual knowledge of the existence of the
overpayment or acts in reckless disregard or deliberate ignorance of
the existence of the overpayment. A Part D sponsor must exercise
reasonable diligence to determine the accuracy of information it
receives that an overpayment may exist.
(d) Reporting and returning of an overpayment. A Part D sponsor
must report and return any overpayment it received no later than 60
days after the date on which it identified it received an overpayment.
(1) Reporting. A Part D sponsor must notify CMS of the amount and
reason for the overpayment, using the notification process determined
by CMS.
(2) Returning. A Part D sponsor must return identified overpayments
in a manner specified by CMS.
(3) Enforcement. Any overpayment retained by a Part D sponsor after
the 60-day deadline for reporting and returning is an obligation under
31 U.S.C. 3729(b)(3).
(e) Look-back period. A Part D sponsor must report and return any
overpayment identified within the 6 most recent completed payment
years. Overpayments resulting from fraud would not be subject to this
limitation.
0
72. Amend Sec. 423.464 as follows:
0
A. In paragraph (f)(2)(i) introductory text, by removing the phrase ``a
Part D plan must--'' and adding in its place ``a Part D plan must do
all of the following:''.
0
B. In paragraph (f)(2)(i)(A), by removing ``; and'' and adding in its
place ``.''.
0
C. By adding paragraph (f)(2)(i)(C).
The addition reads as follows:

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

* * * * *
(f) * * *
(2) * * *
(i) * * *
(C) Report, accept and apply benefit accumulator data in a
timeframe and manner determined by CMS.
* * * * *

[[Page 2067]]

Sec. 423.466 [Amended]

0
73. Amend Sec. 423.466(b) by removing the phrase ``a period not to
exceed 3 years'' and adding in its place the phrase ``a period of 3
years''.
0
74. Amend Sec. 423.501 by a adding a definition for ``prescription
drug pricing standard'' to read as follows:

Sec. 423.501 Definitions.

* * * * *
Prescription drug pricing standard means any methodology or formula
for varying the pricing of a drug or drugs during the term of a
pharmacy reimbursement contract that is based on the cost of a drug,
which includes, but is not limited to, drug pricing references and
amounts based on any of the following:
(1) Average wholesale price.
(2) Wholesale average cost.
(3) Average manufacturer price.
(4) Average sales price.
(5) Maximum allowable cost.
(6) Other cost, whether publicly available or not.
* * * * *
0
75. Amend Sec. 423.503 by revising paragraph (a)(1) and adding
paragraphs (a)(3), (c)(4), and (d) to read as follows:

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

(a) * * *
(1) With the exception of evaluations conducted under paragraph (b)
of this section, CMS evaluates an entity's application solely on the
basis of information contained in the application itself and any
additional information that CMS obtains through on-site visits and an
essential operations test.
* * * * *
(3) CMS may not approve an application when it would result in the
applicant's parent organization, directly or through its subsidiaries,
holding more than one PDP sponsor contract in the PDP Region for which
the applicant is seeking qualification as a PDP sponsor. A parent
organization is an entity that exercises a controlling interest in the
applicant.
* * * * *
(c) * * *
(4) Nullification of approval of application. If CMS discovers
through any means that an applicant is not qualified to contract based
on information gained subsequent to application approval (for example,
failure of an essential operations test, absence of required
employees), CMS gives the applicant written notice indicating that the
approval issued under Sec. 423.503(c)(1) is nullified and the
applicant no longer qualifies to contract as a Part D plan sponsor.
(i) This determination is not subject to the appeals provisions in
subpart N of this part.
(ii) This provision only applies to applicants that have not
previously entered into a Part D contract with CMS and neither it, nor
another subsidiary of the applicant's parent organization, is offering
Part D benefits during the current year.
(d) Withdrawal of application and bid in a previous year. An
applicant that withdraws its application and corresponding bid after
the release of the low income subsidy benchmark is not eligible to be
approved as a Part D plan sponsor for the 2 succeeding annual
contracting cycles.
0
76. Amend Sec. 423.504 as follows:
0
A. By adding paragraphs (b)(4)(vi)(C)(4) and (b)(8) through (10).
0
B. In paragraph (d)(2) introductory text, by removing the phrase ``has
the right to--'' and adding in its place the phrase ``has the right to
timely do all of the following:''.
0
C. In paragraph (d)(2)(i), by removing ``;'' and adding in its place a
``.''.
0
D. In paragraph (d)(2)(ii), by removing ``; and'' and adding in its
place a ``.''.
0
E. By adding paragraph (d)(2)(iv).
The additions read as follows:

Sec. 423.504 General provisions.

* * * * *
(b) * * *
(4) * * *
(vi) * * *
(C) * * *
(4) A Part D plan sponsor must require all of its first tier,
downstream and related entities to take the CMS training and accept the
certificate of completion of the CMS training as satisfaction of this
requirement. Part D plan sponsors are prohibited from developing and
implementing their own training or providing supplemental training
materials to fulfill this requirement.
* * * * *
(8) If neither the applicant, nor its parent or another subsidiary
of the same parent, holds a Part D sponsor contract that has been in
effect for at least 1 year at the time it submits an application, the
applicant must have arrangements in place such that the applicant and
its contracted first tier, downstream, or related entities, in
combination, have at least 1 full-benefit year of experience within the
2 years preceding the application submission performing at a minimum
all of the following functions in support of the operation of another
Part D contract:
(i) Authorization, adjudication, and processing of prescription
drug claims at the point of sale.
(ii) Administration and tracking of enrollees' drug benefits in
real time, including automated coordination of benefits with other
payers.
(iii) Operation of an enrollee appeals and grievance process.
(9) For organizations applying to offer stand-alone prescription
drug plans, the organization, its parent, or a subsidiary of the
organization or its parent, must have either of the following:
(i) For 2 continuous years immediately prior to submitting an
application, actively offered health insurance or health benefits
coverage, including prescription drug coverage, as a risk-bearing
entity in at least one State.
(ii) For 5 continuous years immediately prior to submitting an
application, actively managed prescription drug benefits for an
organization that offers health insurance or health benefits coverage,
including at a minimum, all of the services listed in paragraph (b)(8)
of this section.
(10) Effective contract year 2015, pass an essential operations
test prior to the start of the benefit year. This provision only
applies to new sponsors that have not previously entered into a Part D
contract with CMS when neither it, nor another subsidiary of the
applicant's parent organization, is offering Part D benefits during the
current year.
* * * * *
(d) * * *
(2) * * *
(iv) CMS may require that the Part D Plan sponsor hire an
independent auditor to conduct full or partial program audits or to
provide CMS with information to determine if deficiencies found during
an audit or inspection have been corrected and are not likely to recur.
The independent auditor must work in accordance with CMS specifications
and must be willing to attest that a complete and full independent
review has been performed.
* * * * *
0
77. Amend Sec. 423.505 as follows:
0
A. By revising paragraphs (b)(18) and (21).
0
B. By adding paragraphs (b)(27) and (28).
0
C. In paragraph (f)(3)(v), by removing ``,'' and adding in its place
``.''.
0
D. In paragraph (f)(3)(vi), by removing ``; and'' and adding in its
place ``.''.
0
E. By adding paragraph (f)(3)(viii).
0
F. In paragraph (i)(2)(i), by removing the phrase ``audit, evaluate and
inspect'' and adding in its place ``audit, evaluate, collect, and
inspect''.

[[Page 2068]]

0
G. By redesignating paragraph (i)(2)(ii) as paragraph (i)(2)(iii).
0
H. By adding a new paragraph (i)(2)(ii).
0
I. By revising paragraph (i)(3)(viii).
0
J. By adding paragraph (k)(7).
0
K. By adding a paragraph (m) subject heading.
0
L. By revising paragraphs (m)(1)(iii) introductory text, (m)(1)(iii)(A)
and (B).
0
M. By removing paragraph (m)(1)(iii)(C).
0
N. By redesignating (m)(1)(iii)(D) as paragraph (m)(1)(iii)(C).
0
O. By revising newly redesignated (m)(1)(iii)(C)(1) and (3).
0
P. By revising paragraph (m)(3).
0
Q. By adding paragraph (p).
The revisions and additions read as follows:

Sec. 423.505 Contract provisions.

* * * * *
(b) * * *
(18) To agree to have standard contracts that meet the requirements
described in Sec. 423.120(a)(8) with reasonable and relevant terms and
conditions of participation for each type of pharmacy in its network
whereby any willing pharmacy may access all relevant contract(s) to
participate as a network pharmacy.
* * *
(21)(i) Update any prescription drug pricing standard (as defined
in Sec. 423.501) based on the cost of the drug used for reimbursement
of network pharmacies by the Part D sponsor on January 1 of each
contract year and not less frequently than once every 7 days
thereafter;
(ii) Indicate the source used for making any such updates; and
(iii) Disclose all individual drug prices to be updated to the
applicable pharmacies in advance of their use for reimbursement of
claims, if the source for any prescription drug pricing standard is not
publicly available.
* * * * *
(27) A Part D sponsor is required to administer a Part D Benefit
that provides good quality health care demonstrated by scores of three
or higher on CMS performance standards for patient outcomes,
intermediate outcomes, process, patient experience, and patient access
to care.
(28) Effective contract year 2015, pass an essential operations
test prior to the start of the benefit year. This provision only
applies to new sponsors that have not previously entered into a Part D
contract with CMS and neither it, nor another subsidiary of the
applicant's parent organization, is offering Part D benefits during the
current year.
* * * * *
(f) * * *
(3) * * *
(viii) Supporting program integrity purposes, including
coordination with the States.
* * * * *
(i) * * *
(2) * * *
(ii) HHS, the Comptroller General or their designees have the right
to audit, evaluate, collect, and inspect any records under (i)(2)(i)
directly from any first tier, downstream, or related entity.
* * * * *
(3) * * *
(viii) If applicable, provisions addressing the drug pricing
standard requirements of Sec. 423.505(b)(21).
* * * * *
(k) * * *
(7) Certification of accuracy of data for overpayments. The CEO,
CFO, or COO must certify (based on best knowledge, information, and
belief) that the information provided for purposes of reporting and
returning of overpayments under Sec. 423.360 is accurate, complete,
and truthful.
* * * * *
(m) Release of data.
(1) * * *
(iii) Subject, in certain cases, to encryption of beneficiary
identifiers and aggregation of cost data to protect beneficiary
confidentiality and commercially sensitive data of Part D sponsors, in
accordance with all of the following principles:
(A) Subject to the restrictions in this paragraph, all elements on
the claim are available to HHS, other executive branch agencies, and
the States.
(B) Cost data elements on the claim generally are aggregated for
releases to other executive branch agencies, States, and external
entities. Upon request, CMS excludes sales tax from the aggregation at
the individual level if necessary for the project.
(C) * * *
(1) Beneficiary identifier elements on the claim generally are
encrypted for release, except in limited circumstances, such as the
following:
(i) If needed, in the case of release to other HHS entities,
Congressional oversight agencies, non-HHS executive agencies and the
States.
(ii) If needed to link to another dataset, in the case of release
to external entities. Public disclosure of research results will not
include beneficiary identifying information.
* * * * *
(3)(i) CMS must make available to Congressional support agencies
(the Congressional Budget Office, the Government Accountability Office,
the Medicare Payment Advisory Commission, and the Congressional
Research Service when it is acting on behalf of a Congressional
committee in accordance with 2 U.S.C. 166(d)(1)), all information
collected under paragraph (f)(3) of this section for the purposes of
conducting congressional oversight, monitoring, making recommendations,
and analysis of the Medicare program.
(ii) The Congressional Research Service is considered an external
entity when it is not acting on behalf of a Congressional committee in
accordance with 2 U.S.C. 166(d)(1) for the purposes of paragraph (m)(1)
of this section.
* * * * *
(p) Business continuity. (1) The Part D sponsor agrees to develop,
maintain, and implement a business continuity plan containing policies
and procedures to ensure the continuation of business operations during
disruptions to business operations which would include natural or man-
made disasters, system failures, emergencies, and other similar
circumstances and the threat of such occurrences. To meet the
requirement, the business continuity plan must, at a minimum, include
the following:
(i) Risk assessment. Identify threats and vulnerabilities that
might affect business operations.
(ii) Mitigation strategy. Design strategies to mitigate hazards.
Identify essential functions in addition to those specified in
paragraph (p)(2) of this section and prioritize the order in which to
restore all other functions to normal operations. At a minimum, each
Part D sponsor must do the following:
(A) Identify specific events that will activate the business
continuity plan.
(B) Develop a contingency plan to maintain, during any business
disruption, the availability and, as applicable, confidentiality of
communication systems and essential records in all forms (including
electronic and paper copies). The contingency plan must do the
following:
(1) Ensure that during any business disruption the following
systems will operate continuously or, should they fail, be restored to
operational capacity on a timely basis:
(i) Information technology IT systems including those supporting
claims processing at point of service.
(ii) Provider and enrollee communication systems including
telephone, Web site, and email.
(2) With respect to electronic protected health information, comply
with the contingency plan requirements of the Health Insurance
Portability and Accountability Act of 1996 Security

[[Page 2069]]

Regulations at 45 CFR 160 and 164, Subparts A and C.
(C) Establish a chain of command.
(D) Establish a business communication plan that includes emergency
capabilities and procedures to contact and communicate with the
following:
(1) Employees.
(2) First tier, downstream, and related entities.
(3) Other third parties (including pharmacies, providers,
suppliers, and government and emergency management officials).
(E) Establish employee and facility management plans to ensure that
essential operations and job responsibilities can be assumed by other
employees or moved to alternate sites as necessary or both.
(F) Establish a restoration plan including procedures to transition
to normal operations.
(G) Comply with all applicable Federal, State, and local laws.
(iii) Testing and revision. On at least an annual basis, test and
update the business operations continuity plan to ensure the following:
(A) That it can be implemented in emergency situations.
(B) That employees understand how it is to be executed.
(iv) Training. On at least an annual basis, educate all new and
existing employees about the business continuity plan and their own
respective roles.
(v) Records. (A) Develop and maintain records documenting the
elements of the business continuity plan described in paragraph
(p)(1)(i) through (p)(1)(iv) of this section.
(B) Make the information specified in paragraph (p)(1)(v)(A) of
this section available to CMS upon request.
(2) Restoration of essential functions. Every Part D sponsor must
restore essential functions within 24 hours after any of the essential
functions fail or otherwise stop functioning as usual. In addition to
any essential functions that the Part D sponsor identifies under
paragraph (p)(1)(ii) of this section, for purposes of this paragraph
(p)(2) of this section essential functions include at a minimum, the
following:
(i) Benefit authorization (if not waived), adjudication, and
processing of prescription drug claims at the point of sale.
(ii) Administration and tracking of enrollees' drug benefits in
real time, including automated coordination of benefits with other
payers.
(iii) Provision of pharmacy technical assistance.
(iv) Operation of an enrollee exceptions and appeals process
including coverage determinations.
(v) Operation of call center customer services.
0
78. Amend Sec. 423.509 as follows:
0
A. By redesignating paragraphs (a)(4) through (a)(14) as paragraphs
(a)(4)(i) through (a)(4)(xi).
0
B. By adding paragraph (a)(4) introductory text.
0
C. In newly redesignated paragraphs (a)(4)(ii), (iv), (v) introductory
text, (vi), and (vii), by removing the term ``fails'' and adding in its
place the term ``failed''.
0
D. In newly redesignated paragraphs (a)(4)(iii), (viii), and (ix), by
removing the term ``fails'' and adding in its place the term
``failed''.
0
E. By revising newly redesignated paragraphs (a)(4)(x) and (xi).
0
F. By adding paragraph (a)(4)(xii).
0
G. By revising paragraphs (b)(1)(i) through (iv) and (b)(2)(i)(C).
0
H. In paragraph (b)(2)(ii), by removing the phrase ``MA organization''
and adding in its place the phrase ``Part D plan sponsor''.
0
I. In paragraph (c)(2)(iii), by removing the cross-reference ``(a)(4)
of this section'' and adding in its place the cross-reference
``(a)(4)(i) of this section''.
0
J. In paragraph (d), by removing the cross-reference ``Sec. 423.642''
and adding in its place the cross-reference ``subpart N of this part''.
The additions and revisions read as follows:

Sec. 423.509 Termination of a contract by CMS.

(a) * * *
(4) CMS may make a determination under paragraph (a)(1), (2) or (3)
of this section if the Part D Plan sponsor has had one or more of the
following occur:
* * * * *
(x) Achieves a Part D summary plan rating of less than 3 stars for
3 consecutive contract years. Plan ratings issued by CMS before
September 1, 2012 are not included in the calculation of the 3-year
period.
(xi)(A) Has failed to report MLR data in a timely and accurate
manner in accordance with Sec. 423.2460; or
(B) That any MLR data required by this subpart is found to be
materially incorrect or fraudulent.
(xii) Failure of an essential operations test before the start of
the benefit year by an organization that has entered into a Part D
contract with CMS when neither it, nor another subsidiary of the
organization's parent organization, is offering Part D benefits during
the current year.
* * * * *
(b) * * *
(1) * * *
(i) CMS notifies the Part D plan sponsor in writing at least 45
calendar days before the intended date of the termination.
(ii) The Part D plan sponsor notifies its Medicare enrollees of the
termination by mail at least 30 calendar days before the effective date
of the termination.
(iii) The Part D plan sponsor notifies the general public of the
termination at least 30 calendar days before the effective date of the
termination by releasing a press statement to news media serving the
affected community or county and posting the press statement
prominently on the organization's Web site.
(iv) CMS notifies the general public of the termination no later
than 30 calendar days after notifying the plan of CMS's decision to
terminate the Part D plan sponsor's contract by releasing a press
statement.
(2) * * *
(i) * * *
(C) The contract is being terminated based on the grounds specified
in paragraphs (a)(4)(i) and (xii) of this section.
* * * * *

Sec. 423.562 [Amended]

0
79. Amend Sec. 423.562(a)(3) by removing the phrase ``request an
exception if they disagree with the information provided by the
pharmacist.'' and adding in its place the phrase ``request an
exception.''.

Sec. 423.642 [Amended]

0
80. Amend Sec. 423.642(c)(1) by removing the phrase ``90 calendar
days'' and adding in its place ``45 calendar days''.

Sec. 423.650 [Amended]

0
81. Amend Sec. 423.650 as follows:
0
A. In paragraph (a)(2), by removing the term ``under'' and adding in
its place the phrase ``in accordance with''.
0
B. In paragraph (a)(4), by removing the cross-reference ``Sec.
423.752(a) and (b)'' and adding in its place the cross-reference
``Sec. 423.752(a) and (b)''.
0
82. Amend Sec. 423.752 as follows:
0
A. By adding paragraphs (a)(7) through (10).
0
B. By revising paragraph (c)(1).
0
C. In paragraph (c)(2)(ii), by removing the phrase ``pursuant to
423.509(a)(4)'' and adding in its place the phrase ``pursuant to Sec.
422.510(a)(4)(i)''.
The additions and revision read as follows:

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

* * * * *

[[Page 2070]]

(a) * * *
(7) Except as provided under Sec. 423.34, enrolls an individual in
any plan under this part without the prior consent of the individual or
the designee of the individual.
(8) Transfers an individual enrolled under this part from one plan
to another without the prior consent of the individual or the designee
of the individual or solely for the purpose of earning a commission.
(9) Fails to comply with marketing restrictions described in
subpart V or applicable implementing guidance.
(10) Employs or contracts with any individual, agent, provider,
supplier or entity who engages in the conduct described in paragraphs
(a)(1) through (9) of this section.
* * * * *
(c) * * *
(1) CMS. In addition to, or in place of, any intermediate
sanctions, CMS may impose civil money penalties in the amounts
specified in either of the following:
(i) Section 423.760(b) for any of the determinations at Sec.
423.509(a), except Sec. 423.509(a)(4)(i).
(ii) Section 423.760(c) for any of the determinations in paragraph
(a) of this section except Sec. 422.752(a)(5).
* * * * *
0
83. Amend Sec. 423.756 as follows:
0
A. In paragraph (a)(2), by removing the phrase ``days from receipt''
and adding in its place ``days after receipt''.
0
B. In paragraph (b)(4), by removing the cross-reference ``Sec. 423.650
through Sec. 423.662 of this part.'' and adding in its place ``Subpart
N of this part.''.
0
C. In paragraph (c)(3)(ii) introductory text, by removing the phrase
``In instances where marketing or enrollment or both intermediate
sanctions have been imposed,'' and adding in its place the phrase ``In
instances where intermediate sanctions have been imposed,''.
0
D. Adding paragraph (c)(3)(ii)(C).
0
E. Revising paragraph (d).
The addition and revision read as follows:

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

* * * * *
(c) * * *
(3) * * *
(ii) * * *
(C) During the limited time period, sanctioned Part D plan sponsors
under the benchmark that would normally participate in the annual and
monthly auto enrollment process for enrollees receiving the low income
subsidy will not be allowed to receive or process these types of
enrollments.
(d) Non-renewal or termination by CMS. In addition to or as an
alternative to the sanctions described in Sec. 423.750, CMS may
decline to authorize the renewal of an organization's contract in
accordance with Sec. 423.507(b), or terminate the contract in
accordance with Sec. 423.509.
* * * * *
0
84. Amend Sec. 423.760 as follows:
0
A. In paragraph (a) introductory text, by removing the phrase ``under
423.752(c)(1), CMS will consider as appropriate:'' and adding in its
place the phrase ``under Sec. 423.752(c)(1), CMS considers the
following as appropriate:''.
0
B. In paragraphs (a)(1) and (2), by removing ``;'' and adding in its
place ``.''.
0
C. Revising paragraph (a)(3).
0
D. In paragraph (a)(4) by removing ``;'' and adding in its place ``.''.
0
E. In paragraph (a)(5), by removing ``; and'' and adding in its place
``.''.
0
F. Adding paragraph (c).
The revision and addition read as follows:

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

(a) * * *
(3) The adverse effect to enrollees which resulted or could have
resulted from the conduct of the Part D sponsor.
* * * * *
(c) Amount of penalty imposed by CMS or OIG. CMS or the OIG may
impose civil money penalties in the following amounts for a
determination made under Sec. 423.752(a):
(1) Civil money penalties of not more than $25,000 for each
determination made.
(2) With respect to a determination made under Sec. 423.752(a)(4)
or 423.752(a)(5)(i), not more than $100,000 for each such determination
except with respect to a determination made under Sec. 423.752(a)(5),
an assessment of not more than the amount claimed by such plan or PDP
sponsor based upon the misrepresentation or falsified information
involved.
(3) Plus with respect to a determination made under Sec.
423.752(a)(2), double the excess amount charged in violation of such
paragraph (and the excess amount charged must be deducted from the
penalty and returned to the individual concerned).
(4) Plus with respect to a determination made under Sec.
423.752(a)(4), $15,000 for each individual not enrolled as a result of
the practice involved.
0
85. Amend Sec. 423.882 by revising the definition of ``Actually paid''
to read as follows:

Sec. 423.882 Definitions.

* * * * *
Actually paid means that the costs must be actually incurred by the
qualified retiree prescription drug plan and must be net of any direct
or indirect remuneration (including discounts, charge backs or rebates,
cash discounts, free goods contingent on a purchase agreement, up-front
payments, goods in kind, free or reduced-price services, grants, or
other price concessions or similar benefits offered to some or all
purchasers) from any manufacturer or similar entity that would serve to
decrease the costs incurred under the qualified retiree prescription
drug plan.
* * * * *
0
86. Amend Sec. 423.1016 by revising the first sentence in paragraph
(b)(1) to read as follows:

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

* * * * *
(b) * * *
(1) The other party will have 20 calendar days from the date of
mailing or in person filing to submit any rebuttal statement or
additional evidence. * * *
* * * * *
0
87. Amend Sec. 423.1020 by revising paragraph (a)(2) to read as
follows:

Sec. 423.1020 Request for hearing.

(a) * * *
(2) The Part D sponsor or its legal representative or other
authorized official must file the request, in writing, to the
appropriate Departmental Appeals Board office, with a copy to CMS,
within 60 calendar days after receipt of the notice of initial
determination, to request a hearing before an ALJ to appeal any
determination by CMS to impose a civil money penalty.
* * * * *
0
88. Amend Sec. 423.2262 by adding paragraph (a)(2) to read as follows:

Sec. 423.2262 Review and distribution of marketing materials.

(a) * * *
(2) If CMS does not approve or does not disapprove marketing
materials within the specified review timeframe, the materials are
deemed approved and the Part D sponsor may use the material.
* * * * *

Sec. 423.2266 [Removed and Reserved]

0
89. Section 423.2266 is removed and reserved.

[[Page 2071]]

0
90. Amend Sec. 423.2274 by:
0
A. Revising the introductory text.
0
B. Redesignating paragraphs (a) through (f) as (b) through (g).
0
C. Adding new paragraph (a).
0
D. Revising newly redesignated paragraphs (b) through (d).
0
E. Adding paragraph (h).
The revisions and additions read as follows:

Sec. 423.2274 Broker and agent requirements.

If a Part D sponsor uses agents and brokers to sell its Part D
plans, the following requirements in this section are applicable.
(a) Definitions. For purposes of this section, the following
definitions are applicable:
Compensation (1) Includes monetary or non-monetary remuneration of
any kind relating to the sale or renewal of a policy including, but not
limited to--
(i) Commissions;
(ii) Bonuses;
(iii) Gifts;
(iv) Prizes or Awards; or
(v) Referral or Finder fees.
(2) Does not include--
(i) Payment of fees to comply with State appointment laws,
training, certification, and testing costs;
(ii) Reimbursement for mileage to, and from, appointments with
beneficiaries; or
(iii) Reimbursement for actual costs associated with beneficiary
sales appointments such as venue rent, snacks, and materials.
Like plan type means one of the following:
(1) PDP replaced with another PDP.
(2) MA or MA-PD replaced with another MA or MA-PD.
(3) Cost plan replaced with another cost plan.
Unlike plan type means one of the following:
(1) PDP replaced with a MA-PD or a MA-PD replaced with a PDP
(2) PDP replaced with a cost plan or a cost plan replaced with a
PDP
(3) MA-PD replaced with a cost plan or a cost plan replaced with a
MA-PD
Plan year means the year beginning January 1 and ending December
31.
Renewal year means all years following the initial enrollment year
in a like plan type.
(b) Compensation rules. An Part D sponsor must compensate
independent brokers and agents, if compensation is paid, only according
to the following rules in this section.
(1) Compensation amounts. (i) For an initial year enrollment of a
Medicare beneficiary into a Part D plan, the compensation must be at or
below the fair market value of such services, published annually as a
cut-off amount by CMS.
(ii) For renewal years, compensation may be up to 35 percent of the
current fair market value cut-off amounts published annually by CMS.
(2) Aggregate compensation. (i) An entity must not provide
aggregate compensation to its agents or brokers greater than the
renewal compensation payable by the replacing plan on renewal policies
if an existing policy is replaced with a like plan at any time.
(ii) An agent or broker must not receive aggregate compensation
greater than the renewal compensation payable by the replacing plan on
renewal policies if an existing policy is replaced with a like plan
type at any time.
(iii) The initial compensation is paid for replacements between
unlike plan types.
(3) Compensation payment and payment recovery. (i) Compensation may
only be paid for the enrollee's months of enrollment during a plan
year.
(ii)(A) Subject to paragraph (b)(3)(iii) of this section,
compensation payments may be made at one time for the entire current
plan year or in installments throughout the year.
(B) Compensation may not be paid until January 1 of the
compensation year and, if paid at all, must be paid in full by December
31 of the compensation year.
(iii) When a beneficiary disenrolls from an MA plan, compensation
paid to agents and brokers must be recovered for those months of the
plan year for which the beneficiary is not enrolled. For disenrollments
occurring within the first 3 months, the entire compensation must be
recovered when the disenrollment was the result of agent or broker
behavior.
(4) Compensation structure. (i) A Part D sponsor must establish a
compensation structure for new and replacement enrollments and renewals
effective in a given plan year. Compensation structures must be in
place by the beginning of the plan marketing period, October 1.
(ii) Compensation structures must be available upon CMS request
including for audits, investigations, and to resolve complaints.
(c) Annual training. The Part D sponsor must ensure that all agents
and brokers selling Medicare products are trained annually on the
following:
(1) Medicare rules and regulations.
(2) Details specific to the plan products they intend to sell.
(d) Annual testing. The Part D sponsor must ensure that all agents
and brokers selling Medicare products are tested annually, to ensure
the following:
(1) Appropriate knowledge and understanding of Medicare rules and
regulations.
(2) Details specific to the plan products they intend to sell.
* * * * *
(h) Finder's (referral) fees. Finder's (referral) fees paid to all
agents and brokers--
(1) May not exceed an amount CMS determines could reasonably be
expected to affect enrollee behavior while not exceeding the value of
the health-related service or activity itself; and
(2) Must be included in the total compensation not to exceed the
fair market value for that calendar year.
0
91. Amend Sec. 423.2320 by adding paragraph (c) to read as follows:

Sec. 423.2320 Payment processes for Part D sponsors.

* * * * *
(c) In the event that a manufacturer declares bankruptcy, as
described in Title 11 of the United States Code and, as a result of the
bankruptcy, does not pay the quarterly invoices described in Sec.
423.2315(b)(10) by the time of the Coverage Gap Discount Reconciliation
described in paragraph (b) of this section, CMS adjusts the Coverage
Gap Discount Reconciliation amount of each of the affected Part D
sponsors to account for the total unpaid quarterly invoiced amount owed
to each of the Part D sponsors in the contract year being reconciled.
0
92. Amend Sec. 423.2325 by adding paragraph (h) to read as follows:

Sec. 423.2325 Provision of applicable discounts.

* * * * *
(h) Treatment of employer group waiver plans. (1) Beginning 2014,
Part D sponsors offering employer group waiver plans must provide
applicable discounts to employer group waiver plan enrollees as
determined consistent with the defined standard benefit.
(2)(i) Part D sponsors offering employer group waiver plans must
report to each employer or union group client projected and actual
aggregate manufacturer payments attributable to the EGWPs enrollees, at
least annually or upon request.
(ii) CMS may request documentation that notice as described in
paragraph (h)(2)(i) of this section has been provided by the Part D
sponsor and received by the employer or union group.

[[Page 2072]]

Subpart Y [Reserved]

0
93. Part 423 is amended by adding reserved subpart Y.
0
94. Part 423 is amended by adding subpart Z to read as follows:
Subpart Z--Recovery Audit Contractor Part C Appeals Process
Sec.
423.2600 Payment appeals.
423.2605 Request for reconsideration.
423.2610 Hearing official review.
423.2615 Review by the Administrator.

Subpart Z--Recovery Audit Contractor Part C Appeals Process

Sec. 423.2600 Payment appeals.

If the Part D RAC did not apply its stated payment methodology
correctly, a Part D plan sponsor may appeal the findings of the applied
methodology. The payment methodology itself is not subject to appeal.

Sec. 423.2605 Request for reconsideration.

(a) Time for filing a request. The request for reconsideration must
be filed with the designated independent reviewer within 60 calendar
days from the date of the demand letter received by the Part D plan
sponsor.
(b) Content of request. (1) The request for reconsideration must be
in writing and specify the findings or issues with which the Part D
plan sponsor disagrees.
(2) The Part D plan sponsor must include with its request all
supporting documentary evidence it wishes the independent reviewer to
consider.
(i) This material must be submitted in the format requested by CMS.
(ii) Documentation, evidence, or substantiation submitted after the
filing of the reconsideration request will not be considered.
(c) CMS Rebuttal. CMS may file a rebuttal to the Part D plan
sponsor's reconsideration request.
(1) The rebuttal must be submitted within 30 calendar days of the
review entity's notification to CMS that it has received the Part D
plan sponsor's reconsideration request.
(2) CMS sends its rebuttal to the Part D plan sponsor at the same
time it is submitted to the independent reviewer.
(d) Review entity. An independent reviewer conducts the
reconsideration. The independent reviewer reviews the demand for
repayment, the evidence and findings upon which it was based, and any
evidence that the Part D plan sponsor or CMS submitted in accordance
with this section.
(e) Notification of decision. The independent reviewer informs CMS
and the Part D plan sponsor of its decision in writing.
(f) Effect of decision. A reconsideration decision is final and
binding unless the Part D plan sponsor requests a hearing official
review in accordance with Sec. 423.2610.
(g) Right to hearing official review. A Part D plan sponsor that is
dissatisfied with the independent reviewer's reconsideration decision
is entitled to a hearing official review as provided in Sec. 423.2610.

Sec. 423.2610 Hearing official review.

(a) Time for filing a request. A Part D plan sponsor must file with
CMS a request for a hearing official review within 15 calendar days
from the date of the independent reviewer's issuance of a
determination.
(b) Content of the request. (1) The request must be in writing and
must provide evidence or reasons or both to substantiate the request.
(2) The Part D plan sponsor must submit with its request all
supporting documentation, evidence, and substantiation that it wants to
be considered.
(3) No new evidence may be submitted.
(4) Documentation, evidence, or substantiation submitted after the
filing of the request will not be considered.
(c) CMS rebuttal. CMS may file a rebuttal to the Part D plan
sponsor's hearing official review request.
(1) The rebuttal must be submitted within 30 calendar days of the
Part D plan sponsor's submission of its hearing official review
request.
(2) CMS sends its rebuttal to the Part D plan sponsor at the same
time it is submitted to the hearing official.
(d) Conducting a review. A CMS-designated hearing official conducts
the hearing on the record.
(1) The hearing is not to be conducted live or via telephone unless
the hearing official, in his or her sole discretion, requests a live or
telephonic hearing.
(2) In all cases, the hearing official's review is limited to
information that meets one or more of the following:
(i) The Part D RAC used in making its determinations.
(ii) The independent reviewer used in making its determinations.
(iii) The Part D plan sponsor submits with its hearing request.
(iv) CMS submits in accordance with paragraph (c) of this section.
(3) Neither the Part D plan sponsor nor CMS may submit new
evidence.
(e) Hearing official decision. The CMS hearing official decides the
case within 60 days and sends a written decision to the Part D plan
sponsor and CMS, explaining the basis for the decision.
(f) Effect of hearing official decision. The hearing official's
decision is final and binding, unless the decision is reversed or
modified by the CMS Administrator in accordance with Sec. 423.2610.

Sec. 423.2615 Review by the Administrator.

(a) Request for review by Administrator. If a Part D plan sponsor
is dissatisfied with the hearing official's decision, it may request
that the CMS Administrator review the decision.
(1) The request must be filed with the CMS Administrator within 15
calendar days of the date of the hearing official's decision.
(2) The request must provide evidence or reasons to substantiate
the request.
(b) Content of request. The Part D plan sponsor must submit with
its request all supporting documentation, evidence, and substantiation
that it wants to be considered.
(1) Documentation, evidence, or substantiation submitted after the
filing of the request will not be considered.
(2) Neither the Part D plan sponsor nor CMS may submit new
evidence.
(c) Discretionary review. After receiving a request for review, the
CMS Administrator has the discretion to review the hearing official's
decision in accordance with paragraph (e) of this section or to decline
to review said decision.
(d) Notification of decision whether to review. The CMS
Administrator notifies the Part D plan sponsor within 45 days of
receiving the Part D plan sponsor's hearing request of whether he or
she intends to review the hearing official's decision. If the
Administrator agrees to review the hearing official's decision, CMS may
file a rebuttal statement within 30 days of the Administrator's notice
to the plan sponsor that the request for review has been accepted. CMS
sends its rebuttal statement to the plan sponsor at the same time it is
submitted to the Administrator. If the CMS Administrator declines to
review the hearing official's decision, the hearing official's decision
is final and binding.
(e) Administrator review. If the CMS Administrator agrees to review
the hearing official's decision, he or she determines, based upon this
decision, the hearing record, and any arguments submitted by the Part D
plan sponsor or CMS in accordance with this section, whether the
determination should be upheld, reversed, or modified. The CMS
Administrator furnishes a written decision, which is final and binding,
to the Part D plan sponsor and to CMS.

[[Page 2073]]

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
95. The authority citation for part 424 continues to read as follows:

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

0
96. Amend Sec. 424.530 by adding paragraph (a)(11) to read as follows:

Sec. 424.530 Denial of enrollment in the Medicare program.

(a) * * *
(11) Prescribing authority. (i) A physician or eligible
professional's Drug Enforcement Administration (DEA) Certificate of
Registration to dispense a controlled substance is currently suspended
or revoked; or
(ii) The applicable licensing or administrative body for any State
in which a physician or eligible professional practices has suspended
or revoked the physician or eligible professional's ability to
prescribe drugs, and such suspension or revocation is in effect on the
date physician or eligible professional submits his or her enrollment
application to the Medicare contractor.
* * * * *
0
97. Amend Sec. 424.535 by revising the section heading and adding
paragraphs (a)(13) and (14) to read as follows:

Sec. 424.535 Revocation of enrollment in the Medicare program.

(a) * * *
(13) Prescribing authority. (i) The physician or eligible
professional's Drug Enforcement Administration (DEA) Certificate of
Registration is suspended or revoked; or
(ii) The applicable licensing or administrative body for any state
in which the physician or eligible professional practices suspends or
revokes the physician or eligible professional's ability to prescribe
drugs.
(14) Improper prescribing practices. CMS determines that the
physician or eligible professional has a pattern or practice of
prescribing Part D drugs that falls into one of the following
categories:
(i) The pattern or practice is abusive and represents a threat to
the health and safety of Medicare beneficiaries. In making this
determination, CMS considers the following factors:
(A) Whether there are diagnoses to support the indications for
which the drugs were prescribed.
(B) Whether there are instances when the necessary evaluation of
the patient for whom the drug was prescribed could not have occurred
(for example, the patient was deceased or out of state at the time of
the alleged office visit).
(C) Whether the physician or eligible professional has prescribed
controlled substances in excessive dosages that are linked to patient
overdoses.
(D) The number and type(s) of disciplinary actions taken against
the physician or eligible professional by the licensing body or medical
board for the State or States in which he or she practices, and the
reason(s) for the action(s).
(E) Whether the physician or eligible professional has any history
of ``final adverse actions'' (as that term is defined in Sec.
424.502).
(F) The number and type(s) of malpractice suits that have been
filed against the physician or eligible professional related to
prescribing that have resulted in a final judgment against the
physician or eligible professional or in which the physician or non-
physician practitioner has paid a settlement to the plaintiff(s) (to
the extent this can be determined).
(G) Whether any State Medicaid program or any other public or
private health insurance program has restricted, suspended, revoked, or
terminated the physician or eligible professional's ability to
prescribe medications, and the reason(s) for any such restriction,
suspension, revocation, or termination.
(H) Any other relevant information provided to CMS.
(ii) The pattern or practice of prescribing fails to meet Medicare
requirements. In making this determination, CMS considers the following
factors:
(A) Whether the physician or eligible professional has a pattern or
practice of prescribing without valid prescribing authority.
(B) Whether the physician or eligible professional has a pattern or
practice of prescribing for controlled substances outside the scope of
the prescriber's DEA registration.
(C) Whether the physician or eligible professional has a pattern or
practice of prescribing drugs for indications that were not medically
accepted--that is, for indications neither approved by the FDA nor
medically accepted under section 1860D-2(e)(4) of the Act-- and whether
there is evidence that the physician or eligible professional acted in
reckless disregard for the health and safety of the patient.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

Dated: October 21, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
Dated: December 11, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-31497 Filed 1-6-14; 4:15 pm]
BILLING CODE 4120-01-P