[Federal Register Volume 79, Number 100 (Friday, May 23, 2014)]
[Rules and Regulations]
[Pages 29844-29968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11734]



[[Page 29843]]

Vol. 79

Friday,

No. 100

May 23, 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 417, 422, 423, et al.





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

  Federal Register / Vol. 79 , No. 100 / Friday, May 23, 2014 / Rules 
and Regulations  

[[Page 29844]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, 423, and 424

[CMS-4159-F]
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: Final rule.

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SUMMARY: The final rule will revise the Medicare Advantage (MA) program 
(Part C) regulations and prescription drug benefit program (Part D) 
regulations to implement statutory requirements; improve program 
efficiencies; and clarify program requirements. The final rule also 
includes several provisions designed to improve payment accuracy.

DATES: Effective Dates: These regulations are effective on July 22, 
2014 except for the amendment in instruction 27 to Sec.  423.100, the 
amendment in instruction 30 to Sec.  423.501, and the amendment in 
instruction 34 to Sec.  423.505, which are effective on January 1, 
2016.
    Applicability Dates: In the SUPPLEMENTARY INFORMATION section of 
this final rule, we provide a table (Table 1) which lists key changes 
in this final rule that have an applicability date other than the 
effective date of this final rule.

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.
Joscelyn Lissone, (410) 786-5116, Part C and D compliance issues.
Frank Whelan, (410) 786 1302, Part D improper prescribing issues.

SUPPLEMENTARY INFORMATION: Table 1 lists key changes that have an 
applicability date other than 60 days after the date of publication of 
this final rule. The applicability dates are discussed in the preamble 
for each of these items.

Table 1--Applicability Date of Key Provisions Other Than 60 Days After the Date of Publication of the Final Rule
----------------------------------------------------------------------------------------------------------------
                                                                                                  Applicability
            Preamble section                                  Section title                           date
----------------------------------------------------------------------------------------------------------------
III.A.4.................................  Reducing the Burden of the Compliance Program               01/01/2016
                                           Training Requirements (Sec.  Sec.
                                           422.503(b)(4)(vi)(C) and Sec.
                                           423.504(b)(4)(vi)(C)).
III.A.7.................................  Agent/Broker Compensation Requirements (Sec.  Sec.          01/01/2015
                                           422.2274 and 423.2274).
III.A.20................................  Enrollment Requirements for the Prescribers of Part         06/01/2015
                                           D Covered Drugs (Sec.   423.120(c)(6)).
III.A.24................................  Eligibility of Enrollment for Incarcerated                  01/01/2015
                                           Individuals (Sec.  Sec.   417.1, 417.460(b)(2)(i),
                                           417.460(f)(1)(i)(A) through (C),
                                           422.74(d)(4)(i)(A), 422.74(d)(4)(v),
                                           423.44(d)(5)(iii) and (iv)).
----------------------------------------------------------------------------------------------------------------

Table of Contents

I. Executive Summary
    A. Purpose
    B. Summary of the Major Provisions
    1. Modifying the Agent/Broker Requirements, Specifically Agent/
Broker Compensation
    2. Drug Categories or Classes of Clinical Concern
    3. Improving Payment Accuracy--Implementing Overpayment 
Provisions of Section 1128J (d) of the Social Security Act 
(Sec. Sec.  422.326 and 423.360).
    4. Risk Adjustment Data Requirements (Sec.  422.310)
    C. Summary of Costs and Benefits
II. Background
    A. General Overview and Regulatory History
    B. Issuance of a Notice of Proposed Rulemaking
    C. Public Comments Received in Response to the CY 2015 Policy 
and Technical Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs Proposed Rule
    D. Provisions Not Finalized in this Final Rule
III. Provisions of the Proposed Regulations
    A. Clarifying Various Program Participation Requirements
    1. Closing Cost Contract Plans to New Enrollment (Sec. Sec.  
422.2 and 22.503)
    2. Authority to Impose Intermediate Sanctions and Civil Money 
Penalties (Sec. Sec.  422.752, 423.752, 422.760 and 423.760)
    3. Contract Termination Notification Requirements and Contract 
Termination Basis (Sec. Sec.  422.510 and 423.509)
    4. Reducing the Burden of the Compliance Program Training 
Requirements (Sec. Sec.  422.503(b)(4)(vi)(C) and 
423.504(b)(4)(vi)(C))
    5. Procedures for Imposing Intermediate Sanctions and Civil 
Money Penalties Under Parts C and D (Sec. Sec.  422.756 and 423.756)
    6. Timely Access to Mail Order Services (Sec.  423.120)
    7. Agent/Broker Requirements, Particularly Compensation 
(Sec. Sec.  422.2274 and 423.2274)
    8. Drug Categories or Classes of Clinical Concern (Sec.  
423.120(b)(2)(v))
    9. 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
    10. 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))
    11. 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))
    12. Limit Parent Organizations to One Prescription Drug Plan 
(PDP) Sponsor Contract Per PDP Region (Sec.  423.503)
    13. Limit Stand-Alone Prescription Drug Plan Sponsors to 
Offering No More Than Two Plans Per PDP Region (Sec.  423.265)
    14. Applicable Cost-Sharing for Transition Supplies: Transition 
Process Under Part D (Sec.  423.120(b)(3))
    15. Interpreting the Non Interference Provision (Sec.  423.10)
    16. Pharmacy Price Concessions in Negotiated Prices (Sec.  
423.100)
    17. Preferred Cost Sharing (Sec. Sec.  423.100 and 423.120)
    18. Prescription Drug Pricing Standards and Maximum Allowable 
Cost (Sec.  423.505(b)(21))
    19. Any Willing Pharmacy Standard Terms & Conditions (Sec.  
423.120(a)(8))
    20. Enrollment Requirements for Prescribers of Part D Covered 
Drugs (Sec.  423.120(c)(5) and (6))
    21. Improper Prescribing Practices (Sec. Sec.  424.530 and 
424.535)
    a. Background and Program Integrity Concerns
    b. Drug Enforcement Administration (DEA) Certification of 
Registration
    c. Patterns or Practices of Prescribing
    22. Broadening the Release of Part D Data (Sec.  423.505)
    23. Establish Authority to Directly Request Information From 
First Tier, Downstream, and Related Entities (Sec. Sec.  
422.504(i)(2)(i) and 423.505(i)(2)(i))

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    24. Eligibility of Enrollment for Incarcerated Individuals 
(Sec. Sec.  417.1, 417.422, 417.460, 422.74, and 423.44)
    a. Changes in Definition of Service Area for Cost Plans 
(Sec. Sec.  417.1 and 417.422(b))
    b. Involuntary Disenrollment for Incarcerated Individuals 
Enrolled in MA, PDP and cost plans (Sec. Sec.  417.460, 422.74, and 
423.44)
    25. Rewards and Incentives Program Regulations for Part C 
Enrollees (Sec.  422.134)
    B. Improving Payment Accuracy
    1. Implementing Overpayment Provisions of Section 1128J(d) of 
the Social Security Act (Sec. Sec.  422.326 and 423.360)
    a. Terminology (Sec. Sec.  422.326(a) and 423.360(a))
    b. General Rules for Overpayments (Sec.  422.326(b) through (c); 
Sec.  423.360(b) through (c))
    c. Look-back Period for Reporting and Returning Overpayments
    2. Risk Adjustment Data Requirements (Sec.  422.310)
    3. 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
    4. 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. Sec.  422.2605 and 423.2605)
    (2) Hearing Official Determinations (Sec. Sec.  422.2610 and 
423.2610)
    (3) Administrator Review (Sec. Sec.  422.2615 and 423.2615)
    C. Implementing Other Technical Changes
    1. Definition of a Part D Drug (Sec.  423.100)
    a. Combination Products
    b. Barbiturates and Benzodiazepines
    c. Medical Foods
    2. Special Part D Access Rules During Disasters or Emergencies 
(Sec.  423.126)
    3. Termination of a Contract Under Parts C and D (Sec. Sec.  
422.510 and 423.509)
    a. Cross-reference Change (Sec.  423.509(d))
    b. Terminology Changes (Sec. Sec.  422.510 and 423.509)
    c. Technical Change to Align Paragraph Headings (Sec.  
422.510(b)(2))
    d. Terminology Change (Sec.  423.509(b)(2)(C)(ii))
    4. Technical Changes Regarding Intermediate Sanctions and Civil 
Money Penalties (Sec. Sec.  422.756 and 423.756)
    a. Technical Changes to Intermediate Sanctions Notice Receipt 
Provisions (Sec. Sec.  422.756(a)(2) and 423.756(a)(2))
    b. Cross-reference Changes (Sec. Sec.  422.756(b)(4) and 
423.756(b)(4))
    c. Technical Changes (Sec. Sec.  422.756(d) and 423.756(d))
    d. Technical Changes to Align the Civil Money Penalty Provision 
with the Authorizing Statute (Sec. Sec.  422.760(a)(3) and 
423.760(a)(3))
    e. Technical Changes to Align the Civil Money Penalty Notice 
Receipt Provisions (Sec. Sec.  422.1020(a)(2), 423.1020(a)(2), 
422.1016(b)(1), and 423.1016(b)(1))
IV. Collection of Information Requirements
    A. ICRs Related to Improper Prescribing Practices and Patterns 
(Sec.  424.535(a)(13) and (14))
    B. 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))
    C. ICRs Related to Eligibility of Enrollment for Incarcerated 
Individuals (Sec. Sec.  417.460, 422.74, and 423.44)
    D. ICRs Related to Rewards and Incentives Program Regulations 
for Part C Enrollees (Sec.  422.134)
    E. ICR Related to Recovery Audit Contractor Determinations (Part 
422, Subpart Z and Part 423, Subpart Z)
V. 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 Authority to Impose Intermediate Sanctions and 
Civil Money Penalties
    3. Effects of Contract Termination Notification Requirements and 
Contract Termination Basis
    4. Effects of Reducing the Burden of the Compliance Program 
Training Requirements
    5. Effects of the Procedures for Imposing Intermediate Sanctions 
and Civil Money Penalties under Parts C and D
    6. Effects of Timely Access to Mail Order Services
    7. Effects of the Modification of the Agent/Broker Compensation 
Requirements
    8. Effects of Drug Categories or Classes of Clinical Concern
    9. Effects of the Medication Therapy Management Program (MTMP) 
under Part D
    10. 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
    11. 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
    12. Effects of Limit Parent Organizations to One Prescription 
Drug Plan (PDP) Sponsor Contract per PDP Region
    13. Effects of Limit Stand-Alone Prescription Drug Plan Sponsors 
to Offering No More Than Two Plans per PDP Region
    14. Effects of Applicable Cost-Sharing for Transition Supplies: 
Transition Process Under Part D
    15. Effects of Interpreting the Non-Interference Provision
    16. Effects of Pharmacy Price Concessions in Negotiated Prices
    17. Effects of Preferred Cost Sharing
    18. Effects of Maximum Allowable Cost Pricing Standard
    19. Effects of Any Willing Pharmacy Standard Terms & Conditions
    20. Effects of Enrollment Requirements for Prescribers of Part D 
Covered Drugs
    21. Effects of Improper Prescribing Practices and Patterns
    22. Effects of Broadening the Release of Part D Data
    23. Effects of Establish Authority to Directly Request 
Information From First Tier, Downstream, and Related Entities
    24. Effects of Eligibility of Enrollment for Incarcerated 
Individuals
    25. Effects of Rewards and Incentives Program Regulations for 
Part C Enrollees
    26. Effects of Improving Payment Accuracy: Reporting 
Overpayments, RADV Appeals, and LIS Cost Sharing
    27. Effects of Part C and Part D RAC Determination Appeals
    28. Effects of the Technical Changes to the Definition of a Part 
D Drug
    29. Effects of the Special Part D Access Rules During Disasters
    30. Effects of Termination of a Contract under Parts C and D
    31. Effects of Technical Changes Regarding Intermediate 
Sanctions and Civil Money Penalties
    D. Expected Benefits
    1. Drug Categories or Classes of Clinical Concern
    2. Medication Therapy Management Program under Part D
    E. Alternatives Considered
    1. Modifying the Agent/Broker Compensation Requirements
    2. Any Willing Pharmacy Standard Terms and Conditions
    3. Pharmacy Price Concessions in Negotiated Prices
    4. Special Part D Access Rules During Disasters or Emergencies
    5. Drug Categories or Classes of Clinical Concern
    6. Medication Therapy Management Program (MTM) Under Part D
    7. 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
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

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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
DUA Data Use Agreement
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
ICL Initial Coverage Limit
ICR Information Collection Requirement
ID Identification
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
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 of 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
NWS National Weather Service
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
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
SCORM Sharable Content Object Reference Model
SEP Special Election 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 final 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. This final rule is 
necessary to--(1) clarify various program participation requirements; 
(2) improve payment accuracy; and (3) make other clarifications and 
technical changes.

B. Summary of the Major Provisions

1. Modifying the Agent/Broker Requirements, Specifically Agent/Broker 
Compensation
    The former regulatory compensation structure was comprised of a 6-
year cycle that ended December 31, 2013. Under that structure, MA 
organizations and Part D sponsors provided an initial compensation 
payment to independent agents for new enrollees (Year 1), and paid a 
renewal rate (equal to 50 percent of the initial year compensation) for 
Years 2 through 6. MA organizations and Part D sponsors had the option 
to pay the 50 percent renewal rate for CY2014 (year 1). This 
compensation structure proved to be complicated to implement and 
monitor, and also created an incentive for agents to move beneficiaries 
as long as the fair market value (FMV) continued to increase each year. 
To resolve these issues, we proposed to revise the compensation 
structure. Under our proposal, MA organizations and Part D sponsors 
would continue to have the discretion to decide, on an annual basis, 
whether or not to use independent agents. Also, for new enrollments, MA 
organizations and Part D sponsors could determine what their initial 
rate would be, up to the CMS designated FMV amount. For renewals in 
Year 2 and subsequent years, with no end date, the MA organization or 
Part D sponsor could pay up to 35 percent of the current FMV amount for 
that year. We believed that revising the existing compensation

[[Page 29847]]

structure to allow MA organizations or Part D sponsors to pay up to 35 
percent of the FMV for year 2 and subsequent years was appropriate 
based on a couple of factors. First, we believed 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 was 
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 proposed to amend the training and testing requirements 
as well as setting limits on referral fees ($100) for agents and 
brokers.
    We received more than 140 comments from agents, health plans, and 
trade associations opposing the 35 percent renewal rate, and instead 
suggesting that CMS maintain the 50 percent renewal rate. A number of 
commenters expressed concerns that the proposed reduction in 
compensation would represent a significant decrease from the current 
compensation limit, and a rate set at 50 percent of FMV would be in 
line with industry standard. They noted that the higher compensation 
amount would be particularly important for stand-alone prescription 
drug plans, as 35 percent would be insufficient to cover an agent's 
costs associated with the renewal transaction and could discourage 
agents from assisting in the annual evaluation of a Medicare 
beneficiary's options. Commenters also stated that, compared to current 
practice, the proposed 35 percent renewal rate is a reduction since a 
number of MA plans began offering a renewal rate of 50 percent for 10 
years or more at the end of the 6-year cycle (2013). The majority of 
commenters also stated that agents play an important role in educating 
beneficiaries about Medicare and the proposed reduction in the renewal 
rate could reduce the level and quality of services provided to 
beneficiaries, thereby resulting in less information sharing and poorer 
plan choices by beneficiaries. Many commenters also stated that agents 
spend a significant amount of time in training, preparing, and 
educating beneficiaries and that the compensation is already low 
relative to the hours spent. Some commenters also expressed concern 
that the lower compensation rate would discourage new agents from 
entering the MA market. Many agents stated they would have to stop 
selling MA products and instead sell other more profitable products. No 
plans strongly supported the 35 percent renewal rate. Therefore, we are 
modifying the compensation renewal rate from up to 35 percent to up to 
50 percent. These changes will be applicable for enrollments effective 
January 2015. Because the proposed rate is similar to previous 
regulatory requirements, present CMS guidance, and industry practice, 
we believe this implementation timeframe is reasonable and appropriate. 
We are not finalizing the proposed changes to agent and broker training 
and testing at this time. We are finalizing limits on referral fees for 
agents as proposed.
2. Drug Categories or Classes of Clinical Concern
    We are not finalizing any new criteria and will maintain the 
existing six protected classes.
3. Improving Payment Accuracy--Implementing Overpayment Provisions of 
Section 1128J(d) of the Social Security Act (Sec. Sec.  422.326 and 
423.360)
    These proposed regulatory provisions codify the Affordable Care Act 
requirement establishing section 1128J(d) of the Act that MA 
organizations and Part D sponsors report and return identified Medicare 
overpayments.
    We proposed to adopt the statutory definition of overpayment for 
both Part C and Part D, which means any funds that an MA organization 
or Part D sponsor has received or retained under Title XVIII of the Act 
to which the MA organization or Part D sponsor, after applicable 
reconciliation, is not entitled under such title. To reflect the unique 
structure of Part C and Part D payments to plan sponsors, we also 
propose to define two terms included in the statutory definition of 
overpayments: ``funds'' and ``applicable reconciliation.'' We proposed 
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. For Part C we proposed that applicable 
reconciliation occurs on the annual final risk adjustment data 
submission deadline. For Part D, we proposed that applicable 
reconciliation occurs on the date that is the later of either the 
annual deadline for 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.
    In addition, we proposed to state in regulation that an 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. An MA organization or Part D sponsor must report and 
return any identified overpayment it received no later than 60 days 
after the date on which it identified it received an overpayment. 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. Finally, we proposed a look-back period with an exception 
for overpayments resulting from fraud, whereby MA organizations and 
Part D sponsors would be held accountable for reporting overpayments 
within the 6 most recent completed payment years for which the 
applicable reconciliation has been completed.
    We received approximately 30 comments from organizations and 
individuals. Generally, commenters supported establishing separate 
applicable reconciliation dates for Part C and Part D. Many commenters 
questioned when the 60-day period for reporting and returning begins, 
and what activities constitute reporting and returning an overpayment 
to CMS, including questions about estimating an amount of overpayment. 
A number of commenters also requested to clarify the standards for 
``identifying'' an overpayment, including questions about the meaning 
of reasonable diligence. Finally, a few commenters recommended that we 
impose the same limitation on the look-back period for all 
overpayments, even those relating to fraud.
    We are finalizing the provisions at Sec. Sec.  422.326 and 423.360, 
with the following modifications. First, we add at the end of paragraph 
Sec.  422.326(d) the phrase ``unless otherwise directed by CMS for the 
purpose of Sec.  422.311.'' Also, to increase clarity we revise 
Sec. Sec.  422.326(c) and 423.360(c) regarding identified overpayments. 
Finally, we strike the following sentence in the proposed paragraphs on 
the 6-year look-back period: ``Overpayments resulting from fraud are 
not subject to this limitation of the lookback period.''
4. Risk Adjustment Data Requirements
    We proposed several amendments to Sec.  422.310 to strengthen 
existing regulations related to the accuracy of

[[Page 29848]]

risk adjustment data, including: (1) A requirement that medical record 
reviews, if used, be designed to determine the accuracy of diagnoses 
submitted under Sec. Sec.  422.308(c)(1) and 422.310(g)(2); (2) a 
revision in the deadlines for submission of risk adjustment data; and 
(3) a limitation on the type and purpose of late data submissions. We 
also proposed a restructuring of subparagraph (g)(2) as part of the 
revisions. We received approximately 25 comments from organizations and 
individuals regarding these proposals; many of the comments were 
concerned and critical of the proposals, highlighting vagueness and the 
potential for operational instability. For reasons discussed in more 
detail below in section III.B.2 of the preamble, we are not finalizing 
the proposed amendment regarding the scope of medical reviews and we 
are not finalizing at this time the proposal to change the date for 
final risk adjustment data submission. We are finalizing as proposed 
the restructuring of Sec. Sec.  422.310(g)(2) and the 422.310(g)(2)(ii) 
provision to prohibit submission of diagnoses for additional payment 
after the final risk adjustment data submission deadline.

C. Summary of Costs and Benefits

                                     Table 2--Summary of Costs and Benefits
----------------------------------------------------------------------------------------------------------------
      Provision description             Total costs                              Transfers
----------------------------------------------------------------------------------------------------------------
Modifying the agent/broker         N/A..................  N/A
 requirements, specifically agent/
 broker compensation.
Improving Payment Accuracy.......  N/A..................  N/A
Eligibility of Enrollment for      .....................  We estimate that this change could save the MA program
 Incarcerated Individuals.                                 up to $27 million in 2015, increasing to $103 million
                                                           in 2024 (total of $650 million over this period), and
                                                           could save the Part D program (includes the Part D
                                                           portion of MA PD plans) up to $46 million in 2015,
                                                           increasing to $153 million in 2024 (total of $965
                                                           million over this period).
----------------------------------------------------------------------------------------------------------------

II. Background

A. General Overview and Regulatory History

    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, in 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. 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

[[Page 29849]]

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.

B. Issuance of a Notice of Proposed Rulemaking

    In the proposed rule titled ``Contract Year 2015 Policy and 
Technical Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs,'' which appeared in the January 10, 
2014 Federal Register (79 FR 1918), we proposed to 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 included several provisions 
designed to improve payment accuracy.

C. Public Comments Received in Response to the CY 2015 Policy and 
Technical Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs Proposed Rule

    We received approximately 7,600 timely pieces of correspondence 
containing multiple comments on the CY 2014 proposed rule. While we are 
finalizing several of the provisions from the proposed rule, there are 
a number of provisions from the proposed rule (for example, enrollment 
eligibility criteria for individuals not lawfully present in the United 
States) that we intend to address later and a few which we do not 
intend to finalize. We also note that some of the public comments were 
outside of the scope of the proposed rule. These out-of-scope public 
comments are not addressed in this final rule. Summaries of the public 
comments that are within the scope of the proposed rule and our 
responses to those public comments are set forth in the various 
sections of this final rule under the appropriate heading. However, we 
note that in this final rule we are not addressing comments received 
with respect to the provisions of the proposed rule that we are not 
finalizing at this time. Rather, we will address them at a later time, 
in a subsequent rulemaking document, as appropriate.

D. Provisions Not Finalized in This Final Rule

    As noted previously, some of the provisions of the proposed rule 
will be addressed later and, therefore, are not being finalized in this 
rule. Table 3 lists the provisions that were proposed but are not 
addressed at this time. We note that several provisions that were 
proposed are not being finalized in this rule and are effectively being 
withdrawn; those provisions are not listed in Table 3.

             Table 3--Provisions Not Finalized at This Time
------------------------------------------------------------------------
   Proposed rule
      section                               Topic
------------------------------------------------------------------------
          Clarifying Various Program Participation Requirements
------------------------------------------------------------------------
III.A.2...........  Two[dash]year Limitation on Submitting a New Bid in
                     an Area Where an MA has been Required to Terminate
                     a Low[dash]enrollment MA Plan (Sec.
                     422.504(a)(19)).
III.A.6...........  Changes to Audit and Inspection Authority (Sec.
                     422.503(d)(2) and Sec.   423.504(d)(2)).
III.A.9...........  Collections of Premiums and Cost Sharing (Sec.
                     423.294).
III.A.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).
III.A.11..........  Part D Notice of Changes (Sec.   423.128(g)).
III.A.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)).
III.A.14..........  Exceptions to Drug Categories or Classes of Clinical
                     Concern (Sec.   423.120(b)(2)(vi)).
III.A.15..........  Medication Therapy Management Program (MTMP) under
                     Part D (Sec.   423.153(d)(1)(v)(A))--outreach
                     strategies.
III.A.16..........  Business Continuity for MA Organizations and PDP
                     Sponsors (Sec.   422.504(o) and Sec.   423.505(p)).
III.A.21..........  Efficient Dispensing in Long Term Care Facilities
                     and Other Changes (Sec.   423.154).
III.A.23..........  Medicare Coverage Gap Discount Program and Employer
                     Group Waiver Plans (Sec.   423.2325).
III.A.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).
III.A.32..........  Transfer of TrOOP Between PDP Sponsors Due to
                     Enrollment Changes during the Coverage Year (Sec.
                     423.464).
III.A.37..........  Expand Quality Improvement Program Regulations (Sec.
                       422.152).
III.A.38..........  Authorization of Expansion of Automatic or Passive
                     Enrollment Non[dash]Renewing Dual Eligible SNPs
                     (D[dash]SNPs) to another D[dash]SNP to Support
                     Alignment Procedures (Sec.   422.60).
------------------------------------------------------------------------
                       Improving Payment Accuracy
------------------------------------------------------------------------
III.B.2...........  Determination of Payments (Sec.   423.329).
III.B.3...........  Reopening (Sec.   423.346).
III.B.4...........  Payment Appeals (Sec.   423.350).
III.B.5...........  Payment Processes for Part D Sponsors (Sec.
                     423.2320).
III.B.6...........  Risk adjustment data requirements--proposal
                     regarding annual deadline for MAO submission of
                     final risk adjustment data (Sec.
                     422.310(g)(2)(ii)).
------------------------------------------------------------------------
                  Strengthening Beneficiary Protections
------------------------------------------------------------------------
III.C.1...........  Providing High Quality Health Care (Sec.
                     422.504(a)(3) and Sec.   423.505(b)(27)).
III.C.2...........  MA[dash]PD Coordination Requirements for Drugs
                     Covered Under Parts A, B, and D (Sec.   422.112).

[[Page 29850]]

 
III.C.3...........  Good Cause Processes (Sec.   417.460, Sec.   422.74
                     and Sec.   423.44).
III.C.4...........  Definition of Organization Determination (Sec.
                     422.566).
III.C.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).
------------------------------------------------------------------------
 Strengthening Our Ability to Distinguish Stronger Applicants for Part C
 and D Program Participation and to Remove Consistently Poor Performers
------------------------------------------------------------------------
III.D.1...........  Two[dash]Year Prohibition When Organizations
                     Terminate Their Contracts (Sec.  Sec.   422.502,
                     422.503, 422.506, 422.508, and 422.512).
III.D.2...........  Withdrawal of Stand[dash]Alone Prescription Drug
                     Plan Bid Prior to Contract Execution (Sec.
                     423.503).
III.D.3...........  Essential Operations Test Requirement for Part D
                     (Sec.  Sec.   423.503(a) and (c), 423.504(b)(10),
                     423.505(b)(28), and 423.509).
III.D.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).
------------------------------------------------------------------------
                  Implementing Other Technical Changes
------------------------------------------------------------------------
III.E.1...........  Requirements for Urgently Needed Services (Sec.
                     422.113).
III.E.2...........  Skilled Nursing Facility Stays (Sec.  Sec.   422.101
                     and 422.102).
III.E.3...........  Agent and Broker Training and Testing Requirements
                     (Sec.  Sec.   422.2274 and 423.2274).
III.E.4...........  Deemed Approval of Marketing Materials (Sec.
                     422.2266 and Sec.   423.2266).
III.E.5...........  Cross[dash]Reference Change in the Part C Disclosure
                     Requirements (Sec.   422.111).
III.E.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)).
III.E.8...........  Thirty[dash]Six[dash]Month Coordination of Benefits
                     (COB) Limit (Sec.   423.466(b)).
III.E.9...........  Application and Calculation of Daily
                     Cost[dash]Sharing Rates (Sec.   423.153).
III.E.10..........  Technical Change to Align Regulatory Requirements
                     for Delivery of the Standardized Pharmacy Notice
                     (Sec.   423.562).
III.E.12..........  MA Organization Responsibilities in Disasters and
                     Emergencies (Sec.   422.100).
III.E.14..........  Technical Changes to Align Part C and Part D
                     Contract Determination Appeal Provisions (Sec.
                     Sec.   422.641 and 422.644).
III.E.15..........  Technical Changes to Align Parts C and D Appeal
                     Provisions (Sec.  Sec.   422.660 and 423.650).
III.E.17..........  Technical Change to the Restrictions on use of
                     Information under Part D (Sec.   423.322).
------------------------------------------------------------------------

III. Provisions of the Proposed Regulations and Analysis of and 
Responses to Public Comments

A. Clarifying Various Program Participation Requirements

1. Closing Cost Contract Plans to New Enrollment (Sec.  422.503(b)(4))
    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 proposed to 
revise paragraph Sec.  422.503(b)(4)(vi)(G)(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 proposed to add the definition of ``parent organization'' to Sec.  
422.2 of the MA program definitions, specifying that, ``Parent 
organization means a legal entity that owns one or more other 
subsidiary legal entities.'' 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. We requested comments on whether a 
parent organization with less than a 100 percent interest in a 
subsidiary legal entity should trigger the prohibition we proposed with 
the amendment at Sec.  422.503(b)(4).
    During the public notice and comment process, a handful of 
commenters provided their input on our proposal. Some of the 
respondents included multiple comments. The comments and our responses 
follow.
    Comment: A commenter supported the proposal, stating that it would 
prevent possible shifting of sicker enrollees to cost plans and should 
result in Medicare savings.
    Response: We thank the commenter for the support.
    Comment: A commenter stated that there is no evidence of complaints 
about the current situation and thus no change in current policy is 
necessary.
    Response: The intention of our initial rule was to ensure that 
situations not arise in which an entity was able to move an enrollee 
from one of its plans to another plan in the same area based on 
financial or other reasons that may not be in the enrollee's best 
interest. The current regulations limit this possibility to some 
extent, but, without the proposed changes, would leave open the 
possibility that legal entities controlled by a shared parent 
organization could move enrollees from one plan to another, based on 
something other than the enrollee's best interest.
    Comment: A commenter stated that risk-adjusted payments for MA 
plans eliminate any incentive for an entity to move sicker enrollees 
from an MA plan to a cost plan.
    Response: While risk adjusted payments do help to account for costs 
associated with sicker enrollees, it may still be advantageous for an 
organization to move an enrollee from an MA plan to a cost plan. Even 
with risk adjustment, there are other reasons an organization might 
want to move enrollees from one plan to another to include enrollment 
and other interests based on the organization's business model.
    Comment: A commenter stated that, because cost plan cost-sharing 
and premiums must be equal to the actuarial value of Medicare fee-for-
service cost-sharing, cost plan enrollees with high health care needs 
would have high relative costs resulting in higher premiums for the 
cost plan, thus removing any incentive for moving sicker enrollees from 
an entity's MA plan to the cost plan.

[[Page 29851]]

    Response: MA plans also have constraints with respect to cost-
sharing that affect premiums, and out-of-pocket payments by enrollees. 
We believe, as a result, that any difference in cost plan and MA 
premiums or cost-sharing is negligible and does little to remove the 
incentives for organizations to move enrollees from one of their plans 
to another.
    Comment: A couple of commenters requested that, at minimum, the 
provision not be applied to entities that have both a cost plan and 
dual eligible special needs plan (D-SNP). One of the commenters states 
that: (1) cost plans would likely have a premium and cost sharing that 
would make it unattractive for dual eligibles; and (2) the regulation 
could eliminate D-SNPs that ``participate in longstanding dual eligible 
integrated plans,'' and thus the proposal ``could have the effect of 
hurting a major initiative of the Administration.''
    Response: As we have addressed elsewhere in the comments on this 
issue, we do not believe that any premium and cost-sharing differences 
in cost plans and MA plans necessarily reduce the incentives an 
organization may have for moving an individual from one of its plans to 
another. We believe this is also the case for D-SNPs and, that in the 
case of D-SNPs, which are frequently made up of enrollees that are 
sicker and frailer than the general Medicare population, there may be 
even greater incentive to move these enrollees to a cost contract plan.
    Comment: A commenter requested that we not finalize the proposal 
because cost plan enrollees will already be subject to dwindling cost 
plan enrollment options as a result of the cost plan competition 
statute. The commenter stated that if we do finalize the proposal, we 
should grant an exception and not require cost plans affected by the 
cost plan competition requirements to close to new enrollment.
    Response: It isn't clear at this point what kind of overlap there 
might be between cost plans affected by the cost plan competition 
requirements and those cost plans that would have to stop accepting 
enrollment because of sharing a parent organization with an MA plan. 
However, we do not believe that a significant number of cost plans will 
be affected by expanding the requirement to include a shared parent 
organization, as the requirement is largely prospective and designed to 
prevent a situation that we did not originally account for, but which 
we believe could lead to potential harm for enrollees.
    Comment: A commenter stated that ``the test should not only be 
whether entities have the same parent but also whether the two entities 
are affiliated, including if one entity is the parent of the other 
(rather than shares a parent).''
    Response: We agree with the commenter with respect to the specific 
example cited and have included language in the final rule that will 
also trigger a prohibition on new enrollment in a cost plan in 
situations in which a parent organization and its subsidiary have a 
cost contract and MA plan in the same service area. In addition to the 
proposed language that MA organizations ``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,'' we are adding to Sec.  422.503 
(b)(4)(vi)(G)(5)(ii) that MA organizations ``Not accept, as either the 
parent organization owning a controlling interest of or subsidiary of 
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.'' The 
language from the initial proposal along with the additional language 
will now be contained in Sec.  422.503 (b)(4)(vi)(G)(5)(i) and (ii).
    Comment: A few commenters stated that CMS should define a parent 
organization as an entity that ``exercises a controlling interest in 
the applicant.'' Other commenters stated that we should limit the 
definition of ``parent organization'' to the context of this provision 
only as our proposed definition could create inconsistencies in the 
Part C and D polices and guidance or have ``unanticipated implications 
that are difficult to identify at this time.'' One of the commenters, 
who asked us to limit the application of the ``parent organization'' 
definition to this provision only, stated that it would support our 
proposal if we clarified that the parent organization must have a 
``controlling interest'' in the subsidiary legal entities in question.
    Response: In the proposed rule, we specifically solicited comments 
on whether the requirement should be applied to a parent organization 
with less than 100 percent interest in the affected cost contract and 
MA plan. We agree that a controlling interest is a reasonable standard 
that is consistent with our intention to prevent an organization from 
having control over both a cost contract and MA plan in the same 
service area. We also agree that the threshold for determining when the 
prohibition should be applied is best established in the context of 
this provision and thus are not finalizing the definition of ``parent 
organization'' in Sec.  422.2 . Instead, we are including the threshold 
for the prohibition in modifications in Sec.  
422.503(b)(4)(vi)(G)(5)(i) and (ii). These sections will now state that 
any entity seeking to contract as an MA organization--
     Not accept, or share a corporate parent organization 
owning a controlling interest in 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.
     Not accept, as either the parent organization owning a 
controlling interest of, or subsidiary of, 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.
    We are finalizing the provisions of the proposed rule with the 
revisions and additions discussed in this section III.A.1 of this final 
rule.
2. Authority To Impose Intermediate Sanctions and Civil Money Penalties 
(Sec. Sec.  422.752, 423.752, 422.760 and 423.760)
    Sections 1857(a) and 1860D-12(b)(1) of the Act provided the 
Secretary with the authority to enter into contracts with MA 
organizations, and Part D sponsors (respectively). Section 1857(g)(1) 
of the Act provided a list of contract violations and the corresponding 
enforcement responses (intermediate sanctions (sanctions) and/or civil 
money penalties (CMPs)) are listed under section 1857(g)(2) of the Act 
(section 1860D-12(b)(3)(E) applied these provisions to Part D 
contracts).
    We proposed two changes to our existing authority to impose 
sanctions and CMPs based on section 6408 of the Affordable Care Act 
(Pub. L. 111-148). The provisions of section 6408 provided CMS with the 
authority to impose intermediate sanctions or CMPs for violations of 
the Part C and D marketing and enrollment requirements. As well as, 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. Additionally, we proposed to revise the 
language of these provisions to clarify that either CMS or the OIG may 
impose CMPs for the violations listed at Sec. Sec.  422.752(a) and 
423.752(a), except 422.752(a)(5) and 423.752(a)(5).
    Comment: A commenter expressed concern and stated that MA 
organizations and Part D sponsors should be given the opportunity to 
refute marketing or other allegations of

[[Page 29852]]

non-compliance prior to sanctions and/or CMPs being imposed.
    Response: Enforcement actions are only typically taken based on 
substantiated, well documented instances of non-compliance and in the 
case of both a sanction and a CMP, even after they are issued, MA 
organizations and Part D sponsors are given an opportunity to rebut or 
appeal CMS' determination through a formal appeals process.
    Comment: A few commenters requested clarification regarding the new 
sanction authority, specifically the language that would allow CMS 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. The commenters requested that CMS clarify that this would not 
apply to organizations that perform facilitated or auto-enrollment, 
passive enrollment, seamless enrollment or requests from Employer Group 
Waiver Plans (EGWPs).
    Response: In the proposed rule, we proposed to amend the regulation 
text at Sec. Sec.  422.752 and 423.752 by adding (a)(9), and (a)(7), 
respectively, which read: ``. . . 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.'' Section 423.34 specifically refers to enrollment of 
individuals who receive the low income subsidy (LIS) and are therefore 
subject to facilitated or auto-enrollment. Therefore, we believe that 
the proposed regulation text already makes clear that this provision 
would not apply to those organizations that are performing facilitated 
enrollment of LIS beneficiaries. Additionally, passive enrollment and 
use of the seamless enrollment option are initiated or approved by CMS, 
respectively. Therefore, an organization who is contacted by CMS to 
receive passive enrollment would not be considered to have performed 
enrollment without prior consent. As for the seamless enrollment 
option, as these proposals must be submitted to and approved by CMS, as 
long as organizations are following CMS' enrollment guidance in Chapter 
2, Sec.  40.1.4, an organization, again, would not be considered as 
enrolling without prior consent and would, therefore, not be considered 
for a possible sanction. Finally, an organization who is accepting 
group or individual enrollment requests from EGWPs must follow CMS' 
enrollment guidance in Chapter 2, Sec.  40.1.6. As long as CMS 
enrollment guidance is being followed with respect to processing these 
enrollments, CMS would not consider MA and Part D organizations in 
violation of the new requirement.
    Comment: One commenter stated that only one organization, either 
CMS or OIG should have CMP authority and that there should be no 
overlapping authority. They went on to state that if CMS proposed to 
allow overlapping CMP authority that CMS agree that the total amount of 
the CMPs issued not exceed what either CMS or OIG could impose 
separately.
    Response: It is not CMS' intent to create overlapping CMP 
authority, simply to clarify our existing CMP authority. However, to 
the extent CMS or OIG were planning on pursuing a CMP, we have internal 
mechanisms in place to ensure that the other entity within the 
department is not simultaneously pursuing a CMP for the same or similar 
conduct. If we were to determine that OIG was pursuing a CMP for 
similar conduct, we would coordinate with the OIG so that only one CMP 
action would move forward.
    Comment: One commenter requested that CMS not finalize this 
provision because they believe the current division of authority to 
impose CMPs should remain unchanged, with the authority to CMP for 
certain violations remaining with OIG, instead of adding to CMS' 
existing CMP authority, as this approach ensures a natural division of 
power and oversight expected from government agencies.
    Response: CMS has always had the statutory authority to impose CMPs 
for the violations currently designated as belonging solely to the OIG 
in the regulation. However, CMS agrees that there are certain 
violations that should be retained solely by OIG for purposes of 
imposing CMPs, which is why the proposed rule states that the authority 
to impose CMPs for violations listed at Sec. Sec.  422.752(a)(5) and 
423.752(a)(5), involving misrepresentation or falsification of 
information furnished to CMS, an individual, or other entity, will 
continue to reside solely with the OIG.
    Comment: One commenter, in addition to expressing support for our 
proposal, stated that CMS should authorize use of monies collected from 
CMPs to allow states to contract with, or grant funds to entities, 
provided that the funds are used for CMS approved projects to protect 
or improve SNF services for residents.
    Response: We thank the commenter for their support and we will 
explore in the future if such arrangements are allowed within our 
current statutory authority.
    Comment: We received several comments that supported the new 
proposed sanction authority for marketing and enrollment violations.
    Response: We thank the commenters for their support.
    After careful consideration of all of the comments we received, we 
are finalizing these proposals without modification.
3. Contract Termination Notification Requirements and Contract 
Termination Basis (Sec. Sec.  422.510 and 423.509)
    Sections 1857(c) and 1860D-12(b)(3)(B) of the Act provided us with 
the authority to terminate a Part C or D sponsoring organization's 
contract. Sections 1857(h)(1)(B) and 1860D-12(b)(3)(F) of the Act 
provided us with the procedures necessary to facilitate the termination 
of those contracts. We proposed three revisions to our existing 
regulations that relate to contract termination.
    First, we proposed to clarify the scope of our authority to 
terminate Part C and D contracts under Sec. Sec.  422.510(a) and 
423.509(a) by modifying the language at Sec. Sec.  422.510(a) and 
423.509(a) to separate the statutory bases for termination from our 
examples of specific violations which meet the standard for termination 
established by the statute. We proposed to effectuate this change by 
renumbering the list of bases contained in Sec. Sec.  422.510(a) and 
423.509(a).
    Second, we proposed revisions to our contract termination 
notification procedures contained at Sec. Sec.  422.510(b)(1) and 
423.509(b)(1). Current regulations state that if CMS decides to 
terminate a Part C or Part D sponsoring organization's contract, we 
must notify the organization in writing 90 days before the intended 
date of termination. We proposed to shorten the notification timeframe 
from 90 days to 45 days. Additionally, in an effort to respond to 
changes in the media and information technology landscape, we proposed 
a slight modification to the termination notification provision for the 
general public at Sec. Sec.  422.510(b)(1)(iii) and 423.509(b)(1)(iii) 
which includes the contracting organizations 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 
instead of publishing the notice in applicable newspapers.
    Finally, we proposed minor revisions to the wording of our 
regulations at Sec. Sec.  422.510 and 423.509 to reflect the 
authorizing language contained in sections 1857(c)(2) and 1860D-12 of 
the Act. Specifically, we proposed to replace the word ``fails'' with 
``failed'' so that it reads consistently throughout Sec. Sec.  422.510 
and 423.509.

[[Page 29853]]

    Comment: Several commenters opposed our proposal to shorten the 
notification period for contract termination from 90 days to 45 days. 
Commenters made several arguments supporting their opposition to the 
shortened notification timeframe, but most stated that it is not enough 
time to ensure members' needs are adequately addressed, specifically 
noting the difficulty in effectively communicating the change with 
their members and ensuring their members were effectively transitioned 
to a new plan. Other commenters stated that the timeframe was too short 
to provide adequate notice to affected providers and vendors. Yet 
another commenter stated that the shortened timeframe did not allow 
enough time for a plan to appeal the termination. A final commenter 
noted that the shortened timeframe would increase costs to the 
contracting organization if the termination period is reduced.
    Response: After carefully considering the commenters' concerns, we 
respectfully disagree that these concerns outweigh the need to protect 
beneficiaries and have them moved from a plan that is in such 
substantial non-compliance with our regulations that CMS would proceed 
with termination. Plans that receive a notice of termination from CMS 
are instructed that they must provide notice to their affected 
beneficiaries at least 30 days prior to the effective date of the 
termination. If CMS provides their notice of termination to contracting 
organizations 45 days before the effective date of the termination, 
this affords plans 15 days to issue their notice to enrollees while 
still complying with the existing 30-day beneficiary notification 
requirements. While we do request that terminated plans work with the 
receiving plan to transition enrollee data and records, it is not 
expected that these tasks would be completed by the effective date of 
the termination, but would instead begin upon transfer of the enrollees 
once the termination was actually effective.
    As for adequate notification to affected vendors and providers, it 
is the responsibility of the contracting organization to design their 
contracts with their providers and vendors in a manner that recognizes 
possible contract actions, such as termination, that could be taken by 
CMS. For example, all plans that have a contract with CMS could 
ultimately be subject to immediate termination if they are found in 
such substantial non-compliance by CMS that it poses an imminent and 
serious risk to Medicare enrollees. Therefore, most, if not all plans, 
likely have clauses in their provider and vendor contracts that allow 
them to terminate these contracts expeditiously with the affected 
entities in the event of a contract termination by CMS.
    We also do not agree that the shortened timeframe in any way 
affects a contracting organization's ability to appeal. Contracting 
organizations who are subject to a contract termination in Sec. Sec.  
422.510(b) or 423.509(b) must file their request for a hearing within 
15 days from the date of receipt of the notice of termination. A timely 
filed request for hearing effectively stays the termination proceeding 
until a hearing decision is reached. Consequently, shortening the 
notice of termination from 90 to 45 days should have no impact on a 
contracting organization's ability to file an appeal of the contract 
termination.
    Finally, we do not agree that the shortened notice timeframe to 
effectuate a termination would result in increased costs to an 
organization. We already have the ability to prorate its payment to an 
organization for terminations that are effective in the middle of a 
month; consequently we do not agree that shortening the notification 
timeframe would in any way change the CMS's current approach to payment 
or recoupment of capitated payments in these circumstances.
    Comment: One commenter suggested that CMS should have different 
notification timeframes for termination. They recommended that 90 day 
notice be provided to all post-acute care (PAC) providers as well as to 
beneficiaries in PAC. They stated that 45 days for notice may be 
sufficient for non-post-acute care beneficiaries, but not for people in 
a short stay setting. They also suggested that MA plans that are 
serving full dual eligible beneficiaries should be required to provide 
180 day notice to individuals and providers.
    Response: CMS' proposal to shorten the notification of termination 
from 90 days to 45 days affects the amount of notice that CMS must give 
to an MA or Part D organization prior to moving forward with a 
termination action. The timeframe in which that organization must then 
notify their beneficiaries, which is currently 30 days, is not being 
changed in this proposal. While we appreciate the commenter's 
suggestion, we believe that it would be incredibly burdensome to 
organizations and confusing to our beneficiaries to implement such a 
striated notification process for our beneficiaries during a 
termination. Additionally, if we were to adopt the commenter's 
suggestion of a 90 day notice period for beneficiaries in a PAC setting 
or 180 day notice for dual eligible beneficiaries, this would require 
that we give organizations even more advance notice of our intent to 
terminate than we do currently, which is contrary to the ultimate goal 
of our proposal, which is to remove beneficiaries as quickly as 
possible from a plan with such significant noncompliance issues that 
CMS is pursuing termination. Consequently, we plan to proceed with our 
proposed change.
    Comment: Several commenters supported CMS' proposed revisions to 
the contract termination authority (Sec. Sec.  422.510 and 423.509) and 
stated that these measures will help enforce consumer protections and 
enhance plan accountability.
    Response: We thank the commenters for their support.
    After consideration of the public comment(s) received, we are 
finalizing these proposals without modification. We note that the 
amendatory instruction to the regulation text in this final rule more 
precisely describes the redesignation of subparagraph (a)(4) of Sec.  
423.509 than that found in the proposed rule.
4. Reducing the Burden of the Compliance Program Training Requirements 
(Sec. Sec.  422.503(b)(4)(vi)(C) and 423.504(b)(4)(vi)(C))
    Section 1857(a) and section 1860D-12(b)(1) of the Act provided the 
Secretary with the authority to enter into contracts with MA 
organizations and Part D sponsors (respectively). 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. We first established that all Part C and 
Part D contracting organizations have the necessary administrative and 
management arrangements to have an effective compliance program, as 
reflected in Sec. Sec.  422.503(b)(4)(vi) and 423.504(b)(4)(vi). We 
later 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). We were concerned that these FDRs would 
potentially have to participate in

[[Page 29854]]

(largely duplicative) training for each organization with whom they 
contract. We requested public comments on how best to ensure that the 
training requirement continued 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 19688).
    Consequently, we proposed in this rule to require that all 
contracting organizations accept a certificate of completion of the CMS 
developed training as satisfaction of this general compliance program 
training requirement. We proposed to modify the regulation text by 
adding a new Sec. Sec.  422.503(b)(vi)(C)(3) and 423.504(b)(vi)(C)(4) 
to permit only this CMS training for satisfaction of the requirement to 
train first-tier, downstream and related entities.
    Comment: One commenter questioned if there would be a fee 
associated with the CMS mandated training.
    Response: There is no fee to take the CMS Standardized General 
Compliance Program Training; it is provided free of charge.
    Comment: Multiple commenters stated that Part C and Part D 
contracting organizations should have the option of using the CMS 
Standardized General Compliance Program Training and Education Module. 
The commenters wrote that there should be flexibility in meeting the 
proposed training requirement, and that CMS should consider allowing 
plan sponsors to utilize their own training or the training developed 
by established training companies to meet the requirement.
    Response: The CMS Standardized General Compliance Program Training 
and Education Module was created to reduce the burden on sponsors and 
FDRs. If we continue to allow sponsors to modify or utilize their own 
training in lieu of using the CMS Compliance training, it will no 
longer ensure the elimination of the prior duplication of effort that 
so many FDRs stated was creating a huge burden on their operation. This 
is why CMS proposed that only our training can be used, as it is the 
only means to ensure that duplication of effort is avoided for FDRs who 
hold contracts with multiple Part C and Part D contracting 
organizations.
    Comment: One commenter raised concerns over the significant amount 
of time required to complete the current CMS Compliance training and 
stated that it may take time away from other areas of training the 
organization has deemed necessary through their own internal risk 
assessments. They suggested CMS consider modifying the requirement to 
allow the longer training initially and developing a shorter 
``refresher'' version that could be taken annually thereafter.
    Response: We will not modify the existing CMS Standardized General 
Compliance Program Training at this time. However, we recognize the 
commenter's concern and will take under consideration the development 
of a refresher training module for future use.
    Comment: A few commenters recommended that CMS establish a single 
centralized electronic location where FDRs could obtain this training, 
and that the centralized location would also serve as a repository to 
hold attestations of training completion accessible to Part C and Part 
D contracting organizations for compliance oversight purposes. 
Commenters suggested it be searchable or that CMS provide updates, one 
suggesting daily reports be pushed to each MA organization and Part D 
sponsor so that they could track compliance with the training 
requirement. One other commenter suggested that the training be 
provided in a Sharable Content Object Reference Model (SCORM) format 
for downloading into various organizations' systems.
    Response: The training is in a centralized location on the Medicare 
Learning Network. All who take the training will be able to print out a 
certificate of completion to prove they have completed the training. It 
is the responsibility of Part C and Part D contracting organizations to 
determine how to best retrieve and catalog this information from their 
FDRs. CMS is unable, at this time, to provide the capacity for a 
publicly searchable database of users who have completed that training 
or a system that would allow reports to be sent to the various 
contracting organizations regarding the training status of various FDR 
organizations. We will consider and determine if our training module 
could be available for download into the format suggested by 
commenters, but we would need to ensure that the content could not be 
modified to ensure the integrity and completeness of the training 
module.
    Comment: One commenter suggested CMS leverage the existing 
Compliance Training, Education & Outreach (CTEO) site to support this 
initiative and to interactively execute the training and collect and 
track the required attestations.
    Response: When we developed the Standardized General Compliance 
Program Training, the CTEO Web site was not yet in existence. We will 
take the commenter's suggestion under consideration and further explore 
that Web site's capability to determine if it actually exceeds the 
current capability of the Medicare Learning Network, where the training 
is currently housed.
    Comment: A few commenters recommended maintaining the current 
policy of allowing flexibility in how the training requirement is met. 
These commenters stated the current training requirements meet their 
needs because it allows options and reduces the burden on various 
sectors of the industry. They stated that various organizations had 
already invested resources to become compliant and to develop efficient 
means of both delivering and tracking the training. The flexibility in 
the current regulations allows plan sponsors to work in concert with 
FDRs to develop effective training for those specific entities and 
their existing learning models.
    Response: We recognize that the current compliance program training 
requirement does meet the needs of some contracting organizations. 
However, based on public feedback received previously, as well as in 
response to this proposed change, we continue to believe that the 
proposed approach is most efficient and effective for the majority of 
FDRs and contracting organizations.
    Comment: Many commenters requested clarification regarding who is 
required to take the training: Providers, brokers, FDRs, and/or 
internal employees.
    Response: The compliance and fraud, waste, and abuse (FWA) training 
and education requirement applies to all delegated entities (which may 
include agents/brokers) whom the Part C or Part D contracting 
organization qualifies as an FDR using the definition at 42 CFR 
Sec. Sec.  422.500(b) and 423.500. Whether a Part C or Part D 
contracting organization identifies a certain entity or individual 
provider as an FDR depends on the contractual relationship and/or 
written agreement between the entity/individual and the contracting 
organization. The compliance and FWA training is not intended to be 
mandatory for the employees of those contracting organizations.
    Comment: Several commenters wanted to know if this training would 
satisfy the FWA and Compliance training requirements.
    Response: There is both a FWA and a Compliance training module 
available on the Medicare Learning Network,

[[Page 29855]]

FDRs must take both modules in order to satisfy the entire training 
requirement.
    Comment: A few comments requested clarification regarding who was 
deemed for purposes of the FWA training requirement (for example, is it 
just the provider participating in Medicare FFS or also all of the 
employees that work in his office, similarly with a hospital 
participating in Medicare, does it extend to their employees). 
Commenters also requested if CMS was exploring deeming status for 
providers in the Part D program.
    Response: This question is outside of the scope of this regulation. 
We did not propose any changes to the FWA training module or the 
associated deeming requirements. Therefore, we are unable to address 
your question at this time.
    Comment: Several commenters had questions regarding the one-pager 
that contracting organizations can provide with organization specific 
information, and requested whether this meets the requirements for 
distributing their codes of conduct (COC) or standards of conduct (SOC) 
located in Chapter 9 of Pub. 100-18, Medicare Prescription Drug Manual, 
and Chapter 21 of Pub. 100-16 of the Medicare Advantage Manual. Some 
commenters inquired if this new proposal could be construed to forbid 
them from distributing their COC/SOC to their FDRs.
    Response: We intend that the standardized FWA and Compliance 
Training modules will cover the basic training requirements. We 
recognize that each contracting organization has specific information 
that must be shared with their FDRs regarding the organization's 
specific operations. The one-pager was suggested for organizations to 
communicate unique information that is usually shared in FWA/Compliance 
such as relevant organization contact information (for example, Web 
site address, hotline/ethics phone numbers) the Compliance Officer's 
contact information, the Compliance Department staff, and possibly even 
online access to the COC/SOC or disciplinary policies. Our experience 
has shown that many contracting organizations issue their COC/SOC 
electronically (internally and externally) and/or create Web sites 
designated for their FDRs to locate the information mentioned 
previously. Contracting organizations must continue to distribute their 
COC/SOC to all of their employees, FDRs, board members, etc. Nothing is 
this regulation should be interpreted to preclude organizations from 
satisfying the seven elements of the compliance program requirements.
    Comment: The commenters suggested that feedback should be solicited 
from the plans to assist with improving the content of the training, 
specifically including more examples that are relevant to FDRs, as 
commenters mentioned the modules examples are often organization-
centric.
    Response: We always welcome feedback from contracting organizations 
and FDRs with respect to improving our training products. 
Organizations, entities or individuals who have suggestions should 
submit them to the following mailbox: Parts--C--and [email protected].
    Comment: Some commenters stated that CMS should consider how it can 
implement this proposal in a way that reduces administrative burdens on 
contracting organizations and FDRs, as new processes to collect and 
track attestations may be difficult and time consuming. Many suggested 
that a January 1, 2015 effective date was an insufficient amount of 
time to set up such elaborate processes and recommended that these 
provisions be effective no earlier than January 1, 2016.
    Response: CMS recognizes the administrative burden imposed on the 
contracting organizations and their FDRs. The primary goal of this 
proposal is to reduce that administrative burden by instituting a 
uniform compliance training module and we believe that contracting 
organizations are in the best position to determine the most effective 
way to collect and track compliance amongst their FDRs. However, we 
recognize that setting up these new processes may take time, along with 
potentially updating contracts to reflect the new requirements. 
Therefore, we will delay the implementation of this provision to 
January 1, 2016.
    Comment: The largest number of commenters represented FDRs that 
wrote in support of the proposed compliance training program 
requirements and use of the CMS Standardized General Compliance Program 
Training, agreeing that it would greatly reduce burden on FDRs.
    Response: We thank the commenters for their support.
    After careful consideration of all of the comments received, we are 
finalizing this proposal with the one modification discussed 
previously, with a delayed applicability date of January 1, 2016.
5. Procedures for Imposing Intermediate Sanctions and Civil Money 
Penalties Under Parts C and D (Sec. Sec.  422.756 and 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.
    We proposed to expand the potential applicability of the test 
period requirement to three types of intermediate sanctions by 
modifying the existing rules 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. Second, we proposed to clarify the enrollment parameters for 
sanctioned sponsoring organizations offering Part D plans to include 
language specifying that a sanctioned plan is not available to receive 
automatically assigned beneficiaries for the entire duration or a 
portion of the testing period. We proposed to modify the regulation 
text at Sec. Sec.  422.756 and 423.756 to reflect these changes.
    Comment: One commenter questioned clarification on what CMS 
considers a contract violation of marketing requirements and requested 
if violations would be based solely on allegations of misconduct.
    Response: Marketing standards for MA organizations and Part D 
sponsors are codified in subpart V of parts 422 and 423. The current 
Medicare Marketing guidelines are located in Chapter 3 of Pub. 100-16, 
Medicare Managed Care Manual, and Chapter 3 of Pub.100-18, The Medicare 
Prescription Drug Manual, which should provide sponsors with guidance 
regarding current marketing requirements. With respect to contract 
violations being based on unsubstantiated allegations of wrong-doing, 
enforcement actions are only taken based on substantiated, well 
documented instances of non-compliance. Additionally, MA organizations 
and Part D sponsors that are sanctioned are given an opportunity to 
rebut or appeal our determination through a formal appeals process.
    Comment: One commenter suggested the prohibition on auto-enrollment 
into plans under a test period should also apply to passive enrollment. 
Specifically, the commenter stated that

[[Page 29856]]

Medicare-Medicaid eligible individuals should not be passively enrolled 
into an MA or an MA Special Needs Plan (SNP) that is under sanction or 
under sanction and in a test period as part of a demonstration or a 
state developed integrated plan product.
    Response: Plans that are under a sanction are not eligible to 
receive enrollments. However, we have the discretion to require a 
sanctioned plan to market or accept enrollments for a limited period to 
assist in making a determination as to whether the bases for imposing 
the sanction have been fully corrected and are not likely to recur. As 
stated previously, sanctioned sponsoring organizations offering a Part 
D benefit would not be eligible to receive automatically assigned 
beneficiaries during the test period. During a ``test period'' the 
sanction(s) remain in effect.
    Comment: One commenter requested that we extend the proposal to 
also not allow passive enrollment into plans that are coming off of 
sanction or are currently in a test period until we have determined 
they are ready.
    Response: CMS has determined that it is legally permissible to 
provide for enrollment in an MA or Part D plan under a passive 
enrollment request process in specific, limited circumstances generally 
associated with either immediate plan terminations or in other 
situation where CMS determines that remaining enrolled in the plan 
would pose potential harm to members. We determine when passive 
enrollment is appropriate. In evaluating whether such CMS-directed 
enrollee movements are appropriate, a key factor is the determination 
as to whether the receiving plan is essentially equivalent to (or 
better than) the current plan from an overall perspective.
    Therefore, in situations where passive enrollment is determined 
permissible, like an immediate plan termination, CMS would factor in a 
number of criteria, including the receiving plan's current premium, 
benefit and formulary structure, as well as plan past performance. In 
any event, our goal would be to ensure that those affected members 
suffered as little disruption as possible during their transition. 
Plans that were under sanction at the time of a passive enrollment 
would not be considered a viable option for affected enrollees and it 
is unlikely that sponsors under a test period would either. However, if 
a sponsor who was removed from sanction and was under a test period met 
several other criteria for receiving passive enrollment (that is, 
plan's benefit and formulary structure was largely the same and their 
premium was not significantly higher), we may consider them among the 
group of available plans to receive passive enrollment.
    Comment: A few commenters requested clarification regarding the new 
sanction authority, specifically the language that would allow CMS 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. The commenters asked that CMS clarify that this would not 
apply to organizations that perform facilitated or auto-enrollment, 
passive enrollment, seamless enrollment or group or individual 
enrollment requests from EGWPs.
    Response: In the proposed rule, we proposed to amend the regulation 
text at Sec. Sec.  422.752 and 423.752 by adding subparagraph (a)(9), 
which reads: ``. . .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.'' 
Section 423.34 specifically refers to enrollment of individuals who 
receive the low income subsidy (LIS) and are therefore subject to 
facilitated or auto-enrollment. Therefore, we believe that the proposed 
regulation text already makes clear that this provision would not apply 
to those organizations that are performing facilitated enrollment of 
LIS beneficiaries. Additionally, passive enrollment and use of the 
seamless enrollment option are initiated or approved by CMS, 
respectively. Therefore, an organization who is contacted by CMS to 
receive passive enrollment would not be considered to have performed 
enrollment without prior consent. As for the seamless enrollment 
option, as these proposals must be submitted to and approved by CMS, as 
long as organizations are following CMS' enrollment guidance in Chapter 
2, Sec.  40.1.4, and have received CMS' approval, an organization again 
would not be considered as enrolling without prior consent and would 
therefore not be considered for a possible sanction. Finally an 
organization who is accepting enrollment requests for an employer or 
union sponsored plan using the group enrollment mechanism must follow 
CMS' enrollment guidance in Chapter 2, Sec.  40.1.6.1. As long as CMS 
enrollment guidance is being followed with respect to processing these 
enrollments, CMS would not consider MA and Part D organizations in 
violation of the new requirement. However, we expect that requests for 
enrollment into an employer or union sponsored plan outside of the 
group enrollment process (that is, beneficiary initiated enrollment 
requests) follow all requirements, including prior consent, applicable 
to any other individual enrollment request.
    Comment: Several commenters expressed support for our proposal to 
expand the use of the ``test period'' requirement to all intermediate 
sanctions, and support the proposal that previously sanctioned below-
the-benchmark Part D plans not be allowed to receive or process auto-
enrollments or reassignments until they are determined to be ready by 
CMS.
    Response: We thank the commenters for their support.
    After careful consideration of the comments received, we are 
finalizing these proposals without modification. We inadvertently 
failed to include proposed regulation text for Sec.  423.756 that 
corresponds to this proposal. In this final rule, we finalize 
amendments to Sec. Sec.  422.756 and 423.756 that are virtually 
identical to implement this proposal.
6. 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. 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

[[Page 29857]]

this time frame is disrupted, beneficiaries may experience gaps in 
therapy.
    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 proposed 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.
    Therefore, we proposed 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 would 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 believed 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 solicited 
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 received the 
following comments and our response follows:
    Comment: A few commenters questioned why we proposed turnaround 
times of 3 and 5 days if we list in preamble that standard turnaround 
times are 7 to 10 days for delivery.
    Response: The preamble discussion surrounding delivery of 
prescriptions within 7 to 10 days is from the perspective of the 
beneficiary; listing the total time from when a medication is ordered 
to the time it is delivered. Importantly, this includes shipping time. 
The proposed fulfillment standards were specific to mail order pharmacy 
processing times and did not include actual time in shipping. In other 
words, the 3 to 5-day turnaround time only refers to the timeframe from 
when the pharmacy receives the order until the pharmacy ships the 
order.
    Comment: Many commenters expressed concerns that 5 business days is 
too short of a time frame to require mail order pharmacies to resolve 
some issues when they arise (such as manufacturer drug shortages), many 
of which are outside the control of the pharmacy. Many commenters noted 
unique timeline concerns specific to specialty medications, such as 
cold chain shipping and needing to contact the beneficiary to 
coordinate delivery. Multiple commenters suggested that additional 
leeway is also needed to accommodate issues such as natural disasters. 
Multiple commenters suggested that mail order pharmacies should contact 
beneficiaries as a good customer service practice when any delay in 
filling will prevent an order from shipping within 5 days. Many 
commenters noted that they currently would be able to meet a 3-day 
turnaround standard for filling orders not requiring follow up contact 
with the beneficiary or prescriber.
    Response: We recognize that some interventions may require more 
than 5 business days to resolve. In those cases, we agree with the 
suggestion from multiple commenters that mail order pharmacies should 
contact beneficiaries as a good customer service practice when any 
delay in filling will prevent an order from shipping within 5 days. 
However, in light of the comments received regarding a variety of 
situations that we had not considered, including some outside of the 
pharmacy's control that could create delays longer than 5 days, we are 
not finalizing the proposal to establish fulfillment standards for mail 
order. Instead, we will continue analysis on mail order fulfillment 
time frames, including evaluating the impact of the implementation of 
the auto-ship beneficiary consent policy finalized in the 2014 Call 
Letter. In addition, Part D sponsors are expected to follow best 
practices by making clear their expected delivery turnaround times in 
their beneficiary materials, consistently meeting such delivery time 
frames, and having contingency plans for when they cannot, such as 
allowing retail access at mail order cost sharing levels if necessary. 
The volume of complaints that we receive related to mail order delivery 
suggests that beneficiary expectations are not consistently being met. 
We will increase our monitoring of mail order pharmacies, and will 
consider the need to establish standards and requirements in the 
future. Based on the comments submitted, additional consideration may 
be necessary surrounding specialty medications and their delivery, 
especially when there are cold chain or other shipping considerations. 
We reviewed the information provided on how specialty pharmacy differs 
from other mail order deliveries, and agree that additional 
consideration should be given to these pharmacies and medications in 
any future guidance. Additionally, we will clarify existing guidance 
about exception processes and coverage denials to ensure that mail 
order pharmacies provide beneficiaries notice of non-fulfillment of a 
prescription as expeditiously as possible. Current guidance on disaster 
responses and drug shortages still apply, and we encourage sponsors to 
communicate with their enrollees when unique situations like these 
arise.
    Comment: A few commenters suggested that mail order turnaround 
times are best left to state Boards of Pharmacy to monitor, instead of 
being set in regulation.

[[Page 29858]]

    Response: We proposed specifying parameters for timely mail order 
fulfillment, consistent with the authority given to the Secretary to 
specify additional contract terms not inconsistent with the Part D 
statute. However, we had not considered the potential conflict or 
duplication with state-based requirements and appreciate the comments. 
We will take this under consideration as we consider establishing 
requirements for Part D sponsors offering a mail order benefit in the 
future.
    Comment: Some commenters wrote that turnaround times would be 
better defined in guidance or incorporated in star ratings or other 
quality metrics.
    Response: We appreciate the suggestion. As we will not be 
finalizing the proposed fulfillment standards in this final rule, we 
are exploring alternatives for ensuring consistent and predictable 
access to medications for beneficiaries in a plan offering a mail order 
benefit. As part of this effort, we are currently developing a study of 
how mail order benefits are used within the Part D benefit. The 
comments received on the proposed rule and the results of this study 
will be considered when determining whether fulfilment standards should 
be included in future star ratings measures, as well as used to inform 
the need for future guidance or rulemaking. Additionally, we will 
increase our monitoring and analysis of mail order-related complaints 
in the CTM and explore setting a threshold for the volume or severity 
of complaints triggering a review by CMS. We remain very concerned by 
the high level of complaints received relating to mail order, and take 
seriously the issues raised by beneficiaries. We are also exploring how 
fulfillment of plan-designated turnaround times listed in marketing or 
other beneficiary materials could be included within the audit 
framework.
    Comment: One commenter wrote in with concerns that the methodology 
used in two CMS studies cited in another provision were problematic and 
stated that no regulation proposals relating to mail order should be 
finalized until corrected and reexamined.
    Response: The studies noted by the commenter were not used when 
designing the proposal specific to timely delivery of mail order 
prescriptions.
    Comment: Some commenters suggested that the policy announced in the 
CMS 2014 Call Letter that pharmacies obtain beneficiary consent prior 
to shipping any medications that the beneficiary did not affirmatively 
order directly affects the timeline for order fulfilment and any 
defined turnaround times for delivery should be adjusted accordingly.
    Response: We recognize that the CMS 2014 Call Letter auto-ship 
policy necessitates an increased level of coordination with the 
beneficiary for some pharmacies, when filling prescriptions that the 
beneficiary did not directly request (such as new orders submitted 
directly by the provider or refills prompted by an automatic delivery 
program). We will not be finalizing the proposed fulfillment standards 
in this final rule, but encourage all plan sponsors to consider the 
need for coordination with the beneficiary when establishing and 
marketing average turnaround time estimates for their members.
    Comment: A few commenters suggested that beneficiaries should be 
allowed to fill their medications at the retail pharmacy of their 
choice, at the same cost sharing level as mail order, if a mail order 
pharmacy encounters any delays, or delays extending beyond 5 days.
    Response: While this was not a part of our proposal, and we will 
not be finalizing any new requirements at this time, we do agree with 
commenters that this would be an important beneficiary protection. We 
believe that best practices for addressing a lost or delayed order 
would include plan sponsors providing clear and timely guidance to the 
beneficiary in the event of a lost or delayed order, including a list 
of options for obtaining a medication. Part D sponsors should have 
contingencies in place when issues are encountered that lead to a delay 
and potentially a gap in therapy. This could include offering 
beneficiaries the ability to fill a delayed mail order prescription at 
a retail pharmacy and pay no more than what they would have been 
charged by a mail order pharmacy. The need to prevent gaps in therapy 
for beneficiaries relying on mail order pharmacies remains a 
significant concern to us.
    In summary, we are not finalizing any fulfillment standards for 
mail order prescriptions, in light of the concerns raised. We will use 
the information gained from our mail order study and from the public 
comments submitted to explore the need for additional guidance or 
rulemaking in the future. The need to ensure consistent access to and 
prevent gaps in therapy for enrollees relying on mail order for their 
medications continues to be a significant concern.
    We additionally solicited 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 received the 
following comments and our response follows:
    Comment: Many commenters stated that additional requirements for 
beneficiary materials would enhance mail order services and that this 
would be a positive change for beneficiaries. These commenters noted 
that clear definitions of requirements are needed to resolve issues, 
ensure consistent access, and ensure no gaps in therapy.
    Response: We appreciate the comments. We intend to conduct a study 
of mail order benefits offered by Part D sponsors and will use this, 
and the information received from public comments, to inform changes to 
beneficiary materials relating to mail order. At a minimum, we expect 
sponsors offering mail order services to follow best practices by 
clearly listing estimated delivery times in their marketing and 
beneficiary materials. In the event of a failure to meet plan-
designated timeframes for delivery, as a best practice sponsors should 
be prepared to take the steps necessary to provide their enrollee the 
medication in a timely manner in order to avoid gaps in therapy. This 
could include offering enrollees the option to obtain delayed 
medications at a retail pharmacy at the same cost sharing level as mail 
order.
    We also welcomed 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 uninterrupted 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

[[Page 29859]]

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. We received the following comments and our response 
follows:
    Comment: A few commenters agreed that mail order is not an 
appropriate venue for filling 30 day supplies of medications.
    Response: We appreciate the comments and will explore how often 
mail order is used for short days' supplies of medications as a part of 
the current study on mail order benefits.
    Comment: Some commenters noted that specialty pharmacies often 
dispense medications by mail order in an amount lasting 1 month or 
less.
    Response: We agree with the comments that noted some specialty 
medications may be best supplied, when supplied by mail order, in 
quantities less than a 3 month supply, due to frequent dose titrations, 
financial concerns, or applicable controlled substance laws.
    We did not propose any specific regulatory requirements to mail 
order for 30-day supplies or less. We are currently analyzing the types 
of prescriptions filled by mail order pharmacies and will use the 
information gained from this to explore the need for future guidance or 
rulemaking that could help ensure consistent timely access for Part D 
beneficiaries opting to use mail order for both short and extended 
days' supplies.
7. Agent/Broker Compensation Requirements (Sec. Sec.  422.2274 and 
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 
554226), which, among other things, established the current 
compensation structure for agents and brokers as it applies to Parts C 
and D. That rule remains significantly in place at Sec. Sec.  422.2274 
and 423.2274, and our experience since then indicates that revision of 
the compensation requirements is necessary 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 (CY) 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 (FMV). (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 first 6-year cycle ended at the end of CY 2013, on December 31, 
2013. The first year, CY 2009, was considered to be the first renewal 
year for those already enrolled, effectively making CY 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 final 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. In our NPRM, 
dated January 10, 2014, we provided a detailed example of the 
complexities of the current compensation structure. Summarizing the 
current complexities, every MA organization or Part D sponsor 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 for the 
current contract year. For new members, 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.
    In addition to its complexity, we remain 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. In our NPRM, we 
discussed and expanded upon our example of how the current system 
results in different payments when a beneficiary moves from one like 
plan to another like plan in different organizations. 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, an incentive exists for the agent to move 
beneficiaries from one parent organization to another. (See Sec. Sec.  
422.2274(a)(3) and 423.2274(a)(3)).
    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 required levels of compensation or the timing of compensation, 
there could be an uneven playing field for MA organizations and Part D 
sponsors

[[Page 29860]]

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 proposed simpler agent/broker compensation 
regulations to 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 proposed 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 renewal year payment changes 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 is currently 
the case, 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.
    When we proposed the 35 percent renewal rate, we also discussed 
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 extend past year 7. 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 beneficiary ages for an initial enrollment, as well as life 
expectancy. In the analysis, a 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.
    In our NPRM, we stated that we believed 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 was appropriate 
based on several factors. First, we stated that a two-tiered (initial 
and renewal) payment system would be significantly less complicated 
than a three-tiered system (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 was 
based on the existing commission structure basing renewal commissions 
on the starting year initial commission amount and not the current year 
FMV amount.
    In order to implement the changes in the identical Part C and Part 
D regulations at Sec. Sec.  422.2274 and 423.2274, our NPRM first 
proposed to revise the introductory language for each section and then 
define ``compensation'' in paragraph (a)(1) and to restate the fair 
market value limit on compensation for the initial year as paragraph 
(b)(1)(i). Second, we proposed 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 proposed 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 proposed 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 proposed 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 to 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 proposed 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 who perform services 
similar to agents and brokers.
    We welcomed comments on both the amount of the renewal payment, as 
well as the proposed indefinite time frame, which are discussed in 
depth as follows. In summary, we received a number of comments 
supporting our efforts to simplify agent/broker compensation 
calculation. These comments were primarily from plans and industry 
trade groups. We will be finalizing the rule to implement a two-tiered 
(initial and renewal) payment system using the FMV in the current year 
for renewal calculations.
    We received numerous comments from agents, brokers, plans and trade 
associations overwhelmingly opposing the 35 percent renewal rate. Based 
on the comments received, we will finalize the amendment to the 
regulations with a cap of 50 percent of the current FMV for renewals.
    In response to the comments received, we also determined that some 
clarifications were necessary. For renewals, the payment is based on 
the current FMV and not the initial enrollment year FMV. For example, 
assume a beneficiary enrolls in an MA plan in CY 2013. The plan pays 
the initial FMV for CY 2013, which is $413. In CY 2015, assume the FMV 
is $420. The plan chooses to pay 50 percent of the FMV for renewals. 
The maximum renewal payment for this member for CY 2015 would be $210 
($420 * .50) instead of $207 ($413 * .50). For all enrollments, MA 
organizations and Part D Sponsors should calculate the renewal rate 
based on the FMV of the enrollment year. We are also clarifying that 
our proposed and final regulations do not require an indefinite payment 
of 50 percent of the FMV. The final rule would permit up to 50 percent 
of the current FMV to be paid by an MA organization or Part D sponsor. 
CMS currently requires that plans inform CMS as to whether they are 
using independent agents. Contracts between MA organizations and Part D 
Sponsors, on one hand, and their independent agents and/or downstream 
entities on the other hand, such as Field Marketing Organizations, are 
not exhaustively regulated by CMS. Therefore, MA organizations and Part 
D sponsors may decide the duration of their contract with agents, 
number of applicable renewals, and the actual rate for renewals for 
each year, subject to the limits in this final rule.
    Current regulations at Sec. Sec.  422.2274(a)(4) and 
423.2274(a)(4),

[[Page 29861]]

which we proposed to redesignate as part of paragraph (b), address the 
timing of plan payments, as well as recoupment of payments when a 
beneficiary disenrolls from a plan. Specifically, current paragraph 
(a)(4) states that compensation may only be paid for the beneficiary's 
months of enrollment during the year (January through December). Under 
our proposal, the new subparagraph (a) would more clearly define a plan 
year for purposes of compensation. The annual compensation amount 
covers January 1 through December 31 of each year. Our proposal also 
clarified that the payment made to an agent must be for January 1 
through December 31 of the year and may not span calendar years. For 
example, a renewal payment cannot be made for the period of November 1, 
2013 through October 31, 2014. These proposed revisions represented 
clarifications rather than new proposals and were necessary based on 
our findings that some plans have been paying compensation based on a 
rolling year cycle, rather than a calendar year cycle. Therefore, we 
are implementing the provision defining ``plan year'' and, at 
subparagraph (b)(3)(i), limiting payments to the months of enrollment 
during the calendar year, as proposed. Comments concerning this 
provision are discussed later in this section.
    Currently, regulations at Sec.  422.2274(a)(4)(i) permit payments 
to be made at one time or in installments and at any time. In order to 
reduce the number of payments that need to be recouped based on changes 
made during the annual coordinated election period (AEP), which runs 
from October 15 through December 7, CMS proposed, in new subparagraph 
(b)(3)(ii), changing the timing of payments to require that payments 
may not be made until January 1 of the enrollment year and must be paid 
in full by December 31 of the enrollment year. We stated that this 
proposal was appropriate given that the beneficiary's final application 
during the AEP becomes the effective enrollment. This would reduce the 
number of recoupments required when an enrollee signed more than one 
application during the AEP. We received several comments opposing the 
requirement that MA organizations and Part D plans may not make AEP 
payments until January 1 of the following year, but do not find these 
arguments sufficiently compelling to outweigh the simplification that 
would be gained by establishing the January deadline. We also received 
comments regarding our proposed requirement that payments be completed 
by December 31. MA organizations and industry associations stated that 
accurate payments, especially for enrollments effective on December 1, 
would be difficult to operationalize by the end of the year. However, 
we would expect enrollment requests for a December 1 effective date to 
be relatively low, as only individuals newly eligible to Medicare 
Advantage and those with a special election period would be able to 
enroll for that date. Moreover, organizations and sponsors are already 
required to process most post-enrollment activities within two weeks. 
Therefore, we continue to believe that the December 31 deadline is in 
the best interest of the program and are finalizing subparagraph 
(b)(3)(ii) as proposed.
    Current regulations at Sec. Sec.  422.2274(4)(ii)(A) and 
423.2274(4)(ii)(A) require MA organizations and Part D sponsors to 
recoup compensation paid to agents when a beneficiary disenrolls from a 
plan within the first 3 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 recoup 
compensation, even though the beneficiary was enrolled in the plan for 
less than 3 months. In such circumstances, since the disenrollment 
decision could not be based on agent or broker behavior, we believe it 
to be appropriate and in the best interest of the Medicare program for 
the agent to receive the compensation based on the number of months 
that beneficiary was enrolled in the plan. While the plan would not 
recoup the compensation for those months, it would recoup any 
compensation paid for the months after the date of disenrollment.
    CMS proposed to combine current paragraphs (a)(4)(ii)(A) and 
(a)(4)(ii)(B) into a revised paragraph (b)(3)(iii), which included new 
text to require plans to recover compensation for only the months that 
the beneficiary is not enrolled, unless the disenrollment took place 
within the first 3 months. In our proposed rule, paragraph (b)(3)(iii) 
would require recoupment of all compensation in cases where the 
disenrollment was the result of agent or broker behavior. We received 
few but compelling comments on this proposal, which stated that it 
would be extremely difficult for MA organizations and Part D Sponsors 
to determine whether the disenrollment was a result of agent behavior, 
potentially resulting in compensation either being inappropriately 
recouped or not recouped when necessary. Based on these comments, we 
are not finalizing our proposal for subparagraph (b)(3)(iii) but are 
finalizing regulation text to state that the entire compensation must 
recouped if a disenrollment occurs during the first 3 months unless CMS 
determines that recoupment is not in the best interest of the Medicare 
program. We intend for this standard to be applied as we have 
implemented this aspect of the current regulation in past, with certain 
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) not triggering 
the recoupment requirement. We will continue to provide exceptions to 
the requirement in sub-regulatory guidance by applying the standard we 
are finalizing today.
    We also proposed, to be codified at Sec. Sec.  422.2274(h) and 
423.2274(h), to codify existing sub-regulatory guidance regarding 
referral (finder's) fees. We released a memorandum on October 19, 2011 
addressing excessive referral fees, noting that referral fees should 
not exceed $100. We have 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 referral fees paid to 
others are part of the total compensation. This creates an uneven 
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 for 
whether plan benefits meet the beneficiaries' health care needs. 
Therefore, we proposed 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 form, to a reasonable 
amount, as determined by CMS, which is currently $100, for CY 2013 and 
CY 2014. The entire proposal concerning agent and broker compensation 
was discussed in the context of our concern that agents and brokers not 
be influenced by payments from MA organizations and Part D sponsors to 
steer beneficiaries to plans that do not meet the beneficiaries' needs. 
We note that this proposal was clearly identified in the preamble, 79 
FR 1936, but the proposed regulation text, 79 FR 2060 and 2071, 
mistakenly included language discussing enrollee behavior and the value 
of health-related activities.

[[Page 29862]]

Furthermore, under Sec. Sec.  422.2274(h)(2) and 423.2274(h)(2), CMS 
proposed that that referral fees paid to independent agents and brokers 
must be part of total compensation not to exceed the FMV for that 
calendar year. Although a few comments were received concerning our 
proposals on referral fees, we are implementing this proposal 
substantively as described in the preamble. However, we believe that 
use of the phrase ``. . . while not exceeding the value of the health-
related service or activity itself'' was an error in the proposed 
regulation text. Therefore, we are finalizing text at subparagraph 
(h)(1) by removing that error and more clearly providing that CMS will 
set an annual threshold for finder fees based on a determination about 
amounts that would improperly incentivize agents and brokers to steer 
beneficiaries. We are finalizing subparagraph (h)(2) as proposed. 
Comment details and our responses may be found as follows.
    We are finalizing the regulations with additional regulation text 
for a technical correction. One entity commented that the proposal 
eliminated Sec. Sec.  422.2274(a)(1)(iv) and 423.2274(a)(1)(iv). Our 
proposal was not to remove these provisions concerning the 
applicability of compensation to third party entities and the 
regulation text should have included the substance of current 
subparagraph (a)(1)(iv). We have inserted the text from the regulation 
prior to the proposal at Sec. Sec.  422.2274(b)(1)(iii) and 
423.2274(b)(1)(iii) of this final rule.
    Finally, we are not finalizing the change to the introductory 
language to Sec. Sec.  422.2274 and 423.2274 in favor of deleting the 
existing introductory language (which forms the substantive basis for 
the new paragraph (a) definitions); the introductory language we 
proposed seems unnecessary to establish the scope of each regulation.
    Comment: We received more than 140 comments concerning the level of 
renewal payments, proposed at 35 percent. A few of the comments 
appreciated the simplification and briefly discussed the 35 percent but 
neither strongly supported the amount or strongly opposed the amount. A 
few commenters believed renewal compensation should increase. The vast 
majority (over 95 percent) of the comments did not support the proposed 
renewal rate of 35 percent for years two and beyond with a few clearly 
stating that the renewal rate should be 50 percent. Commenters included 
agents, brokers, plans, and industry trade associations. One major 
trade association representing 37 plans stated that 35 percent was 
overly restrictive and 50 percent is in line with industry standards, 
especially concerning PDPs where the 35 percent renewal would not cover 
the agent's costs to ensure members are in the best plans for them. The 
commenters provided various reasons why the 35 percent should not be 
implemented. The majority of commenters stated that agents play an 
important role in educating beneficiaries and the reduced level of 
compensation would result in a negative impact on beneficiaries, as it 
would reduce the level and quality of services provided to 
beneficiaries, resulting in less information and poor plan choices made 
by beneficiaries and would also result in agents leaving the MA 
marketplace. Many commenters stated that agents spend a significant 
amount of time in training, preparing, and testing in order to properly 
educate beneficiaries about plan choices. A number of commenters stated 
that their overhead costs (travel, postage, facility costs) were 
significant and a reduction in compensation would affect this aspect of 
their business. Commenters also stated that the lower compensation 
would discourage new agents from entering the MA market.
    Response: Based on the comments received, we are modifying our 
proposed regulations to permit the renewal payment to be up to 50 
percent of FMV. MA organizations and Part D sponsors may still 
determine how much will be paid, up to 50 percent of the current FMV, 
and retain the authority to specify the details of their contracts with 
agents, including how many years renewal payments will be made. We 
believe that this increased percentage meets the statutory standard of 
``ensur[ing] 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.''
    Comment: We received one comment from an individual who 
misunderstood our proposal. It appears that the commenter thought our 
proposal would allow two different payment options.
    Response: We have reviewed this comment and are not taking action 
based on an incorrect understanding of the proposal. Our proposal 
actually discussed two options that we considered for the renewal 
compensation.
    Comment: We received two comments from individuals who suggested 
alternative agent payment strategies. One commenter suggested modifying 
Medicare.gov to track agents for enrollments processed through the Web 
site for payment by plans. The commenter also proposed paying agents on 
a monthly basis, coinciding with the months the beneficiary is in a 
plan, eliminating the need to commission reversals. Another commenter 
proposed that plans submit compensation schedules to CMS for review and 
approval.
    Response: These recommendations entail significant changes with 
numerous operational implications. Therefore, we are not implementing 
the suggestions from these comments at this time. With respect to the 
comment regarding the frequency of payments, we did not propose to 
modify the existing regulatory permission for MA organizations and Part 
D sponsors to determine whether payments would be made at one time or 
in installments; therefore the comment is outside the scope of this 
proposed rule.
    Comment: We received a few comments regarding the requirement that 
payments be made between January 1 and December 31 of the enrollment 
year. One commenter supported the proposal. A few commenters did not 
support the January 1 date because agents would have to wait 3 to 4 
months for compensation for those enrolling during the AEP. One of 
these commenters also noted that getting the commission assures agents 
that the beneficiary was enrolled. A few plans were concerned about 
timely payment of December 1 effective enrollees.
    Response: Our proposal is aimed at simplifying compensation while 
ensuring an even playing field. As explained previously, using a 
January 1 through December 31 payment timeframe limits the recoupment 
of payments made when a beneficiary makes more than one election during 
the AEP. Therefore, we are implementing this provision as proposed.
    Comment: We received one comment stating that regulating the 
payment of only independent agents was unfair and that employed agents 
should also be regulated.
    Response: We have reviewed this comment and have determined that 
the regulation of only independent agents is still appropriate. Our 
initial regulations were promulgated to ensure that agents/brokers do 
not steer beneficiaries into plans due to the agent's/broker's 
financial or other interest; we continue to be concerned about such 
steerage on the part of independent agents, since they often sell 
multiple products, with varying levels of compensation. In contrast, 
employed agents work for only one company and therefore do not have an 
incentive to move a member into a plan offered by a different 
organization

[[Page 29863]]

or sponsor in exchange for a higher commission.
    Comment: We received a comment from a trade association 
recommending that CMS consider changes from cost plans to MA plans as 
``like'' plan changes, rather than ``unlike'' plan changes for 
compensation purposes. The commenter stated beneficiaries evaluate cost 
plans similar to MA plans and that treating these as unlike plan types 
encourages churning.
    Response: We have received this comment and declined to implement 
such this change from our proposal; we believe that this is outside the 
scope of the proposed rule. Our proposal did not address what 
constitutes ``like'' and ``unlike'' plan types, but instead simply 
referenced ``like'' and ``unlike'' plan types, using the existing 
regulation standards on this point, because CMS re-designated and 
revised certain portions of the existing regulation for simplification.
    Comment: We received a few comments regarding referral fees. One 
commenter recommended that the referral fee for enrollments be limited 
to FMV instead of $100. Other commenters requested that CMS not allow 
referral fees to be paid.
    Response: We reviewed these comments and are finalizing our 
proposal as described in the preamble to the proposed rule, with the 
changes to the regulation text at subparagraph (h)(1) as explained 
previously. Referral fees are applicable to employed, captive, and 
independent agents, and permitting the referral fee to be as high as 
the Fair Market Value (FMV) would increase the potential for steerage 
among different types of agents and thus plans. The $100 cap, which is 
required to be part of the total compensation, is an added protection 
to ensure financial interests of agents do result in misleading 
beneficiaries. Our proposal did not address whether referral fees 
should be permitted, only whether such fees should be capped and, if 
so, at what level. We do not believe that it is appropriate to prohibit 
or eliminate referral fees without additional rule-making that is 
specific on that question.
    Comment: One plan requested clarification as to whether the renewal 
rate of the ``current'' FMV meant the year in which the renewal 
commission is being paid.
    Response: We intend, for purposes of renewal rates, that the 
``current'' FMV be the FMV for the enrollment year. For example, an 
agent would be paid 50 percent of Contract Year (CY) 2015's FMV for a 
renewal member who is enrolled in CY 2015.
    Comment: One plan requested clarification as to whether CMS would 
require payments to be retroactive or if the existing regulations would 
continue until member's current 6-year cycle ended. One trade 
organization wanted to know whether the requirements will be effective 
for January 1, 2015 enrollments and how the new regulations will affect 
members currently in the existing 6-year cycle.
    Response: As part of this final rule, the new compensation 
requirements will be implemented for all members for CY2015. One of 
CMS' intentions was to simplify the regulations and create an even 
playing field. We would not be able to accomplish these goals if we 
were to wait to implement these new requirements until all members 
finish their current 6-year cycle. However, we note that the final 
provides flexibility to MA organizations and Part D sponsors so long as 
payments are within the thresholds established in the rule. To the 
extent that an MA organization or Part D sponsor wishes to continue 
payment using a cycle system, negotiates that payment structure with 
its agents and brokers, and that cycle system complies with the limits 
and requirements of this final rule, the MA organization or Part D 
sponsor may do so.
    Comment: We received a few comments concerning recoupment of 
compensation when a member disenrolls within the first three months of 
enrollment. One plan requested a better definition of ``broker 
behavior.'' One trade association stated that there would be 
significant challenges in determining whether disenrollments were due 
to independent agent/broker conduct. The trade association is concerned 
that plans could face significant disputes with agents/brokers about 
these decisions.
    Response: We have reviewed these comments and determined that the 
current situation should remain unchanged based on these concerns that 
our proposed revisions would hamper MA organizations' and Part D 
sponsors' ability to determine which enrollments should be fully 
recouped, with the result that compensation is either inappropriately 
recouped or not recouped when necessary. Therefore, we are finalizing 
the regulation to require full recoupment of compensation when a member 
disenrolls within the first three months unless CMS determines that the 
recoupment is not in the best interests of the Medicare program. CMS 
will apply this standard and specify exceptions in sub-regulatory 
guidance. Our current guidance is consistent with this standard and 
will remain applicable.
    Comment: We received a few comments regarding the implementation 
date of the regulations. One trade association stated that it typically 
took nine months to make systems changes to accommodate new 
requirements.
    Response: We understand that systems changes may take time to 
implement. Because of necessary industry systems changes, and because 
the rule provides for a payment structure applicable by calendar year, 
these compensation changes do not take effect until enrollments 
effective January 2015. Therefore, organizations and sponsors will have 
approximately seven months to make such changes. Other than simplifying 
how FMV applies to renewal rates, the new compensation structure is 
similar to industry practice and present guidance. Therefore, we did 
not make any changes to this section of the regulation.
    Comment: One trade organization commented that many MA 
organizations and Part D sponsors currently operate on a ``rolling 
year'' basis, such that, if an enrollment is effective February 1, the 
compensation covers the period starting on February 1 and continuing 
through January 31 of the following year. The association said that 
these were well-established processes and a change could disrupt 
systems and require a significant re-design effort.
    Response: Our position has always been that organizations and 
sponsors were required under the existing rules to pay compensation on 
a calendar year basis, not a ``rolling'' year basis. When we 
encountered situations where organizations and sponsors have not 
implemented these requirements correctly, we have required the 
organization to adjust its processes to comply and they have done so in 
a timely manner. We decided to clarify this requirement in our 
regulations to ensure that all plans fully understand the CMS 
definition of an enrollment year. Therefore, we will not be making any 
modification based on this comment.
    Comment: One trade association stated that the NPRM appears to have 
eliminated the current provisions at Sec. Sec.  422.2274(a)(1)(iv) and 
423.2274(a)(1)(iv), which address compensation requirements for Third 
Party Entities.
    Response: We thank the commenter for this observation. These 
provisions were inadvertently eliminated from the current provisions. 
We have revised the regulation text accordingly.

[[Page 29864]]

    Comment: We received one comment from a trade association that was 
concerned about CMS' requirement to recover commissions if an enrollee 
disenrolls in the middle of the year. They suggested that CMS require 
MA organizations and Part D sponsors to take ``commercially reasonable 
efforts'' to recover funds.
    Response: The requirement to recover funds when a member disenrolls 
mid-year remains the same; we did not propose to change this 
requirement. Organizations and sponsors have the ability to make 
payments yearly, quarterly, monthly, or in other frequencies. 
Therefore, they could pay monthly, rather than on a yearly or quarterly 
basis, and thereby limit the need to recoup funds for disenrollments 
that occur at mid-year. Therefore, we will not be making any changes to 
the regulation.
    Comment: We received a few comments recommending that CMS provide a 
mandatory plan comparison form. Agents/Brokers would be required to 
fill this out and provide to the beneficiary for review.
    Response: These comments are outside the scope of our proposed 
rule, but we will consider this suggestion for future changes.
    Comment: We received a few comments from beneficiary advocacy 
groups stating that MA organizations and Part D sponsors slow down, 
artificially delay, or dispute the payment of compensation, which 
ultimately encourages agents and brokers to take their business to 
another plan.
    Response: These comments are outside the scope of our proposed 
rule, but we believe that our new requirement that compensation be paid 
within the enrollment year will address some of these issues.
    After consideration of the public comments received, we are 
finalizing our proposal at Sec. Sec.  422.2274(a), (b) and (h) and 
423.2274(a), (b), and (h) with the following modifications as 
previously discussed:
     Deleting the introductory text to the regulation section.
     Raising the renewal compensation rate from 35 percent to 
(up to) 50 percent of the current fair market value cut-off amounts 
published annually by CMS.
     Removing the proposed recoupment standard for rapid 
disenrollments by reverting to the status quo where subregulatory 
guidance describes activities not triggering recoupments (rather than 
requiring recoupment based on ``agent or broker behavior''; 
implementing a standard based on the best interests of the Medicare 
program to identify disenrollments that do not require recoupment.
     Incorporating existing regulation text about compensation 
to Field Marketing Organizations.
     Clarifying the CMS standard for applying the limit on 
referral fees.
8. Drug Categories or Classes of Clinical Concern (Sec.  
423.120(b)(2)(v))
    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 exceptions that permit a 
Part D sponsor to exclude from its formulary a particular Part D drug 
that is otherwise required to be included in the formulary in a drug 
category or class of clinical concern (or otherwise limit access to 
such a drug, including through prior authorization or utilization 
management). The Affordable Care Act amendments to section 1860D-
4(b)(3)(G) of the Act specified that until such time as the Secretary 
establishes through rulemaking 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 proposed 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) to specify: (1) 
the criteria the Secretary will use to identify drug categories or 
classes of clinical concern; and (2) exceptions that permit Part D 
sponsors to exclude a particular Part D drug from within a category or 
class of clinical concern that is otherwise required to be included in 
the formulary (or to otherwise limit access to such a drug, including 
through utilization management or prior authorization restrictions). We 
also proposed to specify which drug categories or classes met the 
proposed criteria and explained the process we used for making these 
determinations.
    We proposed 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 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.
    We were concerned that requiring essentially open coverage of 
certain categories and classes of drugs presents both patient welfare 
concerns and financial disadvantages for the Part D program as a result 
of increased drug prices and overutilization. We also believed 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 took the opportunity to propose to 
codify criteria for identifying categories or classes of drugs that are 
of clinical concern, we believed that the requirements of section 3307 
of the Affordable Care Act should be implemented taking into 
consideration the other protections available to beneficiaries. 
Otherwise, we believed 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 needed to take the other beneficiary access protections 
into account. We detailed five such protections: formulary 
transparency, formulary requirements, reassignment formulary coverage 
notices, transition supplies and notices, and the coverage 
determination and appeals processes. Taken together, we believed these 
requirements were comprehensive

[[Page 29865]]

enough that additional access safeguards would be needed only in those 
situations where a Part D beneficiary's clinical needs cannot be more 
efficiently met.
    We received the following comments, and our response follows:
    Comment: We received strong support for our entire proposal from 
some commenters who agreed, as they stated, with ``all of the reasons'' 
underlying the proposal, but we received no supportive comments 
explicitly directed toward our proposed criteria for identifying 
categories and classes of clinical concern. However, we did receive 
significant opposition to our proposed criteria. Several commenters 
generally stated that the criteria themselves were flawed, much less 
their application to the drug categories and classes in our analysis. 
Although the statute did not provide individual criteria, some 
commenters stated that the criteria were more restrictive than 
statutory intent and insufficiently accounted for patient complexity. 
Other commenters stated that application of overly restrictive criteria 
set a dangerous precedent, and other commenters raised related concerns 
that other categories and classes of clinical concern could be 
eliminated in the future or that they could be incorrectly applied to 
other disease states whose guidelines indicate the use of these drugs. 
For example, many commenters expressed concern that if 
immunosuppressants for transplant rejection no longer received the 
additional protections under section 3307, patients with multiple 
sclerosis who use immunosuppressants may face access issues. 
Additionally, although it was mentioned as a source of savings in our 
RIA, some commenters opposed the idea that future drugs in a particular 
category or class, representing advances in therapy, may not be 
covered, believing this jeopardized beneficiary health. Indeed, many 
commenters stated that the application of these criteria would be life-
threatening.
    Response: We thank the commenters for bringing their concerns to 
our attention. We attempted to embrace the principle of balancing 
access and cost through optimal formulary management inherent in the 
design of the Part D benefit in proposing to establish criteria 
pursuant to section 3307 of the Affordable Care Act. However, based on 
the comments received, we have concluded that our proposed criteria did 
not strike the balance among beneficiary access, quality assurance, 
cost-containment, and patient welfare that we were striving to achieve. 
Thus, we are not finalizing our proposal to establish new criteria for 
the categories and classes of clinical concern. Accordingly, we are 
maintaining the existing six categories and classes of clinical concern 
listed in the statute and are amending the regulation at Sec.  
423.120(b)(2)(v) to reflect that the categories and classes of clinical 
concern will be as specified in section 1860D-4(b)(3)(G)(iv) of the Act 
until we undertake rulemaking to specify criteria to identify the 
categories and classes of clinical concern.
    During our annual formulary review and approval process, regardless 
of a drug's placement in a category or class of clinical concern, to 
the extent that a treatment guideline speaks to a specific category or 
class of drugs, we look for representation from that category or class 
of drugs on the formulary. Moreover, if the treatment guidelines 
address specific drugs, we would review formularies to ensure inclusion 
of those specific drugs. Thus, although a category or class of clinical 
concern is immunosuppressants for transplant rejection, to the extent 
that the treatment guidelines for multiple sclerosis indicate the use 
of immunosuppressants, we still would look for representation of these 
drugs on the formulary during our treatment guidelines review for 
multiple sclerosis.
    After consideration of the public comments we received, we are 
finalizing a technical change to Sec.  423.120(b)(2)(v) to reflect the 
existing categories and classes of clinical concern. Because the 
existing regulation at Sec.  423.120(b)(2)(v) is obsolete in light of 
the Affordable Care Act, we are making a technical change to specify 
that until such time as we undertake rulemaking to establish criteria 
to identify, as appropriate, categories and classes of drugs for which 
we determine are of clinical concern, the categories and classes of 
clinical concern shall be as specified in section 1860D-4(b)(3)(G)(iv) 
of the Act.
9. 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 belief that more than 25 percent of enrollees will benefit 
from MTM services.
    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. In the proposed rule, we cited a number of 
studies which discussed the following: there may be racial disparities 
in meeting the eligibility criteria, the current eligibility criteria 
and variability are restricting access to MTM services, and MTM 
enrollees with certain chronic diseases, 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, and cost savings.
    We believe the studies support the necessity to reduce variability 
and racial disparity in eligibility criteria among plans and improve 
access to beneficial MTM services. We proposed changes to the 
eligibility requirements regarding multiple chronic diseases, multiple 
Part D drugs, and the annual cost threshold.
a. Multiple Chronic Diseases
    Under the statute, one of the three criteria that are used to 
target beneficiaries for MTM services is whether a Part D beneficiary 
has 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-

[[Page 29866]]

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 proposed 
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 also proposed 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. In addition, we proposed 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 proposed list of core chronic diseases 
became cardiovascular disease, diabetes, dyslipidemia, respiratory 
disease, bone disease--arthritis, mental health, Alzheimer's disease, 
and end stage renal disease.
b. Multiple Part D Drugs
    The second of the three statutory criteria for identifying targeted 
beneficiaries is whether a Part D beneficiary is taking multiple 
covered Part D drugs. We proposed 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. We 
also proposed to restrict the flexibility previously available to 
sponsors by requiring that they consider any Part D covered drug. In 
the proposed rule, we cited literature that supported the idea that 
patients with multiple diseases and taking at least two drugs are more 
likely to have drug therapy problems and need MTM.
c. Annual Cost Threshold
    The final statutory requirement for targeting Part D beneficiaries 
for MTM services is that the beneficiary be identified as likely to 
incur costs for covered Part D drugs that exceed a level specified by 
the Secretary. 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. We 
previously codified a $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 $3,017 in 2014. However, 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 $3,017, 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 proposed setting the annual 
amount in Part D drug costs at an amount that represents the 
intersection of multiple conditions and multiple drugs. Specifically, 
we proposed setting the threshold at $620 which is the estimated annual 
total drug cost for a beneficiary filling two generic prescriptions, 
based on an analysis of prescription drug event (PDE) data.
    We are not finalizing these proposals. We will engage in new notice 
and comment rulemaking on this issue as warranted in the future.
    We received a large number of comments related to our proposal to 
revise Sec.  423.153(d)(2)(i) through (iii) to expand MTM program 
eligibility and our response follows.
    Comment: Many commenters were supportive of MTM in general and CMS' 
goals. These commenters were supportive of the proposed changes to 
expand access to MTM services, shared CMS' concerns regarding 
restrictive and variable eligibility criteria established by some 
sponsors, and endorsed the proposals to revise the eligibility criteria 
to increase uniformity. This included support for and clarifying 
questions regarding the revised definitions for ``multiple chronic 
diseases,'' with the addition of ``cardiovascular disease'' to the list 
of core diseases, and ``multiple Part D drugs.'' Some commenters stated 
that CMS should post MTM eligibility rates on the CMS Web site or make 
plan-reported data more available for research. Other commenters, who 
supported the proposed changes to expand access to MTM, provided 
information on return on investment, outcomes, or individual 
experiences in improving quality and lowering costs through MTM 
provided by community pharmacists who have close relationships with the 
beneficiaries and local prescribers. A large number of commenters also 
stated that, to date, variability in plan offerings and limited 
compensation has made the provision of MTM in the community setting 
difficult in a consistent, scalable and timely manner.
    A significant number of commenters also were strongly opposed to 
the broad expansion of eligibility. They questioned the effectiveness 
of expansion under the current infrastructure as delivered by drug 
plans with limited incentives and a lack of care coordination, and they 
commented that the clinical evidence did not support the proposed 
changes. We received many comments that the proposed changes would 
significantly increase costs (both administrative and beneficiary 
premiums), reduce the quality of programs delivered to beneficiaries 
who most need MTM, and could overwhelm limited resources. Many 
commenters requested that the proposed changes be withdrawn, and some 
commenters offered alternative eligibility criteria for CMS to consider 
in the future. These included: delay the proposed changes or implement 
the changes incrementally, alternative criteria for the minimum 
thresholds for eligibility, alternative eligibility criteria based on 
risk factors, and requiring MTM at transition of care.
    Response: We thank these commenters for their thoughtful and 
supportive comments. MTM has been shown to improve drug therapy 
outcomes and lower costs, and we agree that the use of community-based 
resources for providing MTM services shows promise in improving access 
and quality. We still have concerns that many sponsors are applying 
restrictive criteria to narrow the pool of targeted beneficiaries for 
MTM rather than optimizing the eligibility criteria to offer MTM to 
beneficiaries who will most benefit from these services. These programs 
are not living up to our expectations. As we discussed in the 
regulatory impact analysis for the proposed rule (79 FR 2036), we 
estimate that only 2.5 million beneficiaries (8 percent) are eligible 
for MTM services,

[[Page 29867]]

13 percent opt-out of the MTM program, and 10 percent of participating 
beneficiaries receive an annual CMR. That means that less than 220,000 
Part D enrollees receive CMRs, which studies have shown is a crucial 
element of MTM to improve drug therapy outcomes and lower costs. Not 
enough is being done by sponsors to provide sufficient access to MTM 
services and engage beneficiaries and providers in this process. We 
will consider publicly posting the MTM program eligibility rates for 
each Part D contract, similar to how we display MTM program CMR rates, 
and explore ways to make the plan-reported data available for public 
use.
    Despite the persuasive comments from those who support the proposed 
changes in eligibility criteria, we also take into account the comments 
that the timeline for implementing the proposed changes may be too 
aggressive and could negatively affect existing MTM programs. While our 
goal was to increase eligibility and access to MTM, we do not want to 
do it at the expense of sacrificing any quality with existing programs. 
Therefore, we are not finalizing our proposed changes to the 
eligibility criteria. But, we will continue to evaluate information on 
MTM programs and monitor sponsors' compliance in accordance with the 
MTM requirements established by Sec.  423.153, with the goal of 
proposing other revisions to criteria in future rulemaking that will 
help expand the program. We believe that Part D sponsors can target 
more beneficiaries for MTM under the existing criteria. We plan to 
closely scrutinize sponsors that may be abusing the flexibility 
provided to them in establishing the eligibility criteria, which may 
have contributed to the racial disparity, variability, and beneficiary 
confusion with respect to MTM eligibility that we identified in the 
proposed rule. We will consider the commenters' suggestions for 
alternative criteria and may consider revisions to MTM eligibility 
criteria for future rulemaking. We may also consider changes to the 
definitions for ``multiple chronic diseases,'' including the core 
chronic diseases, and ``multiple Part D drugs'' in the future.
10. 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.
    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 proposed 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 
MA 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 2 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.
    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. 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.
    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 proposed 
to require Part D experience in only three critical areas in which 
beneficiaries are particularly vulnerable should the sponsor 
demonstrate significant non-compliance. The three areas for which we 
proposed 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.
    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.
    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. In 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.
    While our proposal did not require the Part D experience to be 
current at the time of an application to become a Part D sponsor, we 
proposed that the experience be recent (that is, within the past 2 
years) and have lasted for at least one full benefit year. 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

[[Page 29868]]

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 proposed to amend 
Sec.  423.504(b) accordingly. 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.
    We received the following comments and our response follows:
    Comment: We received strong statements of support from many 
commenters. We received only one suggestion of not finalizing the 
policy, but the commenter did not provide any details or rationale to 
support its comment.
    Response: We appreciate the widespread support for this proposal.
    Comment: We received one recommendation to consider a less 
stringent standard for employer groups seeking to act as Employer Group 
Waiver Plan (EGWP) sponsors.
    Response: We expect all sponsors, including EGWP sponsors, to meet 
our experience and capability requirements. We have an obligation to 
ensure that all beneficiaries receive their benefits from experienced 
Part D sponsors.
    Comment: One commenter that supported the policy suggested that CMS 
should also address the problem of applicants not having the skills or 
capacity to even oversee their experienced FDRs.
    Response: We share the concern that applicants may not have 
experience overseeing FDRs, which is why, in addition to the current 
requirements and standards in place for administration and management, 
we are finalizing at section A.III.11. of this final rule our proposed 
requirement that new PDP sponsor applicants have immediately prior to 
the date of the application submission 2 years' experience 
administering health insurance benefits directly or 5 years' experience 
providing certain prescription drug benefit management services to a 
health insurer . We also have procedures and mechanisms in place to 
monitor a Part D sponsor's administration and management of its 
contract, including the option of conducting an audit of a sponsor's 
operations prior to the start of the contract year to confirm that it 
is prepared to oversee the delivery of Part D benefits to its members.
    Given the near universal support for this proposal we are 
finalizing this provision without modification.
11. 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.
    To address this problem, we proposed, 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.10. of this final 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 proposed to 
codify at Sec.  423.504(b)(9), 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 MA organizations 
offering Part D through an MA-PD plan. We proposed 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 that 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.
    While relatively few sponsors fit this profile each year, they have 
caused disproportionate problems for beneficiaries and CMS. 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.
    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. 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. We 
proposed that new applicants have 2-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. We believe that requiring 2-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.

[[Page 29869]]

    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. 
Therefore, we proposed 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 5-
continuous years of 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.10. of this final 
rule. The three areas that we proposed 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 proposed a longer experience requirement for 
these entities because entities offering these services face fewer 
barriers to entry in the marketplace and are not as tightly regulated 
as risk bearing entities. Therefore, we 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 5-continuous years, rather than merely 2.
    We intend to implement this proposal through our existing Part D 
contract qualification application process, and we proposed to amend 
Sec.  423.504(b) accordingly.
    We received the following comments and our response follows:
    Comment: We received strong statements of support from several 
commenters.
    Response: We appreciate the support for this proposal.
    Comment: We received one recommendation to consider a less 
stringent standard for employer groups seeking to act as EGWP sponsors.
    Response: We are not persuaded by this comment because, in general, 
we expect that all sponsors, including EGWP sponsors, meet all of our 
experience and capability requirements. EGWP sponsors perform the same 
core functions as sponsors of individual market PDPs, including claims 
processing, formulary administration, operation of an appeals and 
grievance process, and coordination of benefits. Therefore, the same 
concerns that led us to adopt the requirement that new PDP sponsors 
have experience in these areas applies to EGWP sponsors as well as 
sponsors of individual market plans.
    Given the universal support for this proposal, we are finalizing 
this provision without modification.
12. 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. We proposed, 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.
    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. 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. We oppose the 
inefficiencies of duplicate contracts and the gaming duplicate 
contracts can support. That said, we welcomed 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. 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.
    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 Part D program and provide a 
means by which the integrity and reliability of our star ratings system 
can be compromised. Therefore, we proposed to amend

[[Page 29870]]

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, we will deny all of the parent organization's 
applications.
    We received the following comments and the response follows:
    Comment: The comments of several beneficiary advocacy organizations 
contained expressions of support for our proposal, citing in particular 
the role it will play in preserving the integrity of CMS' star ratings 
system.
    Response: We appreciate the expressions of support for our 
proposal.
    Comment: Several commenters stated their opposition to our proposal 
on the basis that it would limit their business opportunities and 
reduce competition in the Part D market by reducing the number of plan 
sponsors participating in a given PDP region.
    Response: We note that the commenters did not describe or provide 
examples of the nature of the business opportunities that Part D 
sponsors and their parent organizations would be denied should this 
provision go into effect. Also, we believe that to properly assess the 
level of competition in the Part D market, it is important to consider 
not just the number of plan sponsors offering benefits, but also 
whether all of those sponsors truly have incentives to compete against 
one another. As we noted in our preamble discussion to the proposed 
rule, additional plan sponsors controlled by entities that already 
participate in the Part D market do not promote improved plan options 
since subsidiaries of the same parent cannot be said to be truly in 
competition with each other. In a truly competitive market, multiple 
entities develop and promote products to capture as large a share of 
that market as possible at the expense of other market participants. It 
is our experience that two or more subsidiaries of the same parent 
organization are ultimately accountable to the same set of shareholders 
and are administered by the same senior management team. In such an 
arrangement, we believe there is little incentive for the parent 
organization to manage one PDP contract in a way that would attempt to 
take enrollees away from, or prevent beneficiaries from electing, plans 
offered by the related entity operating a second contract. We also note 
that none of the commenters provided an explanation as to how related 
entities would truly compete in the same PDP region.
    Comment: Several plan sponsors that have recently acquired other 
plan sponsor contracts expressed their concern that the new policy 
would jeopardize their right to maintain two or more contracts during a 
transition period following the acquisition.
    Response: We assure the commenters that our proposal has no effect 
on our application of the regulatory provision at Sec.  423.272(b)(3), 
which provides acquiring organizations an exemption from the meaningful 
differences standard normally applied to a sponsor's (or its parent 
organization's) bids for a 2-year period following the acquisition of 
or merger with another Part D sponsor. We have allowed acquiring 
sponsors to maintain the separate acquired contract during the 
authorized 2-year period, and we will continue to apply that policy 
after the adoption of this provision.
    Comment: Some plan sponsors that currently hold more than one PDP 
sponsor contract in a PDP region commented that they were concerned 
that the proposed provision would require them to consolidate their 
operations into one contract.
    Response: We note that the proposal only addressed our intention to 
deny applications for new contracts submitted by entities related to 
organizations that already hold a PDP sponsor contract in a particular 
region. As we discussed in the preamble to the proposed regulation, we 
will continue to encourage such organizations to consolidate their 
contracts, but we are not requiring organizations to take such action 
at this time.
    Comment: One commenter requested that CMS revise the proposal to 
allow a parent organization to hold two contracts in the same PDP 
region if one of those contracts is maintained solely for the purpose 
of offering employer group waiver plans (EGWPs). The commenter 
explained that because EGWPs operate differently than individual market 
plans (for example, different enrollment processes, the need to 
coordinate with non-Part D supplemental coverage), it may reduce the 
complexity of a parent organization's Part D operations if it is 
permitted to keep its EGWP business under a separate contract. 
Moreover, since EGWP plans are not offered to individual beneficiaries, 
these contracts would not be subject to the same incentives that might 
encourage sponsors to game their star rating performance to attract 
enrollments.
    Response: We do not believe the commenter's arguments support 
special treatment under our proposal for organizations offering EGWPs. 
While it is true that CMS affords EGWPs, through the application of our 
statutory waiver authority, flexibility in meeting Part D requirements, 
the resulting differences in requirements are not so significant that a 
separate EGWP-only contract is necessary for an organization to 
administer such plans successfully. In fact, the resulting differences 
do not represent conflicting requirements that might create the need 
for a separate contract held by a different legal entity to administer 
EGWPs. Rather, the EGWP requirements are a result of our completely 
waiving certain requirements (for example, pharmacy access standards, 
prior approval of marketing materials) or modifying other requirements 
(for example, enrollment limited to employer group members), and a 
single plan sponsor can meet these if it is already offering individual 
market PDPs. In fact, it is common for a PDP sponsor to sign a stand-
alone PDP contract with CMS that includes an EGWP addendum through 
which the single entity offers both individual market plans and EGWPs 
(that is, ``800 series'' plans). Our experience in administering the 
Part D program indicates that a properly managed single legal entity is 
capable of complying with multiple sets of Part D requirements. Also, 
while sponsors may not have the same incentives to game the star rating 
system to attract EGWP enrollments as they do to attract individual 
beneficiaries, that fact alone would not support allowing sponsors to 
maintain separate EGWP contracts. We believe the single contract rule 
is necessary to maintain the integrity of the star ratings that are 
reported to the public. As we stated earlier in the preamble discussion 
of our proposal, star ratings are intended to reflect all aspects of 
the PDP operations controlled by a unique contracting entity, including 
the

[[Page 29871]]

administration of EGWP products. Allowing a parent organization to 
maintain a separate EGWP contract would mean that the star ratings 
associated with each of its PDP contracts contract would provide an 
incomplete picture of the organization's performance. We believe that 
all members of the public, including those who make plan elections on 
behalf of employer group members as well as individual beneficiaries, 
benefit from star ratings information that clearly indicates the 
quality of all Part D operations under one organization's control.
    After consideration of the public comments we received, we are 
finalizing our proposal without modification, with the exception of a 
technical edit which changes the proposed phrase ``may not approve'' to 
``does not approve'' to clarify that CMS will deny all applications 
that meet the criteria stated in the provision.
13. 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 continued with this proposal 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 that 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 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 covered 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.
    Despite these developments, many sponsors continue to submit three 
bids per region each year. We believe 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.
    While the incremental closure of the coverage gap continues until 
2020, we believe that the observed enrollment trends in these plans 
demonstrate the reduction in beneficiaries' coverage gap

[[Page 29872]]

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. 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 affirmatively 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 believed it was 
urgent that we adopt the proposed policy as soon as possible so that we 
could bring an end to this bidding practice. We solicited comments on 
whether there is any real need for more than two standalone plan 
options per PDP sponsor.
    Therefore, we proposed to amend the Part D regulations at Sec.  
423.265 to add a revised subsection (b)(3), which would state 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.
    In addition to proposing to limit PDP sponsors to submitting one 
basic and one enhanced bid per coverage year, we also stated that we 
were 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 policy goal, based on our interpretation of 
current law, 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 stated that we were considering three 
options, including a proposal, based on a reinterpretation of section 
1860D-11(b) and (c) of the Act, that enhanced alternative coverage 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. We 
solicited 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. We received the following comments and our response follows:
    Comment: Several commenters expressed support for our proposal to 
limit sponsors to offering no more than two plans per PDP region. They 
agree that beneficiaries can be overwhelmed by the number of plan 
choices, which can cause them to avoid even considering exploring 
during the annual election period plan options that might better meet 
their needs.
    Response: We appreciate the expressions of support for our 
proposal.
    Comment: A number of commenters stated their opposition to the 
proposal to limit sponsors to offer no more than two plans per PDP 
region. Among the assertions made by the commenters was that the 
regulatory authority already in place will produce shortly the 
improvements in bid submissions that CMS seeks and that no further 
authority is required. The commenters stated that CMS' application of 
the meaningful differences standard to its review of bids and its 
authority to non-renew plans that do not meet minimum enrollment 
standards already place effective limits on a given sponsor's number of 
plan offerings. They stated that the continued application of those 
authorities, combined with the upcoming closure of the coverage gap, 
will eventually reduce the room for plan variation to the point of 
effectively creating the two-plan limit that CMS sought with its 
proposal. Commenters also expressed opposition to our three options for 
preventing risk segmentation in plan bidding, with the option requiring 
enhanced benefits to be offered as a supplement to a sponsor's basic 
plan benefit package being particularly disfavored. Commenters that 
addressed the ``supplement'' option stated that such a bidding 
structure would result in less generous enhanced benefits because there 
would be less opportunity to spread the costs associated with such 
benefits. They also stated that such a bidding structure would limit 
formulary options available to beneficiaries because sponsors would 
have to offer the same formulary for both the sponsor's basic benefit 
plan and its enhanced/supplemental option.
    Response: We appreciate the comments. We believe that the 
commenters overstate the effectiveness of the tools already at our 
disposal to prevent risk segmentation and to make further strides in 
ensuring that beneficiaries have access to an array of plan options 
that represent real choice. We have been conservative in our use of the 
low enrollment non-renewal authority as demonstrated by our adoption of 
enrollment thresholds that ensure that only the plans that attract 
negligible interest from the market are non-renewed, so few additional 
non-renewals are likely to occur under this authority in the coming 
years. Also, we measure meaningful differences on a relative basis, 
generally using a 95 percentile threshold to arrive at the annual 
limits. As plan sponsors reduce the additional value offered in their 
benefit packages, the 95 percentile threshold will be expected to 
converge toward the value of basic plans. Consequently, we will need to 
explore alternative methodologies to ensure meaningful differences 
remain among a plan sponsor's PDP offerings.
    Nevertheless, the comments have given us reason to conduct further 
analysis of this issue and continue our

[[Page 29873]]

close observation of the developments in the Part D market. Therefore, 
we are not finalizing this proposal. It may be, as the commenters 
suggest, that as the coverage gap closes, the problems of risk 
segmentation and large numbers of plan options may solve themselves. 
Should that not turn out to be the case, we may revisit the issues of 
plan number limits and changes to basic and enhanced bid structures, 
keeping in mind the comments we received in response to this proposal. 
In the event that we make this or a similar proposal again, we would 
only do it as part of a new rulemaking process, during which we would 
solicit public comment once more before deciding whether to publish 
final regulations.
    After consideration of the public comments we received, we are not 
finalizing our proposal to limit PDP sponsors to offering no more than 
two bids per PDP region.
14. 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 because it can 
result in beneficiaries paying different cost sharing for formulary 
drugs subject to utilization management edits (such as prior 
authorization or step therapy) during transition than specified in 
their 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.
    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 proposed 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.
    Comment: We received numerous comments that this clarification in 
regulation will simplify the rules for transition policy and reduce 
beneficiary confusion.
    Response: We agree with these commenters that this provision will 
simplify the rules for transition cost sharing and reduce beneficiary 
confusion. We believe this requirement will help ensure more consistent 
treatment of transition cost sharing for formulary and non-formulary 
drugs across all Part D plans and removes any ambiguity that Part D 
sponsors may have had with respect to transition cost sharing for 
formulary drugs that would otherwise be subject to utilization 
management edits.
    Comment: One commenter wrote that this requirement will further 
complicate an already complex policy surrounding transition fills.
    Response: We disagree with this commenter. This provision removes 
the ambiguity surrounding the allowable cost sharing when utilization 
management edits are overridden during transition for formulary drugs, 
and ensures that beneficiaries will pay the same cost sharing for such 
formulary drugs during transition and after transition if the 
utilization management criteria are met. There has been a great deal of 
confusion from both sponsors and beneficiaries with respect to the 
proper cost sharing that should apply in these situations during 
transition and both we and many commenters believe this provision 
provides the necessary clarification.
    In light of the overwhelmingly positive comments on this proposal, 
we are finalizing this provision without modification.
15. 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 proposed 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

[[Page 29874]]

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. Consequently, as an initial matter, in light of our 
interpretation of the general purpose of section 1860D-11(i) of the 
Act, we proposed 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. We outlined aspects of the 
complex process of private market competition for prescription drugs 
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) to support our reading of the distinctly 
different types of negotiations between the three parties in ``between 
drug manufacturers and pharmacies and PDP sponsors''. 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, 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, but rather under section1860D-
11(i)(2), as discussed in this section.
    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 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. 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. Therefore, in our 
proposed rule we stated that 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. In hindsight, given the strong reaction of most commenters 
a better way to have articulated CMS' long-standing position would have 
been to focus on what ``interfere'' means and to interpret it to mean a 
sort of hindering or influence beyond the implementation and 
enforcement of statutory requirements.
    This is the case because 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. Consequently, 
we believe 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. So we believe it is clear that such 
involvement could not be what the Congress intended to prohibit. 
Therefore, we proposed 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

[[Page 29875]]

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 proposed 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 believe the first part of section 
1860D-11(i)(2) of the Act would 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 formulary drug product 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. Therefore, we proposed a 
provision prohibiting establishment of formulary drug product selection 
at Sec.  423.10(c) that would specify 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. Sec.  423.120(b)(1)(v) or 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 stated our view that the 
phrase ``price structure'' refers 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 (on any 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 proposed 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 our 
proposed regulation would have limited our authority to require full 
disclosure or uniform treatment and reporting of drug costs and prices.
    We received numerous comments on this proposed interpretation, both 
supportive and strongly critical. Different commenters asserted 
different ``plain readings'' of the statute. The wide variation in 
interpretations of the statutory prohibition evidenced in these 
comments, in our view, confirms our belief that this provision is not 
consistently understood by all stakeholders. Although the 
interpretation we proposed to codify is the same interpretation we have 
been operating under in managing the Part D program since before the 
beginning of the Part D program, many commenters perceived our proposal 
as a change in interpretation. And as noted previously, in hindsight we 
could have better articulated our policy rationale than by stating that 
the prohibition in section 1860D-1(i)(1) did not apply to negotiations 
between sponsors and pharmacies. These widely differing reactions to 
our proposal to codify our current interpretation lead us to understand 
that additional work needs to be done to better explain our policy, as 
well as to address the concerns and arguments advanced by numerous 
commenters. Consequently, we will not finalize the proposed regulatory 
provision at Sec.  423.10 in this final rule, and do not intend to 
codify this provision without issuing an additional future notice of 
proposed rulemaking.
    Comment: Some commenters supported our interpretation and 
regulatory proposal; others supported the interpretation but did not 
believe there was any need to codify our interpretation in regulation. 
One commenter supported our intent to clarify and specify the limits of 
our authority, but was very concerned about the proposed exceptions to 
the limitations on our authority and requested greater specificity 
around the particular CMS requirements that would invoke the 
exceptions.
    Response: We appreciate the supportive comments, and can understand 
the desire for greater specificity in some areas.
    Comment: Several commenters stated that our interpretation violated 
the plain reading of the statute, and then offered differing 
interpretations of the plan meaning of the statute. In particular, many 
commenters asserted that the phrase ``between drug manufacturers and 
pharmacies and PDP sponsors'' essentially had the plain meaning of 
prohibiting any and all negotiations between any two of the parties. 
Other commenters agreed with our interpretation and that it represented 
the plain meaning.

[[Page 29876]]

    Response: These differing interpretations of the statute confirm 
our belief that the statutory language is not universally understood in 
the same way by all parties and would ultimately benefit from formal 
interpretation and codification in regulation.
    Comment: Numerous commenters understood us to be proposing that we 
could now interfere in negotiations between Part D sponsors and 
pharmacies that we had previously avoided.
    Response: We intended to explain how we could reconcile the 
distinct sets of negotiations in the private market between 
manufacturers and pharmacies, between manufacturers and plan sponsors, 
and between plan sponsors and pharmacies with both the non-interference 
provision and within the context of the rest of the statute. Since the 
statute establishes numerous requirements that CMS must implement 
concerning access to network pharmacies and negotiated prices, we 
sought to make that distinction in the proposed rule by proposing that 
a CMS role in negotiations between plan sponsors and pharmacies is not 
prohibited under section 1860D-11(i)(1) of the Act, but rather under 
section 1860D-11(i)(2) of the Act. The strong reaction of many 
commenters to this interpretation has persuaded us that a better way to 
have articulated this distinction would have been to focus on what 
``interfere'' means and to interpret it to mean a sort of hindering or 
influence beyond the implementation and enforcement of statutory 
requirements. The Congress has provided many contractual requirements 
for CMS to enforce between sponsors and pharmacies, and 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. In other words, we sought to 
explain that we could not involve ourselves in negotiations between 
plan sponsors and pharmacies except as necessary to fulfill our 
requirements established under the statute. From the many comments we 
received on this issue, we conclude that our explanation on this point 
in the proposed rule conveyed the wrong impression.
    Comment: Numerous commenters characterized our proposal as a change 
in policy. These commenters frequently cited examples of our previous 
invocation of the prohibition on interference in private market 
negotiations as evidence of this alleged change. For instance, 
commenters cited a CMS response to a 2008 OIG report in which CMS did 
not concur with several OIG recommendations on the basis that to do so 
would violate the non-interference clause. This report, ``Review of 
Medicare Part D Contracting for Contract Year 2006'' (A-06-07-00082) is 
available at: http://oig.hhs.gov/reports-and-publications/archives/oas/cms_archive.asp.
    Response: The interpretation put forth in our proposed rule was 
intended to represent the interpretation that the Part D program has 
been operating under since before the beginning of the Part D program. 
We believe the examples cited by commenters can all be traced back to 
specific situations and topics that are consistent with our proposal. 
For instance, in the case of the 2008 OIG report, the specific 
recommendations with which CMS did not concur on the basis of 
interference were recommendations that violated that provision in 
exactly the way we proposed to prohibit in our proposed rule. 
Specifically, we disagreed with requiring Part D sponsors to disclose 
to pharmacies the data source, basis, and methodology used to develop 
reimbursement rates, or to reveal to pharmacies criteria for receiving 
higher reimbursement rates available to certain categories of 
pharmacies, and with CMS determining whether reimbursement rates for 
extended days' supplies are adequate. In other words, we disagreed with 
CMS becoming a party to discussions between Part D sponsors and 
pharmacies on price structures or the arbiter of the adequacy of 
reimbursement methodologies. Thus, in our view, our responses to the 
OIG report were entirely consistent with our proposed regulation. (We 
note that section III.A.17 of this final rule addresses changes to the 
prescription drug pricing standard requirements established under 
MIPPA, but still does not require disclosure of data source, basis, and 
methodology used to develop reimbursement rates.) We believe that the 
perception of a change in interpretation arises from both the lack of a 
common understanding of the statutory prohibition, and from the absence 
of any discussion of how our previous statements on the record on this 
topic do or do not conform to our proposals. The numerous examples 
provided by commenters will be very helpful in developing such an 
explanation in any future rulemaking on this policy.
16. 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. 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. Therefore, we 
proposed changes to rectify this concern.
    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 at Sec.  423.100 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

[[Page 29877]]

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 was published 
on May 16, 2008 in the Federal Register, 73 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 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 with 
respect to how 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.
    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 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. Therefore, they cannot 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 proposed 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 proposed to 
redefine negotiated prices to mean prices for covered Part D drugs

[[Page 29878]]

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.
    We received the following comments on our proposed revisions and 
our responses follow.
    Comment: We received a significant number of comments in support of 
this provision based on the improved transparency of pharmacy price 
concessions. One commenter stated the belief that PDPs and their 
contracted PBMs are circumventing the Medicare Modernization Act by 
hiding pharmacy charge backs as overall administrative surcharges. 
These commenters stated that amounts charged to pharmacies in the form 
of ``administrative fees,'' ``network access fees'' or rebates of 
dispensing fees appeared to be vehicles for price concessions. Another 
commenter believed that the proposed provision would alleviate the 
complexity of tracking actual drug reimbursement and help ensure that 
reimbursement structures are not actually increasing Medicare costs. 
Several commenters stated that inclusion of accurate costs in the Plan 
Finder tool would be of benefit to consumers, and added that drug 
prices must be accurate and transparent to help seniors compare plan 
costs.
    We also received some comments in opposition to the proposed 
provision. These commenters stated that some price concessions that 
benefit the Part D program do not lend themselves to inclusion in 
negotiated prices. A few commenters stated that savings from lower 
point-of-sale prices would be reflected in higher enrollee premiums and 
increased premium subsidies. Other commenters stated that payments 
received from pharmacies to PBMs were for services provided and should 
not be considered price concessions. One commenter stated that just 
because pharmacies pay for and benefit from services from PBMs does not 
necessarily make the fees price concessions. A few commenters opposed 
the provision on the grounds that it would place new limitations on the 
terms sponsors will be able to negotiate with network pharmacies and 
stated that CMS is limiting the tools available to sponsors to offer 
varied incentive-based agreements such as providing additional 
compensation for increased dispensing of generic medicines or superior 
customer service. Other commenters thought that Part D sponsors and 
PBMs should be able to retain the flexibility to determine which 
concessions to pass through to beneficiaries through drug prices or 
lower premiums. To bolster this argument one commenter quoted from our 
2009 rule in which we stated that the statute says prices will ``take 
into account'' price concessions not include them all, and that a 
``plain reading of this demonstrates the Congress' intent to be 
permissive of Part D sponsors to choose how much of their negotiated 
price concessions to pass through to Part D beneficiaries at the point 
of sale''.
    One of the commenters who opposed the provision suggested that, as 
an alternative, CMS use its existing authority to require plans to 
disclose both in the bid pricing tool (BPT) and through DIR, specific 
line-item reporting of performance-based DIR received from network 
pharmacies. Several commenters urged CMS to use its existing DIR 
reporting authority to capture price concessions attributable to risk-
based performance measures, which often require retrospective 
performance review and therefore cannot be captured in negotiated 
prices. The commenters argued that the DIR process must be used to 
allow sponsors to maintain innovative payment arrangements that yield 
efficient and quality pharmacy networks. One of these commenters voiced 
support for ``a competitive and level playing field for all sponsors'' 
and urged CMS to create clear and comprehensive regulatory guidance 
with respect to pharmacy price concessions.
    Response: We appreciate the detailed comments we received in 
response to our proposal. We continue to believe it is critical that 
negotiated prices reported on PDEs have a consistent meaning across the 
Part D program in order to preserve a level playing field in bidding 
and cost reporting. As we stated in the proposed rule, we intended 
clause 2 of the existing definition of negotiated price 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. Our proposal to 
require all pharmacy price concessions be included in the negotiated 
price would ensure that negotiated prices have a consistent meaning, 
provide for increased transparency in cost reporting to CMS, and allow 
for meaningful price comparisons between Part D sponsors.
    While we recognize that some pharmacy price concessions are 
contingent upon risk or incentive based arrangements, we provided an 
illustration of how such price concessions could adjust future 
negotiated prices, rather than adjusting the current quarter's prices 
downward through DIR reporting. Consequently, we did not believe that 
our proposal would limit Part D sponsors' ability to enter into such 
contracting relationships with their network pharmacies. We did not 
propose placing additional restrictions around such arrangements, only 
that their resulting costs must be transparent to all concerned.
    Nevertheless, we are persuaded by the comments that there may be 
some price concessions from pharmacies that are based upon 
contingencies that cannot be known at the point-of-sale and that these 
price concessions should be distinguished from all other pharmacy price 
concessions and continue to be reported as direct or indirect 
remuneration. This would be also be consistent with the commenter who 
pointed out the statutory language that negotiated prices will ``take 
into account'' price concessions. While we had proposed including all 
price concessions from pharmacies in the negotiated price to provide 
maximum price transparency, we believe that there is room for further 
discussion with industry to determine whether there are specific types 
of arrangements that do not lend themselves to accurate inclusion in 
the negotiated prices. As long as all types of price concessions are 
consistently ``taken into account'' in the same way by each sponsor in 
preparing bids and reporting costs, bids and point-of-sale negotiated 
prices can remain comparable. Therefore, in response to comments we are 
revising our proposed definition of negotiated price to allow a narrow 
exception to the requirement that all pharmacy price concession be 
included in the negotiated price for those contingent pharmacy price 
concessions that cannot reasonably be determined at the point-of-sale. 
We intend to identify in our DIR reporting guidance which types of 
price concessions from pharmacies would meet the standard for this 
exception, and we intend to consult with industry in developing our 
guidance in this area. Any contingent pharmacy price concessions or 
incentive payments that

[[Page 29879]]

can be determined at the point-of-sale must be included in negotiated 
prices.
    We agree with the commenter who pointed out that not all fees that 
pharmacies pay to PBMs are price concessions. But as discussed in the 
NPRM, when such fees take the form of deductions from payments to 
pharmacies for Part D drugs dispensed, 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. Standard treatment of all price concessions will bring 
improved transparency to pharmacy payments. We disagree that this 
change is inconsistent with the MMA because the MMA established 
Medicare Part D as a voluntary, private-market-based program what 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. While Part D sponsors may lose some 
flexibility in deciding how much of the price concessions should be 
applied to beneficiaries at the point of sale or through reduced 
premium, consistency in how specific types of price concessions are 
``taken into account'' in negotiated prices is necessary in order to 
preserve reliance on market competition between plans, which is a 
cornerstone of the Medicare Part D program.
    Comment: A few commenters questioned CMS' authority to implement 
the proposed change and some asserted that the non-interference 
provision prohibits CMS from defining negotiated prices.
    Response: We disagree with these comments. We have the authority to 
interpret the provisions of section 1860D-2(d)(1)(B) and believe our 
interpretation is appropriate. We also have a history of regulating on 
cost and price concession reporting. We established detailed guidance 
for accurate and consistent cost and price concession reporting through 
both PDE and DIR guidance and other payment reconciliation rules, and 
have twice before regulated the definition of negotiated price and how 
it is to be treated in Part D benefit administration and in payment 
reconciliation. In the original Part D rule, negotiated prices were 
mainly defined as ``prices for covered Part D drugs that were available 
to beneficiaries at the point of sale at network pharmacies''. This 
definition permitted sponsors or their intermediaries to include PBM 
spread in the price. Therefore, on January 12, 2009 we published in the 
Federal Register the final rule with comment entitled, '' Medicare 
Advantage and Prescription Drug Benefit Programs: Negotiated Pricing 
and Remaining Revisions'' (74 FR 4131), to clarify that negotiated 
prices must be the amounts actually received by the pharmacy for the 
drug. We are now once again revising the definition.
    Comment: Several commenters addressed the effective date of the 
proposed rule. Commenters advocated for a prospective implementation 
only, or expressed the hope that the rule could be delayed until 2016. 
They stated that time was needed to allow collaboration with the 
industry, enable CMS to capture the changes in detailed guidance, and 
give Part D sponsors time to revise their pharmacy network contracts.
    Response: In response to these comments we are postponing 
implementation of this provision until the 2016 contract year and will 
use this time to work with the industry to develop guidance on when the 
exception previously described applies.
    After considering comments received, we are finalizing the 
provision as proposed with modification to require that negotiated 
prices be inclusive of all price concessions from network pharmacies 
except contingent price concessions that cannot reasonably be 
determined at the point-of-sale. We also modified the language in 
paragraph (4) by clarifying that additional contingent amounts, such as 
incentive fees, that increase prices are always excluded from the 
negotiated price by removing the word ``may,'' and we also replaced 
``cannot be predicted in advance'' with ``cannot reasonably be 
determined at the point-of-sale'' to parallel paragraph (2). Finally, 
we have modified the effective date of this provision to 2016 to avoid 
disruption of the existing regulation which will be applicable for the 
rest of 2014 and 2015.
17. Preferred Cost Sharing (Sec. Sec.  423.100 and 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 and 176 [at http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2014.pdf].
    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

[[Page 29880]]

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 
final 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.''
    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.
    Therefore, we proposed 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 proposed 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 proposed 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. We welcomed comments on alternative approaches to ensuring 
that the offering of preferred cost sharing does not increase our 
payments. We proposed 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.15. of this final 
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 requested 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 solicited 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 solicited 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 solicited 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 proposed a clarification in terminology to better describe 
the application of the policy to a sponsor's approved Part D pharmacy 
network. Specifically, we proposed 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 solicited comment on 
whether any further clarifications of terminology are needed for this 
policy proposal.
    We received the following comments and our responses follow:
    Comment: Many commenters strongly supported our proposal to require 
consistently lower negotiated prices at pharmacies offering preferred 
cost sharing. These commenters found it troubling that some Part D 
plans' negotiated prices were not lower for some drugs at pharmacies 
offering preferred cost sharing and stated that the alignment of 
preferred cost sharing with lower negotiated prices is necessary to 
ensure that arrangements with pharmacies to offer preferred cost 
sharing do not cost the government more and provide savings for

[[Page 29881]]

beneficiaries. The commenters assert that the current framework is not 
transparent and allows PBMs to maximize profits by moving as much 
volume as possible to their mail order pharmacies with little, if any, 
savings for the beneficiary, and even the possibility that the 
beneficiary could pay more than they would at a pharmacy without 
preferred cost sharing.
    However, other commenters strongly opposed our proposal to require 
consistently lower negotiated prices at pharmacies offering preferred 
cost sharing. While no commenters dispute that benefit designs that 
provide preferred cost sharing at some network pharmacies must not 
increase payment to Part D plans, many dispute our proposal to make 
this determination based entirely upon negotiated prices. They assert 
that the reference in the statute to ``an increase in payments'' does 
not refer solely to negotiated prices but must also take into 
consideration the direct subsidy, reinsurance subsidies, end of year 
reconciliation, and beneficiary premiums. Several commenters said that 
we do not have the authority to implement this proposal because it 
violates the section 1860D-11(i) statutory non-interference provision 
that prohibits CMS from instituting a price structure for the 
reimbursement of Part D drugs. One commenter said that while they share 
our objectives for preferred cost sharing arrangements to lower costs 
for the Part D program and beneficiaries, they believe these 
arrangements can be beneficial if the price concessions are reflected 
in prices at the pharmacies and/or used to lower premiums. Commenters 
also stated that requiring lower negotiated prices for every drug will 
restrict the flexibility that Part D sponsors need to negotiate 
discounts with pharmacies, which will lead to increased prices and 
beneficiary disruption. Moreover, commenters argue that savings from 
preferred cost sharing cannot be determined at the individual drug 
level because that does not account for different drug mixes at 
different pharmacies that could better be determined by actuarially 
sound aggregate methods of comparison. One commenter recommended that 
we implement a ``fixed basket of drugs'' approach similar to our Out-
of-Pocket (OOPC) tools used for determining meaningful differences 
between basic and enhanced plans. A number of commenters also contend 
that such a consistently-lower-price requirement is unworkable because 
their contracts frequently have a ``lesser of'' provision to ensure 
they only pay the pharmacies' usual & customary prices when such prices 
are lower than the negotiated rate and they would have no way to ensure 
that pharmacy usual & customary prices are never lower at pharmacies 
that do not offer preferred cost sharing. Finally, most commenters 
opposed CMS establishing standards on how much lower drug costs should 
be in return for preferred cost sharing.
    Response: We appreciate the significant support we received for the 
proposal and continue to believe that the proposal would provide a 
transparent mechanism for ensuring compliance with the statutory 
requirement that prohibits benefit designs with preferred cost sharing 
at certain network pharmacies from increasing payments to plans. While 
we agree that basing increased payments to plans entirely on negotiated 
prices is not the only possible interpretation of the statutory 
requirement, we believe it is a reasonable interpretation that would 
allow us to uniformly apply the statutory requirement while also 
providing price transparency to beneficiaries and maximizing price 
competition.
    Nevertheless, we premised this proposal on our related proposal to 
change the definition of ``Part D Negotiated Price'' to include all 
pharmacy price concessions. If we are going to use negotiated prices as 
the sole basis for determining increased payments to plans for purposes 
of section1860D-4(b)(1)(B) of the Act, then all pharmacy price 
concessions must be in the negotiated price because the price would 
need to have the same meaning at every network pharmacy. Consequently, 
because we are finalizing a different definition of negotiated price 
than originally proposed, one that will allow for the exclusion of some 
pharmacy price concessions from the negotiated price, we will not be 
finalizing our proposal to require consistently lower negotiated prices 
at pharmacies offering preferred cost sharing. Clearly if some price 
concessions are not reflected in the negotiated price, a higher 
negotiated price may not result in increased payments to plans. We also 
are not finalizing an alternative requirement at this time, in light of 
the comments that suggested different approaches because we intend to 
consider them further as we determine how best to ensure, in a 
transparent manner, that preferred cost sharing does not increase 
payments to plans. While we are not finalizing the proposal, we 
disagree with the commenter who stated that CMS does not have the 
authority to implement such a requirement because it is consistent with 
our obligation to implement and enforce many statutory requirements 
under the Part D program that directly or indirectly affect 
negotiations between pharmacies and Part D sponsors, in particular 
section 1860D-4(b)(1)(B) of the Act, and including several other 
closely related statutory provisions contained in section 1860D-4(b)(1) 
of the Act. For example, we have previously established retail and non-
retail pharmacy network adequacy requirements under this authority to 
ensure convenient pharmacy access as required under section 1860D-
4(b)(1)(C) of the Act.
    Comment: Some commenters asserted that our April 2013 study 
(``Negotiated Pricing between Preferred and Non-Preferred Pharmacy 
Networks'', posted at: http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/.
    Downloads/PharmacyNetwork.pdf) that we cited as showing some 
negotiated prices for drugs were higher at pharmacies offering 
preferred cost sharing than the rest of the network was flawed. 
Therefore, they contend that our rationale for the proposal was flawed. 
They point out that this study only looked at prescription drug event 
(PDE) data and did not take into consideration any direct or indirect 
remuneration. They claim that even if you accept the results of this 
study as stated, it shows only that drug prices were ``slightly 
higher'' and only in ``a few'' preferred networks in ``some plans''. In 
addition, commenters raised methodological concerns because the CMS 
study was not normalized for different drug mix and utilization between 
plans, which they said will bias the results and lead to incorrect 
conclusions that will contribute to higher costs for beneficiaries and 
the Part D program.
    Response: We appreciate the detailed comments regarding the 
validity of our study and the conclusions that we drew. However, we 
disagree with the assertion that our study was flawed and believe some 
commenters misinterpreted our findings. Specifically, despite the 
comments, we did not conclude that our findings showed that some 
pharmacies with preferred cost sharing were more expensive than some 
other pharmacies that were not offering preferred cost sharing. We 
acknowledge that this study did not take into consideration price 
concessions reported as DIR or differences in drug mix, and therefore 
agree that one cannot make that conclusion given the current definition 
of negotiated price and variability among plans on what is included in 
the

[[Page 29882]]

price. Nevertheless, we believe the findings of some higher negotiated 
prices at some pharmacies offering preferred cost sharing demonstrates 
that we cannot assume point-of-sale negotiated prices are always lower 
at pharmacies offering preferred cost sharing and, therefore cannot 
assume that benefit designs with some pharmacies offering preferred 
cost sharing never increase payments to plans. Instead, we believe our 
study highlighted this vulnerability and the need for us to propose a 
transparent and consistent method for ensuring these benefit designs do 
not increase payments to plans.
    Comment: Some commenters strongly supported our proposal to remove 
the definitions of preferred and non-preferred pharmacies and replace 
them with a definition of preferred cost sharing. These commenters 
agreed that the term ``preferred pharmacy'' is confusing for 
beneficiaries who sometimes interpret this to mean non-preferred 
pharmacies are out-of-network. Other commenters opposed the proposal 
because they believe the change in terminology will be confusing for 
beneficiaries. They note that under the current framework plans may 
already refer to non-preferred pharmacies as ``other network 
pharmacies'' and, therefore, there is no need for this change. 
Moreover, some commenters opposed removing the term ``preferred 
pharmacy'' because they believe it refers not only to lower cost 
sharing but also quality of services. Another commenter who was 
supportive of the proposed change also raised concerns about 
beneficiary confusion from the change in terminology and urged CMS to 
consider education and outreach efforts to help beneficiary understand 
the new terminology and add related language to Medicare & You.
    Response: We appreciate the comments we received on this proposal. 
We agree with supporters that this change will help avoid confusion 
regarding pharmacy network status and more accurately reflect what is 
meant by preferred. While any change has the potential to initially 
create some confusion, we disagree that substantively this change will 
be more confusing to beneficiaries going forward. In addition, we are 
perplexed by the comments that said their identification of preferred 
pharmacies also takes into consideration the quality of pharmacy 
services because that was never part of the regulatory definition. 
Nevertheless, we are not finalizing this proposal because it is so 
closely tied to the other preferred cost sharing proposal to revise 
Sec.  423.120(a)(9) that is not being finalized as a result of changes 
to the definition of negotiated price in this final rule (as described 
in section III.A.25 of this final rule).
    After considering of the public comments received, we are not 
finalizing the proposed changes to Sec. Sec.  423.120(a)(9) and 
423.100. We will undertake notice and comment rulemaking if we are 
going to make changes to these provisions in the future.
18. Prescription Drug Pricing Standards and Maximum Allowable Cost 
(Sec.  423.505(b)(21)
    We proposed 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 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. Specifically, 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. 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'').
    We stated in the preamble to the September 2011 final rule that a 
``prescription drug pricing standard'' is an accepted methodology based 
on published drug pricing. In the preamble to the proposed rule, we 
explained that this was because we were unaware at the time that there 
is at least one standard based, at least in part, on costs of the drugs 
that is not based strictly on published drug pricing, which is maximum 
allowable cost prices. Now that we have become aware of these types of 
pricing standards, we wish to amend 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 section 173 of MIPPA indicates the provision's 
purpose--Part D sponsors must update their prescription drug pricing 
standards regularly ``to accurately reflect the market price of 
acquiring 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, including in cases when the reimbursement is 
based upon maximum allowable cost prices.
    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 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.

[[Page 29883]]

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 we 
compare 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 this and other reasons detailed in the preamble to the proposed 
regulation, as well as in response to comments received on the proposed 
regulation, we are defining ``prescription drug pricing standard'' in 
regulation. Specifically, in Sec.  423.501 a ``prescription drug 
pricing standard'' is now defined as ``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 acquisition 
cost, average manufacturer price, average sales price, maximum 
allowable cost, or other cost, whether publicly available or not.'' In 
addition, we are finalizing the following technical changes to make the 
regulations on prescription drug pricing standards easier to reference: 
(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. Also, we are moving 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), 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), we are finalizing a 
new requirement and not a technical change, 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 have to convey to 
network pharmacies the actual maximum allowable cost prices to be 
changed in advance. We are requiring that the actual maximum allowable 
cost 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 eliminating 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 
duplicative to language in 423.505(b)(21). As a result of the changes 
described previously, there would be no paragraphs (A) and (B) of Sec.  
423.505(i)(3)(viii) (which we note will be redesignated as Sec.  
423.505(i)(3)(vii) due to other changes in this final rule), and this 
provision simply requires 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 
changes will make the regulation text easier to reference and 
understand.
    Comment: We received a very significant number of supportive 
comments for our proposal. These commenters asserted that maximum 
allowable cost prices are a source of deep and ongoing concern for 
pharmacies. Specifically, these commenters assert that PBMs update 
maximum allowable cost prices of drugs for which the drug costs are 
declining in a timely manner, but do not do so when the drug costs are 
increasing. These commenters asserted in particular that there were 
significant spikes in the acquisition costs for certain generic drugs 
in Fall 2013, but that PBMs did not update their maximum allowable cost 
prices accordingly. These commenters also offered specific examples of 
maximum allowable cost prices of drugs that they asserted resulted in 
reimbursement that was below pharmacy acquisition costs for the drugs, 
yet the drugs were not available on the market at lower prices. These 
commenters stated that pharmacies were forced not to stock certain 
drugs due to inadequate reimbursement based on maximum allowable cost 
prices of drugs, sometimes creating access issues for patients. These 
commenters further stated that the pharmacies are even in danger of 
going out of business altogether due to the low maximum allowable cost 
prices for drugs, and that if pharmacies are forced to close their 
doors for this reason, there would be even greater health care access 
issues in many communities.
    The supportive comments stated that greater transparency in maximum 
allowable cost prices of drugs would not only give pharmacies the 
ability to shop for more cost-effective versions of generic drugs, but 
would improve pharmacies' ability to evaluate Medicare Part D plan 
contract proposals, plan their business staffing levels and potential 
capital investments, and monitor claims reimbursements and appeal when 
it appears that there has been a reimbursement error.
    Conversely, some other commenters opposed our proposal. One 
commenter asserted that our proposal was based upon anecdotal 
complaints from pharmacies. This commenter stated that PBMs make their 
most utilized maximum allowable cost list available upon request to any 
pharmacy that asks for it, and that pharmacies almost never make such a 
request.
    Response: We thank the commenters for their supportive comments of 
our proposal. Given the voluminous number of supportive comments we 
received, we disagree with the commenter that stated that our proposal 
was based upon anecdotal pharmacy complaints. However, we were 
surprised to learn that pharmacies do not routinely request PBMs' most 
utilized maximum allowable cost lists, and wonder if pharmacies do not 
realize that they are available upon request. We agree with the 
supportive commenters that greater drug price transparency will further 
increase competition in the drug market which can lead to even lower 
drug prices. Therefore, we encourage pharmacies to make requests for 
the most utilized maximum allowable cost lists from the PBMs with which 
they do business, and thank the commenter for this suggestion.
    Comment: Many commenters support our proposal out of concern that 
the uncertainties surrounding current maximum allowable cost prices for 
drugs fall more heavily on smaller rural and community pharmacies and 
may limit beneficiary access. Additionally, these commenters expressed 
support for greater drug price transparency for Medicare beneficiaries.
    Response: We thank the commenters for their support of our 
proposal.
    Comment: Some commenters opposed our proposal, asserting that it 
would increase costs by requiring a specific

[[Page 29884]]

time period (which many commenters interpreted to be 7 days advance 
notice) for advance notice, as generic drug costs generally decrease 
over time. It also appeared that some commenters asserted that 
requiring any advance notice of maximum allowable cost prices would 
increase costs, including one who made a general assertion that it 
would permit pharmacies and drug manufacturers to ``game the system'' 
by modifying the timing of their various transactions in a manner that 
capitalizes on the pricing changes. Other commenters stated that the 
proposal would interfere with a mechanism that incentivizes pharmacies 
to purchase the least expensive generic drug available. Finally, some 
commenters opposed the requirement, asserting that requiring price 
updates at least every 7 days is redundant of the frequent updates that 
are inherent in a maximum allowable cost pricing mechanism and only 
adds administrative cost.
    Conversely, many commenters requested that PBMs be required to give 
at least 7 days prior notice before a maximum allowable cost price 
change. One commenter opposed the proposal, but recommended as an 
alternative that maximum allowable cost prices be updated every 7 
business days, and not necessarily beginning on January 1 of each year. 
Another commenter opposed the proposal, but recommended as an 
alternative that the no-less-than-7 day update requirement for maximum 
allowable cost prices be extended to no less than every 14 days.
    Response: This requirement does not specify any particular time 
period for advance notice of maximum allowable cost prices to network 
pharmacies. The requirement is that maximum allowable cost prices of 
drugs must be updated at least every 7 days and disclosed in advance of 
their use, if the source for any prescription drug pricing standard is 
not publicly available. Also, if generic prices generally decrease over 
time, updating maximum allowable cost prices for drugs at least every 7 
days generally should have a downward pressure on overall drug costs. 
Therefore, we do not agree with the commenters that the requirement 
will necessarily increase costs. Also, maximum allowable cost prices 
currently must be disclosed at point-of-sale (POS) in order for a drug 
claim to process, so we do not believe that mere advance notice changes 
the drug claims processing system so significantly as to permit gaming 
of the system, particularly since the commenter that raised this 
concern provided no detail to back up its assertions about how any such 
gaming would occur. Furthermore, we do not understand the argument for 
the status quo--that disclosing maximum allowable cost prices only at 
POS better incentivizes pharmacies to purchase the least expensive 
generic drugs compared to requiring some advance notice of those prices 
to the pharmacies. We think pharmacies will still be incentivized to 
acquire a drug at the lowest cost possible regardless of whether 
disclosed maximum allowable cost prices are declining or increasing.
    We further were not persuaded by the argument that the requirement 
is redundant, as it seems to suggest that the Part D sponsors/PBMs will 
frequently update maximum allowable cost prices anyway and disclose 
them at POS, but requiring them to be updated at least every 7 days and 
disclosed in advance adds significant administrative costs. In fact, we 
think just the opposite--that negligible administrative costs will be 
incurred by Part D sponsors due to this requirement, since they are 
using and updating maximum allowable cost prices for reimbursement of 
drug claims already and must make minimal changes to that current 
system to comply with this requirement. In other words, so long as Part 
D sponsors are updating maximum allowable cost prices as frequently as 
commenters asserted that the prices change and using them for 
reimbursement, then the new updating and disclosure requirement changes 
nothing for that sponsor, other than that the sponsor must now disclose 
the maximum allowable cost prices to its network pharmacies in advance 
of their use (rather than just at point-of-sale) in a way that enables 
the pharmacy to connect a claim to the correct drug price at the 
appropriate point in time in order to validate the price. However, we 
acknowledge that to the extent the assertions of some commenters are 
true--that PBMs update maximum allowable cost prices only when drug 
prices are declining, but not when they are increasing--then we would 
agree that this requirement may also result in more updating for PBMs.
    In addition, we note that the requirement to update prescription 
drug pricing standards every 7 days beginning on January 1 of each year 
is a statutory one. We do not have the authority to implement different 
update timing requirements, nor to disregard the January 1 start date 
every year.
    Comment: Some commenters stated that our proposal was operationally 
infeasible, as there are different maximum allowable cost lists for 
different pharmacies, types of pharmacies, types of programs 
(commercial, Medicare D, TRICARE, etc.) and over 100,000 drugs are 
subject to maximum allowable cost prices, (sometimes daily). Some other 
commenters stated that sending network pharmacies a stream of 
continuous maximum allowable cost pricing updates would be a nuisance 
and distraction and not helpful to network pharmacies. One commenter 
did not object to our proposal, as long the requirement can be met in a 
manner that is efficient, such as on a look-up basis through a secure 
internet site that network pharmacies can access at any time to obtain 
the most current maximum allowable cost pricing for a particular drug.
    One commenter requested that we require maximum allowable cost 
prices to be disclosed via a certain consistent format layout and 
delivery method and include industry standard drug identifiers, such as 
Generic Pricing Indicators (GPI), and that the data format allow for 
efficient data analysis such as MS Excel, or a text document that could 
be converted to Excel.
    Response: We were not persuaded by the commenters that stated our 
proposal was operationally infeasible. It does not make sense to us 
that Part D sponsors/PBMs can manage the complexity in pharmacy 
reimbursement described in the comments, but cannot manage to modify 
that existing system in order to disclose the prices in advance of 
their use to network pharmacies, and update them at least every 7 days. 
Rather, we were persuaded by the commenter that described one option 
for meeting the requirement--through a secure internet site that 
allowed network pharmacies to look up their drug prices. This option 
would be compliant with the prescription drug pricing standard 
requirement, so long as the site or other delivery method to convey 
maximum allowable cost prices enables pharmacies to connect a claim to 
the correct drug price at the appropriate point in time in order to 
validate the price. We decline to require a certain format layout and 
delivery method for disclosure of maximum allowable cost prices, but 
note these matters can be addressed by the parties in their 
negotiations.
    Comment: Some commenters asserted that requiring the disclosure of 
maximum allowable cost methodology would increase Part D program costs 
by revealing competitive information. Many other commenters requested 
that we require PBMs to disclose the specific NDCs used to compute 
maximum allowable cost prices on drugs.
    Response: Our proposal did not require Part D sponsors/PBMs to 
disclose their maximum allowable cost

[[Page 29885]]

methodology, nor the proprietary data source or basis used to develop 
reimbursement rates. We note that 423.505(b)(21)(ii) will require a 
Part D sponsor to indicate the source for making updates to a 
prescription drug pricing standard. In the case of publicly available 
standards, the sponsor would identify the standard. In the case of 
maximum allowable cost pricing that is not publicly available, the 
sponsor would indicate that the standard is maximum allowable cost 
pricing to meet this particular requirement. We also decline to require 
Part D sponsors to disclose the specific NDCs used to compute maximum 
allowable cost prices. However, we note that these matters can be 
addressed in contractual negotiations.
    Comment: Some commenters asserted that maximum allowable cost 
prices are not a prescription drug pricing standard, and that CMS is 
exceeding its statutory authority in making it one. One commenter 
asserted that the Congress' intent in enacting section 173 of MIPPA was 
to ensure that pricing standards are timely adjusted when market prices 
fluctuate and not to ensure that pharmacies have current data on 
reimbursement amounts. This commenter also stated that when a payment 
methodology uses non-public costs for setting prices, payment amounts 
may have no direct relationship to fluctuations in acquisition costs. 
Many commenters specifically supported the language ``includes, but is 
not limited to'' in the proposed definition of prescription drug 
pricing standard, stating that without this language, PBMs will shift 
to a different drug claim reimbursement mechanism over time and assert 
that the new mechanism is not subject to the prescription drug pricing 
standard regulation. Another commenter helpfully pointed out that our 
proposed definition of ``prescription drug pricing standard'' 
mistakenly referred to ``wholesale average cost'' instead of 
``wholesale acquisition cost.''
    Response: We thank the commenters for their supportive comments and 
note that we are finalizing the definition of ``prescription drug 
pricing standard'' as proposed, with the exception of changing 
``wholesale average cost'' to ``wholesale acquisition cost.'' We 
disagree with the commenters that maximum allowable cost prices are not 
a prescription drug pricing standard, and we disagree that we are 
exceeding our authority in specifying in regulation that maximum 
allowable cost prices, like other prescription drug standards, must be 
updated in accordance with the statutory requirements. In our view, it 
is clear that Congress believed that if a standard is based on the cost 
of a drug (whether directly or indirectly), it must be updated to 
accurately reflect the market price of acquiring the drug. Since the 
statutory language of section 173 of MIPPA does not exclude maximum 
allowable cost prices from the term ``prescription drug pricing 
standard,'' and maximum allowable cost prices are based on the cost of 
the drug and thus fluctuate and are updated, we believe it is 
reasonable to interpret the term, ``prescription drug pricing 
standard,'' to include maximum allowable cost prices. As such, they 
must be treated as any other prescription drug pricing standard under 
the statutory and regulatory requirements. In the case of published 
prescription drug pricing standards, the standards themselves provide 
pharmacies with current data on reimbursement amounts. In the case of 
non-published ones, disclosing the prices themselves in advance of 
their use provides this data. We agree with the commenter who asserted 
that MIPPA section 173 is intended to ensure that prices are adjusted 
timely, but we disagree that it necessarily follows that the Congress 
did not intend to ensure that pharmacies had access to current data on 
reimbursement amounts. We believe that the requirement for timely 
updating of reimbursement standards must include sufficient 
transparency so that pharmacies can determine that the updating 
requirement is being fulfilled. The disclosure requirements we are 
finalizing here are consistent with the updating requirement, and are 
appropriate to ensure sufficient transparency.
    Comment: Many commenters stated that having current data on the 
amount of reimbursement pharmacies can expect in turn impacts costs 
that plan sponsors submit to CMS, as well as prices displayed on 
Medicare Prescription Drug Plan Finder (MPDFP). Other commenters 
asserted that the MPDFP is updated every 2 weeks with pricing that is 
effectively a month old, and that the validity of estimated prices on 
the MPDPF does not depend on the ability of pharmacies to verify the 
prices shown, and that this responsibility is on Part D sponsors. One 
commenter stated that our requirement would necessitate more frequent 
updating of the MPDPF.
    Response: We thank the commenters for their supportive comments of 
our similar assertions in the preamble to the proposed rule. Our 
proposal does not affect the current process for Part D sponsors to 
submit drug price for the MPDPF. Our point about the MPDPF in the 
preamble to the proposed rule was that this requirement will enable 
pharmacies to validate maximum allowable cost prices in the MPDPF. 
While we agree with the commenters that the MPDPF is not a real-time 
information system, but rather reflects drug prices at a point in time, 
we note that these prices should be the correct prices for that point 
in time. Currently, however, pharmacies have no ready way to validate 
the prices in the MPDPF that are based on maximum allowable cost prices 
if they choose to do so. Once maximum allowable cost prices are 
disclosed to pharmacies in a way that enables pharmacies to connect a 
claim to the correct drug price at the appropriate point in time, they 
will be able to validate prices in the MPDPF and alert sponsors, or 
CMS, to any issues.
    Comment: A few commenters requested a delay in the effective date 
for implementation of this requirement until January 1, 2016. This 
delay would provide for more preparation time.
    Response: We were persuaded by comments to delay the effective date 
of this proposal until 2016 to give Part D sponsors time to consider 
the format layout and delivery method for conveying maximum allowable 
cost prices to network pharmacies in a manner that allows the 
pharmacies to connect a claim to the correct drug price at the 
appropriate point in time in an efficient way.
    Comment: Many commenters requested that we include a definition for 
which drugs can be included on a maximum allowable cost list, and 
requirements for an appeals process for challenging maximum allowable 
cost prices and for standards related to pharmacy audits. One commenter 
stated that it sends 200 requests per month to PBMs to increase their 
maximum allowable cost reimbursement rates to be closer to pharmacy 
acquisition costs and that very few are ever responded to, and fewer 
still are ever adjusted.
    Response: These comments are out of scope of our proposal.
    In light of all the comments received, we are finalizing this 
proposal without change, except for correcting the error in the 
definition for prescription drug pricing standard previously noted and 
delaying the effective date until January 1, 2016.
19. 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 plan's Terms and Conditions (T&C) to 
participate in the plan's network. We used this authority

[[Page 29886]]

to establish requirements under Sec.  423.120(a)(8) and 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 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 proposed 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 are 
referred to as standard cost sharing levels. Cost sharing levels 
offered at retail pharmacies at the preferred T&C are referred to as 
preferred cost sharing levels.
    We have 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 and 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 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) and (B) of the Act to 
reduce barriers is not only permissible, but also 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.
    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.
    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 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 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.

[[Page 29887]]

    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.
    We proposed 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 
proposed 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. We proposed 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 proposed to limit long term care, specialty, and 
infusion pharmacy cost sharing to the standard monthly rate, as is 
industry practice today. Second, we proposed 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 proposed 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 solicited 
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).
    In summary, we proposed 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 proposed 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 proposed 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 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 solicited 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. We believe 
these proposals would 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. We received more than 4,000 comments on these 
proposals and our response follows:
    Comment: This proposal received significant support from commenters 
citing an interest in expanding access to preferred cost sharing and 
creating a more level playing field for small and independent 
pharmacies. Many reported that the lower cost sharing at a limited 
number of pharmacies offering preferred cost sharing leads many 
beneficiaries to drive sometimes great distances to access these 
savings, even when they have a stated preference to stay with a local 
pharmacy, or one where they have a long-term history with the 
pharmacist. Many other commenters reported that some current marketing 
practices are mistakenly interpreted as suggesting that only pharmacies 
offering preferred cost sharing can be used by enrollees of that plan, 
also leading many beneficiaries to leave their preferred choice of 
where to access pharmacy services.
    Response: We appreciate the strong support we received for this 
proposal. We agree with many of the commenters who wrote that 
beneficiaries should be able to choose where they obtain their pharmacy 
services, and we are very concerned to hear that the current incentives 
(and potentially current marketing of pharmacies offering preferred 
cost sharing) lead many beneficiaries to believe that only those 
pharmacies offering preferred cost sharing can be used. We are also 
concerned by the many comments reporting that beneficiaries are now 
driving 30-60 miles to the nearest pharmacy offering preferred cost 
sharing, or are feeling forced into using mail-order services, despite 
a preference to stay with a local pharmacy. We share the concerns of 
commenters who suggest that current contracting practices by sponsors, 
only extending preferred cost sharing T&C with select pharmacies, are 
being interpreted by Medicare beneficiaries as a violation of the Any 
Willing Pharmacy provision in statute. While the Any Willing Pharmacy 
provision applies only to participation in a plan's pharmacy network, 
not the subset of pharmacies offering preferred cost sharing, many 
commenters reported that access to preferred cost sharing does not 
align with beneficiaries' expectation for choice of pharmacy service 
provider. That is, if a plan offers preferred cost sharing, 
beneficiaries assume they will be able to access that cost sharing at 
their own ``preferred'' pharmacy.

[[Page 29888]]

    Comment: Some commenters asserted that requiring plan sponsors to 
allow any willing pharmacy to accept publicly disclosed terms and 
conditions to offer preferred cost sharing to plan enrollees, in 
exchange for requisite drug price discounts, would limit sponsors' 
ability to negotiate significant discounts from a more limited number 
of pharmacies. Some of these commenters stated that they did not 
believe CMS had the authority to make this change. A few commenters 
suggested that CMS use its current authority to respond to plan 
offerings that we determine to be discriminatory in the availability 
and access they provide to preferred cost sharing, and to reject plans 
failing to offer fair access. Many of the opponents of this proposal 
objected to publicly posting contract T&C, as potentially undermining 
price competition. These commenters suggested that this change would 
ultimately result in higher drug costs, as a higher number of 
pharmacies offering preferred cost sharing would lead to a decrease in 
the volume of enrollees electing to use any one of these pharmacies, 
and as a result pharmacies would not be as willing to negotiate deeply 
discounted drug prices without the promise of a high volume of 
enrollees. Some commenters submitted economic analyses in support of 
their claims. Some, but not all opponents questioned CMS' assumption 
that pharmacies currently offering preferred cost sharing would not 
elect to discontinue offering preferred cost sharing if such terms and 
conditions were available to any willing pharmacy.
    Response: We continue to believe that reduced preferred cost 
sharing offered to plan enrollees should be aligned with reduced drug 
prices charged to the program, aligning the cost sharing price signals 
with high value plans offering reduced drug pricing. 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 may be necessary to restore price 
competition in these networks. We disagree with the comments suggesting 
that this provision violates the non-interference provision. Expanding 
access to preferred cost sharing aligns with the authority to establish 
rules defining convenient access within a Part D network, combined with 
the authority to interpret the any willing pharmacy requirements. We 
believe the network access provisions in section 1860D-4(b)(1)(A) of 
the Act support expanding Sec.  423.120(a)(8) to establish access 
standards for all levels of cost sharing offered under a sponsor's 
benefit plans, and that this expansion aligns with Congressional intent 
to have open competition between plans based on negotiated price.
    Numerous comments from opponents of the provision cited published 
analyses that predate Part D on the elimination of selective 
contracting practices at the state level and higher drug expenditures 
noted after this change. However, we are concerned that traditional 
analyses that study drug expenditures after an expansion of a 
previously limited network may not be directly relevant to the Part D 
market. While we recognize the general parallels between the studies 
submitted for consideration and the any willing pharmacy proposal, any 
attempt to generalize these studies to the Part D benefit would need to 
incorporate multiple other variables, especially given the revenue 
streams other than point-of-sale pricing that may distort other 
economic incentives. The studies submitted offer only limited 
explanation of what trends in utilization, pricing, and care management 
surrounded the state-level changes, and without that context we do not 
consider these analyses persuasive. Further supporting our concerns, 
one commenter provided alternative economic analysis that supported our 
assumption that within the Part D market expanding access to any 
willing pharmacy may not affect drug prices.
    While we continue to believe that there are benefits in increasing 
transparency and in permitting pharmacies willing to charge reduced 
prices in exchange for offering preferred cost sharing, in light of 
these comments we believe it is necessary to further analyze the 
potential impacts on the Part D market. Considering the conflicting 
comments and analyses submitted, and the potential consequences of 
implementing any changes based on incorrect assumptions, we believe it 
is important to wait and to spend additional time considering the 
evidence for potential financial impacts within the Part D benefit. We 
will be closely studying preferred cost sharing practices, including 
the associated point-of-sale drug pricing, going forward. In response 
to the comments suggesting that CMS use its current authority to 
respond to plan offerings that we determine to be discriminatory in its 
proposed availability and access to preferred cost sharing, we will 
further explore our authority in this area. In addition, we plan to 
closely monitor beneficiaries' access to preferred cost sharing, as 
well as drug pricing by pharmacies offering preferred cost sharing, to 
determine whether future rulemaking in this area is necessary.
    In summary, pending further study, we are not finalizing the any 
willing pharmacy contracting proposed provision changes to Sec.  
423.120(a)(8) or 423.505(b)(18), nor the proposed changes to limit the 
authorized levels of cost sharing. We will engage in further notice and 
comment rulemaking on this issue as warranted in the future.
20. Enrollment Requirements for 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 
proposed 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 be 
prescribed by a physician or eligible professional (as defined at 
section 1848(k)(3)(B) of the Act (42 U.S.C. 1395w-4(k)(3)(B)) who is 
enrolled in the Medicare program pursuant to section 1866(j) of the Act 
(42 U.S.C. 1395cc(j)). We generally proposed in revised Sec.  
423.120(c)(5) and new paragraph (6) that a prescriber of Part D drugs 
must have (1) an approved enrollment record in the Medicare program, or 
(2) a valid opt-out affidavit on file with a Part A/Part B Medicare 
Administrative Contractor (A/B MAC) in order for a prescription to be 
eligible for coverage under the Part D program. More specifically, we 
proposed the following:
     Under Sec.  423.120(c)(5)(ii)(A) and (B), a Part D sponsor 
must deny or must require its PBM to deny a pharmacy claim for a Part D 
drug if: (1) An active and valid physician or eligible professional 
National Provider Identifier (NPI) is not contained on the claim; or 
(2) the physician or eligible professional (i) is not enrolled in the 
Medicare program in an approved status, and (ii) does not have a valid 
opt-out affidavit on file with an A/B MAC.
     Under Sec.  423.120(c)(5)(ii)(C) and (c)(6)(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 eligible 
professional who: (1) Is identified by his or her legal name in the 
request; and (2) is either enrolled in Medicare in an approved status 
or has a valid opt-out affidavit on file with an A/B MAC.
     Under Sec.  423.120(c)(6)(i), in order for a Part D 
sponsor to submit to CMS a prescription drug event (PDE) record, the 
PDE must pertain to a claim for a Part D drug that was dispensed in

[[Page 29889]]

accordance with a prescription written by a physician or eligible 
professional who is either (1) enrolled in Medicare in an approved 
status, or (2) has a valid opt-out affidavit on file with an A/B MAC.
     Under Sec.  423.120(c)(6)(iii), a Part D sponsor must deny 
or must require its PBM to deny a pharmacy claim for a drug (or a 
request for reimbursement from a Medicare beneficiary for a drug) if 
the claim does not meet the requirements of Sec.  423.120(c)(6)(i) or 
(ii), respectively.
    The overriding purpose of these provisions is to help ensure that 
Part D drugs are prescribed only by physicians and eligible 
professionals who are qualified to do so under state law and under the 
requirements of the Medicare program.
    Our proposed enrollment deadline of January 1, 2015 was intended to 
give physicians and eligible professionals at least 6 months after the 
publication of a final rule to complete the Medicare enrollment 
process. We solicited comments regarding the propriety of this 
effective date.
    The Medicare 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. The enrollment application collects 
identifying information about the applicant and his or her credentials, 
such as licensure status. We have been concerned about instances where 
unqualified individuals are prescribing Part D drugs. In fact, 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).) There have also 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 
these and similar vulnerabilities by verifying the credentials of 
prescribers through either the Medicare enrollment process or their 
submission of a valid opt-out affidavit.
    With respect to the latter, we note that under section 1802(b) of 
the Act and the implementing regulations at Sec.  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 such contracts, these individuals do 
not bill the Medicare program for non-emergency services they furnish 
to beneficiaries.
    Under our proposal, in short, the prescriptions of a physician or 
eligible professional who is not enrolled in Medicare and does not have 
a valid opt-out affidavit on file with an A/B MAC would not be covered 
under the Part D program. As explained in the proposed rule, CMS would 
furnish or make available to Part D sponsors a list of physicians and 
eligible professionals who have an approved Medicare enrollment record 
or who have a valid opt-out affidavit on file with an A/B MAC.
    We also solicited comments on the following issues:
     Whether all pharmacies should be required to enroll in 
Medicare in order to dispense covered Part D drugs. (Alternatively, we 
sought comment on whether requiring Medicare 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.)
     Whether doctors of dental surgery or dental medicine, 
including family dentists, should be required to enroll in Medicare in 
order to prescribe covered Part D drugs. (Note that we did not propose 
to exclude dentists from our requirements. Sections 423.120(c)(5) and 
(6) were intended to apply to dentists.)
    We received a significant number of comments regarding these 
proposed provisions. Summaries of the comments as well as our responses 
follow:
    Comment: A number of commenters opposed our proposed changes to 
Sec.  423.120(c)(5) and the addition of Sec.  423.120(c)(6). Several 
commenters were concerned that these requirements would disrupt 
Medicare beneficiaries' current relationships with their physicians or 
otherwise prevent patients from seeing certain physicians, hence 
denying them care. One commenter stated that it appears that state 
licensure alone is no longer sufficient for an individual to prescribe 
drugs, and that Sec.  423.120(c)(5) and (6) would inappropriately limit 
one's ability to prescribe when he or she is otherwise permitted to do 
so under state law. The requirement to enroll is particularly 
disconcerting, the commenter added, considering that the prescribing 
individual (as opposed to the pharmacy) is not even receiving 
reimbursement from Medicare for the prescribed drug. Another commenter 
stated that medication should be based on a patient's needs, rather 
than on whether a physician is in the Medicare system. Several 
commenters also requested further clarification regarding the intent of 
our proposed revisions.
    Response: The central purpose of our changes to Sec.  423.120(c), 
as alluded to previously, is to ensure that we can verify that the 
prescriber is appropriately licensed and certified, is not excluded or 
debarred from Medicare, and is otherwise qualified under Medicare 
regulations to prescribe Part D drugs. Again, we have been concerned 
that unqualified individuals are prescribing such drugs, and the 
previously-referenced OIG report bears this out. The enrollment process 
will help ensure that Medicare beneficiaries and the Trust Funds are 
protected, which is why we intend to proceed with our proposal. We note 
further that these changes are fully consistent with our requirement in 
Sec.  424.507 that physicians and eligible professionals who order or 
certify certain services and items are either enrolled in Medicare or 
have a valid opt-out affidavit on file with an A/B MAC.
    Comment: Several commenters contended that Medicare should not 
require physicians who do not participate in or take Medicare to enroll 
in the program.
    Response: Our changes to Sec.  423.120(c) permit a physician or 
eligible professional who has a valid opt-out affidavit on file with an 
A/B MAC to prescribe Part D drugs.
    Comment: Many commenters, some of whom supported our proposed 
changes, expressed concern about the proposed January 1, 2015 date. 
Several of them requested that the implementation of Sec.  
423.120(c)(5) and (6) be delayed until 2016 or even 2017 to give CMS, 
prescribers, and plan sponsors adequate time to prepare and to address 
all operational and system challenges. Other commenters suggested that 
CMS utilize a phased-in approach, similar to that which was used for 
CMS' implementation of Sec.  424.507. These commenters asserted that 
this would help ensure that patient care is not interrupted, that all 
information regarding prescribers' enrollment statuses is correct, that 
appropriate system testing is done, that CMS engages in regular 
communication with all affected stakeholders, and that CMS can more 
accurately report the number of physicians and eligible professionals 
who will be affected by our proposal. Additional commenters recommended 
that any revised implementation date be on January 1 so as to coincide 
with the beginning of the new plan year.
    Response: We agree with these commenters regarding the need to 
allow adequate time to prepare. Therefore, we are revising Sec.  
423.120(c)(5) and (6) to

[[Page 29890]]

establish an effective date of June 1, 2015. We understand the 
commenters' desire for a January 1 date, but we do not believe a delay 
until January 1, 2016 is feasible given our aforementioned program 
integrity concerns. A June 1, 2015 date, we believe, strikes an 
appropriate balance between the need to have sufficient time to prepare 
and the need to ensure that only qualified individuals are prescribing 
Part D drugs.
    We wish to assure plan sponsors, prescriber and supplier 
organizations, and beneficiary advocacy groups that we will regularly 
communicate with them in the months leading up to the June 1, 2015 
effective date to address whatever concerns they have and to keep them 
abreast of CMS' preparations for implementation.
    Plan sponsors, prescribers, beneficiaries, and other affected 
parties should note that existing policies that will be superseded by 
our changes remain intact (and should continue to be adhered to) 
through May 31, 2015.
    In order to: (1) Help ensure that stakeholders can effectively 
determine which provisions apply to them before and after June 1, 2015, 
(2) simplify and consolidate our proposed changes to Sec.  423.120(c), 
and (3) eliminate potential duplication between the provisions we 
proposed in (c)(5)(ii) and in (c)(6), we are making several technical 
revisions. The existing version of paragraph (c)(5) will remain intact 
with the exception of the addition of the ``Before June 1, 2015, the 
following are applicable'' language at the very beginning of the 
paragraph. We are not finalizing our proposed changes to paragraph 
(c)(5)(ii), but are instead merging them with our addition of paragraph 
(a)(6). Hence, our final version of new paragraph (c)(6) will read as 
follows:
    ``(6) Beginning June 1, 2015, the following are applicable--
    (i) A Part D sponsor must deny, or must require its pharmaceutical 
benefit manager (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 (NPI) is not contained on the claim.
    (ii) A Part D sponsor must deny, or must require its PBM to deny, a 
pharmacy claim for a Part D drug if the physician or eligible 
professional (when permitted to write prescriptions by applicable State 
law)--
    (A) Is not enrolled in the Medicare program in an approved status; 
and
    (B) Does not have a valid opt-out affidavit on file with an A/B 
Medicare Administrative Contractor (MAC).
    (iii) A Part D sponsor must deny, or must require its PBM to deny, 
a request for reimbursement from a Medicare beneficiary for a drug if 
the request is not for a Part D drug that was dispensed in accordance 
with a prescription written by a physician or, when permitted by 
applicable State law, other eligible professional (as defined in 
section 1848(k)(3)(B)(i) or (ii) of the Act) who--
    (A) Is identified by his or her legal name in the request; and
    (B)(1) Is enrolled in Medicare in an approved status; or
    (2) Has a valid opt-out affidavit on file with an A/B MAC.
    (iv) In order for a Part D sponsor to submit to CMS a prescription 
drug event (PDE) record, the PDE must contain an active and valid 
individual prescriber NPI and 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 by applicable State law, an eligible 
professional (as defined in section 1848(k)(3)(B)(i) or (ii) of the 
Act) who:
    (A) Is enrolled in Medicare in an approved status, or
    (B) Has a valid opt-out affidavit on file with an A/B MAC.
    We note that in our final version of Sec.  423.120(c)(6)(iv), we 
have included the language ``must contain an active and valid 
individual prescriber NPI.'' This is not a new mandate, for a PDE must 
currently have the required NPI under Sec.  423.120(c)(5)(i). We are 
simply clarifying that this requirement continues on and after June 1, 
2015.
    Again, these are merely technical revisions. They do not involve 
any changes to our proposed policies.
    Comment: A commenter stated that proposed Sec.  423.120(c)(5) and 
(6) reflect CMS' continued efforts to protect the Medicare program from 
inappropriate payments for prescription drugs.
    Response: We appreciate the commenter's support.
    Comment: A commenter requested that CMS furnish sub-regulatory 
guidance concerning the following issues related to Sec.  423.120(c)(5) 
and (6): (1) the pharmacy's capability at point of service (POS) to 
verify that the prescriber's NPI and Medicare enrollment are valid; (2) 
whether plan sponsors will be expected to deny at the point of service 
if the beneficiary's prescriber has not completed either the enrollment 
process or an opt-out affidavit; (3) how CMS will disseminate relevant 
information to plan sponsors on a timely basis to enable sponsors to 
set up point of service edits and prevent negative beneficiary impacts; 
(4) whether CMS will require sponsors to allow pharmacies to override 
these denials, similar to other Prescriber ID edits; (5) which party 
(assuming CMS requires sponsors to pay claims at point of service and 
investigate post-claim payment) will be financially responsible when it 
is subsequently confirmed that the prescriber is not enrolled or has 
not validly opted-out; and (6) how CMS and sponsors will ensure that 
beneficiaries' access to needed Medicare-covered drugs are not delayed 
or denied due to this new process. Other commenters requested 
clarification regarding whether Sec.  423.120(c)(5) and (6) establish 
any new responsibilities for plan sponsors or pharmacies.
    Response: We anticipate disseminating, as deemed necessary, sub-
regulatory or other guidance to address the topics raised by the 
commenter and any new requirements for plan sponsors and pharmacies. 
Furthermore, and as already stated, we will regularly communicate with 
plan sponsors, prescriber and supplier associations, and beneficiary 
organizations prior to the June 1, 2015 effective date to address their 
concerns.
    Comment: A commenter expressed concern that there would be a flood 
of CMS-855 enrollment application forms or opt-out affidavit 
submissions by physicians and practitioners. The commenter asserted 
that this could cause application processing delays and, consequently, 
the denial of claims for drugs prescribed by practitioners whose 
applications could not be processed to completion before the 
implementation date. Another commenter requested information regarding 
the process and timeline for Medicare enrollment. Another commenter 
suggested that CMS could give a grace period to accept PDEs for 
physicians and eligible professionals who have applied for enrollment 
but are still awaiting the outcome of their application submission. Yet 
another commenter stated that the large number of revalidation 
applications being submitted could delay the processing of prescribers' 
CMS-855 applications.
    Response: We believe that our extension of the effective date to 
June 1, 2015 will give physicians and eligible professionals plenty of 
time to submit their enrollment applications or opt-out affidavits to 
their A/B MACs and to have the latter process these materials to 
completion before Sec.  423.120(c)(6) is implemented. Therefore, we do 
not believe that the grace period suggested by the third commenter is 
or will be necessary. As we stated in the proposed rule, we believe 
that the number of prescribers who are neither Medicare-enrolled nor 
have validly opted-out is

[[Page 29891]]

very low in any event, given that many physicians and eligible 
professionals furnish or order Part B services. Nevertheless, we will 
monitor this situation as June 1, 2015 approaches, and will communicate 
with plan sponsors, prescriber and supplier organizations, and 
beneficiary advocacy groups about progress in physician and eligible 
professional enrollment in Medicare pursuant to the requirements of 
Sec.  423.120(c)(6).
    Information on the general provider enrollment process and the 
timeframes for application processing can be found on CMS' Web site at 
http://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/MedicareProviderSupEnroll/index.html.
    Comment: Several commenters questioned the accuracy of the 
verification process, specifically as it relates to PECOS. The 
commenters stated that PECOS may not capture all enrolled individuals 
and that the information in the system may either be inaccurate or 
inconsistent with the data in NPPES. Another commenter requested that 
CMS permit enrollment via PECOS or a contractor's legacy system.
    Response: We are continuously enhancing PECOS and are confident 
that all enrolled and opted-out prescribers will be accurately 
reflected in the system. In addition, all current enrollments have been 
transitioned to the PECOS system and all new enrollments are directly 
entered into PECOS.
    Comment: A number of commenters requested information about how 
plan sponsors and pharmacies will be able to determine that a 
prescription was written by a prescriber who is enrolled or has opted-
out. One commenter recommended that CMS clarify whether the NPI would 
be used as the primary identifier of whether a particular physician or 
practitioner is enrolled. Other commenters requested further 
clarification regarding: (1) How our proposal will be operationalized; 
(2) whether the proposed list will include all enrolled and opt-out 
prescribers and will be sufficiently complete; (3) whether or how often 
CMS will update the list; (4) how plan sponsors will have access to the 
file; (5) when CMS will define the standard format; (6) whether there 
will be start and end-dates in the file; (7) whether there will be an 
indicator for physicians who are in a pended status; (8) the extent to 
which NPPES will be used in prescriber validation; (9) whether plan 
sponsors will still be required to review the OIG/System Access 
Management ((SAM); formerly GSA) databases; (10) how deceased 
prescribers and taxonomy data will be handled; and (11) how plan 
sponsors and pharmacists will identify revoked or limited supplier 
statuses.
    Response: As already indicated, we will make available to plan 
sponsors and pharmacies a complete list of prescribers who are either 
enrolled in Medicare or who have opted-out. The list will be regularly 
updated. The NPI will be one of several identifiers that can or will be 
used. We will, as deemed necessary, elaborate further on the 
verification process, the specific contents of the aforementioned list, 
the specific frequency with which the list will be updated, and various 
operational aspects of our requirements via sub-regulatory or other 
guidance.
    Comment: One commenter encouraged CMS to include a review of the 
prescriber's taxonomy code to confirm prescribing authority as part of 
the Medicare enrollment process for physicians and other eligible 
professionals.
    Response: We appreciate this suggestion and will take it under 
advisement as we continue our efforts to enhance the provider 
enrollment process.
    Comment: A commenter requested clarification concerning whether an 
individual who enrolls in Medicare solely to prescribe Part D drugs 
will be required to revalidate his or her enrollment every 5 years per 
Sec.  424.515. Another commenter sought clarification regarding whether 
enrollment pursuant to Sec.  423.120(c)(5) and (6) would subject the 
enrollee to all of the enrollment requirements outlined in Sec. Sec.  
424.500 through 424.570 (such as revalidation, deactivation, retention 
of medical documentation).
    Response: We reserve the right to apply applicable requirements in 
Sec. Sec.  424.500 through 424.570 to individuals enrolled in Medicare 
solely to prescribe Part D drugs. This would include the requirement in 
Sec.  424.515 to revalidate one's enrollment every 5 years.
    Comment: A commenter requested that CMS conduct a formal analysis 
to determine the percentage of prescribers with an active enrollment 
status by comparing the prescriber NPIs submitted on the PDEs to the 
Medicare enrollment records. The commenter was concerned that if the 
unenrolled prescribers disproportionately reflect certain supplier 
types or geographic areas, this could cause disruptions. The commenter 
also stated that CMS should develop a process for allowing prescribers 
who are authorized under state law to prescribe but are not eligible to 
be enrolled in Medicare to still prescribe Part D drugs that would be 
covered.
    Response: Prior to the June 1, 2015 date, we will, as deemed 
necessary, share information with plan sponsors regarding the numbers 
and percentages of prescribers who are enrolled in Medicare. As for the 
final comment, the prescriber must either opt-out of the Medicare 
program or otherwise comply with all Medicare enrollment requirements. 
We cannot enroll a prescriber who is ineligible to enroll in Medicare 
regardless of the individual's status under state law, for we are bound 
by our established enrollment procedures. Consequently, we cannot 
establish the exception process envisioned by the commenter.
    Comment: To limit POS denials that could affect beneficiary access 
and compromise patient care, a commenter made several recommendations 
regarding Sec.  423.120(c)(5) and (6). First, the prescriber enrollment 
files provided by CMS should be the single and authoritative source of 
prescriber enrollment for all federal health care programs. This would 
eliminate duplication of effort, streamline the enrollment process for 
prescribers, ensure the consistent application of CMS requirements, and 
eliminate the need to review NPPES, the DHHS OIG List, and the SAM. 
Second, a CMS and industry task force should be developed to establish 
data integrity criteria, identify the minimum necessary data elements, 
establish file dissemination frequency to support real-time 
validations, and ensure that appropriate information is communicated to 
the pharmacy and patient. Third, a process should be developed to 
address changes in a prescriber's enrollment status (and to notify 
beneficiaries of such changes) after the most recent files have been 
disseminated and before the next update will be available. Fourth, 
there should be changes to the PDE to support and accept multiple 
Submission Clarification Codes, as well as a process for CMS to convey 
more accurate information to the A/B MACs to update their files. Fifth, 
a CMS call center should be established to support prescriber and 
beneficiary inquiries on the prescriber's enrollment status. Sixth, 
there should be a CMS prescriber outreach and education effort to 
emphasize the importance of enrollment and to address various 
prescriber questions.
    Response: We appreciate the commenter's suggestions and address 
them as follows.
    Regarding the first recommendation, the aforementioned list will be 
the authoritative list of prescribers who are

[[Page 29892]]

enrolled in Medicare or have opted-out. However, it will not contain 
information regarding said individuals' enrollment in other federal 
health care programs. We do not believe such an all-encompassing list 
is feasible at the present time due to the differing requirements and 
standards of these various programs.
    We will continue to work with the health care industry to ensure 
that the files CMS disseminates contain the information necessary for 
plan sponsors, pharmacies, and prescribers to enforce and comply with 
all CMS requirements. This will include appropriate updates to reflect 
changes in a prescriber's status, as alluded to in the commenter's 
third suggestion.
    We will consider making changes to the PDE as deemed necessary to 
facilitate the appropriate implementation of and adherence to Sec.  
423.120(c)(6). We will also, as deemed necessary, furnish guidance 
regarding: (1) appropriate information for prescribers and 
beneficiaries concerning the enrollment status of prescribers; (2) the 
importance of enrollment; and (3) vehicles for addressing prescriber 
inquiries.
    Comment: A commenter recommended that in order to stop fraud on a 
prepayment basis and to ensure that Medicare beneficiaries are 
protected from physicians and eligible professionals who prescribe 
controlled substances without a valid DEA registration number, CMS 
should revise Sec.  423.120(c)(6) to require Part D plan sponsors to 
make payments to a pharmacy or Medicare beneficiary when a Part D 
controlled substance is prescribed by a physician or eligible 
professional who has a valid and active DEA registration number.
    Response: We do not believe this revision is necessary, for we will 
be able to revoke an individual's ability to prescribe such drugs under 
Sec.  424.535(a)(13) (as explained in more detail later in this 
section). We believe that Sec.  423.120(c)(6) as currently crafted 
(aside from the effective date) will achieve our goal of ensuring that 
only qualified physicians and eligible professionals can prescribe Part 
D drugs. We further note that having a DEA certificate does not 
necessarily mean that a prescriber is in compliance with all Medicare 
requirements.
    Comment: A commenter requested clarification regarding whether, if 
a claim is rejected at the POS, a plan will be required to provide 
beneficiaries with a list of prescribers that are enrolled in the 
Medicare program.
    Response: No. This will not be required.
    Comment: A commenter stated that Sec.  423.120(c)(5) and (6) do not 
take into account the thousands of patients currently serviced by 
interns and residents who are yet to be licensed but are authorized by 
state governments to examine, treat and prescribe for their patients 
provided they function under the supervision of an attending physician. 
The commenter sought clarification concerning whether these as yet 
unenrolled individuals would be able to order prescriptions. Another 
commenter requested that CMS furnish guidance: (1) On how situations in 
which a resident's enrollment status has changed should be handled; and 
(2) for teaching hospitals regarding the importance of ensuring that 
residents comply with Medicare enrollment rules (including updating 
enrollment data as needed).
    Response: Section 423.120(c)(6) does not prohibit interns and 
residents from prescribing Part D drugs to the extent that these 
individuals are otherwise qualified to prescribe such drugs under 
applicable law and regulations and to either enroll in Medicare or 
validly opt-out of the program.
    We will, as deemed necessary, issue guidance concerning the 
importance of complying with Medicare enrollment rules.
    Comment: A number of commenters requested additional clarification 
regarding the number of physicians who are not enrolled in Medicare.
    Response: Although a sizable majority of physicians nationwide are 
enrolled in Medicare, we do not have a precise number.
    Comment: Several commenters recommended that CMS make available for 
Medicare Advantage plans and other stakeholders access to national, 
real-time data--preferably in a single file--to use in identifying 
excluded, non-enrolled, and opt-out suppliers. One commenter added that 
any opt-out file should have the physician's NPI and specialty, as well 
as the expiration date of his or her opt-out agreement.
    Response: The file alluded to earlier that will be distributed to 
plan sponsors will be updated regularly. Specific information regarding 
the frequency of the updates and the contents of the file will, as 
deemed necessary, be disseminated via sub-regulatory or other guidance.
    Comment: A commenter questioned whether there is evidence of higher 
levels of fraud, waste, or abuse by suppliers who are not enrolled in 
the Medicare program versus those who are enrolled, and whether 
increasing the number of enrolled suppliers per Sec. Sec.  
423.120(c)(5) and (6) will provide an avenue for unscrupulous but 
unenrolled prescribers to defraud Medicare.
    Response: The enrollment process, as explained earlier, is designed 
to ensure that we can verify that a supplier meets all CMS 
requirements, such as licensure. Without this process, unqualified and 
fraudulent suppliers would be able to enter Medicare and bill the 
program, resulting in billions of dollars being improperly paid to such 
individuals and organizations. We maintain that CMS' enrollment process 
reduces the amount of potential fraud, waste and abuse. Furthermore, we 
do not see how Sec.  423.120(c)(6) will provide an avenue for 
unscrupulous persons to defraud Medicare. To the contrary, it will 
protect the Medicare program by ensuring that only qualified and 
legitimate individuals can prescribe Part D drugs.
    Comment: A commenter disagreed with CMS' proposal to allow a 
physician who has opted-out of the Medicare program to prescribe Part D 
drugs to Medicare beneficiaries. The commenter stated that CMS does not 
have the legal authority to revoke the prescribing privileges of a 
physician or eligible professional who has been convicted of health 
care fraud but is in an opt-out status or is practicing via private 
contract.
    Response: Section 1802(b) of the Act is clear that certain 
physicians and practitioners may opt-out of the Medicare program and 
enter into private contracts with Medicare beneficiaries. We believe 
that to require such individuals to enroll in Medicare would be 
inconsistent with this statutory provision.
    Comment: A commenter suggested that CMS purge all opt-out 
affidavits if they are more than 2 years old and establish a systematic 
process to purge all opt-out affidavits on a regular basis.
    Response: We appreciate this suggestion and will take it under 
advisement as we continue our efforts to enhance the integrity of the 
Medicare program.
    Comment: Several commenters stated that numerous other federal 
requirements (for example, DEA certificate) and state regulations (for 
example, state medical licensing boards) already exist to ensure that 
medications are only prescribed by qualified individuals. Rather than 
implement another bureaucratic hurdle, the commenters contended that 
these other federal and state regulations should be tightened as 
needed. One commenter stated that because there are multiple safeguards 
currently in place through the OIG, there is no need for Sec.  
423.120(c)(5) and (6). Other

[[Page 29893]]

commenters stated that Sec.  423.120(c)(5) and (6) are unnecessary 
because (i) Part D sponsors are already required to review NPPES to 
verify a prescriber's NPI and other data; (ii) states already license 
and regulate prescribers; and (iii) pharmacists are responsible for 
determining that prescriptions are written by licensed individuals.
    Response: We disagree with these commenters. Data lists that are 
prepared, administered and updated by agencies outside of CMS 
frequently do not capture the information we need to confirm that a 
supplier meets Medicare requirements. The CMS enrollment process is the 
most practical, thorough, and effective means of securing and verifying 
all necessary information on physicians and eligible professionals.
    Comment: Several commenters expressed support for our proposed 
provisions but sought assurances that plans would not be penalized for 
filling prescriptions if, at the time the drug was dispensed, the plan 
did not know of the prescriber's termination. Another commenter did not 
believe there should be retroactive enrollment terminations; this would 
eliminate recoupment of payment from pharmacies or Part D sponsors for 
prescribers who were shown as enrolled by the most current information 
available at the time the prescription was filled. Another commenter 
requested clarification as to whether there would be performance-score 
safeguards established for plans that appropriately deny drugs based on 
the information available to them through the MACs or other parties 
responsible for maintaining said list. Another commenter expressed 
concern about the impact that these requirements would have on plan 
performance measures due to an increased number of complaints from 
beneficiaries relating to prescriptions that could not be filled, or 
with respect to which payment would be denied.
    Response: It is important to note that our requirements are 
directed specifically at individuals who prescribe Part D drugs. 
Individuals who prescribe are required to enroll in Medicare (or 
validly opt-out of Medicare) in order to do so. As such, plan sponsors 
would be required to pay only for those prescriptions written by 
physicians or eligible professionals who, according to CMS, are 
enrolled in Medicare in an approved status or who have validly opted-
out of Medicare. We will, as deemed necessary, further address these 
issues via sub-regulatory or other guidance.
    Comment: Several commenters believed that the administrative burden 
of these provisions would outweigh any potential benefits in deterring 
fraud, waste and abuse; this would be especially true for plan sponsors 
that would have to verify a particular prescriber's enrollment or opt-
out status. The commenters requested that CMS more closely study the 
potential administrative impact of these provisions.
    Response: We have studied the impact of these provisions and 
believe that the benefits to Medicare beneficiaries, the Medicare Trust 
Funds, and the program as a whole of confirming that physicians and 
eligible professionals are qualified to prescribe Part D drugs far 
outweigh the burden to prescribers of completing the enrollment process 
or submitting an opt-out affidavit. Besides, as mentioned in the 
proposed rule, a large majority of physicians and eligible 
professionals who prescribe Part D drugs are already enrolled in 
Medicare; hence, our provisions will have no impact on these 
individuals. Furthermore, those who are impacted will have ample time 
to complete the enrollment or opt-out process due to the extension of 
the compliance date to June 1, 2015.
    Comment: A commenter suggested that CMS issue warnings to 
prescribers for a 6 to 12-month period prior to rejecting claims that 
fail to meet the necessary criteria.
    Response: We appreciate this suggestion. We are exploring various 
means of alerting prescribers who are neither enrolled in Medicare nor 
have submitted a valid opt-out affidavit of the need to comply with the 
requirements of Sec.  423.120(c)(6).
    Comment: A commenter suggested that CMS consider using technology 
that already exists within the pharmacy industry for validating 
prescriber data, for this would (when compared to the batch processes): 
(1) Improve patient access to care as the most timely data is made 
available at the time of prescription drug dispensing; (2) decrease 
costs associated with audits and recovery of funds resulting from out-
of-date data; and (3) increase consistency of data among the multiple 
MACs and pharmacies. Another commenter stated that CMS should avoid 
using a PDF file similar to that which exists for the current ordering/
certifying edits and instead create a database containing this 
information.
    Response: We are contemplating various formats in which the 
previously-discussed list might be disseminated to plan sponsors.
    Comment: A commenter requested clarification as to: (1) Whether CMS 
is proposing a new provider enrollment process for Part D in addition 
to the current enrollment process for obtaining Medicare billing 
privileges; and (2) how a Part D revocation would impact Part B billing 
by the same practitioner.
    Response: The provider enrollment process under Sec.  423.120(c)(6) 
will be the same as that which is used for physicians and eligible 
professionals enrolling in Medicare in order to comply with Sec.  
424.507. A revocation under Sec.  424.535(a) would eliminate the 
individual's ability to prescribe covered Part D drugs because he or 
she would no longer be enrolled in Medicare; hence, the requirements of 
Sec.  423.120(c)(6) would no longer be met.
    Comment: Several commenters requested that CMS exclude dentists 
from proposed Sec.  423.120(c)(5) and (6)'s application because the 
provisions would place an unnecessary burden on dentists and their 
Medicare-eligible patients, and would not address CMS' desire to stop 
fraud and abuse. One commenter added that it is unaware of high-billing 
levels associated with prescriptions written by dentists for Medicare-
eligible patients, yet the administrative burden on dentists would be 
significant. Another commenter expressed concern that the proposal 
could negatively impact plan members, in that members who receive 
prescriptions written by dentists not enrolled in the program would be 
financially responsible for such prescriptions because they would no 
longer be covered. Another commenter noted that Medicare beneficiaries 
enrolled in dual eligible SNPs may receive comprehensive dental 
benefits, including certain invasive procedures. Dentists may prescribe 
antibiotics in these circumstances, and these drugs should be covered 
under Medicare Part D. However, since dentists are not typically 
enrolled in Medicare, our proposal could interfere with this coverage. 
Other commenters recommended that CMS exclude from Sec.  423.120(c)(5) 
and (6)'s purview those suppliers who do not normally see Medicare 
beneficiaries or receive Medicare payment (including psychiatrists and 
Veterans' Administration (VA) doctors) and enable them to (after a 
grace period) register with Medicare in a limited capacity to enable 
them to write prescriptions for Medicare beneficiaries.
    Response: While we recognize the concerns of these commenters, we 
do not believe dentists, psychiatrists, VA physicians, or any other 
physicians or eligible professionals should be granted special 
exemptions from Sec.  423.120(c)(6). The issue of primary concern to us 
is not the typical volume of drugs these individuals prescribe but the 
need to

[[Page 29894]]

ensure and confirm that Medicare payments are only made for Part D 
drugs that are prescribed by qualified physicians and eligible 
professionals. This is precisely the concern that the OIG expressed in 
its previously-referenced report. Moreover, we believe that our 
extension of the effective date to June 1, 2015 will afford these 
individuals more than adequate time to complete the enrollment or opt-
out process, hence easing the burden on them.
    Comment: One commenter: (1) Favored requiring dentists to enroll in 
Medicare (or have a valid opt-out affidavit on file) in order to 
prescribe Part D drugs; and (2) believed that a January 1, 2015 
effective date was reasonable.
    Response: We agree with this commenter's first comment and intend 
to apply Sec.  423.120(c)(6) to dentists. While we appreciate the 
commenter's second comment, we believe that a June 1, 2015 effective 
date is more appropriate.
    Comment: A commenter requested clarification concerning how these 
provisions would be enforced in cases of out-of-network benefits, which 
permit plan enrollees to receive healthcare items and services 
(including prescription medicines) across the country. Another 
commenter stated that if CMS allows point of service overrides, the 
Prescription Drug Events (PDEs) should be accepted and final, with no 
requirement for plans/sponsors to provide a retroactive look back. 
Other commenters suggested that CMS should: (1) Require plans to hold 
beneficiaries harmless from the consequences of non-coverage for a non-
compliant supplier for at least one fill of the prescription; (2) 
require plans to reach out to the beneficiary and the supplier to 
explain the issue, allowing sufficient time for the beneficiary to see 
another supplier or for the supplier to correct his or her enrollment 
status; and (3) reach out to policy makers in the states that permit 
foreign prescriptions, to determine what kind of alternate supplier 
credential checking might be available to ensure that beneficiaries who 
spend portions of the year in other countries can access their 
medications without interruption or the unneeded expense of additional 
physician visits.
    Response: We will, as deemed necessary, address these matters via 
sub-regulatory guidance or future rulemaking.
    Comment: A commenter requested clarification as to whether Sec.  
423.120(c)(6) applies even if a physician or eligible professional is 
state-licensed but is neither Medicare-enrolled nor has opted-out.
    Response: Yes, it applies.
    Comment: A commenter requested information as to the following: (1) 
Whether plan sponsors would remain responsible for ensuring that a 
prescriber is properly enrolled in Medicare; (2) whether prescriber 
validation should occur at the point-of-sale and whether plan sponsors 
are not permitted to ``flow down'' the responsibility for this 
verification process to their network pharmacies; and (3) whether CMS 
could prohibit Part D plans from reversing pharmacy claims with 
prescriber verification errors found in audits if the prescriber 
enrollment verification found by that plan was later found to be 
inaccurate.
    Response: We will, as deemed necessary, address these matters via 
sub-regulatory guidance or future rulemaking.
    Comment: A commenter stated that because the vast majority of 
prescribing physicians and other practitioners are already enrolled as 
Medicare suppliers, Sec. Sec.  423.120(c)(5) and (6) should not impose 
a great burden on prescribers. However, the commenter encouraged CMS to 
make any requirements for beneficiary requests for reimbursement from 
Part D sponsors as clear and concise as possible for beneficiaries. 
Prescribers should be able to quickly generate forms for patients who 
want to submit them to their plan sponsors directly.
    Response: We agree with the commenter's first statement, and will 
attempt to ensure that beneficiaries understand the requirements for 
requesting reimbursement.
    Comment: A commenter urged CMS to require plans to cover the costs 
associated with the charge-back if there is an error in the claim 
related to Medicare enrollment, and that the cost for verification and 
correction of any claims be borne by the plan through their 
administrative costs.
    Response: We are not prepared in this final rule to issue a 
definitive statement regarding costs associated with charge-backs. Any 
such statement will, as deemed necessary, be addressed via sub-
regulatory or other guidance.
    Comment: A commenter urged CMS to explore options to reduce member 
disruptions and to allow plans to manage prescribers not meeting these 
requirements. Such options could include: (1) Allowing a period of 
``soft edits'' to effectively track and manage potential future 
disruptions; (2) applying our requirements only to new fills; or (3) 
allowing prescriptions to be grandfathered up to a year after the 
effective date.
    Response: We believe that our extension of the effective date to 
June 1, 2015, as well as CMS' outreach efforts, will greatly reduce the 
potential for coverage disruptions. However, we will monitor the 
progress of the implementation of Sec.  423.120(c)(6) to ensure that 
such disruptions do not occur.
    Comment: A commenter stated that the proposed rule did not address 
how Part D beneficiaries in the U.S. territories would be impacted by 
proposed Sec.  423.120(c)(5) and (6).
    Response: We anticipate conducting outreach, as needed, for 
beneficiaries in U.S. territories regarding how they may be affected by 
these provisions.
    Comment: A commenter expressed concern that CMS had proposed to no 
longer allow Part D coverage for foreign prescriptions.
    Response: We did not propose to deny coverage for foreign 
prescriptions. We simply proposed to require that all prescribers of 
Part D drugs be enrolled in Medicare or in a valid opt-out status. We 
may, as deemed necessary, further address this issue via sub-regulatory 
guidance.
    Comment: Several commenters requested clarification concerning 
whether plan sponsors would be able to accept a pharmacy claim for an 
automatically-generated refill prescription if the prescriber is not 
enrolled in Medicare. The commenters also recommended that Sec.  
423.120(c)(5) and (6) only be applied to new prescriptions.
    Response: The pharmacy claims described by the commenters will not 
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, regardless of 
whether the prescription is new or a refill.
    Comment: A number of commenters opposed the notion of requiring 
pharmacies to enroll in Medicare in order to distribute Part D drugs. 
They expressed concern about the burden and cost involved for 
pharmacies, and the potential disruption to the Part D program that 
would result if thousands of pharmacies were required to enroll. One 
commenter stated that Part D sponsors or their PBMs have direct 
contractual relationships with pharmacies and perform their own 
credentialing and verifications before allowing pharmacies into their 
networks; sponsors have the necessary experience and expertise to 
identify and remove unlicensed, fraudulent or otherwise unqualified 
pharmacies from their networks.

[[Page 29895]]

    Response: Because we concur with these contentions, we do not 
intend to apply Sec.  423.120(c)(6) to pharmacies at this time.
    Comment: A commenter requested clarification concerning whether the 
pharmacy requirement for enrollment refers to Part B DMEPOS supplier 
enrollment for drugs.
    Response: Our earlier reference to pharmacy enrollment pertains to 
Part D drugs. However, as stated previously, we are not applying Sec.  
423.120(c)(6) to pharmacies at this time.
    Comment: One commenter supported the notion of requiring pharmacy 
enrollment.
    Response: We appreciate this comment. However, as already stated, 
we do not intend to apply Sec.  423.120(c)(6) to pharmacies at this 
time.
    Given this, we are finalizing our proposed provisions in Sec.  
423.120(c) with several exceptions. First, the January 1, 2015 
effective date is changed to June 1, 2015. Second, the existing version 
of paragraph (c)(5) will remain intact with the exception of the 
addition of the ``Before June 1, 2015, the following are applicable'' 
language at the very beginning of the paragraph. Third, we are not 
finalizing our proposed changes to paragraph (c)(5)(ii), but are 
instead merging them with our addition of paragraph (a)(6). Our final 
version of new paragraph (c)(6) will thus read as follows:
    ``(6) Beginning June 1, 2015, the following are applicable--
    (i) A Part D sponsor must deny, or must require its pharmaceutical 
benefit manager (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 (NPI) is not contained on the claim.
    (ii) A Part D sponsor must deny, or must require its PBM to deny, a 
pharmacy claim for a Part D drug if the physician or eligible 
professional (when permitted to write prescriptions by applicable State 
law)--
    (A) Is not enrolled in the Medicare program in an approved status; 
and
    (B) Does not have a valid opt-out affidavit on file with an A/B 
Medicare Administrative Contractor (MAC).
    (iii) A Part D sponsor must deny, or must require its PBM to deny, 
a request for reimbursement from a Medicare beneficiary for a drug if 
the request is not for a Part D drug that was dispensed in accordance 
with a prescription written by a physician or, when permitted by 
applicable State law, other eligible professional (as defined in 
section 1848(k)(3)(B)(i) or (ii) of the Act) who--
    (A) Is identified by his or her legal name in the request; and
    (B)(1) Is enrolled in Medicare in an approved status; or
    (2) Has a valid opt-out affidavit on file with an A/B MAC.
    (iv) In order for a Part D sponsor to submit to CMS a prescription 
drug event (PDE) record, the PDE must contain an active and valid 
individual prescriber NPI and 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 by applicable State law, an eligible 
professional (as defined in section 1848(k)(3)(B)(i) or (ii) of the 
Act) who:
    (A) Is enrolled in Medicare in an approved status, or
    (B) Has a valid opt-out affidavit on file with an A/B MAC.
    These revisions to our proposed paragraph (c)(6) do not involve any 
changes from our proposed policy. They are merely technical changes 
designed to better fit the existing regulatory text.
21. Improper Prescribing Practices (Sec. Sec.  424.530 and 424.535)
a. Background and Program Integrity Concerns
    We stated in the preamble to the proposed rule that notwithstanding 
our proposed provisions in Sec.  423.120(c), additional program 
safeguard enhancements were necessary to protect the Medicare Trust 
Funds from fraud, waste and abuse, and to ensure that Part D drugs are 
prescribed only by qualified suppliers. Along with the aforementioned 
OIG report (``Medicare Inappropriately Paid for Drugs Ordered by 
Individuals Without Prescribing Authority'' (OEI-02-09-00608)), we 
cited another OIG report titled, ``Prescribers with Questionable 
Patterns in Medicare Part D'' (OEI-02-09-00603). 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;
     An Ohio physician ordered more than 400 drugs each for 13 
of his 665 beneficiaries; and
     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.
    The OIG has 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 are inappropriately 
prescribed in dangerously excessive amounts. We share this concern, 
particularly as we continue to receive reports of improper prescribing 
practices. The difficulty, as we explained in the proposed rule, is 
that CMS does not possess the legal authority to take administrative 
action against the prescriber. This means, in many cases, that the 
individual can continue prescribing drugs that will be covered under 
Part D and, if he or she is enrolled in Medicare, remain so enrolled to 
furnish medical services. We believe this is inconsistent with: (1) The 
OIG's recommendations in its various Part D reports; and (2) our goals 
of protecting and promoting the health and safety of Medicare 
beneficiaries and of safeguarding the Medicare Trust Funds.
    To this end, and as we explain in this section, we proposed several 
changes to Part 424, subpart P.
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

[[Page 29896]]

to dispense controlled substances a requirement for both obtaining and 
maintaining a DEA Certificate of Registration.
    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. Indeed, we are concerned that a physician or 
eligible professional's improper prescribing practices may be 
duplicated in the Medicare program. To address these issues, we 
proposed the following:
     Adding 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 such suspension or 
revocation is in effect on the date he or she submits his or her 
enrollment application to the Medicare contractor.
     Adding 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 his or her ability to prescribe drugs. Again, this approach is 
consistent with our requirement that suppliers maintain compliance with 
all applicable licensure and certification requirements.
    (We also solicited comments on whether our proposed additions of 
Sec. Sec.  424.530(a)(11) and 424.535(a)(13) should be expanded to 
include pharmacy activities.)
    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. 
We also believe that our proposed provisions were consistent with the 
OIG's recommendations and, equally important, are necessary to protect 
Medicare beneficiaries and the Trust Funds.
    We received a number of comments related to our proposal. Summaries 
of the comments and our responses are as follows:
    Comment: Several commenters expressed support for Sec. Sec.  
424.530(a)(11) and 424.535(a)(13), stating that these provisions would 
help reduce abusive prescribing.
    Response: We appreciate the support of these commenters.
    Comment: Various commenters recommended that CMS: (1) Verify a DEA 
registration number submitted on the CMS-855I or the CMS-855O with the 
DEA prior to enrolling a physician or eligible professional into 
Medicare; (2) require physicians and eligible professionals to report a 
change (voluntary termination, revocation, suspension) in their DEA 
registration number within 30 days of the change; (3) modify the CMS-
855I and CMS-855O to require that physicians and eligible professionals 
report a DEA registration number suspension or revocation within 30 
days; (4) require that a physician or eligible professional have a DEA 
number for each state in which the physician or eligible professional 
is prescribing controlled substances; (5) require its Part D sponsors 
to establish the necessary edits to deny a prescription for a 
controlled substance when the physician or eligible professional does 
not maintain a validly issued and active DEA registration number in the 
state where the prescription was written; (6) refer to the DEA the name 
and NPI of any physician or eligible professional who is enrolled in 
Medicare in multiple states and who is only using a single DEA 
registration number to prescribe controlled substances to Medicare 
beneficiaries; and (7) establish a data matching agreement with the DEA 
to verify the DEA registration numbers assigned by the DEA for all 
physicians and eligible professionals enrolled in Medicare. Another 
commenter suggested that CMS establish a 3-year reenrollment bar under 
Sec.  424.535(c) for any physician or eligible practitioner who is 
revoked pursuant to Sec.  424.535(a)(13), or at least identify in the 
final rule what the reenrollment bar length will be. The commenter also 
recommended that the reenrollment bar apply to Medicare Advantage 
Organizations, not simply the Part B Medicare program and Part D drugs.
    Response: We appreciate these suggestions and will take them into 
consideration as part of our ongoing efforts to strengthen payment 
safeguards in the Medicare program.
    Comment: Several commenters recommended that CMS allow physicians 
and eligible professionals to self-report a DEA license revocation or 
suspension (or a state licensing body revocation or suspension 
associated with prescribing drugs) within 30 days of the revocation, 
suspension, or voluntary surrender of their DEA registration.
    Response: We do not believe that a physician or eligible 
professional should be permitted to evade Sec.  424.535(a)(13) and the 
subsequent reenrollment bar merely by reporting the DEA certificate 
suspension or revocation to CMS. The issues of concern to us are the 
certificate revocation or suspension itself and the consequent need to 
protect Medicare beneficiaries and the Trust Funds, and not so much the 
physician or eligible professional's voluntary revelation of the 
revocation or suspension.
    Comment: A commenter requested that CMS furnish two lists to Part D 
sponsors: (1) A list of physicians and eligible professionals who have 
a DEA registration number that CMS has confirmed with the DEA; and (2) 
a list of physicians and eligible professionals who do not have a valid 
and active DEA registration number. The data on these lists, the 
commenter suggested, could be broken down by state.
    Response: We appreciate this suggestion and will take it under 
advisement as we continue our efforts to strengthen the integrity of 
the Part D program.
    Comment: Several commenters requested clarification concerning 
whether CMS intends to implement Sec.  424.535(a)(13) retrospectively 
and revoke the Medicare billing privileges of physicians and eligible 
professionals who have had their DEA number suspended or revoked. One 
commenter opposed a retroactive application of our proposal.
    Response: We retain the discretion to revoke the billing privileges 
of an enrolled physician or eligible professional whose DEA certificate 
is suspended or revoked at the time Sec.  424.535(a)(13) becomes 
effective.
    Comment: A commenter requested CMS' rationale for permitting an 
individual to enroll in Medicare after the DEA has: (1) Denied him or 
her a DEA certificate of registration; or (2) suspended or revoked a 
DEA registration number and the suspension or revocation is still in 
force.
    Response: In the commenter's second scenario, we would be able to 
deny the individual's enrollment under Sec.  424.530(a)(11). As for the 
first scenario, our focus in preparing our proposed rule was on 
individuals who had active DEA certificate suspensions or revocations. 
We nonetheless appreciate the commenter's apparent suggestion and may 
consider addressing it in future rulemaking.

[[Page 29897]]

    Comment: Several commenters recommended that Sec.  424.535(a)(13) 
not be applied in cases where a physician's DEA number was suspended 
due to substance abuse issues and the physician is in counseling.
    Response: We do not believe that a blanket exemption from Sec.  
424.535(a)(13)'s potential application for such individuals is 
warranted or justified. However, we note that Sec.  424.535(a)(13), 
like most other revocation reasons in Sec.  424.535, is discretionary, 
meaning that CMS is not required to exercise its revocation authority. 
Although we have the discretion to invoke Sec.  424.535(a)(13) 
regardless of the grounds for the DEA certificate revocation or 
suspension, we would also be able to take into account the 
circumstances surrounding the suspension or revocation prior to making 
a final determination.
    Comment: Several commenters requested clarification as to whether: 
(1) Proposed Sec.  424.535(a)(13) applies to non-controlled substances; 
and (2) whether a voluntary surrender of a DEA certificate (for 
instance, a semi-retired physician wishes to prescribe only non-
controlled substances) would invoke Sec.  424.535(a)(13). The 
commenters believed that non-controlled substances should be excluded 
from Sec.  424.535(a)(13)'s purview if the prescriber otherwise 
maintains the legal authority to prescribe such drugs, is in good 
standing with a state professional licensing board, and has not engaged 
in abusive prescribing. At a minimum, one commenter suggested, CMS 
should refer a potential case to the state for review prior to making a 
decision.
    Response: We explained in the proposed rule that a DEA certificate 
of registration is not required to dispense non-controlled substances. 
Thus, if one's DEA certificate is suspended or revoked, he or she would 
still be able to prescribe non-controlled substances absent some other 
restrictive action taken by the DEA or the state (although his or her 
billing privileges could still be revoked under Sec.  424.535(a)(13)). 
Yet we note that Sec.  424.535(a)(13) can be invoked if the applicable 
licensing or administrative body for any state in which the individual 
practices suspends or revokes his or her ability to prescribe drugs. 
Therefore, if the state rescinds the person's ability to prescribe any 
drugs, the individual (should Sec.  424.535(a)(13) be invoked) would be 
prohibited from prescribing Part D controlled and non-controlled drugs.
    The voluntary surrender of a DEA certificate would not constitute 
grounds for revocation under Sec.  424.535(a)(13). The provision as 
written is limited to certificate revocations and suspensions. However, 
we may consider addressing this issue via future rulemaking.
    Comment: Several commenters recommended that CMS: (1) Explain how 
it will obtain information from the DEA regarding registration numbers 
that are valid, approved, revoked, suspended, voluntarily surrendered, 
etc.; (2) make available to Part D sponsors the information necessary 
to deny a Part D claim for controlled substances when a physician or 
eligible professional does not have a valid and active DEA registration 
number in the state in which the prescription is written; and (3) 
explain whether this data will be in the file that is to be used for 
the enforcement of Sec. Sec.  423.120(c)(5) and (6).
    Response: We will, as deemed necessary, address these issues via 
sub-regulatory or other guidance.
    Comment: Several commenters requested clarification concerning 
whether a physician would be able to reenroll in Medicare after the 
suspension or revocation of his or her DEA registration is lifted.
    Response: If we revoke a physician's billing privileges under Sec.  
424.535(a)(13), the physician would be able to submit a CMS-855 
application for enrollment upon the expiration of his or her 
reenrollment bar.
    Comment: A commenter recommended that CMS clarify whether 
physicians and eligible professionals have 30 days to report a DEA 
registration number revocation per Sec.  424.516(d).
    Response: The individual would be required to report this 
information to CMS under Sec.  424.516(d) to the extent the CMS-855 
mandates that such information be disclosed on the application.
    Comment: A commenter suggested that CMS revise and update item B1 
in section 3 of the CMS-855I and the CMS-855O, which states ``Any 
revocation or suspension of a license to provide health care by any 
state licensing authority; this includes the surrender of such a 
license while a formal disciplinary proceeding was pending before a 
state licensing authority,'' to read as follows: ``Any revocation or 
suspension of a license to provide health care by any state licensing 
authority or Drug Enforcement Administration Registration number. This 
includes the surrender of such a license while a formal disciplinary 
proceeding was pending before a state licensing authority.'' The 
commenter also sought clarification regarding whether CMS will indeed 
treat a DEA registration number denial or revocation as a final adverse 
legal action.
    Response: We appreciate this suggestion and will take it under 
advisement as we continue our efforts to strengthen the integrity of 
the Part D and Part B programs.
    At this stage, CMS does not have the legal authority to treat a DEA 
certificate revocation or suspension as a final adverse action because 
the current definition of the latter term in Sec.  424.502 does not 
specifically include DEA actions. However, we may address this issue 
through future rulemaking.
    Comment: A commenter supported our proposal to require Part D 
physicians and eligible professionals who prescribe controlled 
substances to obtain and maintain a valid DEA certificate of 
registration as a condition of enrollment. Yet the commenter 
recommended that the provision apply only to those individuals who 
prescribe controlled substances; this would avoid impacting the ability 
of practitioners providing services solely in local public health 
departments to prescribe non-controlled medications.
    Response: As stated previously, if one's DEA certificate is 
suspended or revoked, he or she would still be able to prescribe non-
controlled substances absent some other restrictive action taken by the 
DEA or a state (although his or her billing privileges could still be 
revoked under Sec.  424.535(a)(13)). However, if the state in which the 
individual practices suspends or revokes his or her ability to 
prescribe any drugs, the individual (should Sec.  424.535(a)(13) be 
invoked) would be prohibited from prescribing Part D controlled and 
non-controlled drugs.
    Comment: Several commenters opposed our proposed addition of Sec.  
424.535(a)(13), stating that a suspended DEA certificate or state 
license does not necessarily reflect one's inability to treat Medicare 
patients safely and at a high standard. This is particularly true, one 
commenter contended, considering that many DEA certificate or licensure 
revocations, suspensions, or restrictions are due to the physician or 
practitioner's medical illness, usually drug abuse and dependence. Such 
individuals generally complete treatment programs successfully and 
should be given a second chance. At a minimum, the commenter 
maintained, CMS should take into account such situations in determining 
whether to invoke Sec.  424.535(a)(13).
    Response: As explained earlier, Sec.  424.535(a)(13) is a 
discretionary authority, and CMS can use its discretion to take into 
account the

[[Page 29898]]

individual's particular circumstances in determining whether a 
revocation is warranted. But we caution that we are not required to do 
so, and there may be instances in which we decide that the certificate 
revocation or suspension alone, on its face, is sufficient to justify 
invoking Sec.  424.535(a)(13).
    For the reasons stated in this section, we are finalizing our 
proposed additions of Sec. Sec.  424.530(a)(11) and 424.535(a)(13).
c. Patterns or Practices of Prescribing
    We also proposed 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 chose not to define ``abusive'' and ``threat to the health and 
safety of Medicare beneficiaries'' in the proposed rule, primarily 
because the myriad of questionable situations that could 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 believed that 
the sounder approach was to propose a list of criteria that we 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, we proposed 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 in Sec.  
424.502);
     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, we proposed to 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.
    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. As such, 
we proposed 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 relevant factors. 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 noted further that CMS, rather than the 
Part D plans or the A/B MACs, 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 received a high volume of comments regarding proposed Sec.  
424.535(a)(14). Comment summaries and our responses are as follows.
    Comment: A number of commenters opposed our proposed addition of 
Sec.  424.535(a)(14). They generally stated that this revocation reason 
would negatively impact Medicare beneficiaries by restricting access to 
important medications and disrupting current care plans, hence creating 
a chilling effect on the practice of medicine. They asserted that the 
proposed provision could dissuade physicians from appropriate 
prescribing. What may be considered excessive prescribing for the 
general population, they added, could be clinically appropriate given a 
patient's individual circumstances, particularly in pain management; 
many ``off-label'' uses are clinically appropriate and represent the 
standard of care, especially with cancer patients. Several commenters 
also stated that the process of finding the right medication for a 
particular individual may involve trial and error over the course of 
months, if not years; decisions about specific medications to prescribe 
must be based on clinical observations, knowledge of past history, 
awareness of side effects, and a process of collaboration between 
doctor and patient. One commenter stated that policies that markedly 
limit the use of substances to treat chronic pain could increase the 
suicide rate.
    Response: We appreciate these comments and fully recognize the 
commenters' concerns. We certainly understand that each patient is 
different, as is: (1) His or her specific medical condition; (2) the 
setting in which he or she is being treated; and (3) the types and 
doses of medications that may legitimately be required. As alluded to 
in the proposed rule and as we more emphatically state here, we only 
intend to invoke Sec.  424.535(a)(14) in very limited and exceptional 
circumstances. For this reason, we do not believe that Sec.  
424.535(a)(14) will have a chilling effect on physician or practitioner 
prescribing activities or will restrict beneficiaries' access to 
medications. Indeed, it will become clear to honest and legitimate 
prescribers (once Sec.  424.535(a)(14) becomes effective and is 
implemented) that our focus is restricted to cases of improper 
prescribing that are so egregious that the physician or practitioner's 
removal from the Medicare program is needed to protect Medicare 
beneficiaries.

[[Page 29899]]

    Comment: Many commenters contended that state medical licensing 
boards are the appropriate bodies to review prescribing practices; one 
such commenter stated that prescription restrictions under Part D 
should only be imposed if the state board finds a pattern of negligence 
in prescribing practices. Other commenters recommended that CMS, in 
lieu of utilizing Sec.  424.535(a)(14), refer cases of improper 
prescribing to the applicable state board for its review and 
disposition, with one commenter adding that CMS could then decide 
whether to take action based on the state's findings. This commenter 
stated that such investigatory actions should be left to the state; 
having both CMS and the state undertake separate investigations would 
be duplicative and redundant, perhaps slowing down both investigations 
in the process.
    Response: We recognize the leading position of state medical boards 
in monitoring the practice of medicine. However, such bodies operate 
independently of CMS. They play no role in overseeing the Medicare 
program, a responsibility that rests exclusively with CMS. As such, we 
must be able to rapidly take steps on our own volition (without having 
to wait for possible action by state licensing boards or other bodies) 
to protect Medicare beneficiaries and the Trust Funds from abusive 
behavior.
    Comment: Several commenters asserted that CMS lacks the statutory 
authority for Sec.  424.535(a)(14).
    Response: We disagree. As we stated in the proposed rule, sections 
1102 and 1871 of the Act give the Secretary the authority to establish 
requirements for the efficient administration of the Medicare program. 
We believe that Sec.  424.535(a)(14) is necessary to help ensure the 
integrity and efficiency of the Medicare program.
    Comment: Several commenters opposed the use of Sec.  
424.535(a)(14)(i)(F), which addresses prescription-related malpractice 
suits, as a criterion. One commenter contended that CMS' assertion that 
the existence of such a lawsuit is somehow equivalent to liability is 
incorrect. The commenter, as well as others, stated that many liability 
insurers settle cases with little or no merit. Another commenter stated 
that it would be difficult for CMS to verify the existence of such 
suits and settlements, while another commenter contended that certain 
physician specialties at high risk for malpractice suits could be 
unfairly targeted under Sec.  424.535(a)(14).
    Response: We did not assert in the proposed rule (and do not in 
this final rule) that such a lawsuit automatically equates to 
liability. We realize that certain cases are settled with no admission 
or even existence of liability. Nonetheless, it would be inappropriate 
and even irresponsible for CMS to completely disregard situations where 
a physician or practitioner has, for example, been sued several times 
for prescription-related malpractice and has either settled one of the 
cases or has had at least one final judgment against him or her.
    We stress that Sec.  424.535(a)(14)(i)(F) will represent only one 
of several factors in our Sec.  424.535(a)(14) determinations, and it 
will not in and of itself be dispositive.
    With respect to the next-to-last comment, we included the language 
``to the extent this can be determined'' at the end of proposed Sec.  
424.535(a)(14)(i)(F) based on our recognition that it may occasionally 
be difficult to ascertain the specific outcome of such suits.
    Regarding the last comment, and as already stated: (1) We only 
intend to invoke Sec.  424.535(a)(14) in very limited and exceptional 
circumstances; (2) we will account for the patient's particular 
situation and setting in determining whether a Sec.  424.535(a)(14) 
revocation is warranted; and (3) Sec.  424.535(a)(14)(i)(F) is only one 
of a number of factors we will consider.
    Comment: Several commenters stated that CMS' proposal is 
duplicative of current safety mechanisms, ignores the long history of 
states regulating the licensure process, adds yet another layer of 
regulatory burden and administrative costs to the program, and gives 
the federal government an excessive amount of latitude without 
furnishing clear objectives. They added that CMS has stepped outside 
its statutory authority and into regulating the practice of medicine, 
and has also usurped the authority of state boards to regulate the 
practice of medicine. They requested that CMS work with the medical 
community through pre-rulemaking activities, such as listening 
sessions, town halls, and the issuance of requests for information 
(RFI), to better develop any future proposals to address the agency's 
concerns. Another commenter stated that CMS should focus on preventing 
individuals who do not have the authority to prescribe (such as massage 
therapists) from prescribing Part D drugs rather than on applying Sec.  
424.535(a)(14).
    Response: Section 424.535(a)(14) is not an attempt by CMS to 
regulate the practice of medicine or to usurp state medical boards' 
roles in doing so. States remain free to take action against physicians 
and practitioners as they deem fit. Again, though, Medicare is a 
distinct program that is under the purview of CMS, not the states. We 
must have the ability to remove abusive prescribers from the Medicare 
program without having to obtain or wait for approval from state 
licensing boards or other bodies that do not have oversight of 
Medicare.
    As mentioned earlier, we have the authority under sections 1102 and 
1871 of the Act to establish requirements for the efficient 
administration of the Medicare program. We believe this includes 
ensuring that the Part D program is properly administered, and that 
Medicare beneficiaries and the Trust Funds are protected. We believe 
that Sec.  424.535(a)(14) will be an important part of these 
objectives.
    We appreciate the recommendation that we work with the medical 
community in developing future proposals and will take it under 
advisement.
    As for the final comment, our addition of (c)(6) is aimed at 
stemming the problem of unqualified prescribers. Yet we disagree with 
the implication that this issue should be our sole focus. Other 
matters, such as egregious and dangerous prescribing practices by 
physicians and eligible professionals, must be addressed as well.
    Comment: Several commenters expressed concern about the potential 
application of Sec.  424.535(a)(14) to hospice and palliative 
physicians. They stated that medications furnished in a hospice or 
palliative setting often require doses and indications that are 
generally not seen in conventional care. Such doses, they contend, are 
often necessary to relieve pain and furnish comfort to terminally ill 
patients, noting also that dosages might vary depending on what stage 
of the dying process the patient is in; terminally ill patients, they 
state, require different pain management strategies and often higher 
doses of opioids than those who are not terminally ill. The possible 
application of Sec.  424.535(a)(14) to hospice and palliative 
physicians, they asserted, could prevent these physicians from 
prescribing needed medications to dying patients due to concerns about 
prescribing outside the usual norms. They requested an exception to 
Sec.  424.535(a)(14) when the patient is specifically receiving hospice 
or palliative services. Another commenter suggested exempting from 
Sec.  424.535(a)(14) those physicians who are ABMS-board certified in 
hospice and palliative medicine, or medical directors certified by the 
Hospice Medical Director Certification Board.

[[Page 29900]]

    Response: We decline to establish a specific exception for hospice 
or palliative physicians or services, for this would eliminate our 
ability to take action against truly egregious and dangerous 
prescribing practices that may occur in such settings. However, as 
stated earlier, we fully understand that each patient is different, as 
is his or her specific condition and needs. We will operate under this 
overriding principle when considering whether Sec.  424.535(a)(14) 
should be invoked in a particular instance.
    Comment: A number of commenters contended that several of the 
criteria identified by CMS are beyond the expertise of CMS regulators.
    Response: We disagree. We have physicians and other medical 
personnel on staff who we anticipate may be consulted, as needed, in 
potential Sec.  424.535(a)(14) cases.
    Comment: A commenter stated that because of the limited number of 
certified hospice and palliative physicians, most hospice and 
palliative patients will be cared for by their primary care physician 
or mid-level practitioner. The commenter recommended that CMS add an 
appeals process with peer-review to ensure that good clinicians are not 
penalized unduly. Other commenters expressed concern that the proposed 
rule made no mention of appeal rights, while one commenter requested 
how physicians can defend themselves against a Sec.  424.535(a)(14) 
revocation.
    Response: A physician or eligible professional whose Medicare 
billing and prescribing privileges are revoked under Sec.  
424.535(a)(14) may appeal the revocation per 42 CFR part 498. Also, as 
already mentioned, we anticipate that physicians and other medical 
personnel of CMS may be consulted, as needed, in potential Sec.  
424.535(a)(14) cases.
    Comment: One commenter stated that CMS should clarify the term 
``necessary evaluation'' as it is used in Sec.  424.535(a)(14)(i)(B); 
the commenter explained that a hospice or palliative physician must 
often rely on the evaluations of the nurses and is not always able to 
physically see a homebound patient. The commenter was concerned that he 
or she would not be able to adjust dosages without seeing the patient. 
Another commenter stated that in applying this criterion, CMS should 
focus more on the prescriber's status than on beneficiaries who may be 
evaluated outside of their normal residence.
    Response: We are not in a position to further clarify or define the 
term ``necessary evaluation'' in this rule, for we must retain the 
flexibility to address the variety of factual scenarios that could 
potentially implicate Sec.  424.535(a)(14). However, we recognize the 
commenter's concern, and as stated earlier we will account for the 
patient's particular needs and circumstances.
    We intend to review all aspects of the prescriber's and the 
patient's statuses and physical locations when examining this 
criterion.
    Comment: A commenter recommended that in lieu of adopting its 
proposed new revocation policy, CMS should use its existing regulatory 
authority under Sec.  405.371 to suspend Part D prescribing privileges 
when there is a credible allegation of fraud. If CMS believes it lacks 
the legal authority to implement a payment suspension that precludes a 
physician or eligible professional from prescribing, ordering, or 
certifying services for a Medicare beneficiary when a credible 
allegation of fraud exists, CMS should consider proposing a new policy 
that expands on the existing provisions in Sec.  405.371 and allow the 
public to comment on this policy. Another commenter requested that CMS 
explain how a revocation under Sec.  424.535(a)(14) is different from 
an OIG exclusion based on a conviction of fraud. Another commenter 
contended that CMS, through Sec.  424.535(a)(14), would essentially be 
making fraud determinations that CMS lacks the statutory authority to 
undertake.
    Response: We disagree with the first commenter's recommendation and 
the third commenter's statement because abusive or inappropriate 
prescribing does not necessarily involve fraudulent behavior, although 
it could well involve improper payments. We further believe that 
revocation is a more appropriate remedy for abusive prescribing than a 
payment suspension. In the latter situation, the prescriber would 
remain enrolled in Medicare despite his or her improper prescribing; we 
believe this goes against the overall objective of Sec.  
424.535(a)(14), which is to protect Medicare beneficiaries and the 
Trust Funds from abusive behavior.
    Comment: A commenter suggested that CMS should, prior to finalizing 
Sec.  424.535(a)(14), solicit comments on a process of notification and 
opportunity to correct prior to implementing a revocation under Sec.  
424.535(a)(14). Other commenters likewise stated that before revoking a 
supplier under Sec.  424.535(a)(14), CMS should notify the supplier of 
the potential revocation and enable the supplier to respond.
    Response: We disagree. Providing a physician with an opportunity to 
take corrective action would not be appropriate under these 
circumstances, given that CMS would have based its revocation action on 
a prescriber engaging in a pattern or practice of abusive prescribing 
over some period of time. One of our goals with Sec.  424.535(a)(14) is 
to place prescribers on notice that abusive prescribing practices can 
result in the individual's losing his or her Medicare billing 
privileges. To permit an abusive prescriber to avoid revocation by 
simply modifying his or her behavior temporarily would undermine this 
objective and, more importantly, would not undo the harm that may have 
been done to Medicare beneficiaries because of the prescriber's 
practices.
    Comment: Several commenters suggested that CMS be required to 
consult with and receive written approval from the OIG and/or the 
Department of Justice prior to any invocation of Sec.  424.535(a)(14).
    Response: We do not agree. As mentioned earlier, CMS administers 
the Medicare program. We must be able to expeditiously remove abusive 
prescribers from the Medicare program without having to secure prior 
approval from law enforcement. Indeed, failure to take such quick 
action would be inconsistent with the spirit of the two aforementioned 
OIG reports that urged CMS to exercise greater oversight of the Part D 
program.
    Comment: A commenter opposed the criterion in Sec.  
424.535(a)(14)(i)(B) that reads, ``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).'' 
The commenter stated that this factor does not address whether the 
physician or eligible professional is out of the country when the new 
prescription for a Part D drug was given to a beneficiary. Another 
commenter stated that the criterion does not: (1) Outline cases where a 
physician or eligible professional is allowed under state law to 
prescribe Part D drugs over the phone to a Medicare beneficiary who is 
on vacation and may need a Part D prescription; and (2) differentiate 
between a prescription for a new Part D drug a day after the death of a 
Medicare beneficiary and a refill of an existing Part D medication by 
the spouse or child after the death of the Medicare patient. This 
commenter requested that CMS rescind this criterion unless it furnishes 
more information, such as how it will be used as a factor in making a 
revocation determination. Another commenter requested the removal of 
this criterion if it will be based solely on PDE data.

[[Page 29901]]

    Response: The example cited in Sec.  424.535(a)(14)(i)(B) is not 
the only one to which the criterion could apply. The term ``for 
example'' indicates that multiple factual scenarios are envisioned. 
Such is the case with Sec.  424.535(a)(14)(i)(B). We will consider the 
specific facts of each situation in determining whether the resolution 
of this factor weighs in favor of a revocation under Sec.  
424.535(a)(14). In addition, we will consider information besides PDE 
data when evaluating this criterion.
    Comment: A commenter opposed the criterion outlined in Sec.  
424.535(a)(14)(i)(D) regarding the number and type(s) of disciplinary 
actions. The commenter contended that CMS did not indicate whether it 
would use a particular state licensing board decision (for example, a 
reprimand or fine) as its basis for taking an action under Sec.  
424.535(a)(14). The commenter stated that CMS should rescind this 
portion of its proposal unless it: (1) Provides more information 
regarding the state medical board actions that would be used as a 
factor in making a decision under Sec.  424.535(a)(14); and (2) affords 
the public an opportunity to comment on CMS' implementation approach.
    Response: We are not in a position to outline every conceivable 
disciplinary action that a state medical board could impose. Such 
actions vary widely by state and by magnitude, which is why Sec.  
424.535(a)(14)(D) accounts for the specific type of disciplinary action 
involved.
    Comment: Several commenters stated that the term ``abusive'' should 
be stricken from the rule because it is too broad and subjective. 
Others requested that CMS at least provide more clarification and 
guidance: (1) As to the meaning of the terms ``abusive,'' ``excessive 
dosage,'' ``improper prescribing practices,'' and ``threat to patient 
health and safety''; and (2) regarding the steps that would be taken if 
the agency determines that a prescriber's Medicare enrollment should be 
revoked; one commenter stated that CMS Publication 100-18, Chapter 9, 
contains a definition of ``abusive'' whereas our proposed rule did not. 
Another commenter recommended that this guidance incorporate evidence-
based guidelines and research along with the patient's history.
    Response: We did not define these terms in the proposed rule and 
decline to do so in this final rule because of the need to retain our 
flexibility in addressing a variety of factual scenarios. Any 
revocation under Sec.  424.535(a)(14) would be processed in the same 
manner as all other revocations, with the exception that with these 
revocations, the applicable Part D plan sponsor(s) would also be 
notified of CMS' revocation action so that the sponsor can terminate 
the individual's prescribing privileges.
    Comment: A commenter stated that while CMS noted in its proposed 
rule that it would conduct a complete and thorough investigation prior 
to any revocation, there are no safeguards to ensure a full 
investigation. The commenter added that CMS did not identify who would 
conduct these investigations. Other commenters requested information as 
to the process for determining whether abusive prescribing or a threat 
to patient health and safety exists. Another commenter stressed the 
need for a clearly defined protocol that would be followed before any 
revocation decision is made.
    Response: We stated in the proposed rule and reiterate here that in 
every case we will carefully consider all of the relevant factors 
before invoking Sec.  424.535(a)(14); this will include a review of all 
of the evidence before us, including the patient's particular needs, 
circumstances, and setting. CMS and contractor staff will conduct the 
investigations, with CMS personnel performing the evaluation of the 
factors and making the final determination. More detailed information 
regarding the review process will, as deemed necessary, be disseminated 
via sub-regulatory or other guidance.
    Comment: Several commenters requested clarification regarding 
whether CMS intends to implement Sec.  424.535(a)(14) retrospectively. 
They supported a strictly prospective application.
    Response: We reserve the right to revoke the billing privileges of 
a physician or eligible professional enrolled as of the effective date 
of this rule who has engaged or is engaging in abusive prescribing as 
described in Sec.  424.535(a)(14). However, the effective date of the 
revocation would not be earlier than the effective date of this final 
rule.
    Comment: A commenter questioned whether CMS will routinely scour 
its data for suppliers with suspicious prescribing patterns and, if so, 
what CMS will then do.
    Response: Consistent with our current practices, we will be alert 
for such prescribing patterns. Once a pattern is detected, we will 
conduct a review and investigation using our existing procedures. If, 
based on this review, we believe that a situation involving abusive 
prescribing may exist, we will determine whether action under Sec.  
424.535(a)(14) is warranted.
    Comment: A commenter stated that proposed Sec.  424.535(a)(14) is 
unnecessary because the OIG has the ability to exclude from Medicare 
(under 42 U.S.C. 1320a-7(b)(6)(B)) any individual who has furnished 
items or services to patients substantially in excess of the patients' 
needs or of a quality that does not meet professionally recognized 
standards of care.
    Response: While we recognize that the OIG has its exclusion 
authority, CMS is the agency directly responsible for administering the 
Medicare program and for protecting Medicare beneficiaries and the 
Trust Funds. Consequently, CMS should be able to use its own authority 
to pursue administrative actions to address our concerns regarding 
abusive prescribing. We also reiterate that the OIG has recommended 
that CMS exercise greater oversight over the integrity of the Part D 
program and has noted its concern about abusive prescribing. Therefore, 
we believe it is proper for CMS (and consistent with the OIG's 
recommendations) to implement Sec.  424.535(a)(14).
    Comment: Several commenters expressed support for our proposed 
addition of Sec.  424.535(a)(14). One commenter stated that this will 
allow for more effective monitoring of improper prescribing behaviors. 
The commenter noted that inappropriate prescribing can result in 
overutilization of medications that increase program costs without 
providing any health benefit and can harm beneficiaries. Another 
commenter stated that Sec.  424.535(a)(14) will enable CMS to exercise 
greater control over the Part D program.
    Response: We appreciate the support of these commenters.
    Comment: Several commenters recommended that CMS explain in the 
final rule whether CMS or Medicare contractors will use clinical staff 
(physicians and pharmacists) in determining whether Part D prescription 
drug abuse has occurred and whether a revocation under Sec.  
424.535(a)(14) is warranted.
    Response: As stated earlier, we may use clinical staff, as needed, 
in making Sec.  424.535(a)(14) determinations.
    Comment: One commenter recommended that CMS, in lieu of finalizing 
Sec.  424.535(a)(14), revoke the Medicare billing and/or prescribing 
privileges of individuals under Sec.  424.535(a)(10) when the medical 
documentation does not support the Part D prescription written by the 
physician or eligible professional. The commenter believed that this 
approach

[[Page 29902]]

would be easier and more cost-effective to implement and would avoid 
the need for CMS to make clinical judgments.
    Response: Section 424.535(a)(10) does not apply to Part D 
prescriptions. Consequently, Sec.  424.535(a)(10) cannot be used in 
lieu of Sec.  424.535(a)(14).
    Comment: A commenter requested clarification concerning whether CMS 
or its Medicare contractors will conduct medical document reviews to 
determine whether an abusive prescribing pattern exists.
    Response: Medical document reviews are one of several actions we 
may undertake in determining whether an invocation of Sec.  
424.535(a)(14) is warranted.
    Comment: With respect to the criterion regarding diagnoses to 
support indications for which the drugs were prescribed, a commenter: 
(1) Questioned how CMS will cross-reference Part D prescriptions with 
appropriate diagnoses; and (2) stated that CMS should include all 
scientifically-supported indications, whether on the FDA labeling or 
not.
    Response: We will, as deemed necessary, furnish sub-regulatory or 
other guidance to address the commenter's first issue. We agree with 
the commenter's second comment, and intend to include all 
scientifically-supported indications irrespective of whether they are 
on the FDA labeling.
    Comment: One commenter expressed concern about the potential impact 
of Sec.  424.535(a)(14) on pharmacies and their patients. The commenter 
stated that beneficiaries may see an interruption in the continuity of 
their health care if their physician is no longer qualified to be a 
Medicare supplier; the commenter believed there should be options 
available to ensure that health care is not interrupted.
    Response: As explained earlier, we only intend to invoke Sec.  
424.535(a)(14) in exceptional circumstances. Consequently, we do not 
believe that patient access in general will be impacted.
    Comment: In referring to the criterion in Sec.  424.535(a)(14) 
regarding private insurers, a commenter stated that CMS does not have 
the statutory authority to make enrollment and revocation decisions 
based upon the actions of commercial health insurers. The commenter 
urged CMS to explain its legal justification for invoking Sec.  
424.535(a)(14) on this ground. The commenter also suggested that CMS 
explain how it will obtain information regarding private insurer 
actions taken against physicians and practitioners and whether these 
insurers will be required to furnish such data to CMS.
    Response: We disagree with the commenter's assertion that we do not 
have the authority to consider the actions of private insurers in 
determining whether a Sec.  424.535(a)(14) is appropriate. Again, we 
have the authority under sections 1102 and 1871 of the Act to establish 
requirements for the efficient administration of the Medicare program. 
If private insurers have taken actions against a particular physician 
or practitioner for questionable prescribing activities, we believe it 
would be appropriate for us to consider this information in light of 
our obligation to oversee the Part D program in a responsible manner. 
We will attempt to work with private insurers to facilitate the 
appropriate exchange of information.
    Comment: A commenter opposed the following criterion: ``Whether the 
physician or eligible professional has prescribed controlled substances 
in excessive dosages that are linked to patient overdoses.'' The 
commenter contended that CMS: (1) Did not provide the source or sources 
that it will use to obtain this information, and (2) already has a 
similar reason for revocation in Sec.  424.535(a)(3) regarding felony 
convictions. The commenter stated that if CMS adopts this criterion, 
CMS should add the following language to the end thereof: ``that result 
in a felony conviction of criminal neglect or misconduct.'' The 
commenter also recommended that CMS: (1) Cite the sources it will use 
to obtain information on patient overdoses; and (2) defer to the state 
medical boards regarding whether a physician or eligible professional 
is posing an immediate risk to Medicare Part D beneficiaries (assuming 
CMS intends to consider state actions in its Sec.  424.535(a)(3) 
determinations).
    Response: We are unclear as to the specific information to which 
the commenter is referring; namely, whether the commenter is alluding 
to published clinical data (for example, professional journals) or to 
information regarding a particular patient's overdose. If it is the 
latter, as we suspect, we intend to use both publicly available and 
internal data to determine whether cases of excessive prescribing 
exist. To the extent this data is obtained from state medical boards, 
CMS (for reasons alluded to earlier) does not believe a prior 
determination by the state of an immediate risk to Part D beneficiaries 
is necessary.
    Comment: A commenter suggested that in lieu of revoking an 
individual under Sec.  424.535(a)(14), CMS should place the physician 
under a payment suspension and deactivate his or her Medicare billing 
privileges. Another commenter recommended that CMS consider a sliding 
scale to include lower-level consequences (such as suspensions) for 
less severe occurrences.
    Response: We disagree. With a payment suspension, the physician 
would remain enrolled in Medicare and be able to prescribe Medicare 
Part D drugs and provide Medicare Part B services (although he or she 
would have Medicare payments withheld for a period of time). Moreover, 
there would be no legal basis under Sec.  424.540 to deactivate the 
supplier's prescribing privileges, which is why revocation is the most 
appropriate remedy to address these situations.
    Comment: A commenter stated that the sole use of PDE data to 
identify prescriber trends is insufficient to determine abusive 
practices, for such data cannot distinguish between: (1) Legitimate 
high dose and frequency of prescriptions; and (2) illegitimate 
prescribing.
    Response: We agree and intend to use various data sources to detect 
such practices.
    Comment: Several commenters stated that prescribers may avoid long-
term care practice for fear of being revoked from Medicare.
    Response: We disagree. We mentioned earlier that we only intend to 
invoke Sec.  424.535(a)(14) in exceptional circumstances involving 
truly abusive behavior. Accordingly, we do not believe that Sec.  
424.535(a)(14) will deter prescribers from practicing in long-term care 
settings.
    Comment: A commenter suggested that CMS provide additional data to 
plans in order to improve a plan's ability to identify inappropriate 
patterns and to apply claims processing edits correctly/timely.
    Response: We agree and are considering various means of doing so.
    Comment: One commenter stated that a revocation under Sec.  
424.535(a)(14) alone will not suspend or revoke the practitioner's 
right to prescribe drugs under state law, meaning that patients other 
than Medicare beneficiaries would still be at risk. This is especially 
true, the commenter added, considering that Sec.  424.535(a)(14) does 
not require such CMS revocations to be reported to the state.
    Response: It is possible that a prescriber revoked under Sec.  
424.535(a)(14) may still be able to retain his or her state license. 
However, we are currently working with the states to facilitate a 
closer exchange of information regarding Medicare actions taken against 
physicians and

[[Page 29903]]

practitioners, which may facilitate concomitant action taken by states.
    Comment: Several commenters requested clarification as to whether 
a: (1) Part D plan sponsor would be penalized if it fills a 
prescription from a terminated supplier when information about the 
termination is not available (for example, in cases of retroactive 
termination or an error with CMS records); and (2) whether a pharmacy 
would be penalized for filling a prescription order that has been 
approved through the claims adjudication process. The commenter opposed 
the application of such penalties.
    Response: We believe these comments are outside the scope of this 
final rule.
    Comment: A commenter recommended that CMS remove the following as a 
factor for revocation: ``Has a pattern or practice of prescribing for 
controlled substances outside the scope of the DEA Certificate of 
Registration.'' The commenter instead suggested that CMS work with the 
DEA.
    Response: We disagree with the commenter. As previously mentioned, 
we are responsible for administering the Medicare program and must be 
able to take quick action against abusive prescribers without the prior 
approval of another agency.
    Comment: A commenter stated that, on its face, each criterion 
appears reasonable. However, the commenter expressed concern that the 
rule does not provide guidance on the application and weight given to 
each factor, which could allow for subjective, contradictory, and 
discriminate revocation decisions (especially with respect to the last 
criterion that permits CMS to consider ``any other relevant information 
provided to CMS.'').
    Response: We understand the commenter's concern and note that we 
will, as deemed necessary, be issuing sub-regulatory guidance that 
explains in more depth the operational details of the Sec.  
424.535(a)(14) determination process. In addition, CMS, rather than its 
contractors, will make all final determinations. This will ensure 
greater overall uniformity, as well as a more consistent application of 
the various factors.
    Comment: While supporting much of our proposed addition of Sec.  
424.535(a)(14), a commenter expressed concerns regarding several 
criteria. First, the commenter (referring to proposed Sec.  
424.535(a)(14)(i)(A)) stated that there are many reasons why a 
physician might prescribe a particular drug without a formal diagnosis 
(for instance, the physician may be unable to conduct a full evaluation 
due to distance, cultural preference, etc.). Second, the commenter 
recommended that a statute of limitations be imposed regarding the 
individual's final adverse action history.
    Response: We recognize that there may be instances where a formal 
diagnosis does not or cannot occur. In applying Sec.  
424.535(a)(14)(i)(A), we will consider the reason such a diagnosis did 
not take place. Regarding the commenter's second concern, we do not 
favor a statute of limitations for the final adverse action criterion; 
CMS must be able to retain its flexibility in this regard. Nonetheless, 
we will take into account when the adverse action occurred when 
analyzing whether it supports a finding of abusive prescribing.
    Comment: A commenter recommended that CMS forgo adopting Sec.  
424.535(a)(14) and instead work with the Congress to suspend Coverage 
and Payment for Questionable Part D Prescriptions, as described in the 
FY 2015 Department of Health and Human Services performance budget.
    Response: We continue to work with the Congress in our efforts to 
enhance Part D program integrity, and we believe that Sec.  
424.535(a)(14) is an important step in this direction.
    Comment: With respect to the criterion dealing with state 
disciplinary actions, a commenter suggested that CMS monitor prescriber 
licensure statuses and status changes in lieu of state disciplinary 
actions. The commenter stated that many states do not publish state 
board disciplinary actions in a standardized format that can be easily 
used to ascertain a prescriber's practicing privileges.
    Response: We recognize that state disciplinary data may not always 
be available. To the extent that it is, though, we do not believe it 
should be completely disregarded, even if the action did not result in 
a licensure suspension or revocation.
    Comment: A commenter requested that CMS ensure that innovative 
abuse-deterrent technologies are employed as a tool in working to curb 
prescription drug abuse in Medicare. Another commenter recommended that 
CMS utilize health information technology systems to collect and 
organize data for measuring performance, supporting clinical decisions, 
and evaluating quality improvement processes; drug utilization 
procedures and prescription drug monitoring programs (PDMPs), for 
instance, could be important tools for improving public health and 
clinical practice.
    Response: We appreciate these suggestions and note that we are 
considering various technological and system-based means of enhancing 
our oversight of the Part D program.
    Comment: A commenter offered several suggestions. First, CMS should 
furnish examples in the final rule as to the process of identifying and 
quantifying a pattern or practice as well as the actual revocation 
process of Medicare enrollment. Second, CMS should offer additional 
educational opportunities for suppliers regarding Medicare prescribing 
practices, which would place physicians and eligible professionals on 
notice that they must meet Medicare requirements and must prescribe 
properly.
    Response: We agree with the commenter's second recommendation and, 
as stated earlier, plan to conduct outreach regarding prescribing 
practices. As for the first suggestion, we are not in a position in 
this final rule to furnish specific examples of when we would conclude 
that abusive prescribing exists and a Sec.  424.535(a)(14) revocation 
is warranted; again, we must retain our flexibility to address a 
variety of factual scenarios.
    The revocation process will be the same as that which currently 
exists for all other revocation reasons under Sec.  424.535(a), the 
lone exception being that Part D plan sponsors will be notified of a 
revocation action under Sec.  424.535(a)(14).
    Comment: One commenter recommended that CMS revise the regulation 
to permit denial of an enrollment application due to prescribing 
practices that are either abusive and/or represent a threat to the 
health and safety of Medicare beneficiaries.
    Response: We appreciate this suggestion and may consider it as part 
of a potential future rulemaking effort.
    Comment: One commenter recommended that CMS obtain and consider a 
recommendation from the plan sponsor's medical director as to whether 
the prescribing pattern falls outside the standard of care and 
represents a therapeutic use for which safety and efficacy is not 
otherwise supported by available scientific evidence.
    Response: We appreciate this suggestion, but note that CMS staff 
includes medical personnel who, as stated earlier, may be consulted as 
needed in potential Sec.  424.535(a)(14) cases.
    Comment: A commenter requested that CMS eliminate the criterion 
dealing with patterns and practices of prescribing without authority 
and instead utilize processes already in place to validate prescriptive 
authority

[[Page 29904]]

at the point of sale. The commenter also recommended that CMS work with 
industry stakeholders to develop a streamlined process for capturing 
data that will be used in CMS' Sec.  424.535(a)(14) determinations.
    Response: We disagree with the first comment. The issue is not the 
technical or logistical means of validating prescriptive authority but 
whether the unauthorized prescribing of drugs is indicative of abusive 
prescribing. As for the second comment, we are somewhat unclear as to 
the commenter's specific request; nevertheless, we will consult with 
plan sponsors and pharmacy interest groups as needed to ensure that our 
new provisions are effectively implemented.
    Comment: A commenter expressed support for CMS' decision not to 
define ``abusive'' and ``threat to the health and safety of Medicare 
beneficiaries'' and to allow CMS the flexibility to address each case 
on its own merits. However, it urged CMS to review the list of criteria 
on a periodic basis and consider additions and modifications to reflect 
advances in clinical best practices and the evolution of abusive 
prescribing patterns or practices.
    Response: We appreciate the commenter's support and intend to 
regularly review (and, if needed, update via further rulemaking) the 
criteria in Sec.  424.535(a)(14) to account for changes in the medical 
field.
    Comment: A commenter suggested that in making Sec.  424.535(a)(14) 
determinations, CMS should: (1) Take into account historical 
information in the National Practitioner Data Bank (such as past DEA 
registration suspensions); and (2) consider the relative severity of 
any state licensure sanctions.
    Response: We appreciate this comment. As stated earlier, a 
physician or eligible professional's final adverse action history (both 
past and present) will be a criterion for us to consider; the severity 
of any such actions or sanctions will be taken into account as well.
    Comment: A commenter stated that proposed Sec.  424.535(a)(14) may 
run counter to Medicare regulations that protect patient rights, 
creating the possibility that systematic limitations on prescribing 
practices may constitute a violation of patients' rights to pain 
assessments, palliative care, and the provision of hospice care.
    Response: We disagree with the commenter. We do not believe that 
Sec.  424.535(a)(14) will hinder the ability of Medicare beneficiaries 
to receive appropriate medications, particularly considering that: (1) 
Sec.  424.535(a)(14) will only be applied in egregious instances; and 
(2) the patient's particular needs, circumstances, and setting will be 
taken into account.
    Comment: A commenter stated that there needs to be additional 
information in the final rule as to how this information would be 
provided to PBMs and how PBMs should administer it; for example, 
guidance is needed on how to manage suppliers that are licensed in 
multiple states but have an action against them in one state but not 
the other(s).
    Response: We will, as deemed necessary, disseminate sub-regulatory 
or other guidance that addresses the issues the commenter has raised.
    Comment: Several commenters believed that Sec.  424.535(a)(14) 
could be strengthened even further by permitting revocation of 
enrollment based on prescribing practices that are abusive and/or 
represent a threat to the health and safety of Medicare beneficiaries, 
as opposed to requiring that both of these criteria be met. The 
commenters stated that some prescribing practices might be fraudulent 
and abusive but not necessarily representative of a threat to the 
health and safety of Medicare beneficiaries.
    Response: We agree, and will revise Sec.  424.535(a)(14) 
accordingly. Specifically, the language in Sec.  424.535(a)(14)(i) that 
reads, ``The pattern or practice is abusive and represents a threat to 
the health and safety of Medicare beneficiaries,'' will be changed to 
``The pattern or practice is abusive or represents a threat to the 
health and safety of Medicare beneficiaries or both.'' This will give 
us further flexibility in addressing cases of abusive prescribing, 
which in turn will enable us to better protect Medicare beneficiaries 
and the Trust Funds.
    Given these comments and our responses, we are finalizing our 
addition of Sec.  424.535(a)(14) with the exception noted in the 
previous paragraph.
    We also received a number of comments that, in general, either 
applied to all of our proposed provisions or were not precisely related 
to any specific proposal. Our summary of the comments and are responses 
are as follows.
    Comment: Several commenters opposed the use of the CMS-855O on 
various grounds. First, the CMS-855O does not collect practice location 
or medical storage information, which the commenter believes is a 
significant vulnerability and is inconsistent with CMS' existing 
regulations. Second, use of the CMS-855O is inappropriate because 
proposed and final regulations (in which the notice-and-comment process 
is used) regarding its use and implementation were not published in the 
Federal Register. Third, the commenter contended that CMS does not have 
the statutory or legal basis to use an enrollment application other 
than for the express purpose of enrolling a provider or supplier; as 
such, CMS exceeded its legal authority to implement the CMS-855O for 
the sole purpose of ordering and certifying services and items in the 
Medicare program. Fourth, the commenter contended that CMS lacks the 
statutory and regulatory basis to establish a registration process for 
Medicare. Fifth, the CMS-855O is duplicative of the CMS-855I form, the 
latter of which was subject to notice-and-comment; also, requiring a 
physician who is enrolled (via the CMS-855I) solely to order or certify 
services or items to then complete the CMS-855I if he or she wishes to 
bill Medicare increases the paperwork burden.
    Response: These comments are outside the scope of this final rule.
    Comment: A commenter recommended that to improve transparency, CMS 
should post the name, NPI, and reason for each Medicare enrollment 
revocation or payment suspension and the duration of the revocation or 
payment suspension on the Medicare Provider/Supplier Enrollment Web 
site. The commenter believed that this information would be useful for 
Medicare Advantage Organizations, Part D sponsors, and the public.
    Response: We appreciate this suggestion, and will take it under 
advisement as we continue our efforts to strengthen the integrity of 
the Part D program.
    Comment: Several commenters recommended that CMS: (1) Explain why 
it does not believe the inclusion of the practice location on the CMS-
855O is essential to identifying the physician or non-physician 
practitioner; (2) require that all physicians and non-physician 
practitioners report their practice locations; (3) mandate that only 
physicians with a defined specialty be permitted to prescribe Part D 
drugs; (4) remove from the list of physicians and eligible 
professionals with an approved enrollment record any physician or non-
physician practitioner with an undefined or unlisted physician or non-
physician specialty code; (5) explain why it did not solicit comments 
on the use of an electronic signature in the Internet-based versions of 
the CMS-855O and the CMS-855I; (6) provide the authority to implement 
and use the CMS-855O beginning in July 2011 and explain why it did not 
choose to solicit

[[Page 29905]]

public comments on changes to regulatory provisions found in Sec. Sec.  
424.502 and 424.505 for almost 3 years after adopting and using the 
CMS-855O; (7) explain why it is using the CMS-855O rather than the CMS-
855I since the CMS-855O, in the commenter's view, essentially 
duplicates the CMS-855I; (8) modify and use the CMS-855I (rather than 
continue using the CMS-855O) because CMS cannot verify the practice 
location of a physician who registers using the CMS-855O; (9) explain 
why CMS has not proposed to revise Sec.  424.500 to accommodate the 
registration of physicians and non-physician practitioners for the sole 
purpose of ordering/certifying services and items in the Medicare 
program; (10) disenroll all physicians and practitioners enrolled via 
the CMS-855O and require them to enroll via the CMS-855I; and (11) 
provide the number of individuals enrolled or registered into the 
Medicare program using the CMS-855O since July 2011.
    Response: These comments are outside the scope of this final rule.
    Comment: A commenter suggested that the final rule take action 
against physicians who report via the Internet that they are board 
certified when in fact they are not.
    Response: We appreciate this suggestion. While we are unable to 
include such a provision in this final rule because we did not propose 
it, we will take it under advisement as we continue our efforts to 
strengthen the integrity of the Part D program.
    Comment: A commenter recommended that CMS require physicians and 
eligible professionals to have an active Medicare enrollment to order 
Part B drugs.
    Response: This comment is outside the scope of this final rule.
    Comment: A commenter recommended that CMS not allow physicians and 
eligible professionals who have opted-out of Medicare to order or 
certify services and items when they have been suspended or revoked by 
a state licensing body.
    Response: This comment is outside the scope of this final rule.
    Comment: A commenter recommended that CMS clarify whether a Part D 
Medicare beneficiary will need to provide his or her physician's name 
and NPI to his or her plan sponsor if he or she submits a Part D claim 
for payment.
    Response: We will, as deemed necessary, address this issue via sub-
regulatory or other guidance.
    Comment: A commenter recommended that CMS exclude physicians and 
eligible professionals who have opted out of the Medicare program from 
prescribing Part D covered drugs because CMS does not have the legal 
authority in either the Social Security Act or existing regulations to 
revoke the prescribing privileges of a physician or eligible 
professional who has opted-out of the Medicare program.
    Response: As we stated previously, section 1802(b) of the Act is 
clear that certain physicians and practitioners may opt-out of the 
Medicare program and enter into private contracts with Medicare 
beneficiaries. We believe that to require such individuals to enroll in 
Medicare would be inconsistent with this statutory provision.
    Comment: A commenter recommended that CMS explain why the April 14, 
2012 and September 11, 2011 Federal Register Notices soliciting 
comments on the CMS-855O state that physicians and practitioners 
submitting this form are registering rather than enrolling in Medicare, 
while the April 2013 proposed rule states that they are enrolling in 
Medicare; the commenter stated that existing regulations do not provide 
for a registration process.
    Response: This comment is outside the scope of this final rule.
    Comment: A commenter stated that diagnosis codes should be placed 
on prescriptions to assess their appropriateness.
    Response: This comment is outside the scope of this final rule.
    Comment: A commenter: (1) Requested clarification regarding whether 
a revocation under our proposed provisions would affect a physician or 
eligible professional's Medicaid enrollment; (2) requested 
clarification concerning how a State Medicaid agency would 
differentiate between one's enrollment via the CMS-855I and an 
enrollment via the CMS-855O; and (3) suggested that CMS provide a 
complete list of individuals who can only order, certify or prescribe 
in the Medicare program.
    Response: With respect to the first comment, any Medicare 
revocation results in the termination of the provider or supplier's 
Medicaid enrollment pursuant to Sec.  455.416(c). The second comment is 
outside the scope of this final rule. As for the third comment, and as 
alluded to in both the proposed rule and in this final rule, we plan to 
make available to Part D sponsors a list of physicians and eligible 
professionals who have an approved enrollment record or a valid opt-out 
affidavit on file with an A/B MAC. We do not intend at this time to 
modify this list (nor to create a separate list) to identify those 
individuals who are enrolled solely to order, certify, or prescribe in 
the Medicare program. However, we may consider this as part of a future 
enhancement.
    Comment: A commenter suggested that CMS require private insurers in 
Part D to report suspected fraud, waste and abuse to Medicare's fraud 
contractor. Another commenter stated that CMS should: (1) Encourage 
Part D sponsors to voluntarily report suspected instances of physician 
and eligible professional misconduct or abusive prescribing, and (2) 
institute measures to ensure a two-way working dialogue between the 
sponsors and the MEDIC.
    Response: We are working to ensure that Part D plans consistently 
and regularly refer suspected fraud, waste, and abuse to the MEDIC and 
that there is appropriate communication between them.
    Comment: A commenter requested that steps be taken to ensure that a 
beneficiary is notified when his or her physician's billing privileges 
have been revoked, and that an exception be made for emergency or 
urgent care situations. Similarly, another commenter requested 
clarification as to whether claims will be processed for emergency and 
urgent care services furnished by opt-out physicians and, if so, how 
processors will identify claims in that scenario. One commenter 
requested that CMS furnish guidance regarding: (1) How Part D 
prescribers can complete an opt-out affidavit; (2) how opt-out 
prescribers will be identified in the file; (3) which (if any) edits 
will apply to opt-out prescribers; (4) how various enrollment statuses 
(for example, an enrollment application or opt-out affidavit is 
pending) should be handled; (5) how terminations should be handled and 
whether changes in enrollment (including suspensions and revocations) 
will be communicated to plan sponsors at least 30 business days in 
advance; (6) whether the enrollment/opt-out file will be made available 
to prescriber data vendors; (7) whether an alert process will be 
established for reinstated or new enrollments that occur between file 
deliveries; (8) whether override processes will be developed; (9) 
whether procedures for notifying beneficiaries of a change in an 
individual's ability to prescribe Part D drugs will be established; 
(10) whether a special call center for Part D prescribing issues 
related to enrollment will be created; and (11) how felony convictions, 
exclusions, debarments, and State Medicaid program prescriber sanctions 
should be treated for purposes of claim denials and coding (for 
instance, whether they should be treated

[[Page 29906]]

as Medicare revocations or OIG exclusions for purposes of claim denials 
and coding).
    Response: We will, as deemed necessary, address the aforementioned 
issues via sub-regulatory or other guidance.
    Comment: A commenter recommended that CMS reestablish the 
systematic deactivation of Medicare billing and prescribing privileges 
if the physician or non-physician practitioner has not billed the 
Medicare program in more than a year to ensure consistency with an OIG 
recommendation to this effect. The commenter also recommended that CMS 
provide the number of physicians and eligible professionals who have 
completed the CMS-855I and who have not billed the Medicare program in 
more than a year as of March 7, 2014, the ending comment date for this 
proposed rule.
    Response: These comments are outside the scope of this final rule.
    Comment: A commenter stated that a revocation would be too serious 
a penalty for a DEA registration suspension or revocation or for 
improper prescribing.
    Response: While we recognize commenter's concern regarding the 
severity of a revocation action, this action will in some cases be 
necessary to protect Medicare beneficiaries and the Trust Funds.
    Comment: A commenter sought clarification regarding whether CMS 
would notify the prescriber at least 30 days in advance of a 
forthcoming revocation.
    Response: As already stated, the operational procedures for 
revoking suppliers under Sec. Sec.  424.535(a)(13) and (14) will be the 
same as those which currently exist for other revocations under Sec.  
424.535(a), the sole exception being that Part D plans will be notified 
of the revocation.
    Comment: A commenter suggested that CMS centralize all exclusion, 
opt-out, and other lists in one location (to the maximum extent 
possible), preferably via a format that Part D plans can download and 
convert into a file format compatible with data analytics programs. 
This would enable plans to act more quickly against excluded suppliers. 
Another commenter urged that CMS update such lists expeditiously so 
that plan sponsors can take action as needed.
    Response: We appreciate the first commenter's suggestion and may 
consider this as part of a future enhancement. We agree with the second 
commenter's recommendation and stress that CMS attempts to update its 
existing lists (and will attempt to update the aforementioned enrolled/
opted-out prescriber list) as quickly as possible.
    Comment: A commenter requested clarification concerning whether: 
(1) Plan sponsors are only supposed to deny coverage in the state in 
which a physician's license is revoked or whether denials should be for 
all states; and (2) whether CMS will continue to permit a physician 
with a CMS waiver to continue practicing in rural areas when he or she 
is the only physician available, even though he or she is revoked.
    Response: We believe these comments are outside the scope of this 
final rule.
    Comment: A commenter requested clarification regarding whether a 
physician who is prohibited from prescribing controlled substances for 
the treatment of non-cancer related chronic pain or obesity would have 
their Medicare billing privileges and/or prescribing privileges revoked 
by the Medicare program.
    Response: As stated in Sec.  424.535(a)(13), if the applicable 
licensing body for any state in which the physician practices suspends 
or revokes his or her ability to prescribe controlled drugs, we have 
the discretion to revoke his or her Medicare billing and prescribing 
privileges. Should we exercise this discretion, the physician would be 
unable to prescribe covered Part D drugs because he or she would no 
longer be enrolled in Medicare.
    Comment: A commenter recommended that CMS explain the process it 
uses to identify medical licenses that are surrendered while a formal 
disciplinary proceeding was pending before a state licensing authority.
    Response: This comment is outside the scope of this final rule.
    Comment: A commenter encouraged CMS to consider participation in 
the Council for Affordable Quality Healthcare (CAQH) universal 
credentialing application process used by many private sector 
healthcare systems. Having one ``portal'' for physicians to become 
credentialed for both Medicare and private sector health plans, the 
commenter believed, would reduce the administrative burden for 
physicians.
    Response: We appreciate this comment but believe it is outside the 
scope of this final rule.
    Comment: One commenter, while expressing support for Sec. Sec.  
424.530(a)(11) and 424.535(a)(13) and (14), requested that CMS delay 
its implementation until CMS (1) has fully field-tested the Medicare 
enrollment and reporting program, and (2) demonstrates that the program 
will operate at a high level of accuracy, with frequent updates, and 
with consistently reliable linkages to and from other federal and state 
databases. Another commenter recommended that the criterion in Sec.  
424.535(a)(14) regarding diagnosis codes be delayed until the effects 
of the ICD-10 transition are reviewed.
    Response: While we appreciate the first commenter's support, we do 
not believe that the implementation of these provisions (including the 
criteria in (a)(14)) should be delayed. As explained earlier, CMS must 
take steps to ensure the integrity of the Part D program and to protect 
both Part D beneficiaries and the Trust Funds.
    We are neither finalizing nor proposing any regulatory changes as a 
result of these miscellaneous comments.
22. Broadening the Release of Part D Data (Sec.  423.505)
    We proposed 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. For background, 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), (1) and (m). 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

[[Page 29907]]

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. 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 for research 
purposes, CMS indicated in the Part D data final rule 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.
    In the preamble to the proposed rule, we stated that we believe the 
current limitations on the release of certain data elements hinder the 
use of PDE data in a health care environment that is substantially 
transforming due to the Affordable Care Act, and that these limitations 
therefore also inhibit accompanying insights into prescription drug 
benefit plans that could result from broader release of the data. We 
further stated that 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. For these reasons, we stated that increased access to 
prescriber, pharmacy, and plan identifiers by all categories of 
requestors is of utmost importance and will facilitate research by 
entities outside CMS that involves identifiable plans, prescribers, and 
pharmacies. Furthermore, we stated that we could relax the current 
policies on the release of this PDE data, while still protecting 
beneficiary confidentiality and commercially sensitive data of Part D 
sponsors.
    Specifically, we proposed to permit the release of unencrypted 
prescriber, pharmacy, and 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) 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 noted 
that because the minimum necessary policy will still apply to all such 
releases, our proposal was more a formality with respect to HHS 
entities/Congressional oversight agencies and non-HHS executive branch 
agencies/states, since this data is available in unencrypted format to 
these same entities under the current Part D data regulations ``if 
needed.'' For this reason, in the proposed rule, we focused on the 
release of unencrypted prescriber, pharmacy, and plan identifiers to 
external entities as discussed later in this section.
    We acknowledged in the preamble to the proposed rule that there 
still may be concerns about releasing unencrypted prescriber, plan, and 
pharmacy identifiers to outside entities based on comments that were 
received in response to our original proposed Part D data regulations, 
and that were discussed in the Part D data final rule (73 FR 30675). In 
particular, we addressed concerns that this information could be used 
by pharmaceutical companies and others who may want to influence 
physicians' prescribing patterns and interfere with their professional 
judgment. As we stated in the proposed rule, it is our view today, 
however, that 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, we stated that there are other measures 
in place to prevent inappropriate influence by external entities on 
prescribers, such as section 6002 of Affordable Care Act and the 
federal Anti-Kickback Law (section 1128B(b) of the Act). We also 
pointed 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 also noted that it appears prescriber data are already 
available commercially from pharmacy data aggregators. For these 
reasons, we stated that we believe that our earlier concerns expressed 
in the Part D data final rule about the release of unencrypted 
prescriber identifiers in PDE data to external entities are no longer 
warranted.
    In the proposed rule, in conjunction with our proposal to broaden 
the release of unencrypted prescriber identifiers, we also highlighted 
our response to a comment discussed in the Part D data final rule, 
which 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 (73 FR 
30676). We noted that in response to the comment, 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 at the time 
in an effort to encourage health care providers to furnish high quality 
health care and to provide cost and quality information to consumers. 
We also noted that in our response to the comment, we had stated that 
we intended to use PDE data in those activities, but we declined 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). In this proposed rule, however, we 
acknowledged that, 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 agree with the commenter regarding the importance 
of providing access to prescriber-identifiable claims in order to allow 
researchers to pool them with employer data and conduct broader 
research.
    We noted in the proposed rule that 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, and only in aggregated form.
    With respect to our proposal to broaden the release of unencrypted 
plan

[[Page 29908]]

identifiers, we also explained in the proposed rule that 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 Medicare Prescription 
Drug Plan Finder (``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 contribute to the evaluation and functioning of the 
Part D program and can be used to improve the public health. Therefore, 
in light of the fact that plan data is already publicly available and 
the public policy rationale for increasing access to PDE data by all 
categories of requestors, we stated that plan identifiers should be 
available in an unencrypted format.
    For the same reasons that we proposed to make prescriber and plan 
identifiers available for release in an unencrypted format, we 
explained in the proposed rule that we no longer see a reason that 
pharmacy identifiers should not be available for release in an 
unencrypted format. Accordingly, we also proposed to release 
unencrypted pharmacy identifiers to all categories of requestors.
    We addressed one final aspect of our policies governing the release 
of Part D data in the proposed rule. As discussed previously, in the 
preamble to the Part D data final rule (73 FR 30664), 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, for the same reasons that we proposed to make 
changes to our rules governing the release of PDE data, we also 
solicited comment on the current restriction on the release of PDE data 
for commercial purposes. We noted that we were not making a specific 
proposal in this regard, but rather, that we wished to receive comments 
on this issue for consideration.
    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 proposed a few other changes to our regulations 
governing the submission, use, and release of PDE data, including some 
changes intended to clarify our existing policies with respect to 
several issues related to PDE data. First, we proposed 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. Thus, we indicated that we believe 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 proposed to add 
this purpose explicitly to the non-exclusive list in Sec.  
423.505(f)(3).
    Second, we proposed to clarify that non-final action data (for 
example, information on claims subject to subsequent adjustment) are 
available to entities outside of CMS. We explained that non-final 
action data are captured through the data element, ``Original versus 
Adjusted PDE (Adjustment/Deletion code).'' We further explained that 
this is a PDE field which distinguishes original from adjusted or 
deleted PDE records, which allows sponsors to make adjustments to the 
original PDE record to ensure accurate payment. The information 
included in these revised PDE records is thus not point-of-sale data. 
With the increasing focus on coordination of care, we noted that 
requests for access to non-final action PDE data have understandably 
also increased, and that non-final action data are also routinely 
requested for evaluation and research projects. We noted that 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. Specifically, we 
noted that 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, 
we noted that this appendix did not explicitly address the question of 
whether non-final action data would be available for release to non-HHS 
executive branch agencies, states, and external entities, because such 
data were not expected to be needed by these requestors. However, since 
it is clear that these entities do need access to non-final data, we 
proposed to clarify 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.
    Due to our proposals to make changes to our policies governing the 
release of PDE data described previously, we proposed to make 
corresponding changes to the current applicable regulatory text. In 
addition, we also proposed 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 stated 
that we believed this appendix is no longer necessary, as our proposed 
changes in policy 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 proposed 
to revise the regulation at Sec.  423.505(m)(1)(iii)(B) to account for 
this distinction. We also proposed to revise this provision to clarify 
that we will continue to exclude sales tax from the aggregation, if 
necessary for the project. Finally, we proposed 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).
    We received the following comments on our proposed revisions to the 
regulations governing the release of Part D data:
    Comment: We received a number of comments regarding these proposed 
revisions, many of which strongly supported our proposed revisions to 
the Part D data regulations. Several commenters commended CMS' ongoing 
work to improve the efficiency of the Medicare program and the clinical 
care of its beneficiaries, which these commenters asserted will be 
better facilitated through increased data transparency that facilitates 
additional research. These commenters stated that releasing unencrypted 
physician, plan, and pharmacy identifiers in Part D PDE data under the 
parameters we proposed will allow researchers to answer a broader range 
of questions about the

[[Page 29909]]

program. These commenters further stated that greater access to Part D 
PDE data will help ensure that this data is used to maximum effect in 
the creation of knowledge and understanding about the program and 
around clinical care received by beneficiaries. Commenters additionally 
noted that the increased availability of PDE data will enable 
researchers to conduct in-depth comparisons of medications provided 
through different outlets, which could enable CMS to take proactive 
measures to achieve cost savings. One commenter also stated that the 
public has a significant interest in provider, plan, and pharmacy 
professional conduct, as these entities are government licensed and 
regulated, and Medicare payments are publicly funded. Finally, these 
commenters noted that our existing ``minimum necessary'', ``legitimate 
researcher'', and ``aggregation'' policies are sufficient to provide 
some common sense parameters for release of unencrypted identifiers.
    Potential areas of research suggested by the commenters were 
linking information on Part D plan features (such as premiums, cost-
sharing, and formularies) to health outcomes and the quality of health 
care provided to Medicare beneficiaries. Other commenters asserted that 
broader access to prescriber, plan, and pharmacy identifiers in PDE 
data will facilitate research in particular for conditions for which 
there are very few viable treatments, no available cure, and much more 
work to be done with respect to researching and developing safe and 
effective medicines. These commenters welcomed the availability of 
additional information to spur further knowledge, investigation, and 
progress on how to best treat--and ensure appropriate coverage for 
treating--complex health conditions.
    Response: We thank these commenters for their comments in support 
of our proposed changes.
    Comment: Other commenters opposed our proposed revisions to the 
policies governing the release of Part D data. These commenters 
asserted that the existing framework for release of Part D PDE data 
fully accommodates the needs of government entities and legitimate 
researchers, and strikes the appropriate balance between these needs 
and the legitimate concerns of health care providers and Part D plan 
sponsors regarding the widespread dissemination of sensitive data, 
including data that specifically identifies them. One commenter stated 
that CMS had not articulated a reason for the need to identify specific 
plans, pharmacies, and prescribers, and that necessary research can be 
accomplished with encrypted identifiers. One commenter requested a 
clarification on the meaning of ``new health care environment.'' Some 
commenters asserted that prescriber, plan, and pharmacy identifiers in 
PDE data are commercially sensitive information, and that release of 
these identifiers would undermine competition and may lead to higher 
costs in the Part D program and less choice. A few of these commenters 
asserted similarly that prescription drug benefit plans could 
potentially reverse engineer competitively sensitive data regarding 
other plans, which could have an anti-competitive effect on the Part D 
bidding process.
    Response: We think the preamble to the proposed rule provided a 
clear description of the ways in which the Affordable Care Act is 
transforming the health care system in this country--by spearheading 
the drive toward an information- and value-based system, and the 
compelling reasons for the release of unencrypted prescriber, plan, and 
pharmacy identifiers in Part D PDE data to allow for additional 
research to achieve this goal. Specifically, it is in the interest of 
public health to share this information with entities outside of CMS, 
as the work of these entities will assist CMS in evaluating the 
Medicare Part D program and assessing related policies to improve the 
clinical care of beneficiaries. We also note that when more data is 
released about the Medicare Part D program, the potential research 
topics expand as well. For instance, commenters supportive of the 
proposed expansion in the release of Part D data offered examples of 
potential areas of new research, such as linking information on Part D 
plan features (such as premiums, cost-sharing, and formularies) to 
health outcomes and the quality of health care provided to Medicare 
beneficiaries. Such research is not possible with encrypted plan 
identifiers, because the researchers would not know the specific 
features of the unidentified plans.
    In addition, we are not persuaded that these identifiers are 
commercially sensitive data. As we stated in the preamble to the 
proposed rule (79 FR 1990), 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. Moreover, we noted that it 
appears that prescriber data are already available commercially from 
pharmacy data aggregators. These data can currently be manipulated by 
researchers to reveal information about specific plans, pharmacies and 
prescribers. For these reasons, we have concluded that prescriber, plan 
and pharmacy identifiers are not commercially sensitive information, 
and that it is appropriate to share this information in an unencrypted 
format when it is needed for a particular study or project.
    Comment: Some commenters supported our assertion in the proposed 
rule that release of unencrypted identifiers in Medicare Part D PDE 
data subject to our current data release policies, including our 
minimum necessary and legitimate research policies, will not result in 
data recipients using the data inappropriately, such as to influence 
physicians' prescribing patterns or interfere with physicians' 
professional judgment. These commenters stated that physicians are 
trained to use their best medical judgment in making prescription 
decisions for their patients.
    Other commenters disagreed, asserting that the release of 
unencrypted identifiers has the potential, for instance, to influence 
prescribing patterns and physician judgment, or otherwise to be used to 
draw incorrect or inaccurate conclusions that could be damaging to the 
reputations of professionals and health care organizations. These 
commenters asserted that inappropriate influence may adversely affect 
the quality of care for beneficiaries. One commenter stated that the 
Affordable Care Act's additional reporting requirements with respect to 
physician prescribing do not address this type of influence, and that 
CMS has assumed that release of this data will not adversely affect 
beneficiaries, rather than carefully considering the impact of release. 
Another commenter stated that data and statistics are valuable in 
observing trends among patient populations, but that they are a blunt 
instrument when applied to individuals. One commenter opposed the 
indiscriminate release of data to any requesting external entity, 
including to data aggregators that have little knowledge of the 
Medicare Part D program. A few commenters encouraged CMS to present the 
data in a way that considers the quality of the services provided, 
including an explanation of the data limitations, and allows for the 
opportunity to correct information, for instance, to include patient 
non-compliance in the case of release of prescriber identifiers. 
Finally, these commenters stated that disputing inaccurate findings 
takes significant

[[Page 29910]]

time, effort, and expense, and even then, it is often impossible to 
fully mitigate the harm caused.
    Response: While we are sensitive to the concerns regarding undue 
influence raised by the commenters, for the reasons discussed in the 
proposed rule, we agree with those commenters that did not believe 
releasing these data would result in improper influence on physician 
prescribing patterns or otherwise interfere with the exercise of 
professional judgment. In addition, we believe CMS' current release 
policies will also limit inappropriate use of the data. In order for a 
researcher to gain access to CMS data, the researcher must submit a 
research protocol and receive approval of the protocol from CMS. In 
addition, all requestors are required to sign a Data Use Agreement with 
the agency that limits the use of the data to only the approved 
purposes. The agency carefully considers all data requests to ensure 
that the use of the data will not exploit or negatively impact Medicare 
beneficiaries. Furthermore, we do not believe the professional research 
community would support the dissemination of faulty analyses and would 
be quick to offer criticisms of poor research, should this happen 
despite our careful evaluation of all data requests. We also disagree 
that data and statistics are only valuable in observing trends among 
patient populations. As we lead the effort to provide high quality care 
and better health at lower costs, data analysis at various levels of 
specificity is crucial. For example, analyses at the provider or 
supplier level, when properly adjusted to account for differences in 
patient populations, could provide insight into differences in the way 
a given condition is treated and help develop best practices. In 
addition, unencrypted prescriber identifiers have valuable uses beyond 
reporting on individual physician prescribing patterns. For example, 
unencrypted identifiers in Part D data can be linked to other sources 
of data, such as claims data from other payers, electronic health 
records, and clinical data such as lab results, in order to facilitate 
broader and more complex research projects.
    Additionally, we were not persuaded that CMS should release data in 
a way that considers the quality of the services provided, includes an 
explanation of the data limitations, or allows for the opportunity to 
correct information. This is precisely what professional researchers 
do, and as we previously noted, we think the professional research 
community would be quick to offer criticisms of poor research, should a 
project fail to address these issues appropriately. Moreover, if CMS 
were to analyze data before its release for research, this practice 
would undermine the independent nature of the analyses performed by 
outside researchers.
    Comment: Some commenters specifically supported the release of non-
final action PDE records, asserting such data would permit researchers 
to explore data for a better understanding of the Medicare Part D 
program. The comments included a specific example of how non-final 
action data can assist researchers in exploring prescription adherence 
and abandonment by tracking and accounting for adjusted or deleted 
prescriptions. In contrast, other commenters specifically opposed the 
release of non-final data, asserting that this information can easily 
be misinterpreted and may cause false conclusions that impact 
providers. One commenter opposed our proposed clarification regarding 
release of non-final action data stating that CMS had failed to 
articulate a reason for releasing non-final action data other than that 
it had received requests for it.
    Response: We disagree with the commenter that asserted that CMS 
failed to articulate a reason for releasing non-final action data. We 
think we did articulate a reason for releasing non-final action data. 
It is the same as the overarching reason to release Part D PDE data, 
which we discussed at length in the proposed rule. Specifically, it is 
in the interest of public health to share this information with 
entities outside of CMS, as research conducted by these entities may 
assist CMS in evaluating the Medicare Part D program and assessing 
related policies to improve the clinical care of beneficiaries. In 
addition, as we stated in the preamble to the proposed rule, the 
release of non-final action data is necessary due to the increased 
focus on coordination of care in the Medicare program and indeed in the 
health care system as a whole.
    Comment: One commenter opposed the proposal to allow release of 
unencrypted prescriber and pharmacy identifiers stating that the 
current release policies already allow external entities to link 
unencrypted identifier elements to another data set.
    Response: We disagree. Under our current regulations, the 
identifiers must be re-encrypted after the link has been made. Under 
the regulations as finalized, once linked, research at higher levels of 
specificity can be conducted that is not possible with encrypted 
identifiers. For instance, a researcher conducting a study on 
medication adherence will have many more factors to consider and 
explore when the prescribers, plans, and pharmacies involved in the 
research are identifiable. Is adherence related to plan features? 
Physician location and/or specialty? Pharmacy organization filling the 
prescription? All three? The research possibilities will expand, as the 
additional connections that can be explored by researchers expand. 
Drilling down to higher and higher levels of specificity to understand 
and potentially solve a problem is the very nature of 21st century 
data-driven research, and we believe it is essential that the Part D 
data release policies keep current.
    Comment: One commenter opposed our proposal to release unencrypted 
plan identifiers, asserting that plan information is gathered only for 
Part D administration purposes.
    Response: We disagree. Section 423.505(f)(3) of the regulations 
states that a plan sponsor agrees to submit to the Secretary all data 
elements for purposes deemed necessary and appropriate by the 
Secretary, including, but not limited to conducting evaluations of the 
overall Medicare program. As we noted previously, commenters offered 
examples of potential areas of research that will be enabled through 
access to unencrypted plan identifiers, such as linking information on 
Part D plan features (including premiums, cost-sharing, and 
formularies) to health outcomes and the quality of health care provided 
to Medicare beneficiaries.
    Comment: One commenter stated that CMS should more specifically 
define ``legitimate researcher'' to ensure that Part D data is not 
released for competitive or commercial purposes contrary to CMS' 
current policy.
    Response: Under current CMS data sharing policies, the agency 
evaluates all research requests to ensure that the researcher has the 
expertise to conduct the proposed study. In addition, we must approve 
the research protocol before any data is shared with a researcher. We 
believe that this review process contains appropriate safeguards to 
prevent inappropriate use of the data and, as such, we do not believe 
it is necessary to define a ``legitimate researcher.'' Furthermore, we 
believe a variety of different types of individuals could submit a 
valid research request.
    Comment: Some commenters supported our proposal to broaden the 
release of Part D data, so long as beneficiary privacy is protected. 
One commenter suggested that a bio-statistician conduct an expert 
review of the data sets to be released in the context of the permitted 
use(s) to ensure beneficiary privacy in the context of the permitted 
uses of the data. Another

[[Page 29911]]

commenter stated that our proposed expansion of the available data will 
compromise beneficiary privacy and requested that an approval process 
similar to an IRB be established to evaluate requests for such 
information to weigh the risks and benefits of disclosure. Another 
commenter stated that CMS should ensure that its efforts to protect 
beneficiary confidentiality do not create such onerous data request 
processes that qualified researchers are discouraged from attempting to 
access Part D data. Another commenter stated that CMS should establish 
and impose appropriate penalties for any breach of privacy related to 
beneficiary identifiable information.
    Response: All users accessing beneficiary identifiable data are 
required to sign CMS' Data Use Agreement (DUA), which addresses privacy 
and security for the data CMS discloses. In addition, the DUA currently 
does, and will continue to have, enforcement mechanisms, including 
criminal penalties. CMS would make use of these provisions in the event 
of any breach or violation of the terms of the DUA. The DUA also 
contains provisions regarding access to and storage of CMS data to 
ensure that beneficiary identifiable information is stored in a secure 
system. We believe these restrictions are necessary in order to ensure 
that data is only requested in compliance with the requirements of the 
regulations and CMS data sharing procedures, and that data shared by 
CMS is appropriately protected and is not reused or redisclosed without 
the necessary approval. Given that researchers have successfully been 
accessing to CMS data under the terms of this DUA for years, we do not 
believe these requirements are too burdensome. With regard to the 
suggestion that CMS have a bio-statistician review the data sets to be 
released to ensure beneficiary privacy, we do not believe this is 
necessary given the beneficiary privacy protections in the DUA. 
However, to the extent that CMS releases any de-identified, summarized 
data sets based on the Part D data, the agency carefully reviews the 
proposed release to ensure that it does not put beneficiary privacy at 
risk. Finally, we disagree that the expansion of the available data 
will compromise beneficiary privacy or that additional procedures are 
necessary in order to safeguard beneficiary privacy. CMS has an 
established process to evaluate requests for data to ensure that there 
are appropriate safeguards in place to protect beneficiary privacy. We 
believe this process contains the necessary checks to ensure that the 
risks of the disclosure are minimal.
    Comment: One commenter stated that CMS should be as transparent as 
possible under its data use agreements, asserting that the public, as 
well as the parties involved, must be able to readily determine the 
manner in which data are released, the purpose for the release of the 
data and the parties to whom the data are released.
    Response: We are strongly committed to transparency. In particular, 
we have established processes to ensure that beneficiaries can request 
information about to whom their protected health information or 
personally identifiable information has been disclosed, as well as the 
purpose for the release of the data. Beneficiaries interested in 
requesting access to this information should contact the CMS Freedom of 
Information Act (FOIA) Office (http://www.cms.gov/center/freedom-of-information-act-center.html).
    Comment: One commenter stated that CMS should consider whether a 
proliferation of analyses of outdated Part D data will truly benefit 
the Part D program, when CMS has the ability to commission studies and 
data analysis that would more knowledgeably take into account a 
comprehensive understanding of the continually changing dynamics of the 
Part D prescription drug market.
    Response: We use Part D data to conduct a variety of studies and 
analyses. However, this work does not even begin to cover the scope of 
possible analyses that could be performed using Part D data. We believe 
that by limiting Part D data analysis to that supported by CMS, the 
agency would be inhibiting important research and innovation that has 
the potential to result in higher quality care at lower costs in the 
Medicare Part D program, and indeed for all Americans.
    After review of the comments we received, we are finalizing our 
proposed changes to the regulations governing the release of Part D 
data. Specifically, we are finalizing the following revisions to the 
applicable regulatory text:
     Section 423.505(f)(3) is revised to add supporting program 
integrity purposes, including coordination with states, as an 
additional purpose.
     Section 423.505(m)(1)(iii) is revised to remove references 
to encrypting certain identifiers since prescriber, plan, and pharmacy 
identifiers are no longer be subject to encryption when released.
     Section 423.505(m)(1)(iii)(A) is 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) is revised to incorporate a 
note from the appendix that is being eliminated, 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) is deleted as no longer 
necessary since unencrypted plan identifiers, including the internal 
plan/pharmacy identification numbers, are available for release.
     Section 423.505(m)(1)(iii)(D) is re-lettered as (C) and 
references to encryption of pharmacy and prescriber identifiers are 
deleted, since these identifiers are available for release in 
unencrypted format. Additional language regarding beneficiary 
identifiers is added to reflect the current policy on release of this 
identifier. In addition, we are including the statement, ``Public 
disclosure of research results will not include beneficiary identifying 
information,'' at Sec.  423.505(m)(1)(iii)(C)(2), which also reflects 
current policy as described in the appendix that is being eliminated.
     Section 423.505(m)(3) re-lettered as (m)(3)(i) and 
(m)(3)(ii) is added to incorporate a note from the appendix that is 
being 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).
    With respect to our policy not to release Part D data for 
commercial purposes, we did not make a specific proposal but solicited 
comments for general consideration. We received comments on both sides 
of this topic, and thank all the commenters. The following is a summary 
of the comments:
    Comment: Commenters that desire a change in the policy applauded 
CMS for soliciting comment on this topic. These commenters stated that 
in order to improve and modernize the U.S. health care system, greater 
alignment of stakeholder incentives is required, and that CMS is keenly 
aware of this pivotal requirement for success. These commenters stated 
that the challenge of quantifying greater efficiency and evidence of 
improvement as part of overall health reform requires more access to 
the unique data sets in federal data, and that the current restriction 
on the use of these data for commercial purposes will grow increasingly 
challenging in the future as Medicare employs more value-based payment 
incentives, and as Medicare data are

[[Page 29912]]

included in broader multi-payer sets, such as those being established 
by the Patient-Centered Outcomes Research Institute. These commenters 
further stated that because the quality and efficiency of all physician 
groups, health plans, hospital systems, and other providers and 
suppliers can be enhanced using data, any notion that commercial 
interest is limited and discrete is outdated. They stated that PDE data 
is a valuable asset to all types of commercial health care entities in 
limiting the incidence of fraud, obtaining practice pattern feedback, 
managing health care delivery to deliver value, developing best 
practice standards, and conducting comparative effectiveness research.
    The commenters also stated that eliminating or reducing this 
current restriction on the release of data for commercial purposes is 
consistent with CMS' desire to foster transparency and competition in 
the Part D program during a period of sweeping change to the health 
care system. These commenters asserted, for example, that suppliers 
need to incorporate accurate data into their product pricing and 
discounting strategies to align their approaches with the system-wide 
drive toward value-based decision-making and high quality care.
    Commenters additionally stated that the more access there is to 
Medicare data, the more dramatically the bandwidth for research will be 
increased, leading to increased quality of care, system efficiency, and 
consumer satisfaction in the Medicare programs and health care system 
in general. These commenters noted that there is deep scientific and 
analytic expertise within organizations that are currently excluded 
from accessing CMS data. These commenters asserted that the standard 
for data release by CMS should be whether the research proposed is of 
high quality and whether it has the potential to improve program 
administration or the health of the covered population, rather than 
financial benefit and profit status of the organization proposing the 
research. These commenters further noted that CMS has in place strong 
research merit criteria, rules, and obligations for data use and 
individual privacy protections, and that these processes and this 
oversight are sufficient to determine whether a requestor should have 
access to PDE or other identifiable data, regardless of the 
researcher's affiliation.
    Some commenters stated that broader release of Part D data would 
not only further public health research and analysis of the Part D 
program, but also would serve to further educate consumer 
organizations, patient advocates, and ultimately beneficiaries about 
the program generally, as well as coverage and prescribing patterns 
under various plans.
    Some commenters stated that they would support changing the policy 
on non-release of Part D data for commercial purposes, so long as CMS 
ensured that release of the data would be conditioned on its use for 
improvement of one or more aspects of the Part D program, and CMS 
carefully screened potential recipients of the data for demonstrated 
expertise in using research data to improve health programs, as well as 
for any potential conflicts of interest or other concerns.
    Commenters that believe that the policy of non-release for 
commercial purposes should remain unchanged stated that health care 
entities have legitimate concerns regarding the widespread 
dissemination of sensitive data, such as data that specifically 
identifies them. These commenters also stated that strong program 
oversight and public health and public policy imperatives do not exist 
to counterbalance these concerns.
    One commenter stated that CMS lacks the authority to release Part D 
data for commercial purposes, because the authority cited by CMS limits 
releases to those required for program purposes and for improving 
public health. The same commenter asserted that the right to make data 
available for purely commercial reasons is a right inherent in the 
ownership of the data, and that CMS has never previously asserted an 
ownership over, or right to control the use of, data not obtained 
through access to a CMS system. This commenter stated that by granting 
itself this right to release Part D PDE data for purely commercial 
purposes, CMS would be exercising a right inherent in ownership of the 
data.
    In light of all the comments received on both sides of this 
particular topic, we continue to believe that the best approach is for 
our policy regarding the release of Part D data for commercial purposes 
to remain consistent with the policies for the release of data from 
Medicare Parts A and B. As we discussed, in the Part D data final rule 
(73 FR 30672), the procedures that we use to make Part D data available 
are built upon the practice that was already in place with respect to 
the release of Part A and B data. Furthermore, absent specific reasons 
for treating the data differently, we believe it is appropriate to have 
consistent policies for the release of data across Medicare Parts A, B, 
and D. Therefore, although we are not changing our policy against 
releasing Part D data for commercial purposes at this time, we note 
that in the event the policy regarding the release of Parts A and B 
data for commercial purposes were to change, we would also revise our 
Part D data sharing policies to be consistent with that change.
23. Establish Authority To Directly Request Information From First 
Tier, Downstream, and Related Entities (Sec. Sec.  422.504(i)(2)(i), 
and 423.505(i)(2)(i))
    Under section 1857(d)(2) and 1860D-12(b)(3)(c) of the Act, existing 
regulations at Sec. Sec.  422.504(i) and 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. Sec.  422.504(i)(2)(i) and 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. Sec.  422.504(d) and 423.505(d) address Part D 
and MA organizations' own maintenance of records and the rights of CMS 
to inspect those records, Sec. Sec.  422.504(i)(2)(i) and 
423.505(i)(2)(i) also require plan sponsors to require their FDRs to 
agree to a 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.

[[Page 29913]]

    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 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 proposed to specify at Sec. Sec.  
422.504(i)(2)(ii) and 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.
    We further proposed to revise the regulation at Sec. Sec.  
422.504(i)(2)(i) and 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, this 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.
    Finally, we also proposed 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) through (viii) would 
become paragraphs (iv) through (vii).
    We received the following comments and our responses follow:
    Comment: Several MA organizations, Part D sponsors, and industry 
associations (about a dozen organizations all together) raised their 
opposition to this proposal. The main argument made by these parties is 
that CMS lacks the legal authority to directly access information from 
FDRs since our contractual relationship in these situations is with the 
MA organizations and PDP sponsors, not the FDRs themselves. One 
physician's group raised the concern that this provision would increase 
the likelihood of audits.
    Response: We acknowledge that we do not have the authority to 
directly regulate FDRs. However, we believe our proposal allows us to 
achieve our goal of securing the right of access to FDR records because 
it relies on our ability to require the sponsors to incorporate such a 
right of access as part of the contractual relationship between the 
sponsors and their FDRs. That is, the proposal requires MA 
organizations and PDP sponsors to require their FDRs to agree to 
respond to direct requests for information made by CMS. As a practical 
matter, the mechanism for sponsors to require their FDRs to agree to 
such a provision is through the contractual relationship between the 
parties. We do not believe that this proposal in any way changes the 
likelihood of an audit, but merely affects the flow of information 
which we would be otherwise requesting.
    Comment: The MA organizations and PDP sponsors that commented also 
maintained that since they are ultimately accountable to CMS for the 
work performed under their Medicare contracts, they have the right to 
participate in and manage the information provided to their contracting 
partner (CMS) on their behalf by their FDRs. The MA organizations and 
PDP sponsors further asserted that allowing the MEDIC or other 
government-related entities to circumvent the plan sponsors would lead 
to the collection of potentially erroneous information since the plan 
sponsor would not have the opportunity to properly vet the information 
flowing from the FDR to CMS. As a result, CMS' and the MEDIC's 
information collection from FDRs may become less efficient than it is 
under the current regulatory regime. Several commenters argued that the 
proposal would in fact increase burden, in contrast to CMS' suggestion 
in the proposed rule that the proposal would reduce burden.
    Response: We maintain that having direct access to information from 
FDRs is an essential tool in combating fraud, waste, and abuse which we 
should be authorized to use. That said, we appreciate concerns raised 
about MA organizations and PDP sponsors' interests in managing 
information flowing to CMS, and the concern that such information could 
at times be flawed or erroneous without the quality review performed by 
the MA organization or PDP sponsor. Consequently, we wish to clarify 
that CMS and the MEDICs will default to the current practice of 
requesting information held by FDRs via an initial request to the MA 
organization or PDP sponsor. However, we will use the ``direct access'' 
route in circumstances where either (a) the results of data analytics, 
complaints, and/or investigations indicate a suspicion of fraud, waste, 
or abuse in the Medicare Part C or D programs or (b) in the case of an 
urgent law enforcement matter. We will publish sub-regulatory guidance 
on CMS' standards for determining when direct requests of FDRs would be 
appropriate. We believe that this approach promotes CMS' anti-fraud 
efforts by increasing fraud investigators' access to critical Part C 
and D program information and will likely increase the speed with which 
investigators may get access to critical FDR information, but at the 
same time allows for continued MA organization and PDP sponsor control 
and review of information in appropriate circumstances. We also wish to 
provide assurance that CMS' contractor, the MEDIC, would not be 
permitted to independently determine under what circumstances it would 
be appropriate to bypass the MA organization or PDP sponsor in favor of 
requesting information directly from the FDR; CMS would be directly 
involved in all such determinations. This approach also minimizes any 
loss of quality or potential for errors in the requested information as 
well as the placement of any additional burden on sponsors or FDRs.
    Comment: Several commenters requested that if CMS finalizes the 
provision, that we revise the regulatory

[[Page 29914]]

language to state that CMS would notify the MA organization or PDP 
sponsor upon a direct request to one of its FDRs.
    Response: While we had previously stated in this final rule 
discussion that MA organizations and PDP sponsors would be notified 
when there is a direct request for information made of an FDR, we agree 
that it is reasonable for us to specify this commitment in regulation. 
As such, we have added at Sec. Sec.  422.504(i)(2)(iii) and 
423.505(i)(2)(iii) language stating that except in exceptional 
circumstances, CMS will provide notification to the MA organization or 
PDP sponsor that a direct request for information has been made to one 
of its FDRs. The exceptional circumstance exception is included to 
allow for the possibility that the MA organization or PDP sponsor could 
be one of the parties to the fraud investigation, in which case it may 
not be appropriate to provide such notification.
    Therefore, we are finalizing this provision with the modification 
that CMS will provide notification to the MA organization or PDP 
sponsor that a direct request for information has been made to one of 
its FDRs, except in exceptional circumstances.
24. Eligibility of Enrollment for Incarcerated Individuals (Sec. Sec.  
417.1, 417.460, 422.74, 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 transfers 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, subject to the narrow exception 
provided in Sec.  411.4(b). The denial of claims continues until the 
individual is no longer 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. Sec.  
422.50(a)(3)(i) for MA plans, 423.30(a)(1)(ii) for PDPs, and 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. Sec.  
422.74(a)(2)(i) and 422.74 (d)(4) for MA plans, 423.44(b)(2)(i) for 
PDPs, and 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'' when 
those regulatory definitions were adopted (54 FR 41734 and 72 FR 
47410). Specifically, ``service area,'' under Sec. Sec.  422.2 for MA 
plans and 423.4 for PDPs, is defined so 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 
therefore, no Medicare payment. Nonetheless, to ensure that no cost 
payments are made, we proposed 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 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. Sec.  417.460, 422.74, and 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. Sec.  422.2 and 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 an 
enrollee's status, the plan would then apply the more-general policy 
for investigation of a possible out-of-area status, which would allow 
an

[[Page 29915]]

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. Therefore 
individuals are currently not disenrolled from cost plans solely 
because they are determined to be incarcerated.
    Given that the data CMS receives from SSA today regarding the 
incarceration status of Medicare beneficiaries are reliable enough for 
the purpose of involuntary disenrollment from MA, Part D, and cost 
plans, we proposed in the preamble of the January 2014 notice of 
proposed rulemaking to amend Sec. Sec.  417.460(b)(2)(i), 
417.460(f)(1)(i), 422.74(d)(4)(i), 422.74(d)(4)(v) and add 
423.44(d)(5)(iii) and 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. Our proposal indicated that CMS, as a part of this 
change, would review the incarceration data provided by SSA and, where 
possible, involuntarily disenroll individuals who are incarcerated 
based on the data provided by SSA and notify the plan in which the 
individual is enrolled of this involuntary disenrollment. For all such 
disenrollments under our proposal, the effective date of disenrollment 
would be the first of the month after the incarceration start date, as 
reported by SSA. Such disenrolled individuals would maintain Medicare 
Part A and Part B coverage through FFS, provided they continue to pay 
premiums, as applicable, and payment of FFS claims would be based upon 
existing regulations outlined at 42 CFR 411.4(b). In connection with 
this change, we also proposed to deny enrollment requests for 
individuals if data received by CMS 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 and 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 
indicated our intent to provide operational instructions in 
subregulatory guidance.
    We received the following comments on our proposal:
    Comment: We received general support for our proposals. 
Specifically, commenters appreciated the clarification that individuals 
released from incarceration are eligible for a special election period 
(SEP) to enroll in an MA or Part D plan.
    Response: We appreciate the support expressed by the commenters. We 
note that the SEP related to release from incarceration (that is, 
change in residence) is not new or tied to this proposal. Details about 
this SEP can be found in section 30.4.1 of Chapter 2 of the Medicare 
Managed Care Manual and section 30.3.1 of Chapter 3 of the Medicare 
Prescription Drug Benefit Manual.
    Comment: A few commenters had suggestions for how we should 
implement this proposal. Specifically, they suggested that we issue 
updated guidance and develop new model notices. They also suggested 
that the best vehicle for providing updates to incarcerated status on 
members would be through the MARx system or daily transaction reply 
reports (DTRRs).
    Response: We agree that manual and operational guidance will be 
necessary in order for MA, Part D and cost plans to implement this 
provision appropriately. We will evaluate whether new or revised model 
notices are needed and we will share these with plans as soon as 
possible. We also agree that transmission of data through MARx and 
DTRRs would make the most sense in terms of sharing incarcerated status 
with plans.
    Comment: A commenter requested that CMS notify MA organizations and 
Part D sponsors of involuntary disenrollments on the day of 
incarceration. This commenter also suggested that we consider 
permitting MA and Part D plans to disenroll members as of the 
incarceration start date (as opposed to the first day of the month 
following the incarceration start date) to be in line with rules 
governing Qualified Health Plans (QHPs).
    Response: Notification to plans and sponsors on the day that 
incarceration begins is not possible, since CMS receives the data from 
SSA once a month, and only after the correctional facility provides it 
to SSA. We would also note that plan enrollment and the corresponding 
payment to plans by CMS occurs in full calendar month increments. Even 
if we were able to provide plans with real time incarceration data, an 
involuntary disenrollment date other than the last day of the month is 
not possible.
    We understand that QHPs may have different disenrollment effective 
dates because they can disenroll on days other than the first of the 
month. However, as previously stated, MA, Part D and cost plan 
effective dates begin and end on a monthly basis (that is, the first 
day of the month). Therefore, we cannot use the date of incarceration 
as the disenrollment effective date.
    Comment: A commenter requested that we clarify if there will be an 
option for plans to disenroll a member if they receive information from 
the State Medicaid agency that an individual is incarcerated.
    Response: If a plan receives information from an entity other than 
CMS or receives from CMS, via existing MARx processes, an indication of 
possible out of area status due to incarceration, there is already a 
process outlined in sub-regulatory guidance for plans to determine 
whether an individual is residing outside of the service area, which is 
what incarceration is considered. For cases in which CMS does not 
receive data confirming the incarceration of the individual, the MA 
organization or Part D sponsor must establish that the individual is no 
longer residing in the plan's service area due to incarceration 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 addition, as outlined in Section 50.2.1 in Chapter 17, 
Subchapter D of the Medicare Managed Care Manual, cost plans must 
disenroll individuals who permanently move out of the service area 
based upon written statement from the beneficiary or other reasonable 
evidence that establishes the individual no longer resides in the 
plan's service area. With the change in definition of service area for 
cost plans as reflected in the proposed change at Sec.  417.1, cost 
plans must establish that the individual is no longer residing in the 
plan's service area if they receive information regarding incarceration 
from CMS or another entity.
    Comment: Two commenters suggested creating a Part B SEP to ease the 
transition for beneficiaries after they are released from incarceration 
to ensure access to Medicare Part B benefits as they re-enter the 
community. Oftentimes, the commenters cited, these beneficiaries lose 
their Medicare Part B coverage because they are unable to pay their 
premiums during their incarceration and are not eligible for a Part B 
SEP upon their release. As a result, if these individuals sign up for 
Part B at a later date, there is the likelihood that they will have to 
pay a late enrollment penalty.
    Response: This comment is outside the scope of this rulemaking. 
However, we would like to note that SEPs for Part B and premium Part A 
are outlined in statute and CMS does not have the authority to 
establish additional SEPs.

[[Page 29916]]

    After consideration of the public comments received, we are taking 
the following action on our proposals:
     The definition of service area for cost plans at Sec.  
417.1 is finalized without modification.
     To articulate that the geographic area is the HMO or CMP's 
service area as defined in Sec.  417.1, we are finalizing the language 
at Sec.  417.460(b)(2)(i) with the minor modification of adding the 
word ``service.''
     To articulate that the basis of the disenrollment for 
incarceration is due to the individual not residing in the plan's 
service area, the regulation text at Sec. Sec.  417.460(f)(1)(i), 
422.74(d)(4)(i)(A), and 422.74(d)(4)(v)) is finalized with 
modification.
     Due to an inadvertent omission, the proposed regulatory 
text changes to Sec.  423.44(d)(5)(iii) and (iv) were not published in 
the proposed rule. Because our preamble was clear that our proposed 
changes were applicable to Part D, and the comments received 
demonstrated that readers understood our intent, we are adding and 
finalizing regulatory text changes at Sec.  423.44(d)(5)(iii) and (iv).
     A proposed change to the definition of ``service area'' 
was inadvertently published in the January 2014 proposed rule at Sec.  
422.2. That revised definition is not being finalized.
    Finally, we recognize that in our discussion of the proposed rule 
we described our intent that ineligibility for--as well as involuntary 
disenrollment from--MA, Part D, and cost plans would be based on a 
period of incarceration of 30 days or more. As we will note in 
implementing guidance for these final rules, we will determine 
eligibility based on confirmed incarceration data from SSA, not a 30-
day timeframe.
25. Rewards and Incentives Program Regulations for Part C Enrollees 
(Sec.  422.134)
    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. 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.\1\
---------------------------------------------------------------------------

    \1\ Ali Shirvani-Mahdavi, Ph.D. & Melissa Haeffner, Ph.D., 
Rewarding Wellness: The Science Behind Effective Wellness Incentive 
Programs (2014).
---------------------------------------------------------------------------

    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 our current 
guidance. We proposed to amend our regulations to establish parameters 
for rewards and incentives programs offered to enrollees of MA plans. 
Because 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, we also proposed to include specific requirements 
regarding rewards and incentives so as to ensure that such programs do 
not discriminate against beneficiaries on the basis of health status or 
disability, or other impermissible bases for discrimination.
    Section 1856(b)(1) of the Act provides authority for the 
establishment of MA standards by regulation that are consistent with 
and carry out Part C, and section 1857(e)(1) of the Act provides 
authority to impose contract requirements that CMS finds ``necessary 
and appropriate'' and that are not inconsistent with Part C. 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. Furthermore, 
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 proposed to rely upon the 
aforementioned 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 proposed adding a new provision at Sec.  422.134 
that would authorize 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 proposed requiring 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. 
This proposed requirement would not preclude MA organizations from 
offering rewards and incentives programs that target a specific 
disease, chronic condition or preventive service. Rather, the goal of 
having a non-discrimination requirement is to prevent particularly 
vulnerable populations from being disproportionately underserved. MA 
organizations may not use this provision to ``cherry pick'' healthier 
enrollees. Therefore, any rewards and incentives program implemented by 
an MA organization under this proposal must accommodate otherwise 
qualified beneficiaries who receive services in an institutional 
setting 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. An MA 
organization would define what qualifies as an ``entire service or 
activity'' within its program design. This proposed requirement is tied 
to interpreting the value of the service provided as it relates to the 
value of the reward. 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. As part of 
our proposal, we indicated the intent to provide guidance on this 
qualitative standard on a regular basis.
    In addition, our proposed regulation would require MA organizations 
that offer rewards and incentives programs to provide information about 
the effectiveness of such programs to CMS upon request. If CMS 
determines that the rewards and incentives programs are not in 
compliance with our regulatory standard, we proposed that we may 
require that the MA organization modify the basic parameters of the 
program.
    We received the following comments and our responses are as 
follows:
    Comment: We received several comments in support of this proposal, 
approving of our effort to allow MA organizations to make rewards and 
incentives programs more widely available to enrollees. Several

[[Page 29917]]

commenters noted that facilitating beneficiary engagement in health 
behaviors and practices will help to achieve better health outcomes.
    Response: We thank the commenters for their support.
    Comment: Several organizations expressed concern over the 
requirement that rewards and incentives programs be non-discriminatory 
and available to all enrollees. They requested clarification that such 
programs may target specific chronic conditions, diseases and other 
health care needs.
    Response: In response to comments, we have strengthened the 
regulation to ensure that rewards and incentives programs will not be 
discriminatory. As revised, the non-discrimination requirement of the 
provision is based on the substantive requirement of section 
1852(b)(1)(A) of the Act (which states that MA organizations may not 
discriminate against beneficiaries on the basis of health status) and 
expands upon it by identifying other impermissible bases for 
discrimination, including race, national origin, and gender. The 
regulation is meant to prevent rewards and incentives programs from 
being used to unfairly benefit healthier enrollees while excluding or 
disadvantaging enrollees who are less healthy or have a disability. MA 
organizations may establish rewards and incentives for specific chronic 
conditions, diseases, or other health care needs so long as the rewards 
and incentives program is not discriminatory.
    Comment: We received several comments stating that the requirement 
that a beneficiary must complete a whole service or activity is too 
narrow to permit effective program designs and requesting that CMS 
provide greater flexibility in this area.
    Response: We proposed to require that rewards and incentives be 
offered in connection with an entire service or activity so that CMS 
and MA organizations can interpret the value of a reward or incentive 
in relation to the service or activity for which it is being given. MA 
organizations may reasonably define the scope of the ``entire service 
or activity'' in their program design. For example, a MA organization 
may decide to offer rewards and incentives for participation in a 
smoking cessation program. The MA organization may decide to give 
smaller rewards for each class attended or give one larger reward for 
completing a set number of classes, as long as the value of the reward 
reflects the value of the service and adheres to the monetary cap 
designated by CMS. We are revising Sec.  422.134(c)(1)(i) to eliminate 
the phrase ``completion of'' to make it possible for portions of a 
service or activity to be defined as the ``entire service or 
activity.'' We emphasize that the value limitation applies to each 
``entire service or activity'' such that the value of the reward or 
incentive offered may not be greater than the value of the service or 
activity itself.
    Comment: Several commenters cautioned against rewards and incentive 
programs because they have the potential to disproportionately penalize 
low-income, minority beneficiaries, and beneficiaries with 
disabilities.
    Response: We understand the commenters' concerns and consequently 
emphasize here (and elsewhere in this preamble) that all rewards and 
incentives programs must be non-discriminatory and may not 
disproportionately penalize any groups, specifically the vulnerable. 
Additionally, as discussed in a previous response, we have revised the 
regulation text to strengthen the non-discrimination language.
    Comment: Several commenters suggested that CMS solicit data from 
rewards and incentives programs on a regular basis rather than ``on 
request.'' Commenters are particularly interested in outcomes data. In 
addition, one commenter asked about CMS' requirements for the format of 
that information.
    Response: We have noted these comments and will consider adopting a 
rewards and incentives program reporting cycle in the future.
    Comment: Several commenters do not support rewards and incentive 
program designs that include increased beneficiary cost-sharing as a 
penalty for not participating in such a program.
    Response: The provision as finalized only allows programs that will 
provide rewards and incentives to beneficiaries. It does not allow MA 
organizations to penalize beneficiaries for non-participation by any 
means, including through increased cost-sharing. We also note that 
Sec.  422.134(c)(2)(i) prohibits rewards and incentives from being 
offered in the form of cash or monetary rebates; we would consider a 
discount on cost-sharing to be such a prohibited reward and incentive. 
Furthermore, CMS regulations requiring uniformity of benefits (42 CFR 
422.100(d)(2)) preclude MA plans from charging enrollees of a plan 
different premiums or cost-sharing for the same service.
    Comment: A few commenters asked how this new provision will impact 
the rewards and incentives guidance that is currently located in the 
Medicare Marketing Guidelines.
    Response: This provision will supersede any previously issued 
rewards and incentives program guidance. Upon finalization of this 
rule, we will update our subregulatory guidance accordingly.
    Comment: A few commenters asked CMS to provide more specific 
information regarding rewards and incentives programs. They asked for 
guidance on calculating the value of the activities for which the plan 
would like to offer rewards and incentives, whether the rewards and 
incentives may be used to decrease cost-sharing or premiums and whether 
there is a limit on how often an MA organization may offer a reward or 
incentive.
    Response: The provision provides an MA organization with great 
flexibility in designing its own rewards and incentives program. At 
this time, we will rely on the MA Organizations to reasonably value the 
activities/services for which they offer rewards and incentives. In 
this final rule, we neither identify limits for how often rewards and 
incentives may be offered nor do we set a maximum monetary value for 
the rewards and incentives. However, if we determine such guidance is 
needed to apply the standard in Sec.  422.134(c)(1)(iii) that the 
reward or incentive be expected to impact enrollee behavior without 
exceeding the value of the health-related service or activity itself, 
we will provide it through subregulatory guidance.
    Rewards and incentives may never be used to decrease cost-sharing 
or plan premiums. In addition to the prohibition at Sec.  
422.134(c)(2)(i), CMS regulations requiring uniformity of benefits (42 
CFR 422.100(d)(2)) preclude MA plans from charging enrollees of a plan 
different premiums or cost-sharing for the same service. Thus, a MA 
plan may not offer lower cost-sharing or premiums for plan benefits, as 
a reward or incentive.
    Comment: Two commenters asked that we expand this provision to 
include Part D plans.
    Response: We have noted the comment. At this time, the rewards and 
incentives program provision only applies to Part C.
    Comment: One commenter requested that SNPs be allowed greater 
flexibility in rewards and incentives program design.
    Response: The current provision and the parameters set forth are 
applied to all types of MA plans, including SNPs. At this time, we do 
not intend to provide SNP-specific rewards and incentives program rules 
or guidance.
    Comment: Several commenters asked how rewards and incentives will 
be accounted for in plan bids and one

[[Page 29918]]

commenter suggested that the costs should be identified as an 
administrative cost for care management services in the bid.
    Response: A rewards and incentives program would be included in the 
bid as a non-benefit expense and would not be entered in the PBP. Per 
CMS OACT Bidding Guidance, (available at: https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Bid-Forms-and-Instructions.html), ``non-benefit expenses are all of the bid-level 
administrative and other non-medical costs incurred in the operation of 
the MA plan.'' We also wish to clarify that the costs of a rewards and 
incentives program would not necessarily be related only to care 
management services and that plans must comply with applicable bidding 
requirements.
    Comment: Several commenters requested that CMS clarify whether 
rewards and incentives programs would be offered as a benefit or 
otherwise.
    Response: Our policy has been, and continues to be, that rewards 
and incentives programs are not benefits.
    Comment: One commenter requested that CMS, in considering 
additional parameters for reward and incentive programs, consider 
shared decision-making and tiered networks. The same commenter also 
stated that our proposal removes a great deal of flexibility for plans 
to develop these programs and constrains employer group plans from 
providing these programs to the entire employer group.
    Response: We are not clear what is meant by the request that in our 
consideration of additional parameters we consider shared decision-
making and tiered networks. We note that shared decision-making and 
tiering of medical benefits are strategies that MA organizations may 
use to influence enrolled beneficiaries' health care decisions. Rewards 
and incentives are another tool CMS is making available to MA 
organizations to encourage enrollees to engage in activities/services 
that are intended to improve health and/or decrease enrollee risk for 
illness. MA organizations have the flexibility to use these tools 
together or as separate programs designed to improve enrollees' health.
    We are not aware of what flexibilities plans may be using currently 
in providing rewards and incentive programs to enrollees that the 
commenter believes CMS proposed to remove. We specifically solicited 
information on this topic from MA organizations in both the proposed 
rule and in the CY 2014 Call Letter and have received no information 
that would lead us to believe that our proposed rewards and incentives 
program would limit, rather than expand, current plan flexibilities. 
The current guidance on rewards and incentive programs that may be 
offered to plan enrollees, included in the Medicare Marketing 
Guidelines, allows a very limited use of rewards and incentives to 
promote enrollee use of Medicare-covered preventive services. 
Therefore, we do not see how our proposed rewards and incentives 
program framework could remove plans' flexibilities rather than expand 
them.
    After consideration of the public comments received, we are 
finalizing the proposed Rewards and Incentives Program Regulations for 
Part C Enrollees rule with modifications to subparagraph (b)(1) to 
include ``national origin, including limited English proficiency,'' and 
``disability.'' In subparagraph (b)(1) we are also changing the text 
from ``institutionalization'' to ``whether a person resides or receives 
services in an institutional setting'' and from ``other impairments'' 
to ``other prohibited basis.'' These changes clarify the scope of the 
categories of beneficiaries included in the context of prohibited 
discrimination and address comments expressing concern about the 
possible disproportionate impact of rewards and incentives programs.
    Additionally, we are modifying paragraph (c)(1)(i) to eliminate the 
phrase ``completion of'' from the regulation text to make it possible 
for smaller increments of service or activity to be defined as the 
``entire service or activity.'' However, we emphasize that the value of 
any reward must reflect the value of the service and adhere to any 
monetary cap that has been determined by CMS under Sec.  
422.134(c)(1)(iii). Finally, we note that we have made a technical 
change to delete the phrase ``all of the following'' from the 
introductory language at paragraph (c).

B. Improving Payment Accuracy

1. Implementing Overpayment Provisions of Section 1128J(d) of the 
Social Security Act (Sec.  422.326 and 423.360)
    This section of the final rule implements Section 6402 of the 
Affordable Care Act, which established new section 1128J(d) of the 
Social Security Act (``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) 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 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 proposed 
two new sections, Sec. Sec.  422.326 and 423.360, respectively, both 
titled, ``Reporting and Returning of Overpayments.'' These sections 
proposed rules for MA organizations and Part D sponsors to report and 
return an identified overpayment to the Medicare program. We use 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 also proposed conforming amendments to Sec. Sec.  422.1, 
422.300, and 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 proposed to 
amend Sec. Sec.  422.504(l) and 423.505(k) to

[[Page 29919]]

incorporate a reference to the proposed Sec. Sec.  422.326 and 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.'' Thus, we 
proposed to add a requirement that applies after CMS has completed 
prospective monthly payments for a year, and organizations are no 
longer ``requesting payment'' because applicable reconciliation has 
occurred. Applicable reconciliation, we stated, 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 
proposed 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. Sec.  422.326 and 423.360 is 
accurate, complete, and truthful.
    We reminded 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.
    In response to the January 10, 2014 proposed rule, we received 
approximately 30 pieces of correspondence from organizations and 
individuals. In this section of the final rule, we describe our 
proposals, respond to the public comments, and state our final 
policies.
    We did not receive any comments on our proposed amendments to 
Sec. Sec.  422.504(l) and 423.505(k) to incorporate a reference to the 
proposed Sec. Sec.  422.326 and 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. We did not receive any comments on our conforming amendments to 
Sec. Sec.  422.1, 423.300, and 423.1. Therefore, we are finalizing 
these amendments as proposed.
a. Terminology (Sec. Sec.  422.326(a) and 423.360(a))
    We proposed definitions of 3 terms. First, we proposed 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 proposed 
definitions of 2 key terms at Sec. Sec.  422.326(a) and 423.360(a): 
``Funds'' and ``applicable reconciliation.''
    We proposed 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. We also noted that 
MA organizations and Part D sponsors have responsibility for the 
accuracy, completeness, and truthfulness of data they submit under 
existing Sec. Sec.  422.504(l) and 423.505(k). For Part C, the data 
submitted by the MA organization to CMS includes Sec. Sec.  422.308(f) 
(enrollment data) and 422.310 (risk adjustment data). For Part D, data 
submitted by the Part D sponsor to CMS includes data submitted under 
Sec. Sec.  423.329(b)(3), 423.336(c)(1), 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 
MAOs and Part D sponsors cannot be held accountable for the accuracy of 
data controlled and submitted to CMS by other entities.
    For example, the SSA is the authoritative source for date of death. 
An MA organization or Part D sponsor generally does 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.
    We stated that 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. Sec.  422.326 and 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.
    We stated that the term ``applicable reconciliation'' refers to an 
event or events after which an overpayment can exist under section 
1128J(d) of the Act, and we proposed definitions of the term applicable 
reconciliation that are specific to Part C and Part D.
    For Part C, we proposed that applicable reconciliation occurs on 
the date that CMS announces as the final deadline for risk adjustment 
data submission. 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). We also stated that the final risk adjustment data 
submission deadline would function as the Part C applicable 
reconciliation date.
    For Part D sponsors, we proposed that applicable reconciliation is 
the later of either: The annual deadline for 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 selected these events to define the 
Part D applicable reconciliation because these data are used for the 
purposes of determining final Part D payment reconciliation. We noted 
that MA organizations would still have to submit all final risk 
adjustment

[[Page 29920]]

diagnoses for Part D by the final risk adjustment data submission 
deadline.
    In summary, we proposed an approach to defining applicable 
reconciliation that establishes dates that differ for Part C and Part 
D. We asked for comment on this approach.
    We noted 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 final rule as ``applicable reconciliation'', we 
stated that we do not consider these errors to be overpayments for the 
purpose of Sec. Sec.  422.326 and 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. Sec.  422.326 and 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, and we do not consider 
these errors to be overpayments for the purpose of Sec.  423.360.
    Finally, we stated 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. Sec.  422.310, 422.504(l), 
423.329(b)(3)(ii), and 423.505(k), and proposed amendments that clarify 
and strengthen these requirements.
    We did not receive any comments on the proposed definitions of the 
terms ``funds'' or ``overpayment.'' (See the next section for comments 
and responses on the provision regarding ``identified overpayment''.) 
We received the following comment on the term ``applicable 
reconciliation'', and our response follows.
    Comment: Some commenters supported CMS' proposal to have separate 
applicable reconciliation dates for the Part C and Part D programs, 
noting that this approach is simpler and more practical than the 
alternative CMS described (where there would be 2 applicable 
reconciliation dates for the Part D program--one for risk adjustment 
and another for PDE and DIR data).
    Response: We appreciate the support. We will finalize our proposal 
that the Part C applicable reconciliation date will be the same as the 
final risk adjustment data submission deadline, and the Part D 
applicable reconciliation date will be the later of: The annual 
deadline for submitting prescription drug event (PDE) data for the 
annual Part D payment reconciliation referred to in Sec.  423.343(c) 
and (d) or the annual deadline for submitting DIR data.
    We would like to note that the final risk adjustment data 
submission deadline will still apply to diagnosis data for both Part C 
and Part D risk scores for beneficiaries in MA-PD plans.
    After consideration of the public comments received, we are 
finalizing the provisions at Sec. Sec.  422.326(a) and 423.360(a) as 
proposed.
b. General Rules for Overpayments (Sec.  422.326(b) Through (c); Sec.  
423.360(b) through (c))
    We proposed at Sec. Sec.  422.326(b) and 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. Sec.  422.326(c) and 423.360(c), we 
proposed 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. We noted that the terms ``reckless 
disregard'' and ``deliberate ignorance'' are part of the definitions of 
``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)). We 
stated that 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 provided 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. Sec.  422.326(d) and 423.360(d), we 
proposed the requirements for reporting and returning an identified 
overpayment. An MA organization or Part D sponsor must report and 
return any identified 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 proposed 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 proposed 
to 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).
    We also emphasized that an 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.
    Finally, we proposed that 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 an overpayment is 
identified after the final Part D reopening for a contract year has 
occurred but 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

[[Page 29921]]

detailed in forthcoming operational guidance.
    We received the following comments on general rules for 
overpayments and our responses follow.
    Comment: Several commenters requested that CMS clarify when the 60-
day period begins. Specifically, does the period begin once the MA 
organization or Part D sponsor has identified that there is an 
overpayment or once the organization has determined the exact amount of 
the overpayment? A commenter expressed concern that the proposed rule 
does not appear to acknowledge that the amount of an overpayment must 
be quantified before it is ``identified.'' Another commenter requested 
that CMS address the situation where an MA organization or Part D 
sponsor becomes aware of an issue or error that may have resulted in 
one or more overpayments, but could not determine, with reasonable 
certainty, the amount of the overpayment(s) within a 60-day period.
    Response: It is important to understand the distinctions among 
identifying, reporting, and returning an overpayment in this rulemaking 
for the purposes of the MA and Part D programs. Once an organization 
has identified that it has received an overpayment, the 60-day period 
for reporting and returning the overpayment begins. Because of the 
nature of the Part C and Part D programs, we did not propose that 
``identified'' includes completion of the act of quantification of an 
overpayment amount. Rather, we proposed that identification of an 
overpayment means knowing that the MA organization or Part D sponsor 
has submitted erroneous data to CMS that caused CMS to overpay the 
organization.
    An organization can identify or assess that there is a problem with 
data submitted to CMS, and determine that it is incorrect data, prior 
to actually calculating what the payment impact is of that erroneous 
data. For the MA and Part D programs, the relevant factor is 
identifying that the data is incorrect and will result in an 
overpayment. For example, a risk adjustment diagnosis that has been 
submitted for payment but is found to be invalid because it does not 
have supporting medical record documentation would result in an 
overpayment. Under this provision, the day after the date on which the 
organization has confirmed an identified overpayment--because the 
organization knows that the diagnosis is not supported by 
documentation--is the first day of the 60-day period for reporting and 
returning the overpayment. As another example, an MA organization may 
find that data used to calculate Healthcare Effectiveness Data and 
Information Set (HEDIS) measures that the organization submitted to CMS 
are found to be invalid; when the organization has confirmed that it 
has identified invalid data leading to an overpayment, this is the 
first day of the 60-day period for reporting and returning the 
overpayment.
    Then, during the 2-month period for reporting and returning the 
overpayment, the organization must determine what data should be 
submitted to CMS to correct the identified overpayment, and then must 
engage in the reporting and returning process that we will describe in 
forthcoming guidance. This reporting and returning process will 
involve: (1) Notifying CMS that an overpayment exists, including 
notification of the reason and estimated amount for that overpayment; 
and (2) submitting the corrected data to CMS.
    In other words, we believe that the MA organization and Part D 
sponsor will discover through appropriate payment evaluation procedures 
when a 60-day period would begin under the requirements of this 
provision, because ``day one'' of the 60-day period is the day after 
the date on which organization has determined that it has identified 
the existence of an overpayment. Once the organization ``starts the 
clock,'' it has 60 days to submit to CMS the corrected data that is the 
basis of the overpayment. It is the act of submitting the corrected 
data to CMS, along with a reason and an amount of the overpayment 
(which may be an estimate), that constitutes fulfillment of the 
requirement to report and return the overpayment.
    As we stated in the January 10, 2014 proposed rule preamble (79 FR 
1997), ``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 
CMS payment processes. That is, payments will continue to be recovered 
through the established payment adjustment processes and schedules. As 
a result the payment recovery may not occur within the 60-day window 
triggered by identifying an overpayment. Rerunning payment 
reconciliations and conducting payment recovery within CMS payment 
systems each time an entity identifies an overpayment that triggers its 
60-day clock is simply not feasible for CMS.
    We will release operational guidance on the process an organization 
will use for informing CMS that it has identified a Part C and/or Part 
D overpayment. This guidance will also address how an organization will 
be required to provide a reason for and the amount of the overpayment 
(which may be estimated). We seek to reduce burden and implement an 
efficient process for administering the reporting and return of 
overpayments, so we are considering making use of existing procedures 
for organizations to communicate payment data issues to CMS. For 
example, MA organizations and Part D sponsors have used the Remedy 
system for a number of years to inform CMS of payment issues and 
provide relevant information on that issue.
    In the forthcoming operational guidance, we will address the 
question of how to report the overpayment amount, including estimation 
of the overpayment amount and updates under certain scenarios.
    Comment: A commenter contended that, applying the principles 
adopted by CMS in the RADV audit context, an overpayment cannot exist 
for a particular MA contract unless CMS' payments as a whole to the MA 
organization pursuant to the contract are inaccurate in light of an 
appropriate FFS Adjuster applied to the entire contract. Potential 
overpayments can be determined, therefore, based only on processes such 
as CMS' RADV audits, which are designed to measure whether contract-
level payments to an MA organization are accurate when compared to an 
appropriate FFS Adjuster. The commenter further contended that to the 
extent an MA organization develops processes intended to measure 
payment accuracy at the contract-level, the MA organization would be 
required to report and repay inaccuracies calculated after applying 
CMS's FFS Adjuster, and consistent with prior CMS guidance, this is the 
sole instance in which an ``overpayment'' can be determined for 
purposes of proposed Sec.  422.326.
    Response: We disagree with the commenter. Our RADV methodology does 
not change our existing contractual requirement that MA organizations 
must certify (based on best knowledge, information, and belief) the 
accuracy, completeness, and truthfulness of the risk adjustment data 
they submit to CMS. Further, this decision does not change the long-
standing risk adjustment data requirement that a diagnosis submitted to 
CMS by an MA organization for payment purposes must

[[Page 29922]]

be supported by medical record documentation.
    However, we are clarifying the link between the Sec.  422.326 
overpayment provisions and RADV audits under Sec.  422.311 by adding a 
condition to the requirement at Sec.  422.326(d), as follows: 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. We are adding to paragraph (d) the provision ``unless 
otherwise directed by CMS for the purpose of Sec.  422.311.'' Thus, 
when an MA organization has a contract selected for a RADV audit, 
during the audit the MA organization will not be allowed to report and 
return an overpayment under Sec.  422.326 that is due to errors in the 
data used to risk-adjust payments for the audited contract for the 
payment year that is the subject of the RADV audit. We will notify the 
MA organization about the timeline for reporting and returning any 
overpayments for a contract under a RADV audit. This new provision 
protects the integrity of the RADV audit process, including the 
sampling frame of beneficiaries in a selected MA plan, whose diagnoses 
will be audited.
    Comment: A commenter stated that there will be many circumstances 
and situations where entities receiving an overpayment will not have 
the ability to repay funds within the 60-day period without undue 
hardship.
    Response: MA organizations and Part D sponsors have an obligation 
to pay an overpayment owed under Section 1128J(d). As noted previously, 
our recovery of overpayments will occur through routine payment 
processing cycles and schedules. In most circumstances, MA 
organizations and Part D sponsors will be submitting corrected data, 
which will be re-run by CMS and then CMS will recover the overpayment.
    Comment: A commenter noted that 60 days is not a sufficient 
timeframe, as identifying and quantifying overpayments can be a very 
involved process. Another commenter stated that most overpayments are 
identified through analyses and studies, such as internal RADV studies; 
the commenter requested that the 60-day time period begin at the 
conclusion of the internal study, so that overpayments can be referred 
to CMS after all issues have been identified and confirmed.
    Response: We provide that the 60-day period is the time period for 
reporting and returning an identified overpayment, after the 
organization has conducted the activities needed to identify that it 
has received an overpayment. As explained previously, for the purposes 
of the MA and Part D programs, the MA organization or Part D sponsor 
must report and return the identified overpayment, which is due to 
incorrect data it has submitted to CMS, no later than 60 days after the 
date on which the organization identified it received the overpayment. 
Subsequently and within the 60-day period the MA organization or Part D 
sponsor is required to report and return the overpayment. Reporting the 
overpayment involves notifying CMS of the reason for and the amount of 
the overpayment. Returning the overpayment is deemed to have occurred 
through the act of correcting the erroneous data submitted to CMS, for 
example, by deleting incorrect PDEs or risk adjustment data. Note that 
if an organization identifies one set of erroneous data that has caused 
an overpayment, the organization must begin the 60-day clock on that 
date, and if subsequent overpayments are identified, the organization 
must begin subsequent 60-day reporting and returning periods.
    Comment: A commenter questioned whether CMS will be identifying 
criteria for organizations to use to determine an overpayment.
    Response: We have specified in this final rule the specific types 
of ``funds'' that are subject to the provisions under this section 
through the definition of ``funds''. Funds are payments an organization 
has received that are based on data that the organization submitted to 
CMS for payment purposes. We will not provide additional criteria or a 
checklist.
    Comment: A commenter stated that logically, an MA organization or 
Part D sponsor cannot return an overpayment until it has calculated the 
exact amount that it must return. It might take a considerable amount 
of time for the MA organization or Part D sponsor to audit its records 
to determine the amount, whether there is an issue in previous years, 
and whether extrapolation, or case by case analysis, is appropriate. 
The commenter was concerned that while a plan sponsor might be able to 
report to CMS that it has identified an issue within 60 days, a plan 
sponsor may not have enough information after identification to be able 
to report the exact amount. Therefore, the commenter requested that CMS 
clarify that the 60 days begins once the organization has identified 
the exact amount of the overpayment. The commenter suggested, as an 
alternative, that if the MA organization or Part D sponsor has notified 
CMS that it believes there is an overpayment, but it will take more 
than 60 days to determine the exact amount, CMS consider allowing a 
``tolling'' of the 60 days so that the organization may determine the 
amount it must return to CMS. Under this ``tolling'' process, the 
organization would be required to notify CMS within 60 days of 
identifying that an overpayment likely exists, but would be provided 
additional time by CMS to determine the exact amount.
    Response: We have not used the phrase ``exact amount'' in this 
rule-making. For the MA and Part D programs, we define overpayment in 
the regulation as ``funds'' the organization has received to which it 
is not entitled, and then defines ``funds'' as any payment based on 
data submitted by an MA or Part D organization. Because of the nature 
of the Part C and Part D programs, the key focus in implementing these 
statutory provisions for the MA and Part D programs is thus correcting 
the incorrect data that the organization submitted to CMS that resulted 
in an overpayment. We will then run reconciliation on its routine 
operational schedule to recover overpayment amounts based on the 
corrected data. The purpose of the 60 days is to provide the MA or Part 
D organization with sufficient time to correct the incorrect data 
submitted to CMS using established data correction processes. MA 
organizations and Part D sponsors are deemed to have returned the 
overpayment when they have taken the actions to submit the corrected 
data that is the source of the identified overpayment. Within the 60 
days the MA organization and Part D sponsor must also report the 
overpayment amount (or estimated amount). If an estimated overpayment 
amount is reported, it may be higher or lower than the actual 
overpayment amount recovered because additional payment data submitted 
into the CMS payment system from other sources may be incorporated into 
the payment calculations.
    Comment: A commenter stated that it is unclear what may occur post-
reconciliation if both parties have been overpaid. For example, if CMS 
owes the Part D sponsor $10 million due to activity post-reconciliation 
and a $2 million overpayment is discovered, the commenter questioned 
whether we will still require that the $2 million be refunded within 60 
days or whether the sponsor will be allowed to offset amounts owed by 
CMS. The commenter recommended that if an overpayment would be reduced 
or fully covered by a reopening, that CMS allow sponsors to request a 
reopening and offset the reopening amount due from the

[[Page 29923]]

overpayment pending completion of the reopening.
    Response: For both the Part C and Part D programs, the provisions 
regarding reporting and returning identified overpayments become 
effective the day after the date of applicable reconciliation. As we 
have stated, MA organizations and Part D sponsors are deemed to have 
returned the overpayment when they have submitted corrected data that 
is the source of the overpayment. We will recover the overpayment 
amount through routine processing. For Part D, that means that if an 
overpayment is discovered after the initial reconciliation but prior to 
the reopening described at Sec.  423.346, a Part D sponsor may request 
a reopening and submit the corrected data to fulfill its obligation to 
return the overpayment. The overpayment will be reconciled through the 
routine reopening process.
    Comment: A commenter stated that the onus on plans for the 
calculation of an overpayment amount creates a risk that CMS may be 
overpaid/underpaid in the monies returned.
    Response: As explained in proposed rule (79 FR 1997), we will 
recover overpayments through the correction of erroneous data and 
established payment adjustment processes. Therefore, we believe that 
the risk the commenter mentions does not exist because CMS' systems 
will calculate the exact amount to be recovered.
    Comment: A few commenters objected to the fact that the proposed 
rule does not address situations in which a sponsor has overpaid CMS, 
and requested that this regulation also set forth rules by which CMS 
handles an organization's overpayments to CMS.
    Response: This final rule is intended to implement section 1128J(d) 
of the Act, which pertains only to overpayments the government made to 
contracting MA organizations and Part D sponsors.
    Comment: A commenter requested that MA organizations and Part D 
sponsors be able to submit auditable estimates of an overpayment in 
lieu of determining which data is in error and submitting corrected 
data, given the fact that the administrative costs of determining a 
specific set of data deletes is significant relative to the size of the 
issue. The commenter recommended that CMS permit plans to proactively 
suggest the use of such tools to resolve potential overpayments.
    Response: The use of auditable estimates is intended only for a 
limited set of circumstances. 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. 
Therefore, we will not allow, on a routine basis, submission of 
auditable estimates in lieu of submission of corrected data. By 
recovering overpayments based on the corrected payment data, we will be 
more likely to ensure that the most accurate overpayment amounts are 
returned to the Medicare Trust Fund.
    Comment: A commenter expressed concern that this final rule could 
impose a boundless duty to troll medical records in search of unknown 
vulnerabilities, and requested that CMS make clear that Part C and Part 
D plans are not obliged to proactively search for an overpayment 
without reason to believe that a specific overpayment exists.
    Response: The focus of this final rule is on ensuring that MA and 
Part D organizations return an overpayment when it is identified. For 
many years organizations have been obliged to submit accurate, 
complete, and truthful payment-related data, as described at Sec. Sec.  
422.504(l) and 423.505(k). Further, CMS has required for many years 
that diagnoses that MA organizations submit for payment be supported by 
medical record documentation. Thus, we have always expected that MA 
organization or Part D sponsor implement, during the routine course of 
business, appropriate payment evaluation procedures in order to meet 
the requirement of certifying the data they submit to CMS for purposes 
of payment. Therefore, we do not believe that Sec. Sec.  422.326 and 
423.360 represent such a new requirement.
    Comment: A commenter requested that CMS confirm that the data 
submission requirement under this section is based on enrollment data 
and risk adjustment scores, and thus does not apply to direct 
overpayments from providers.
    Response: Once an overpayment is identified, the MA or Part D 
organization is responsible for correcting the data that caused the 
overpayment. This is data that is routinely submitted to CMS for 
payment purposes, such as, risk adjustment data.
    Comment: A commenter requested that CMS clarify if changes in a 
beneficiary's low income subsidy (LIS) status could result in an 
overpayment under this provision.
    Response: As we stated in the proposed rule, we believe that MA 
organizations and Part D sponsors cannot be held accountable for the 
accuracy of the data controlled and submitted to CMS by other entities. 
(We emphasize here that the term ``other entities'' used to discuss 
these overpayment provisions does not include the following parties 
referenced in Sec. Sec.  422.504(i) and 423.505(i): first tier, 
downstream, and related entities, contractors, or subcontractors to the 
MA organization or Part D sponsor.) It is the Social Security 
Administration and the states that notify CMS of individuals whom they 
have determined to be eligible for the Part D LIS. We in turn provide 
the subsidy information, including effective date and level of subsidy, 
to the Part D plan in which the beneficiary enrolls. Although, we will 
not consider an overpayment to have occurred strictly due to changes in 
a beneficiary's LIS status, Part D sponsors are required to adjust 
prescription drug event (PDE) data to accurately reflect the 
beneficiary's LIS status.
    Comment: A commenter supported our proposal for when overpayments 
have been identified.
    Response: We appreciate the commenter's support for our proposal.
    Comment: A few commenters requested that CMS provide more clarity 
or an example of what is meant by ``acts in reckless disregard or 
deliberate ignorance.''
    Response: We are revising our definition of an identified 
overpayment to state that an MA organization or Part D sponsor has 
identified an overpayment when it has determined, or should have 
determined through the exercise of reasonable diligence, that the MA 
organization or Part D sponsor has received an overpayment.
    As to the circumstances that give rise to a duty to exercise 
reasonable diligence, we are not able to anticipate all factual 
scenarios in this rulemaking. MA organizations and Part D sponsors are 
responsible for ensuring that payment data they submit to CMS are 
accurate, truthful, and complete (based on best knowledge, information, 
and belief), and are expected to have effective and appropriate payment 
evaluation procedures and effective compliance programs as a way to 
avoid receiving or retaining overpayments. Thus, at a minimum, 
reasonable diligence would include proactive compliance activities 
conducted in good faith by qualified individuals to monitor for the 
receipt of overpayments. However, conducting proactive compliance 
activities does not mean that the person has satisfied the reasonable 
diligence standard in all circumstances. In certain circumstances, for 
example, reasonable diligence might require an investigation conducted 
in good faith and in a timely manner by

[[Page 29924]]

qualified individuals in response to credible information of a 
potential overpayment.
    We note that in discussing the standard term ``reasonable 
diligence'' in the preamble, we are interpreting the obligation to 
``report and return the overpayment'' which is contained in section 
1128J(d) of the Social Security Act. We are not seeking to interpret 
the terms ``knowing'' and ``knowingly'', which are defined in the Civil 
False Claims Act and have been interpreted by a body of False Claims 
Act case law.
    Comment: Some commenters thought that we had an overly broad 
interpretation of the statute and that there was no statutory basis for 
CMS to interpret the term ``identified'' in section 6402 of the 
Affordable Care Act to include ``reckless disregard or deliberate 
ignorance of the existence of the overpayment.'' A commenter stated 
that the term ``knowing'' is not actually used in the overpayment 
standard set forth in section 6402(d) of the Affordable Care Act, so 
the mere existence of an errant reference to the False Claims Act 
definition of ``knowing'' does not give CMS sufficient basis to apply 
the expansive False Claims Act knowledge standard to the definition of 
``identified'' under section 6402. This commenter noted that in an 
earlier version of the Affordable Care Act, H.R. 3962, used the False 
Claims Act knowledge standard in the section on reporting and returning 
of overpayments. The commenter also stated that the final version of 
the Affordable Care Act enacted by the Congress used the term 
``identified,'' and not the word ``knowledge.'' This commenter believed 
that the Congress's explicit rejection of the False Claims Act 
knowledge standard, and use of the term ``identified'' in the final 
legislative language weighs against incorporating the False Claims Act 
knowledge standard into the regulatory provision.
    Response: We disagree with the commenters' arguments. While we 
acknowledge that the terms ``knowing'' and ``knowingly'' are defined 
but not otherwise used in section 1128J(d), we believe that the 
Congress intended for section 1128J(d) to apply broadly. If the 
requirement to report and return overpayments applied only to 
situations where the MA organization or Part D sponsor has actual 
knowledge of the existence of an overpayment, then these entities could 
easily avoid returning improperly received payments and the purpose of 
the section would be defeated. Thus, we decline to read a narrow actual 
knowledge limitation into the law as suggested by commenters.
    Comment: Several commenters recommended that CMS remove the 
language relating to ``reasonable diligence'' from the proposed 
regulation. These commenters believed that an identified overpayment 
should be limited to actual knowledge of an overpayment.
    Response: For the reasons discussed previously, we decline to read 
a narrow actual knowledge limitation into the law as suggested by 
commenters.
    Comment: A few commenters were concerned that by adding a 
reasonable diligence requirement, CMS appears to be suggesting that a 
much lower level of sponsor behavior--a failure to act reasonably--
could trigger potential False Claims Act liability. One commenter 
stated that the phrase ``reasonable diligence'' is not a recognized or 
defined standard and is overly vague as to the obligations of plans to 
follow through on information received regarding a potential 
overpayment. The commenters have serious concerns about the implication 
of such a standard.
    Response: We understand the commenters' concerns. However, we do 
not believe that it is inappropriate to expect that MA organizations 
and Part D sponsors act reasonably. We note that it is the statute that 
establishes liability under the False Claims Act for failure to report 
and return identified overpayments, pursuant to section 1128J(d)(3).
c. Look-Back Period for Reporting and Returning Overpayments
    We proposed at Sec. Sec.  422.326(e) and 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 
proposed 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. We also proposed that overpayments resulting from fraud 
would not be subject to this limitation of a look-back period.
    We received the following comments on the look-back period, and our 
responses follow.
    Comment: We received a few comments recommending that we shorten 
the 6-year look-back period. A commenter noted that permitting greater 
finality in overpayment reporting and recovery will decrease 
administrative costs and free up resources to focus on benefits. This 
commenter also stated that an organization would have to retain a 
significant amount of documentation to fully support and justify 
payments, more than what they would retain under CMS's 10-year record 
retention requirement. Several commenters recommended that the look-
back period be 3 years to align with the RAC look-back period. A 
commenter noted that the 3-year period would also be consistent with 
the federal government's treatment of government contractors that are 
subject to the Federal Acquisition Regulation. A couple of commenters 
recommended that we implement a 4-year look-back period to align with 
the 4-year period that Medicare Administrative Contractors can reopen 
Medicare fee-for-service payment determinations.
    Response: We disagree with the commenters' recommendations to 
shorten the look-back period. We note that section 1128J(d) of the Act 
has no time limit to the obligation to report and return overpayments 
received by a provider or supplier. However, as we stated in the 
preamble to our proposed rule and again in this preamble to our final 
rule, we proposed 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 is consistent 
with the CMP provisions, and maintenance of records requirements under 
the contracts. It is also consistent with the False Claims Act in that 
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. We believe that our final rule 
does not create additional recordkeeping burden or cost. Under Sec.  
422.504(d) and Sec.  423.505(d), MA organizations and Part D sponsors 
are required to maintain for 10 years books, records, documents, and 
other evidence of accounting procedures and practices related to costs, 
financial statements, cash flow, etc.
    Comment: A commenter requested that CMS clarify the parameters of 
the 6-year look-back provision.
    Response: As we stated in the preamble to the proposed rule and 
this

[[Page 29925]]

final rule and again in Sec. Sec.  422.326(e) and 423.360(e), MA 
organizations and Part D sponsors are required to report and return any 
overpayment that they identify within the 6 most recent completed 
payment years. That would mean, for example, after the initial 
reconciliation that takes place for Part D payments (that is, the 
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) for contract year 2015 (which will take place at the end of 
2016), Part D sponsors are obligated to report and return overpayments 
under Sec.  423.360 for contract years 2010 through 2015.
    Comment: A few commenters recommended that CMS impose the same 
limitation on the look-back period for all overpayments, even those 
relating to fraud. A commenter noted that under the statutory scheme 
set forth in section 6402 of the Affordable Care Act, the existence of 
an overpayment does not depend on, or otherwise reflect, the existence 
of fraud. Commenters also requested clarification from CMS whether MA 
organizations and Part D sponsors that become aware of an overpayment 
prior to the look-back period have an obligation to investigate and 
determine whether that overpayment resulted from fraud. These 
commenters were concerned that MA organizations and Part D sponsors 
would have to investigate potential overpayments indefinitely, no 
matter how far in the past they may have occurred, because these 
organizations would have to determine whether there was any fraud in 
connection with the potential overpayment in order to determine whether 
a reporting obligation exists.
    Response: Upon further review, we agree with the commenters' 
suggestion that CMS impose the same limitation on the look-back period 
for all overpayments. Six years is consistent with the more commonly 
applicable FCA statute of limitations as well as the statute of 
limitations under section 1128A of the Act. Therefore, we have elected 
to establish a 6-year look-back period regardless of the nature of the 
overpayment, and we have amended the regulation text at Sec. Sec.  
422.326(e) and 423.360(e) accordingly. We note that the government may 
have other avenues for pursuing the return of overpayments due to false 
and fraudulent claims outside of these provisions.
    Finally, we note that an MA organization's and Part D sponsor's 
obligation to investigate and identify false and fraudulent claims is 
outside the scope of this final rule.
    After consideration of the public comments received on the 
overpayment provisions, we are finalizing as proposed the following 
provisions: Sec. Sec.  422.1, 422.300, 422.504(l), 423.1, and 
423.505(k). We are finalizing the provisions at Sec.  422.326, with the 
following modifications. First, we add at the end of paragraph (d) the 
phrase ``unless otherwise directed by CMS for the purpose of Sec.  
422.311.'' Second, we strike the following sentence in the proposed 
paragraph on the six-year look-back period: ``Overpayments resulting 
from fraud are not subject to this limitation of the lookback period.'' 
To increase clarity we also revise paragraph (c) regarding identified 
overpayments. We also are making a technical correction by 
redesignating proposed paragraph (d)(3) on enforcement as paragraph 
(e), and redesignating proposed paragraph (e) on the six-year look-back 
period as paragraph (f), and revising new paragraph (e) on enforcement 
to say ``Any overpayment retained by an MA organization is an 
obligation under 31 U.S.C. 3729(b)(3) if not reported and returned in 
accordance with paragraph (d) above.''
    Finally, we are finalizing the provisions at Sec.  423.360 with the 
following modifications. We strike the following sentence in the 
proposed paragraph on the six-year look-back period: ``Overpayments 
resulting from fraud are not subject to this limitation of the lookback 
period.'' To increase clarity we also revise paragraph (c) regarding 
identified overpayments. We also are making a technical correction by 
redesignating proposed paragraph (d)(3) on enforcement as paragraph 
(e), and redesignating proposed paragraph (e) on the six-year look-back 
period as paragraph (f), and revising new paragraph (e) on enforcement 
to say ``Any overpayment retained by a Part D sponsor is an obligation 
under 31 U.S.C. 3729(b)(3) if not reported and returned in accordance 
with paragraph (d).''
2. Risk Adjustment Data Requirements (Sec.  422.310)
    We proposed several amendments to Sec.  422.310 to strengthen 
existing regulations related to the accuracy of risk adjustment data. 
We proposed 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. Sec.  422.308(c)(1) and 422.310(g)(2). Under our proposal, medical 
record reviews conducted by an MA organization could not be designed 
only to identify diagnoses that would trigger additional payments by 
CMS to the MA organization; medical record review methodologies would 
have to 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.
    We also proposed to amend Sec.  422.310(g) regarding deadlines for 
submission of risk adjustment data; our proposal was to restructure and 
revise subparagraph (g)(2) and add subparagraph (g)(3). Our current 
procedures generally permit submission of risk adjustment data after 
the final risk adjustment submission deadline only to correct 
overpayments. Thus, we proposed, at Sec.  422.310(g)(2)(ii) to 
explicitly permit late submissions only to correct overpayments but not 
to submit diagnoses for additional payment so that the regulation text 
would be consistent with our procedures.
    Finally, we proposed to make two additional changes in paragraph 
(g). First, we proposed the deletion of the January 31 deadline in 
paragraph (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. We noted 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, also discussed in this final rule. Second, we 
proposed adding paragraph (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).
    In response to the January 10, 2014 proposed rule, we received 
approximately 25 pieces of correspondence from organizations and 
individuals regarding these proposals. We received the following public 
comments and our responses follow.
    Comment: Many commenters expressed concern about the vagueness and 
overly broad statement of CMS' proposal to amend Sec.  422.310(e) to 
require that medical record reviews conducted by MA organizations be 
designed to determine the accuracy of diagnoses they submitted to CMS. 
Some commenters thought this implied a requirement to verify every 
diagnosis

[[Page 29926]]

submitted by every provider, while others thought this implied a 
restriction on the ability of plans to identify what medical records to 
review. Other commenters believed the proposed amendment limited plans' 
ability to review medical records for operational purposes other than 
risk-adjusted payment, such as focusing on only a portion of a medical 
record for a subset of beneficiaries in order to enhance HEDIS scores, 
conduct contract compliance reviews, and validate claims processing and 
billing.
    Finally, a few commenters argued that CMS should offset the payment 
impact of diagnoses an MA organization submitted to CMS that were later 
found through medical record reviews to not be supported by medical 
record documentation by adjusting the amount of CMS' overpayment to the 
MA organization for the level of error in equivalent diagnoses in FFS 
claims data. Specifically, the commenters argued that CMS should give 
MA organizations a credit for erroneous diagnoses they submitted from 
their providers' claims up to the rate identified by CMS as the 
applicable FFS Adjustor in the RADV program. The commenters also argued 
that there is no reason to require that both MA and FFS diagnosis data 
be scrutinized for error rates when determining retroactive payment 
adjustments, while not engaging in a similar adjustment process when 
paying plans prospectively.
    Response: We thank the commenters for their input. We are not 
finalizing the proposed amendment to Sec.  410.322(e).
    However, we emphasize that our decision to not finalize this 
regulatory proposal does not change CMS' existing contractual 
requirement that MA organizations must certify (based on best 
knowledge, information, and belief) the accuracy, completeness, and 
truthfulness of the risk adjustment data they submit to CMS. Further, 
this decision does not change the long-standing risk adjustment data 
requirement that a diagnosis submitted to CMS by an MA organization for 
payment purposes must be supported by medical record documentation.
    Comment: A few commenters supported CMS' proposal to remove the 
current date of January 31 as the annual final risk adjustment data 
submission deadline and replace it with the provision that CMS will 
announce the deadline annually, with the proviso that CMS' timing of 
this annual deadline always allows sufficient opportunity for 
organizations to make final data submissions. Several other commenters 
stated their concern about this proposed change in deadline, including 
a concern that CMS might announce a deadline earlier than January 31 in 
some years. These commenters requested that CMS clarify that the annual 
deadline would never be before January 31, and a few commenters 
suggested that the regulation state that the deadline is January 31 but 
may be extended. Finally, a few commenters requested that CMS not 
change the January 31 date to a floating date, in order to allow 
operational stability.
    Response: We are not finalizing this proposal at this time.
    Comment: Many commenters disagreed with CMS' proposal under Sec.  
410.322(g)(2) that, after the final risk adjustment data submission 
deadline, CMS would permit submission of data to correct overpayments 
but not permit late submission of diagnosis data that would result in 
additional payment, asserting that this asymmetrical approach does not 
promote CMS' stated goal of improving payment accuracy. The commenters 
maintained that an MA organization should be allowed to submit 
additional diagnoses after the final risk adjustment data submission 
deadline to correct not only an overpayment to the MA organization, but 
also an underpayment. A commenter recommended that, after the final 
deadline, MA organizations should be able to submit paired deletions-
additions of diagnoses as long as the result is not an increased 
payment to the organization but a smaller reduction in payment than 
would otherwise occur if only the deletion were submitted; for example, 
an MA organization may want to delete the diagnosis code for diabetes 
with acute complications and replace it with the code for diabetes 
without complications so that it loses only some of the payment. 
Finally, a commenter requested that CMS allow exceptions to the general 
rule that no new diagnoses may be submitted after the final risk 
adjustment data submission deadline for special circumstances such as 
system failures, file formatting issues, and other technical problems.
    Response: For a given payment year (which is a calendar year), CMS 
applies diagnoses from the previous year (the data collection year) to 
calculate beneficiary risk scores used to risk-adjust payments to MA 
organizations in the payment year. MA organizations must finalize any 
corrections and new submissions of diagnosis data for a data collection 
year by January 31 of the year after the payment year. That is, we 
allow 13 months after the end of the diagnosis year for MA 
organizations to identify errors in data they have submitted (that is, 
deleting diagnoses from CMS' systems) and to identify and submit 
additional diagnoses that were not submitted during the diagnosis year. 
We believe that is a very reasonable period of time to finalize risk 
adjustment data for a diagnosis year.
    These risk adjustment processes have been in place for many years, 
and we believe it is the responsibility of MA organizations to have 
internal audit processes in place allowing them to finalize their risk 
adjustment data for a payment year by the conclusion of this 13-month 
period. Therefore, we are finalizing, as proposed, the provision 
codified at Sec.  422.310(g)(2)(ii) that, after the final deadline, an 
MA organization may submit risk adjustment data to correct overpayments 
but not to add payments.
    Comment: A commenter supported CMS' proposal to limit post-deadline 
modifications to deletions of incorrect diagnoses but requested that 
CMS offer one additional opportunity to eliminate unsupported diagnosis 
codes in advance of a RADV audit.
    Response: When we are preparing to initiate a RADV audit cycle, all 
MA organizations are notified that they should eliminate unsupported 
diagnoses from CMS' systems by a date specified in the notice. 
Subsequently, we inform the contracts that have been selected for RADV.
    In summary, after consideration of the public comments received, we 
are not finalizing the proposed amendment to Sec.  410.322(e). Also, we 
are not finalizing at this time our proposal at Sec.  422.310(g)(2)(ii) 
to remove the current date of January 31 as the annual final risk 
adjustment data submission deadline and replace it with the provision 
that CMS will announce the deadline annually. We are finalizing as 
proposed the restructuring of Sec. Sec.  422.310(g)(2) and the 
422.310(g)(2)(ii) provision to prohibit submission of diagnoses for 
additional payment after the final risk adjustment data submission 
deadline. We did not receive any comments on subparagraph (g)(3) and 
are finalizing it as proposed.
3. RADV Appeals
a. Background
    We published final Risk Adjustment Data Validation (RADV) appeals 
regulations in the April 15 2010 Federal Register (75 FR 19677). These 
rules were proposed and finalized under our authority to establish 
Medicare Advantage (MA) program standards at section 1856(b)(1) of the 
Act and are found at Sec.  422.311 et seq. Since finalizing these rules 
in 2010, we conducted additional RADV audits and determined that some 
of the appeals

[[Page 29927]]

provisions finalized in the 2010 RADV Appeals final rule should be 
modified to strengthen and streamline the RADV appeals process and to 
prevent confusion. Therefore, we proposed revisions to the RADV appeals 
regulations on January 10, 2014. These proposed RADV provisions will 
apply to any RADV determinations issued on or after the effective date 
of this regulation.
    We proposed changing certain RADV definitions at Sec.  422.2. 
Specifically, we proposed removing the definition Initial Validation 
Contractor (IVC); removing the definition of RADV payment error 
calculation appeal process; and removing the definition of ``One Best 
Medical Record for the purposes of Medicare Advantage Risk Adjustment 
Data Validation (RADV)''. In addition, we proposed adding one new 
definition by specifically defining the RADV appeals process. We also 
proposed revising the definitions of ``Risk Adjustment Data Validation 
(RADV)'' and ``attestation process'' within the RADV appeals context. 
Furthermore, we proposed amending RADV definitions at Sec.  422.2 to 
specify that the Secretary, along with CMS, could conduct RADV audits.
    At Sec.  422.311, we proposed to update select RADV appeals 
terminology. We proposed amending the RADV regulations by adopting one 
common term to refer to RADV audit reports: ``RADV Audit Report''. As 
mentioned earlier, we proposed removing from the RADV regulations the 
term--``Initial Validation Contractor, or IVC,'' since 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 who may be employed by the same or different medical record 
review contractors.
    At Sec.  422.311(c)(1), we proposed to simplify the RADV appeals 
process by combining the two existing RADV appeal procedures--one for 
medical record review and one for payment error calculation--into one 
set of requirements and one process comprised of three administrative 
steps: Reconsideration, hearing officer review, and CMS Administrator-
level review. Combining these existing RADV medical record review 
determination and payment error calculation appeals policies and 
processes improves the overall appeals process by simplifying the 
overall RADV appeals process and reducing burden on all parties 
involved in the RADV appeals process. We also believed that doing so 
improves overall RADV appeals procedures by providing clarity that 
leads to greater efficiencies in adjudicating RADV appeals. Within this 
overall framework, we also proposed defining issues that would be 
eligible for RADV appeal at Sec.  422.311(c)(2) and issues that would 
not be eligible for RADV appeals under this combined-appeal process at 
Sec.  422.311(c)(3). We further proposed defining the manner and timing 
of a request for RADV appeal at Sec.  422.311(c)(2)(iii), a 
reconsideration process at Sec.  422.311(c)(6), a hearing process at 
Sec.  422.311(c)(7)(iv), and an Administrator-level review at Sec.  
422.311(c)(8).
    At Sec.  422.311(a), we proposed that the Secretary, along with 
CMS, be permitted to conduct RADV audits beginning with the effective 
date of this regulation. Because of the absence of a clearly-defined 
burden of proof standard for RADV medical record review determination 
appeals, at Sec.  422.311(c)(4) we proposed adoption of a burden of 
proof standard for all RADV determinations--be they payment error 
calculation or RADV medical record review determinations--whereby the 
burden would be on MA organizations to prove, based on a preponderance 
of the evidence, that CMS's determination(s) was (were) erroneous. At 
Sec.  422.311(b)(2) we proposed changing 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.
    We received comments from health plans, managed care industry trade 
associations, providers, provider trade associations and other 
interested parties. These comments have resulted in changes to the 
previously described proposals, as discussed later in this section. 
Some of the comments we received did not apply to the proposed RADV 
appeals processes. However, because some of these comments apply to 
underlying RADV audit process, we are responding to certain comments 
because they appear to be relevant to the RADV appeals process. Other 
comments were clearly outside the scope of our proposed rule, so we 
have not included responses to those comments.
b. RADV Definitions
    We proposed 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.
    We received no comments specifically recommending modifications to 
the proposed definitions as stated, though we did receive comments 
regarding the policy behind some of these definition changes. The 
policy comments will be addressed later in this rule, though we are 
finalizing the specific definitions without modification.
c. Publication of RADV Methodology
    In the October 22, 2009 proposed rule, and as reinforced in the 
April 15, 2010 final rule, we indicated that we would, ``publish its 
RADV methodology in some type of public document--most

[[Page 29928]]

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 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 proposed 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.
    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. As a result, 
we proposed 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 invited comment on this proposal.
    Comment: A commenter requested that CMS verify that the medical 
record review error determination standard, which presently requires 
multiple review determinations by independent coders to confirm a CMS-
HCC coding error, remains in effect and is not altered by this proposed 
rule.
    Response: While we did not propose RADV coding changes, we believe 
the question merits a response. We believe that our proposal to remove 
the definition of ``Initial Validation Contractor'' (IVC) may have led 
some to believe that we were abandoning RADV audit processes that 
require multiple levels of independent medical record review (coding) 
by independent reviewers before we will confirm a CMS-HCC coding error. 
This standard has not changed, notwithstanding the removal of the term 
IVC from the RADV appeals rules. We continue to utilize medical record 
reviewers to code medical records undergoing RADV review, though these 
reviewers may now be employed by the same or different medical record 
review contractors. The principle of independent review and multiple 
confirmations of an identified CMS-HCC remain in effect.
e. Proposal To Simplify the RADV Appeals Process
    Currently, there are two types of RADV-related appeals processes 
described in our regulations at Sec.  422.311: 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 proposed 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), that combines the two existing RADV 
appeal policies and procedures into one set of requirements and one 
process. We proposed 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 proposed at new Sec.  422.311(c)(1), 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 proposed these changes based upon

[[Page 29929]]

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 the proposed policy and procedure 
follow.
(1) Issues Eligible for RADV Appeal
    Current regulations at Sec. Sec.  422.311(c)(2) et seq., and 
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 proposed 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 proposed 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 proposed 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 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 
proposed 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 proposed 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 final rule.
    At Sec.  422.311(c)(2)(vi) we proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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).
    In proposed 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).

[[Page 29930]]

    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 proposed 
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 
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, we ensure 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed RADV appeal hearing 
procedures. We proposed 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 proposed 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

[[Page 29931]]

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 proposed 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 proposed 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 proposed 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 RADV payment 
error calculation only, we proposed 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. AtSec.  422.311(c)(7)(x) we 
proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 
proposed 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 proposed 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 welcomed comments on 
these proposals.
    We received the following comments and our response follows:
    Comment: Several commenters agreed that combining the RADV medical 
record review determination and payment error calculation appeals 
policies and processes into one combined appeals process strengthens 
the overall appeals process and should reduce administrative burden. A 
commenter disagreed with this assessment. Another commenter indicated 
that appealing both a medical record review determination and the 
payment error calculation concurrently within a 30-day timeframe would 
be problematic.
    Response: We continue to believe the combining two RADV appeals 
processes into one combined appeals process will improve efficiency and 
reduce administrative burden. Previously, MA organizations wishing to 
appeal both medical record review determinations and a RADV payment 
error calculation would have been required to participate in two 
hearings and two Administrator-level reviews. Under our proposal, these 
same organizations need only participate in one hearing and one 
Administrator review. Regarding the notion that appealing both a 
medical record review determination and the payment error calculation 
concurrently within a 30-day timeframe would be problematic, we believe 
the commenter misunderstood how the proposed process is intended to 
work. The proposed provision at Sec.  422.311(c)(5)(ii)(c) states that 
for MA organizations that appeal both medical record review 
determination appeal and RADV payment error calculation appeal--the 
Secretary adjudicates the request for RADV payment error calculation 
appeal following conclusion of reconsideration of the MA organization's 
request for medical record review determination appeal and not 
concurrently as the commenter asserted. However, to provide additional 
clarity to the provision, we have amended Sec.  422.311(c)(5)(iii)(B) 
to state that MA organization's request for appeal of their RADV 
payment error calculation will not be adjudicated until appeals of RADV 
medical record review determinations filed by the MA organization have 
been completed and the decisions are final for that stage of appeal. We 
trust this clarifies this provision and CMS therefore finalizes this 
proposal.
    Comment: A commenter objected to the proposed provision at Sec.  
422.311(c)(2)(ii) 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. This commenter 
stated procedural issues should not render an appeal invalid unless 
they undermine the integrity of the audit results or are otherwise 
significantly prejudicial.
    Response: We disagree. RADV is an inherently complex administrative

[[Page 29932]]

process and the appeals procedures we have proposed are likewise 
detailed and comprehensive. Failure by MA organizations to follow RADV 
audit procedures could compromise the integrity of the administrative 
record that will serve as the foundational document that will be 
considered during any appeals process. Moreover, if we were to make 
subjective case-by-case determinations regarding what defines 
``undermining the integrity of the audit process,'' then we would 
compromise our ability to establish objective review standards upon 
which to base appeals determinations. Therefore, we are finalizing this 
provision as proposed.
    Comment: Several commenters requested that CMS allow MA 
organizations to appeal determinations made on ``additional'' CMS-HCCs 
abstracted during the medical record review process. Some commenters 
asserted that these additional CMS-HCCs are underpayments for which 
they are entitled payment. These commenters also asserted that MA 
organizations that do not receive credit for what they believe to be 
additional CMS-HCCs present in a submitted medical record should be 
entitled to appeal the fact that they did not receive credit.
    Response: We disagree. We note that an additional CMS-HCC is a CMS-
HCC that CMS uncovers during the review of the MA organization's 
submitted medical record(s) for which it had not received payment. We 
acknowledge that in certain circumstances when CMS uncovers these 
additional CMS-HCCs, the MA organization can in fact receive credit for 
these newly-discovered diagnoses codes to offset the overpayment 
findings resulting from the medical record review of the audited CMS-
HCC. The RADV process addresses additional CMS-HCCs, or 
``additionals,'' as they are termed, through the application of rules 
for crediting a sampled enrollee with additional CMS-HCCs that are 
identified incidentally, during medical record review. We emphasize 
that these ``additional'' diagnoses were not submitted for payment by 
MA organizations during the data collection period for enrollees 
selected in the sample, and yet in certain instances we provide audited 
MA organizations credit through our RADV medical record review process. 
At its core, RADV is an audit process that is intended to validate the 
CMS-HCCs that were submitted voluntarily by MA organizations in order 
to determine whether the risk adjustment portion of payment were 
properly made. We would note that the data collection period for any 
given payment year provides a substantial amount of time for MA 
organizations to submit and/or correct enrollee diagnoses data to 
reflect an enrollee's health status. The RADV audit process is not 
intended to serve as a de facto mechanism for extending the data 
collection deadlines under which MA organizations operate. For these 
reasons, MA organizations will not be permitted to appeal additional 
CMS-HCC determinations found under the RADV audit for which MA 
organizations did not receive credit.
    Comment: At Sec.  422.311(c)(2)(i), CMS proposed that for each 
audited CMS-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 CMS-HCC appeal. In response to this 
proposal, a commenter requested that CMS allow MA organizations to use 
an attestation to replace a medical record. Another commenter 
recommended that CMS change the attestation process embedded in the 
existing RADV audit procedures so that when CMS notifies an MA 
organization that an audited CMS-HCC was not validated due to lack of 
signature or credential, CMS would likewise allow, after medical record 
review, submission of an attestation to cure the identified RADV error.
    Response: The purpose of the CMS-generated attestations is to 
provide MA organizations with an opportunity to cure signature and 
credential CMS-HCC validation errors for eligible medical records. CMS-
generated attestations are not intended to provide an opportunity for a 
MA organizations, provider or supplier to replace a medical record; or 
for a provider or supplier to attest that a beneficiary has the medical 
condition reflected in the CMS-HCC at issue. Risk adjustment rules 
require that allowable diagnoses be verified in a medical record, not 
attestation. Regarding the recommendation that CMS notifies an MA 
organization that an audited CMS-HCC was not validated due to lack of 
signature or credential pursuant to RADV medical record review, we 
believe MA organizations bear the responsibility for identifying 
records that do not contain signature or credentials, and should do so 
at the same time they submit medical records to CMS for RADV medical 
record review.
    Comment: At Sec.  422.311(c)(2)(iv), CMS proposed a provision which 
stipulates that notwithstanding these changes, for purposes of 
appealing a CMS medical record review determination, we will not permit 
MA organizations to appeal multiple medical records but will instead 
require MA organizations to identify one medical record from amongst 
the records submitted, and submit that record for appeal. For each 
audited CMS-HCC, MA organizations may appeal only one medical record 
that has undergone RADV review. Several commenters objected to CMS's 
proposal that RADV appeals be limited to one medical record selected by 
the MA organization. These commenters believe CMS should not require MA 
organizations to select one medical record to appeal, but should rather 
permit MA organizations to appeal multiple medical records as part of 
the proposed RADV appeal process.
    Response: We believe these comments are in part responding to 
information that we provided in February 2012 regarding changes in RADV 
methodology. At that time, we announced that CMS would allow MA 
organizations to submit more than one medical record for CMS-HCC 
validation during the RADV medical record review stage of the RADV 
audit process. While we now permit MA organizations to submit more than 
one medical record during the RADV audit process to validate an audited 
CMS-HCC, only one medical record is required and ultimately utilized by 
CMS to validate an audited CMS-HCC or conversely, to make a 
determination that the audited CMS-HCC is not present in the submitted 
medical record. Since one medical record is sufficient to validate an 
audited CMS-HCC, we believe it is reasonable to limit MA organizations 
to selecting one medical record for purposes of RADV appeal. Guidelines 
set forth in the International Classification of Diseases, Ninth 
Clinical Revision (ICD-9) specify that the information necessary to 
abstract a code be contained in entirety in documentation for one 
encounter (either inpatient or outpatient). Multiple records cannot be 
combined to obtain sufficient documentation for a diagnosis. 
Furthermore, risk adjustment rules specify that only one diagnosis 
submission throughout the entire data collection period initiates a 
risk score adjustment. Given this, multiple medical record support is 
not required to confirm the diagnosis. Therefore, the appeal record 
should be carefully selected to ensure payment is validated. Therefore, 
we do not accept this recommendation.
    Comment: Several commenters objected to CMS's proposal at Sec.  
422.311(c)(3) to not permit MA organizations to appeal either medical 
record review determination or payment error calculation methodology. A

[[Page 29933]]

commenter stated that MA organizations should be allowed to identify 
and explain their objections to audit and appeals procedures and 
requirements without losing their ability to pursue the administrative 
appeals process.
    Response: At Sec.  422.311(c)(3)(ii), we proposed that MA 
organizations would not be permitted to appeal CMS's medical record 
review determination methodology or CMS's payment error calculation 
methodology. We proposed this requirement for the same reason that we 
finalized the RADV appeals requirement in 2010 that MA organizations 
could not appeal the RADV payment error calculation methodology. The 
payment error calculation methodology would be known to audited MA 
organizations before their RADV audit began. MA organizations that 
questioned or did not otherwise understand the methodology would have 
an opportunity to seek clarification from CMS regarding the methodology 
at that time.
    In December 2010, in response to questions from the MA industry 
regarding our RADV payment error calculation methodology, we published 
a white paper describing our RADV payment error calculation 
methodologies, and invited public comment. In response to comments 
received in February 2012, we published a RADV-related notice of 
methodology specifying the RADV payment error calculation methodology 
that the agency would utilize on a moving-forward basis.
    This same principle applies to the way we conduct medical record 
review within the RADV audit context. We have long adhered to the 
International Classification of Diseases, Ninth Revision, Clinical 
Modification, or ICD-9-CM, system to classify and assign codes to 
health conditions abstracted from medical records that MA organizations 
submit to validate audited CMS-HCCs. ICD-9-CM standards are widely 
available to the public and will be available to MA organizations 
before RADV audits are initiated. We anticipate continuing to adhere to 
these standards until such time as new coding standards (for example, 
ICD-10) are universally adhered to in the United States. We continue to 
believe that it is essential that CMS adhere to a universally accepted 
coding classification system that is widely available in the public 
domain when conducting RADV audits.
    We disagree that MA organizations lose their ability to pursue the 
administrative appeals process described at Sec.  422.311 when they 
identify and explain objections to audit and appeals procedures. MA 
organizations can fully execute their rights to RADV administrative 
appeals as described at Sec.  422.311 by following applicable 
regulations. Those rules clearly specify issues that are eligible for 
RADV appeal at Sec.  422.311(c)(2) and Sec.  422.311(c)(3); and issues 
that are ineligible for RADV appeal at Sec.  422.311(c)(3). To the 
extent an MA organization appeals RADV issues that are eligible for 
RADV appeal that request for appeal will go forward. To the extent an 
MA organization appeals issues that are ineligible for RADV appeal; we 
will not act upon that request for RADV appeal. The act of identifying 
and explaining objections to audit and appeals procedures will not in 
and of itself nullify an MA organization's request to appeal issues 
that are eligible for RADV appeal.
    Comment: At Sec.  422.311(c)(5)(ii) we proposed 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. At 
Sec.  422.311(c)(7)(iii), we proposed 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. At Sec.  422.311(c)(8)(i) and (ii), we 
proposed that a request for CMS Administrator review must be made in 
writing within 30 days of receipt of the hearing officer's decision. 
Several commenters requested that CMS consider providing MA 
organizations additional time at each of these steps within the RADV 
appeals process to elect to pursue further appeals activity. In most 
instances, these commenters requested CMS provide a 60-day response 
time instead of the proposed 30-day response time.
    Response: We agree with the commenters' recommendations and will 
change the proposed response times from 30 days to 60 days at Sec.  
422.311(c)(5)(ii), Sec.  422.311(c)(7)(iii), and Sec.  422.311(c)(8)(i) 
and (ii).
    Comment: A commenter recommended that CMS correct a cross-reference 
error between preamble language and regulation text. The error pertains 
to language at Sec.  422.311(c)(6)(iv)(C) which references the hearing 
process in accordance with paragraph (c)(8). As stated in the preamble, 
we believe this should be a reference to (c)(7), which sets forth the 
rules for requesting a hearing. Paragraph (c)(8) relates to review by 
the CMS administrator.
    Response: We agree with commenter's recommended edit and have 
changed the regulation text to specify paragraph (c)(7) and not (c)(8).
    Comment: A commenter recommended that CMS clarify the provision at 
Sec.  422.311(c)(7)(vii)(B)(2)(i) that states that either party be 
allowed to request a live or telephonic hearing, still subject to the 
hearing officer's discretion. The commenter recommended that both CMS 
and the MA organization be allowed to request a live or telephonic 
hearing, still subject to the hearing officer's discretion.
    Response: Proposed Sec.  422.311(7)(vii)(B)(2)(i) specifies that 
``the parties may request a live or telephonic hearing . . .'' The term 
``the parties'' in this instance means CMS or the MA organization, and 
not either CMS or the hearing officer. Therefore, either organization 
that is a party of the hearing process may request a live or telephonic 
hearing. This clarification notwithstanding, the CMS Administrator 
nevertheless maintains the independent discretion to elect to review 
the hearing officer's decision or to decline to review the hearing 
officer's decision. See Sec.  422.311(7)(vii)(B)(2)(iii).
    Comment: In proposed Sec.  422.311(c)(8)(i) and (ii), CMS requires 
that a request for CMS Administrator--level review be filed with the 
CMS Administrator by either CMS or an MA organization. A commenter 
recommended that CMS accept adverse decisions by its hearing officers 
and not be permitted to appeal them to the CMS Administrator. Another 
requested clarification whether an MA organization would be given a 
``meaningful opportunity'' to appeal a hearing officer's decision that 
is favorable to CMS (and not to the MA organization) if CMS' inaction 
allows the hearing officer's decision to become finalized.
    Response: We disagree that only MA organizations should be provided 
an opportunity to appeal a hearing officer's adverse determination to 
the Administrator. Doing so would provide MA organizations with a level 
of due process not available to CMS, thus weighing the appeals process 
in favor of MA organizations. Consequently, we believe that both 
parties should be able to appeal a hearing officer's unfavorable 
decision to the Administrator level of review. Regarding the question 
of whether an MA organization would be given a meaningful opportunity 
to appeal a hearing officer's decision that is favorable to CMS if CMS' 
inaction allows the hearing officer's decision to become finalized, we 
reiterate that a decision that is favorable to CMS would inherently be 
unfavorable to the MA organization rendering them eligible to request 
review by the CMS Administrator so long as other appeals-

[[Page 29934]]

pre-requisites (for example, following of applicable rules, etc.) have 
been met. At proposed Sec.  422.311(c)(8)(ii) we specify that an MA 
organization that has received a hearing officer's decision may request 
review by the CMS Administrator.
    Comment: Several commenters objected to CMS's proposed RADV 
appeals-related documentation standards. A commenter requested that CMS 
reconsider its position that the medical record that they designate for 
RADV appeal be selected from one of the medical records that they 
originally submitted for medical record review under RADV audit. 
Another commenter requested that CMS reconsider its position that 
errors resulting from an outright failure by an MA organization to 
submit a medical record are not eligible for RADV appeal by the MA 
organization.
    Response: Both of these recommendations suggest that CMS should 
extend, not have or otherwise not adhere to a medical record submission 
deadline when conducting RADV audits. It is our position that 
establishing realistic medical record submission deadlines is essential 
for conducting RADV audits timely. Conducting any type of audit 
activity absent the establishment of realistic documentation submission 
standards increases the burden and costs associated with completing the 
audit tasks on all parties involved. In fact, in response to industry 
concerns that we were not providing sufficient time for MA 
organizations to obtain and submit the medical records necessary to 
validate CMS-HCCs, we earlier extended the RADV audit medical record 
submission window from 3 months to 5 months. We believe 5 months is 
sufficient time for MA organizations to locate and submit medical 
records necessary to validate an audited CMS-HCC. Therefore, we 
reaffirm that the medical record that an MA organization selects to 
support its appeal of an adverse CMS-HCC determination must come from 
records that the MA organizations submitted to CMS for audit.
    Comment: Several commenters objected to what they contend is a 
burden that RADV audits impose upon the physicians and physician 
practices that must produce medical records necessary to conduct 
audits. A provider-based trade association requests that MA 
organizations requesting medical records for a RADV audit be required 
to provide documentation on the scope of the audit from CMS, as 
providers believe there have been abuses in terms of the amount of 
requests and data demands which exceed the actual requirements. By 
requiring MA organizations to provide documentation of the CMS RADV 
audit request and the specific medical records required, this commenter 
contended that CMS will ensure it receives all necessary documentation, 
while also ensuring MA organizations are not using the RADV audit to 
unduly burden providers. We note that outside of the proposed rule, CMS 
has also received letters arguing that the burden associated with RADV 
audits is not limited to the CMS' audits but also extends to internal 
audit activity undertaken by MA organizations that mimic the RADV 
audits that we undertake for Medicare payment validation. These 
commenters raised concerns that MA organizations were misrepresenting 
their internal audit activity as official CMS RADV audits.
    Response: In an effort to minimize the burden associated with this 
activity, we have developed best practices that we encourage MA 
organizations to employ in their efforts to gather medical records from 
providers and hospitals. To the extent MA organizations employ these 
practices; it is our belief that the impact of RADV audits on providers 
can be minimized. We also understand the increasing need for providers 
to be able to distinguish when they are being asked for medical records 
in association with an MA organization's own audit or in accordance 
with an official Medicare program RADV audit which is subject to 
statutory requirements. Therefore, we issue letters on our letterhead 
that MA organizations must use when requesting medical records from 
providers when the request is specifically related to an official CMS 
RADV audit. Providers may rely upon these letters as an indicator that 
a given medical record request is for CMS' RADV audit process, and 
providers may request this authorizing letter before responding to 
requests by an MA organization.
f. Proposal To Expand Scope of RADV Audits
    Federal regulations at Sec.  422.311(a) specify that RADV audits 
are conducted by CMS. We proposed 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 proposed 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 welcomed comment on this proposal.
    We received the following comments and our response follows:
    Comment: Many commenters objected to proposed Sec.  422.311(a) 
which specifies that the Secretary, along with CMS, could conduct RADV 
audits beginning with the date when CMS' proposed RADV appeals rule 
change became effective. Some of these commenters also objected to 
CMS's proposal to amend RADV definitions at Sec.  422.2 to specify that 
the Secretary, along with CMS, could conduct RADV audits. Another 
commenter requested clarification for the rationale and mechanics of 
allowing HHS to conduct RADV audits, citing concerns about maintaining 
consistency in the audit process.
    Response: We conduct RADV audits to help ensure the integrity of 
the Medicare program though activities aimed at determining whether 
certain payments should have been made by Medicare. The Secretary 
(including the Office of Inspector General (OIG)--pursuant to OIG's 
authority under the Inspector General Act of 1978, 5 U.S.C. App.) 
clearly has the authority to conduct RADV audit activity. Our proposing 
this provision and the related change in definition simply clarifies 
what is already an existing statutory authority. In response to the 
commenters requested clarification on the mechanics of how the 
Secretary would conduct RADV audits, we would note that the Secretary 
or OIG, will provide instructions regarding its RADV audit at the time 
the Secretary or OIG notifies selected organizations of pending RADV 
audit activity.
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 of 
proving 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 proposed 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

[[Page 29935]]

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 invited comment on this 
proposal.
    We received the following comments and our response follows:
    Comment: Several commenters objected to proposed Sec.  
422.311(c)(4) which specifies that the burden of proof for all RADV 
determinations--be they payment error calculation or medical record 
review determinations--resides with the MA organizations, based on a 
preponderance of the evidence standard, that CMS's RADV audit 
determination(s) was erroneous. These commenters recommended revising 
the regulation to place the burden of supporting an affirmative finding 
that a payment error has been made, on CMS. A commenter also requested 
that CMS more clearly define how a ``preponderance of the evidence'' 
burden of proof standard would be applied.
    Response: In developing this proposal, we reviewed other types of 
burdens of persuasion, such as the burden to establish by ``clear and 
convincing'' evidence that a fact exists or does not exist. First, we 
based our decision to propose a preponderance of the evidence standard 
on CMS precedence in other appeals processes. Second, we determined 
that it may not seem fair to the MA organizations to set a high 
expectation for persuasion, especially for those MA organizations which 
have not gone through a RADV appeals process before. We determined that 
it would not set as high a standard as ``clear and convincing'' or 
``beyond a reasonable doubt'' for these cases at this time. Proof that 
evidence as a whole is of a degree which is more probable than not is 
sufficient to overturn a CMS determination.
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 proposed 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 to CMS. See 
proposed regulation language at Sec.  422.311(b)(2).
    We received no comments on this proposal and therefore are 
finalizing this provision without modification.

B. Improving Payment Accuracy

4. 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 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 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 a 
plan disagrees with the calculated overpayment amounts or whether the 
overpayments are proper, the plan 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 final rule would apply to all Part C and 
Part D RAC determinations. As we implement the Part C RAC, we would 
determine if additional changes to the proposed appeals process are 
necessary.
    Based on the foregoing, we proposed 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

[[Page 29936]]

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 3-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 proposed 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 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 proposed 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 proposed 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 proposed 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 proposed 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. We would notify and send its rebuttal to the 
plan at the same time it is submitted to the independent reviewer. In 
paragraph (d), we proposed 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 proposed 
that the independent reviewer would inform CMS and the plan of its 
decision in writing. In paragraph (f), we proposed 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 proposed 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 proposed 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. The request must be in writing and must 
provide a basis for the request. In paragraph (b), we proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed that the Administrator would notify 
the plan of whether he or she intends to review the

[[Page 29937]]

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 proposed 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.
    We received the following comments and our responses follow:
    Comment: Several commenters expressed concern over the proposed 15-
day timeframe for plan sponsors to request review by a Hearing Official 
and also the proposed 15-day timeframe to request review by the 
Administrator. Commenters believe that a 15-day timeframe for 
requesting additional review may result in unnecessary appeals and that 
30 days is a more appropriate timeframe for plan sponsors to evaluate 
if additional appeals for review are appropriate. Commenters pointed 
out that a 30-day timeframe is typical among other similar CMS appeals 
processes.
    Response: We agree with commenters that a 15-day timeframe for 
requesting additional review by a Hearing Official or the Administrator 
may not provide enough time for plan sponsors to make an appropriate 
decision regarding additional appeals for review and we are finalizing 
this rule with a 30-day timeframe for such requests. This timeframe 
will also make the Parts C and D RAC Appeals process more structurally 
similar to existing appeals processes such as the RADV Appeals process.
    Comment: A commenter requested that CMS clarify the distinction 
between ``payment methodology'' and ``findings of the applied 
methodology'' given that CMS proposed that ``payment methodology'' is 
not subject to appeal. This commenter believes that this distinction is 
critical to providing meaningful appeal rights to plan sponsors. The 
commenter provided an example such as when the RAC determines that a 
payment received by the Part D sponsor should have been treated as 
Direct and Indirect Remuneration (DIR).
    Response: We agree with the commenter that this distinction is 
critical to providing a meaningful appeals process to plan sponsors. In 
the proposed rule, we indicated that miscalculations and factual or 
data errors may be appealed as ``findings of the applied methodology''. 
If a plan sponsor believes that a Part D RAC incorrectly classified a 
payment as DIR, for example, this would be a question of fact regarding 
the findings of the applied methodology that the plan sponsor is 
entitled to appeal.
    Comment: A commenter questioned why new evidence could not be 
submitted at subsequent levels of appeal after the first level 
reconsideration and requested that CMS allow new evidence to be 
submitted at each level of appeal.
    Response: We disagree with the commenter. We do not believe it is 
common for evidence relevant to a RAC determination to be unavailable 
to a plan sponsor 60 days after a Notice of Improper Payment is 
received by the plan sponsor. This is the relevant timeframe for 
requesting a reconsideration and submitting relevant evidence and 
documentation to the independent reviewer. Also, we do not believe it 
is generally appropriate for plan sponsors to withhold relevant 
evidence from the independent reviewer at the Reconsideration stage of 
appeal and we want to safeguard the program from this type of activity. 
We have modeled our proposed process after existing CMS appeals 
processes that do not allow the submission of new evidence at higher 
levels of appeal, such as the CMS RADV appeals process. We also note 
that in addition to the plan sponsor not being permitted to submit new 
evidence at subsequent levels of appeal, we are also precluded from 
submitting new evidence at subsequent levels of appeal.
    Comment: A commenter questioned why CMS did not define ``designated 
independent reviewer'' and suggested that in order to ensure that the 
first level appeals reviewer is both qualified and independent of the 
RAC, the regulation should specify the necessary qualifications for 
this position. The commenter further suggested that the regulation 
contain a specific conflict of interest provision that would disallow 
any financial or other relationship between the RAC and the independent 
reviewer.
    Response: We agree with the commenter that the integrity of the 
proposed appeals process is imperative and that the designated 
independent reviewer be both qualified and independent of the RAC. We 
decline to specify the necessary qualifications for this position in 
the regulation and we decline to add a specific conflict of interest 
provision in the regulation. We believe that the independence of the 
reviewer will be self-evident as the reviewer will not be affiliated 
with the RAC and we have no incentive to select independent reviewers 
who are lacking the qualifications to fulfill this task.
    Comment: A commenter requested that CMS make clear that the Part D 
sponsor is not required to make any payment with respect to a RAC 
finding until the sponsor has exhausted the administrative appeals 
process. The commenter also requested that CMS clarify that any final 
and binding decision by the Administrator does not preclude judicial 
review.
    Response: We agree that final Part D payment adjustments based on 
RAC findings will not be made until all administrative appeal rights 
are exhausted. This is our current practice under the existing appeals 
process and will continue to be the practice under the formal three-
level appeals process being implemented in this final rule. We also 
agree with the commenter that any final and binding decision by the 
Administrator under this rule does not preclude judicial review.
    After review of the public comments received on these proposals, we 
are finalizing our proposals with one modification. In Sec. Sec.  
422.2610(a) and 422.2615(a) and Sec.  423.2610(a) and Sec.  
423.2615(a), we are revising the timeframe for MA organizations and 
Part D plan sponsors, respectively, to request review by a Hearing 
Official or the Administrator from 15 days to 30 days.

C. Implementing Other Technical Changes

1. 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 paragraph (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 paragraph (B) of such section, or insulin described in 
paragraph (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 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

[[Page 29938]]

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 are potentially eligible for Part D 
coverage, in line with the Part D drug definition. We proposed to 
address this issue in regulation to codify and clarify policy we 
previously addressed through guidance.
    We proposed to add paragraph (vii) under the definition of a Part D 
drug to further clarify that only those combination products approved 
and regulated in their 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 1860D-2(e)(1) of the Act.
    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.
    Comment: A commenter noted it supported the proposed policy 
regarding combination products.
    Response: We appreciate the support for our proposal.
    Comment: A commenter requested that CMS provide clarification on 
what constitutes a vitamin versus what constitutes a dietary 
supplement.
    Response: In the preamble, we provided an example of a Part D drug 
combined with a vitamin that would be eligible for coverage, if FDA 
approved in the combined form. We also provided an example of a Part D 
drug combined with a dietary supplement that would not be eligible for 
coverage because the FDA had not approved that combination. We did not 
mean to imply that only approved combinations involving vitamins would 
be eligible, nor did we mean to distinguish between vitamins as opposed 
to dietary supplements in that paragraph. Our intent was to distinguish 
their eligibility for coverage by the fact that one of these combined 
products was approved as a combination drug product by the FDA and the 
other was not.
    After consideration of the public comments we received, we are 
finalizing this provision with a technical modification to improve the 
clarity of the provision.
b. Barbiturates and Benzodiazepines
    We also proposed 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 
by removing from paragraph (2)(ii) the clause ``barbiturates when used 
to treat epilepsy, cancer, or a chronic mental health disorder; and 
benzodiazepines.''
    We did not receive any comments regarding this proposal.
    We note that an error appeared in the corresponding regulations 
text of the January 10, 2014 proposed rule. In the regulations text (79 
FR 2062), we made a typographical error in an amendatory instruction 
and inadvertently did not remove the previously noted clause from the 
definition of ``Part D drug'' at Sec.  423.100(2)(ii). Therefore, we 
are making the required corrections in the regulations text of this 
final rule.
c. Medical Foods
    We proposed 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 paragraphs 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

[[Page 29939]]

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.
    Comment: A commenter that strongly disagreed with the proposal 
stated that there are medically indicated nutritional supplements such 
as food thickeners, caloric supplements, and probiotics which should be 
covered if prescribed by a physician.
    Response: The definition of a ``covered Part D drug'' found in 
section 1860D-2(e)(1) of the Act does not allow us to cover food 
thickeners, caloric supplements, and probiotics even if prescribed by a 
prescription. These items do not meet any of the requirements of that 
section.
    After consideration of the public comment we received, we are 
finalizing this provision without modification.
2. 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 expected to relax 
``refill-too-soon'' (RTS) edits. We proposed 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 solicited 
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 solicited 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 believed our proposal provides a general framework for 
when RTS edits must be relaxed, we solicited 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 solicited 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 myriad facility-specific factors. In 
particular, we solicited 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 solicited 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 
stated 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 also stated that we would 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 solicited 
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 solicited comment as to whether watch/warnings would 
require RTS overrides in the whole state, or just areas under the watch 
or warning. We also stated that we were 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 solicited 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.

[[Page 29940]]

    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.
    Comment: Several commenters supported CMS's proposal. A commenter 
commended CMS's efforts to ensuring access to critical and other drugs 
during times of crises.
    Response: We thank the commenters for the support.
    Comment: Several commenters were concerned that the policy was not 
clear enough to ensure that Part D sponsors would apply it 
consistently. A commenter suggested that requiring sponsors to 
``reasonably conclude'' whether a beneficiary would have difficulty 
obtaining refills would result in an inconsistent relaxation of edits 
and suggested instead that CMS provide clear direction by exercising 
its section 1135 waiver authority. Another commenter requested that CMS 
issue HPMS alerts to advise Part D sponsors on when to relax edits 
every time a trigger event occurred not only because of the subjective 
nature of the sponsor assessment but because it also depended on 
whether a sponsor knew that about a declaration. A commenter requested 
that we make it clear sponsors would only be obligated to relax edits 
when operationally possible.
    Response: We appreciate the suggestions and will consider them in 
the future.
    Comment: A commenter suggested that CMS allow beneficiaries 
enrolled in mail order pharmacy programs to use local retail or 
hospital pharmacies during emergencies when disasters or other 
emergencies interfere with their receipt of drugs through the mail.
    Response: While we appreciate the concerns, we did not propose any 
changes with respect to mail order during disasters and emergencies and 
we are not adopting this recommendation at this time.
    Comment: Several commenters responded to our request for comment by 
agreeing that it was appropriate to limit the window for relaxed edits 
to 30 days after the date of declaration. Another commenter suggested 
that the 30 day period should start running when the emergency actually 
occurred because declarations often do not take place until later--in 
which case the proposed timeframe might actually exceed 30 days.
    Response: We appreciate the comments, and will use them to inform 
possible future rulemaking.
    Comment: Several commenters believed use of the NCPDP submission 
code appropriate, while another concluded it would not work because it 
was beneficiary specific and not specific to LTC facilities. A 
commenter stated it was difficult to operationalize RTS overrides by 
areas and that it was typically done by state. Comments on the 
feasibility of relying on NWS watches and warnings ranged from several 
commenters who thought it inappropriate to ever relax edits on account 
of such warnings because they might never occur, to a commenter who 
thought it appropriate to limit such application solely to hurricane 
and tropical storm warnings, to another commenter who thought both 
types of warnings appropriate triggers and suggested that CMS also rely 
on advisories from NWS. However, not all commenters discussed warnings 
and watches in the context of LTC facilities and, in fact, a commenter 
questioned whether our proposal even applied to non-LTC situations.
    Response: We appreciate the comments and will use them to inform 
possible future rulemaking.
    Comment: A few commenters requested that we broaden our policy by 
allowing sponsors to relax edits more often than proposed. A commenter 
suggested we allow sponsors make determinations regarding whether to 
relax edits ``well before'' declarations were issued rather than wait 
for their issuance, and other commenters identified specific situations 
that they felt should prompt such a determination such as local 
challenges and severe weather (such as tornadoes) and accompanying 
difficulties (such as power outages extending for multiple days). 
Another commenter requested that CMS automatically grant special access 
rules when a state of emergency is declared in a state or region 
thereof rather than leave the discretion to apply those rules to 
sponsors.
    In contrast, several commenters requested that we revise the 
regulation so that sponsors would be able to relax edits less often 
than proposed. Observing that many anticipated snow storms that did not 
actually take place last winter, a commenter requested that CMS not 
allow Part D sponsors to relax edits for government declarations that 
merely announced the possibility, rather than the occurrence, of 
disasters or emergencies. Another commenter suggested that we limit 
application of the policy to declarations only from federal and state 
authorities because it was difficult for Part D sponsors with large 
service areas to track declarations by local authorities.
    Another commenter recommended that we retain the current guidance.
    Response: As a result of the comments we received on this issue, we 
are not finalizing this proposal. We have concluded that we need to 
carefully consider our options and consequently have decided to leave 
in place current guidance. There was simply not a consensus regarding 
any aspect of the proposed regulation to sufficiently inform a decision 
to finalize. For instance, a number of commenters expressed opposing 
views: Some requested that we broaden our policy by allowing sponsors 
to relax edits more often than proposed, while others suggested that we 
curtail the circumstances under which sponsors would be permitted to 
relax edits. Some contractors liked the discretionary aspects of the 
proposal and the existing guidance while others sought bright line 
indicators--although sometimes just to trigger the times when 
discretion might be applied. Several commenters appear to have 
misunderstood our proposal.
    We believe it is important to ensure that beneficiaries receive 
drugs in the event of disasters or anticipated disasters that might 
hinder their access to such drugs for a period of time. But we are 
concerned that if sponsors do not uniformly relax edits under similar 
circumstances, beneficiaries in different plans will be treated 
disparately. We hope to prevent situations in which, for instance, two 
beneficiaries living in the same area are affected by the same 
disaster, but one beneficiary is able refill a prescription that 
otherwise would been subject by RTS edits, while the other, who is 
enrolled in a different plan, is not. The variety of comments and 
responses suggests that resolving these issues may require more focused 
inquiry. In the meantime, the current guidance will remain in place 
(found in Prescription Drug Benefit Manual, Chapter 5, Benefits and 
Beneficiary Protections, Section 50.12). We again thank all the 
commenters including those that took the time to respond to our 
specific solicitations. We will keep their suggestions in mind as we 
carefully consider our options for the future, including whether to 
address our regulatory proposals in future rulemaking.
3. Termination of a Contract Under Parts C and D (Sec. Sec.  422.510 
and 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

[[Page 29941]]

procedures for termination for both Part C and Part D plan sponsors 
respectively. 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 proposed to align the Part C and Part D appeal rights language 
under Sec. Sec.  422.510(d) and 423.509(d) by replacing the 
inconsistent language at Sec.  423.509(d) to now read ``in accordance 
with subpart N of this part.''
b. Terminology Changes (Sec. Sec.  422.510 and 423.509)
    Sections 1857(c) and 1860D-12(b)(3)(B) of the Act authorize CMS to 
terminate contracts with MA organizations and Part D plan sponsors 
respectively. In the current termination regulations at Sec. Sec.  
422.510 and 423.509, there is inconsistent use of the terms ``days'' 
and ``calendar days''. Therefore, we proposed to replace the word 
``days'' with ``calendar days'' in both Sec. Sec.  422.510 and 423.509.
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 CMS 
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.'' Therefore, we proposed to revise the paragraph heading of Sec.  
422.510(b)(2) to read ``Immediate termination of contract by CMS''. 
This change will also make it consistent with the corresponding heading 
for Part D, in Sec.  423.509(b)(2).
d. Terminology Change (Sec.  423.509(b)(2)(C)(ii))
    Sections 1857(c)(2) and 1860D-12(d)(3)(B) of the Act provide CMS 
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 
proposed to change Sec.  423.509(b)(2)(C)(ii) to appropriately 
reference Part D plan sponsor; not MA organization, as it currently 
states.
    We received no comments on these proposals and are therefore 
finalizing these provisions without modification.
4. Technical Changes Regarding Intermediate Sanctions and Civil Money 
Penalties
    Sections 1857(g) and 1860D-12(b)(3)(E) of the Act provide 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. Sec.  422.756(a)(2) and 423.756(a)(2))
    Under Sec. Sec.  422.756(a)(2) and 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''. The language in other 
sections of this subpart refers to receipt of a notice as ``days after 
receipt of this notice.'' All sections should be consistent. Therefore, 
we proposed to modify the language at Sec. Sec.  422.756(a)(2) and 
423.756(a)(2) to state ``10 calendar days after receipt of the 
notice''. In addition, we proposed to correct grammatical errors in 
current Sec. Sec.  422.756(a)(2) and 423.756(a)(2) by revising the 
language in both Sec. Sec.  422.756(a)(2) and 423.756(a)(2) \2\ to add 
the word ``the'' before notice; as proposed, the second sentence in 
each paragraph (a)(2) would read ``CMS considers receipt of the notice 
as the day after the notice is sent by fax, email, or submitted for 
overnight mail.''
---------------------------------------------------------------------------

    \2\ We note that although the preamble accurately reflected this 
proposal, the regulation text for Sec.  423.756(a)(2), (79 FR 2070), 
erroneously did not reflect the proposed grammatical correction.
---------------------------------------------------------------------------

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 reference the 
procedures MA organizations and Part D plan sponsors must follow for 
requesting a hearing to appeal the imposition of intermediate sanctions 
and civil money penalties. MA organizations and Part D sponsors must 
adhere to hearing procedures promulgated within subpart N of the 
regulations, not just Sec. Sec.  422.660 through 422.684 and Sec. Sec.  
423.650 through 423.662, respectively, as currently cited in Sec. Sec.  
422.756(b)(4) and 423.756(b)(4). Therefore, we proposed to modify the 
language at Sec. Sec.  422.756(b)(4) and 423.756(b)(4) so that it would 
read that MA organizations and Part D sponsors ``must follow the right 
to a hearing procedures as specified in subpart N''.
c. Technical Changes (Sec. Sec.  422.756(d) and 423.756(d))
    In Sec. Sec.  422.756(d) and 423.756(d) we provide alternatives to 
sanctions, including non-renewal or termination of the organizations 
contract. However, the paragraph heading of both Sec. Sec.  422.756(d) 
and 423.756(d) only refers to terminations by CMS. Therefore, we 
proposed to revise the paragraph heading to ``Non-renewal or 
termination by CMS'' in both sections to reflect the content specified 
within the provision.
    Within Sec. Sec.  422.756(d) and 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 plan 
sponsors. However, all of paragraph (b) in Sec. Sec.  422.506 and 
423.507 applies to Sec. Sec.  422.756(d) and 423.756(d), respectively. 
Therefore, we proposed to change both provisions Sec. Sec.  422.756(d) 
and 423.756(d) to read ``Sec.  422.506(b)'' and ``Sec.  423.507(b)'', 
respectively.\3\
---------------------------------------------------------------------------

    \3\ In the preamble to our proposal, we mistakenly referred to 
the language as being deleted by using ``and'' instead of 
``through''.
---------------------------------------------------------------------------

    Within Sec. Sec.  422.756(d) and423.756(d), we refer to the 
``sanctions described in paragraph (c)'' but in each section, paragraph 
(c) refers to the effective date and duration of sanctions, rather than 
sanctions which are actually described in Sec. Sec.  422.750 and 
423.750, respectively. Therefore, we proposed 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.'' to 
correct this mistake.
d. Technical Changes To Align the Civil Money Penalty Provision With 
the Authorizing Statute (Sec. Sec.  422.760(a)(3) and 423.760(a)(3))
    The provisions at Sec. Sec.  422.760(a)(3) and 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 corresponding sections.
    Therefore, we proposed to align the language with that used in 
paragraphs (b)(1) and (2) from that same section in both Sec. Sec.  
422.760(a)(3) and 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. Sec.  422.760(a)(3) and 423.760(a)(3) to track the 
statutory language.

[[Page 29942]]

e. Technical Changes To Align the Civil Money Penalty Hearing Notice 
Receipt Provisions (Sec. Sec.  422.1020(a)(2), 423.1020(a)(2), 
422.1016(b)(1), and 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 MA organizations 
and Part D plan sponsors, respectively. Under Sec. Sec.  422.1020(a)(2) 
and 423.1020(a)(2), we discuss our procedures for requesting an appeal 
of a CMP. The current language in both sections state written requests 
for appeal ``must be filed within 60 calendar days from the receipt of 
notice of initial determination.'' However, this language does not 
align with the appeal language in subpart N for requesting a hearing.
    Therefore, we proposed to change the language at Sec. Sec.  
422.1020(a)(2) and Sec.  423.1020(a)(2) to align it with the language 
within subpart N for appeals. Specifically, we proposed to change the 
language in both Sec. Sec.  422.1020(a)(2) and 423.1020(a)(2) to read 
``after receipt'' instead of ``from the receipt'', so it reads ``within 
60 calendar days after receipt of the notice of initial 
determination''.
    In addition, under Sec. Sec.  422.1016 and 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. Sec.  422.1016(b)(1) and 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 proposed to revise the language 
at Sec. Sec.  422.1016(b)(1) and 423.1016(b)(1) to state ``The other 
party will have 20 days from the date of mailing or in person filing . 
. .'' to maintain consistency.
    We received no comments on these proposals and therefore are 
finalizing these provisions without modification.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We solicited public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs).

A. ICRs Related to Improper Prescribing Practices and Patterns

    Our additions of Sec. Sec.  424.530(a)(11), 424.535(a)(13), and 
424.535(a)(14) will likely result in an increase in denials, 
revocations, and associated appeals. However, we are unable to estimate 
the number of denials, revocations, and appeals. We do not have data 
available that can be used to make such projections, as each situation 
would have to be carefully reviewed and addressed on a case-by-case 
basis. Therefore, we cannot estimate the potential concomitant increase 
in the ICR burden, though, as we stated in the proposed rule, we 
believe any such increase will be minimal.
    We received no comments on the potential ICR burden of Sec. Sec.  
424.530(a)(11), 424.535(a)(13), and 424.535(a)(14).

B. 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.
    We received no comments on this proposal and therefore are 
finalizing this provision without modification.

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

    We proposed to amend Sec. Sec.  417.460(b)(2)(i), 417.460(f)(1)(i), 
422.74(d)(4)(i)(A), 422.74(d)(4)(v), and 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.
    We received no comments on the ICRs for this proposal and therefore 
are finalizing the ICR assessment without modification.

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

    This requirement does not impose any new information collection

[[Page 29943]]

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.
    We received no comments on the ICR assessment for this proposal and 
therefore are finalizing this assessment without modification.

E. 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 4--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 4 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 5.

                                                Table 5--Estimated Annual Reporting/Recordkeeping Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Hourly
                                                                             Burden per     Total      labor cost  Total labor     Total
       Regulation section(s)         OMB control  Respondents   Responses     response      annual         of        cost of      capital/    Total cost
                                         No.                                  (hours)       burden     reporting    reporting   maintenance      ($)
                                                                                           (hours)        ($)          ($)       costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
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
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We received no comments on the ICR assessment for this proposal and 
therefore are finalizing this assessment without modification.

V. Regulatory Impact Analysis

A. Statement of Need

    The purpose of this final 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. This final rule 
makes changes that are necessary to: Clarify various program 
participation requirements and 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 final 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. Finally, in accordance with the provision of 
the Executive Order 12866, this final rule was reviewed by the Office 
of Management and Budget.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. The great majority of hospitals and most 
other health care providers and suppliers are small entities, either by 
being nonprofit organizations or by meeting the SBA definition of a 
small business (having revenues of less than $7.0 million to $35.5 
million in any 1 year). Individuals

[[Page 29944]]

and states are not included in the definition of a small entity. This 
final 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. 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 $35.5 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 $35.5 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 will be reached by 
the requirements in this final rule because this final rule will have 
minimal impact on small entities. Therefore, an analysis for the RFA 
will not be prepared because the Secretary has determined that this 
final rule will not have a significant impact on a substantial number 
of small entities.
    In addition, section 1102(b) of the Act requires us to prepare an 
analysis if a rule may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 604 of the RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a metropolitan statistical area and has fewer 
than 100 beds. We are not preparing an analysis for section 1102(b) of 
the Act because the Secretary has determined that this final rule will 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year by 
state, local, or tribal governments, in the aggregate, or by the 
private sector of $100 million in 1995 dollars, updated annually for 
inflation. In 2014, that threshold is approximately $141 million. This 
final rule is not expected to reach this spending threshold.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on state and local governments, 
preempts state law, or otherwise has federalism implications. Based on 
CMS Office of the Actuary estimates, we do not believe that this final 
rule imposes substantial direct requirement costs on state and local 
governments, preempts state law, or otherwise has federalism 
implications.
    Table 10 details the final 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, 
and incarcerated individuals 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
    We proposed 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, and 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. We are finalizing the provision as proposed, with the 
revisions specified in our response to public comments earlier in this 
document.
2. Effects of Authority To Impose Intermediate Sanctions and Civil 
Money Penalties
    We proposed 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. Sec.  422.752 and 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. Sec.  422.752 and/or 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 will not result in additional burden to 
sponsors nor will they have a financial impact on sponsors.
3. 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 proposed to modify the notice timeframe from 90 days 
to 45 days. We believe these provisions will not result in additional 
burden to sponsors nor will it have a financial impact on sponsors.
4. Effects of Reducing the Burden of the Compliance Program Training 
Requirements
    We proposed 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 will require all contracting organizations to accept a 
certificate of completion of the CMS Standardized General Compliance 
Program Training and Education Module as evidence of

[[Page 29945]]

satisfaction of this program requirement. Under this program change, 
contracting organizations will not be permitted (or required) to 
develop or implement organization specific training for FDRs. We 
anticipate that this will 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 will actually provide savings for sponsors and the FDRs 
since FDRs will only have to take one training as opposed to the 
possible numerous trainings they may take under current requirements. 
Additionally, sponsors will save because they will not be required to 
provide training materials to each FDR with which they contract.
    We believe these provisions will not result in additional burden to 
sponsors nor will they have a financial impact on sponsors.
5. Effects of Procedures for Imposing Intermediate Sanctions and Civil 
Money Penalties Under Part C and D
    We proposed 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 
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 proposed 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 will not receive any LIS annual or auto facilitated 
reassignments.
    We believe these provisions will not result in additional burden to 
sponsors nor will they have a financial impact on sponsors.
6. Effects on Timely Access to Mail Order Services
    We proposed to establish a fulfillment requirement for mail order 
prescriptions. We believed it was 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.
    Comments persuaded us that we had not considered all relevant 
implications of this proposal and we decided not to finalize this 
provision. This in turn means that there will be no financial impact.
7. 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 which ended 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. We proposed revising this existing compensation structure. 
MA organizations and Part D sponsors will 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 Part D sponsors could 
make an initial payment that is no greater than the fair market value 
(FMV) 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 Part D sponsor could pay up to 35 percent 
of the FMV amount for that year. We are finalizing the provision with 
an up to 50 percent payment for renewals, instead of the proposed 35 
percent. We also proposed that plans not recover compensation when the 
disenrollment is not a result of the agent's behavior. We are not 
implementing the changes with respect to the recovery of compensation, 
but will finalize language to keep the existing situation, which 
requires full recoupment if a member disenrolls within the first 3 
months of enrollment except in limited circumstances. In addition to 
the agent and broker compensation structures, we are setting limits on 
referral fees for agents and brokers.
    We do not believe that any of these revisions will have a 
significant increase in burden or financial impact. Our existing 
compensation rules require that MA organizations and Part D sponsors 
pay on a calendar year basis, not a rolling year basis. Our regulations 
are restating existing requirements, to ensure consistency. While some 
MA organizations and Part D sponsors may have to make significant 
systems changes to ensure compliance, these changes are not based on 
this final rule but are required to meet existing requirements. MA 
organizations and Part D sponsors will likely have to make some systems 
modifications, such as paying between January 1 and December 31 of each 
year. However, we do not believe these will be of significant impact. 
Although some changes will be necessary, we believe the small cost and 
burden of the changes will outweigh the cost and burden of the existing 
multi-tier approach by simplifying the compensation structure for 
independent agent brokers.
8. Effects of Drug Categories or Classes of Clinical Concern
    We are not finalizing the proposed criteria or their application to 
the categories and classes of clinical concern.
9. 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

[[Page 29946]]

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 proposed to broaden the MTM criteria to require that Part D 
sponsors target beneficiaries who have two or more chronic diseases and 
are taking two or more covered Part D drugs. We proposed 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 have set the 
cost threshold at $620 which is the approximate cost of filling two 
generic prescriptions. We proposed 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 estimated 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 estimated 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.
    In the proposed rule, we estimated 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 would be 
$111,045,060 ($70.91/CMR x 1,566,000 CMRs). This was below previous 
estimates.
    We were unable to definitively score the proposed changes to the 
eligibility criteria 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 was 
estimated to cost $111 million, we cited evidence in the proposed rule 
that showed that MTM services may generate overall medical savings.
    We are not finalizing these proposals. Therefore, the increased 
burden estimates associated with increasing eligibility from 2.5 
million beneficiaries to 18 million beneficiaries are removed.
10. 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 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 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 will 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 will 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.
11. 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

[[Page 29947]]

benefits for a company offering health insurance or health benefits 
coverage for 5 continuous years immediately prior to submitting an 
application. This proposal will 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 will 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 will 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.
12. 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.
13. Effects of Limit Stand-Alone Prescription Drug Plan Sponsors To 
Offering No More Than Two Plans per PDP Region
    As this proposal is not being finalized, there will be no financial 
impact.
14. Effects of Applicable Cost-Sharing for Transition Supplies: 
Transition Process Under Part D
    We proposed 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 will be no cost impact on plans.
15. Effects of Interpreting the Non-Interference Provision
    We proposed 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 formally 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. As we 
are not finalizing this proposal, there is no change in regulatory 
impact.
16. Effects of Pharmacy Price Concessions in Negotiated Prices
    We proposed 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 will preclude the differential reporting 
that is taking place today in the realm of reporting drug costs and 
price concessions from network pharmacies. The rule will change current 
policy that permits sponsors to elect which price concessions from 
pharmacies to report 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 
will 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 will impose a single consistent price concession reporting process 
on all Part D sponsors. Therefore, it is not clear that any contractual 
arrangements between a subset of sponsors and network pharmacies will 
require renegotiation, since only the form of the price concession, 
rather than its level, will 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 will ensure that 
the actual level of price competition is transparent to the Part D 
market.

[[Page 29948]]

    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 proposed will lend to Part D bids being more 
accurately comparable and premiums more accurately reflecting relative 
plan efficiencies. The lowest premiums will 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 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 are finalizing the provision with modification to require that 
negotiated prices be inclusive of all price concessions from network 
pharmacies except those contingent price concessions that cannot 
reasonably be determined at the point of sale. We expect that the 
effect of regulation to require consistent and transparent pricing will 
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 rule 
will not change the level of price concessions and therefore costs 
under the program as a whole, but will apply consistency to how these 
are reported to CMS and treated in bidding and payment processes. 
Therefore, we anticipate that there will be no cost impact on plans.
17. Effects of Preferred Cost Sharing
    We proposed 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 
intended to clarify that preferred cost sharing should consistently be 
aligned with and accurately signal lower costs. We proposed that by 
``consistently lower'' we meant 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.
    After considering the public comments, we are not finalizing the 
proposal to revise Sec.  423.120(a)(9) to require consistently lower 
negotiated prices for Part D drugs obtained through pharmacies offering 
preferred cost sharing than the same Part D drugs when obtained in the 
rest of the pharmacy.
    This proposal will not be finalized and we will not engage in 
further rulemaking without re-proposing in a future rule, eliminating 
any estimated costs for implementation at this time.
18. Effects of Maximum Allowable Cost Pricing Standard
    We proposed a change to the regulations at Sec. Sec.  423.501, 
423.505(b)(21) and 423.505(i)(3)(vii) 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 changes 
would result in any regulatory impact. Read together, the new 
provisions in Sec. Sec.  423.501, 423.505(b)(21), and 
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 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 will 
have to be adapted to also disclose the prices to pharmacies in advance 
of their use, which we believe will involve negligible effort for Part 
D sponsors' existing employees and/or subcontractors. Therefore, we 
estimate the impact of these provisions to be negligible.
19. 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 expected 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 would have been 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 did not require them to start.
    Part D sponsors already negotiate contracts regularly with 
pharmacies in order to meet network access requirements. We estimated 
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

[[Page 29949]]

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 had revised 
contracts to meet the proposed requirement, no extraordinary additional 
expenses were anticipated for subsequent years. For a plan not 
currently offering preferred cost sharing levels, it was 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 was similarly expected to be 
negligible, as they are already reviewing and implementing terms from 
contracts, often annually. Pharmacies were not being directed to choose 
one set of T&C over another, but rather would have gained the option to 
review and implement terms for preferred cost sharing, if they so 
choose to accept the applicable negotiated pricing terms. Beneficiaries 
were expected to benefit from an increased number of pharmacies 
offering preferred cost sharing levels.
    We received the following comments and our response follows:
    Comment: Some commenters believed that there would be additional 
costs not reflected in the impact analysis, resulting from the proposed 
change to pharmacy contracts. One commenter believed that the estimates 
provided for revising contract language and especially negotiating new 
contracts with pharmacies were too low, and a few commenters stated 
that it would take more than 6 months to implement these changes.
    Response: We appreciate the comments. However, this proposal will 
not be finalized and we will not engage in further rulemaking without 
re-proposing in a future rule, eliminating any estimated costs for 
implementation at this time.
20. Effects of Enrollment Requirements for Prescribers of Part D 
Covered Drugs
    We proposed that prescribers must either be enrolled in Medicare or 
have validly opted-out in order for their prescriptions to be covered 
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 is enrolled or in a valid opt-out status in 
Medicare before paying a claim from a network pharmacy or a 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 Sec.  423.120(c)(6) entails a new 
requirement for Part D sponsors, we do not believe it will have any new 
or additional impact because Part D sponsors must already have 
prescriber validation capabilities to meet the NPI PDE requirement.
    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. Solely from 
this perspective, we do not project any savings from this provision. We 
believe there will be savings, though, from the fact that certain 
unqualified individuals will no longer be able to prescribe Part D 
drugs, for they will be unable to meet Medicare requirements. However, 
we are unable to estimate a particular savings figure because we do not 
know how many such individuals there will be.
21. Effects of Improper Prescribing Practices and Patterns
    Our additions of Sec. Sec.  424.530(a)(11) and 424.535(a)(13) will 
likely result in additional application denials, revocations, and 
associated appeals. 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. However, we do not have data available to assist us in 
calculating the possible costs to physicians and eligible professionals 
in lost potential billings or the possible costs or savings to the 
government arising from these two provisions.
    Section 424.535(a)(14) will result in an increase in the total 
number of revocations and associated appeals. Yet we are unable to 
project the number of providers and suppliers that will 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 
possible costs or savings to the government arising from this 
provision.
    We received the following comments regarding the impact of proposed 
Sec. Sec.  424.530(a)(11), 424.535(a)(13), and 424.535(a)(14).
    Comment: A commenter disagreed with CMS' determination that 
Sec. Sec.  424.530(a)(11), 424.535(a)(13), and 424.535(a)(14) do not 
have federalism implications, contending that these provisions usurp 
the role of state licensing boards. The commenter recommended that CMS 
explain: (1) the federalism impacts of these provisions; and (2) the 
steps that it took to consult with state and local officials early in 
the process of developing the proposed rule.
    Response: We maintain that these three provisions have no 
federalism implications, for CMS is not usurping the authority of 
states to take action against a physician or practitioner with respect 
to his or her licensure status. Moreover, as stated earlier, CMS (not 
state licensing boards) is the agency responsible for administering the 
Medicare program. Therefore, we must have the ability to independently 
take steps to protect Medicare beneficiaries and the Trust Funds.
    Comment: One commenter stated that CMS did not furnish reasonable 
alternatives to the establishment of Sec.  424.535(a)(14).
    Response: In light of the very serious problem of abusive 
prescribing, as outlined by the OIG, CMS did not believe there were any 
reasonable alternatives to its proposal. Prompt action was necessary to 
protect Medicare beneficiaries and the Trust Funds.
    No modifications are being made to Sec. Sec.  424.530(a)(11), 
424.535(a)(13), and 424.535(a)(14) as a result of these comments.
22. Effects of Broadening the Release of Part D Data
    We proposed 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 entities, as well as to make other changes to our policies 
regarding the use and release of PDE data, as currently codified at 
Sec.  423.505 (f)(3), (l) and (m). These proposals would 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 used or 
released in accordance with these proposals. Therefore, although we are 
finalizing the revisions to the Part D data regulations as proposed, we 
are not including any assessment of this final

[[Page 29950]]

policy for the regulatory impact statement.
23. 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. Sec.  422.504(i)(2)(ii) and 
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 
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 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 
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.
24. Effects of Eligibility of Enrollment for Incarcerated Individuals
    We proposed to amend Sec. Sec.  417.460(b)(2)(i), 417.460(f)(1)(i), 
422.2, 422.74(d)(4)(i)(A), 422.74(d)(4)(v), 423.4, and 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 or 12 months and disenroll the 
individuals at the end of that time following Sec. Sec.  
422.74(b)(4)(ii)/423.44(b)(5)(ii) if they could not verify the 
incarcerated status sooner. As a result, plans received capitated 
payments when individuals were 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 improper 
payments made by CMS and would result in a cost savings of $73 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 $103 million in 2024, and could save the Part D program 
(includes the Part D portion of MA PD plans) approximately $46 million 
in 2015, increasing to $153 million in 2024. As cost plans are paid 
based on the reasonable costs of 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.

[[Page 29951]]



       Table 6--Projected Number of Individuals Disenrolled Due To Incarceration and Estimated Savings to the Medicare Advantage Program by Provision for Calendar Years 2015 Through 2024
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                   Totals  (CYs
                                        2015          2016          2017          2018          2019          2020          2021          2022          2023           2024         2015-2024)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Projected number of incarcerated           6,280         7,750         9,221        10,691        12,162        13,234        13,969        14,704        15,440          16,175  ..............
 beneficiaries enrolled in MA
 plans............................
Projected federal impact due to     -$27 million  -$35 million  -$43 million  -$52 million  -$62 million  -$70 million  -$78 million  -$86 million  -$94 million   -$103 million   -$650 million
 incarcerated individuals
 disenrolled 6 months sooner......
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA.


                            Table 7--Projected Number of Individuals Disenrolled Due To Incarceration and Estimated Savings to the Medicare Part D Program by Provision for Calendar Years 2015 Through 2024
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                           Totals  (CYs
                                                                        2015          2016          2017          2018          2019           2020            2021            2022            2023            2024         2015-2024)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Projected number of incarcerated beneficiaries enrolled in MA             52,605        60,076        67,547        75,018        82,489          87,937          91,672          95,408          99,144         102,879  ..............
 plans............................................................
Projected federal impact due to incarcerated individuals            -$46 million  -$55 million  -$65 million  -$77 million  -$90 million   -$102 million   -$113 million   -$125 million   -$138 million   -$153 million   -$965 million
 disenrolled 6 months sooner......................................
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA.


[[Page 29952]]

    We received the following comment:
    Comment: One commenter requested additional information on the 
assumptions used to calculate the savings related to our proposal to 
disenroll incarcerated individuals, such as the percentage of 
membership of incarcerated beneficiaries.
    Response: The following chart provides the assumptions used to 
calculate the savings previously outlined:

   Table 8--Assumptions for Eligibility of Enrollment for Incarcerated
                               Individuals
------------------------------------------------------------------------
                                               2015            2024
------------------------------------------------------------------------
Expected MAPD Enrollment due to be                 6,280          16,175
 disenrolled (A)........................
Average Part C per Capita Costs ($) (B)*          10,024          14,845
Average Length of Stay (years) (C)......             0.5             0.5
Gross Savings ($millions) (A x B x C)...            31.5           120.1
Savings from Part A Trust Fund                      14.7            53.1
 ($millions) (D)........................
Savings from Part B Trust Fund                      16.8            67.0
 ($millions) (E)........................
Savings Net of Member Premium                       27.3           103.3
 ($millions) (D + 0.75 x E).............
------------------------------------------------------------------------
* Note: Part C per Capita Costs are derived from the 2014 mid-session
  review.

    After consideration of the public comment received, we are 
finalizing the policy without modification.
25. Rewards and Incentives Program Regulations for Part C Enrollees 
(Sec.  422.134)
    This provision permits 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 there may be 
savings as a result of healthier 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.
26. Effects of Improving Payment Accuracy: Reporting Overpayments, RADV 
Appeals, and LIS Cost Sharing
    This section proposes only technical changes for overpayment 
reporting, RADV appeals, and CMS' treatment of diagnoses for additional 
payment after the final risk adjustment data submission deadline. 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.
27. Effects of Part C and Part D RAC Determination Appeals
    In section III.B.4. of this final 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 
9.

              Table 9--Summary of RAC Determination Appeals
------------------------------------------------------------------------
                                   Costs  (in
     Provision description         $millions)            Benefits
------------------------------------------------------------------------
Submission of MA plans' first            0.02167  Administrative appeal
 level Request for                                 rights and accuracy
 Reconsideration.                                  in recovery demands.
Submission of Part D plans'              0.02167  Administrative appeal
 first level Request for                           rights and accuracy
 Reconsideration.                                  in recovery demands.
Submission of MA plans' second           0.00208  Administrative appeal
 level Request for Review.                         rights and accuracy
                                                   in recovery demands.
Submission of Part D plans'              0.00208  Administrative appeal
 second level Request for                          rights and accuracy
 Review.                                           in recovery demands.
Submission of MA plans' third             0.0004  Administrative appeal
 level Request for Review by                       rights and accuracy
 the CMS Administrator.                            in recovery demands.
Submission of Part D plans'               0.0004  Administrative appeal
 third level Request for                           rights and accuracy
 Review by the CMS                                 in recovery demands.
 Administrator.
------------------------------------------------------------------------

28. 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.
29. Effects of Special Part D Access Rules During Disasters
    In Sec.  423.126(a), we proposed to 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 have resulted 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 provisions would have required 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

[[Page 29953]]

when a disaster is imminent or after it strikes.
    As this proposal is not being finalized, there will be no financial 
impact.
30. Effects of Termination of a Contract Under Parts C and D
    The changes to Sec. Sec.  422.510 and 423.509 are minor technical 
and clarifying revisions and include making language consistent, 
aligning titles and correcting references. These technical and 
clarifying changes will not result in additional burden to MA 
organizations or Part D sponsors nor will they have a financial impact 
on such entities.
31. Effects of Technical Changes Regarding Intermediate Sanctions and 
Civil Money Penalties
    The changes to Sec. Sec.  422.756 and 423.756 are minor technical 
and clarifying revisions and include making language consistent, 
aligning titles and correcting references. These technical and 
clarifying changes will not result in additional burden to MA 
organizations or Part D sponsors nor will they have a financial impact 
on such entities.

                  Table 10--Estimated \1\ Aggregate Savings to the Health Care Sector by Provision for Calendar Years 2015 Through 2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Calendar year ($ in millions)                               Total ($ in
           Provision                Regulation    --------------------------------------------------------------------------------------  millions) CYs
                                    section(s)      2015   2016    2017     2018     2019     2020     2021     2022     2023     2024      2015-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Federal
                                                                                                                                            Government
                                                                                                                                            (Medicare)
                                                                                                                                             Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
A.24. Eligibility of            Sec.                 -73    -90     -108     -129     -152     -172     -191     -211     -232     -256           -1615
 Enrollment for Incarcerated     417.460(b)(2)(i)
 Individuals \2\.                , 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).
    Total ($ in millions).....  .................    -73    -90     -108     -129     -152     -172     -191     -211     -232     -256           -1615
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ Estimates of savings reflect scoring by the CMS, Office of the Actuary. Also, only provisions that are being finalized with savings or cost
  exceeding $1,000,000 are listed. Other provisions either have no expected savings or cost, have a savings or cost that is difficult to score, have a
  cost that is expected to be counterbalanced by savings, have a savings or cost under $1,000,000, or, were not finalized.
\2\ Supporting 2012 incarceration data provided by the SSA.

D. Expected Benefits

1. Drug Categories or Classes of Clinical Concerns (Sec.  
423.102(b)(2)(v))
    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.
    However, we are not codifying the propose criteria or applying them 
to the drug categories and classes of clinical concern. Thus, this does 
not apply.
2. Medication Therapy Management Program Under Part D
    We anticipated that many more beneficiaries would have access to 
MTM services and believed that the proposed changes would have 
simplified the MTM criteria and minimized beneficiary confusion when 
choosing or transitioning between plans. Moreover, we believed the 
proposed changes would have reduced disparity and allowed more 
beneficiaries with drug therapy problems to receive MTM services.
    However, we are not finalizing these proposals, so these expected 
benefits are no longer applicable.

E. Alternatives Considered

1. Modifying the Agent/Broker Compensation Requirements
    In the preamble of this final rule, we outlined a few alternative 
compensation schedules. Ultimately we determined that the best approach 
was a two-tiered payment schedule, incorporating an initial payment and 
a continuous renewal payment.
2. 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.
    We are not finalizing this proposal.
3. Pharmacy Price Concessions in Negotiated Prices
    We did not identify any alternatives that both maintained 
consistent reporting among sponsors leading to comparable bids, and 
maximized price competition.
4. 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.
    We are not finalizing this proposal.
5. Drug Categories or Classes of Clinical Concerns
    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.

[[Page 29954]]

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.
    However, we are not codifying the propose criteria or applying them 
to the drug categories and classes of clinical concern. Thus, this does 
not apply.
6. Medication Therapy Management Program (MTM) Under Part D
    In the proposed rule, 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 solicited 
stakeholder comment on where the threshold might alternatively be set.
7. 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 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, we proposed changes 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 1 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 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.

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 11 we have 
prepared an accounting statement showing the transfers associated with 
the provisions of this final rule for CYs 2015 through 2019.

     Table 11--Accounting Statement: Classifications of Estimated Transfers From Calendar Years 2015 to 2024
                                                 [$ in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                Transfers
                                                        --------------------------------------------------------
                        Category                                     Discount rate
                                                        --------------------------------------   Period covered
                                                                 7%                 3%
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers (Federal)...............           -$150.27            -156.27      CYs 2015-2024
                                                        --------------------------------------------------------
Whom to Whom?..........................................     Federal Government to MA Organizations and Part D
                                                                                 Sponsors
----------------------------------------------------------------------------------------------------------------
Note: Monetized figures in 2014 Dollars.

G. Conclusion

    We estimate the savings to the federal government from implementing 
these provisions will be $73 million in CY 2015. The savings will 
increase annually. In CY 2024, the federal government savings from 
implementing these provisions will be $256 million. For the entire 
estimated period, CYs 2015 through 2024, we estimate the total federal 
government (Medicare) impact to result in savings of approximately 
$1.615 billion. We note that these savings do not represent net social 
benefits because they consist of transfers

[[Page 29955]]

of value from drug manufacturers, pharmacies, and incarcerated 
individuals to the federal government, MA organizations, Part D 
sponsors and beneficiaries who continue in the programs

List of Subjects

42 CFR Part 417

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

42 CFR Part 422

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

42 CFR Part 423

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

42 CFR Part 424

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

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

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

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

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


0
2. 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
3. Section 417.460 is amended by revising paragraph (b)(2)(i) and 
adding paragraphs (f)(1)(i)(A) through (C) to 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 service area or is 
incarcerated.
* * * * *
    (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 and does not reside in the 
geographic service area of the HMO or CMP per Sec.  417.1.
    (B) Notification by CMS of incarceration. When CMS notifies an HMO 
or CMP of disenrollment due to the individual being incarcerated and 
not residing in the geographic service area of the HMO or CMP, as per 
Sec.  417.1, the 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.
* * * * *

PART 422--MEDICARE ADVANTAGE PROGRAM

0
4. 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
5. 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 definition of ``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. 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:


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
* * * * *
    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.
* * * * *

0
6. Section 422.74 is amended by revising paragraph (d)(4)(i)(A) and 
adding paragraph (d)(4)(v) to read as follows:


Sec.  422.74  Disenrollment by the MA organization.

* * * * *
    (d) * * *
    (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 and does not 
reside in the service area of the MA plan as specified at Sec.  422.2 
or when notified of the incarceration by CMS as specified in paragraph 
(d)(4)(v)(B) of this section.

[[Page 29956]]

    (B) Notification by CMS of incarceration. When CMS notifies the MA 
organization of the disenrollment due to the individual being 
incarcerated and not residing in the service area of the MA plan as per 
Sec.  422.2, disenrollment is effective the first of the month 
following the start of incarceration, unless otherwise specified by 
CMS.
* * * * *

0
7. 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, national 
origin, including limited English proficiency, gender, disability, 
chronic disease, whether a person resides or receives services in an 
institutional setting, frailty, health status or other prohibited 
basis;
    (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 --
    (i) Be offered in connection with 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; and
    (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.
    (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.


Sec.  422.300  [Amended]

0
8. 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
9. Section 422.310 is amended by revising paragraph (g)(2) and adding 
paragraph (g)(3) to read as follows:


Sec.  422.310  Risk adjustment data.

* * * * *
    (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 January 31 of the year following the payment year, 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
10. 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 reads 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.
    (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,

[[Page 29957]]

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 60 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) An MA organization's request for appeal of its RADV payment 
error calculation will not be adjudicated until appeals of RADV medical 
record review determinations filed by the MA organization have been 
completed and the decisions are final for that stage of appeal.
    (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)(7) 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 60 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 reconsideration determination, 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 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 a medical record review determination appeal, the hearing 
officer reviews 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 a payment error calculation appeal, the hearing officer 
reviews all of the following:
    (1) The reconsideration official's written determination.
    (2) Briefs addressing the reconsideration decision.
    (vii) Hearing procedures. (A) Authority of the Hearing Officer. The

[[Page 29958]]

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) of this section, 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) Written decisions 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 in accordance with paragraph 
(c)(7)(x) of this section, 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 
60 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 paragraph 
(c)(7)(vii)(B)(3) 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
11. 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 when the MA organization has determined, or should have 
determined through the exercise of reasonable diligence, that the MA 
organization has received an overpayment.
    (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, 
unless otherwise directed by CMS for purposes of Sec.  422.311.
    (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.
    (e) Enforcement. Any overpayment retained by an MA organization is 
an obligation under 31 U.S.C. 3729(b)(3) if not reported and returned 
in accordance with paragraph (d) of this section.
    (f) Look-back period. An MA organization must report and return any 
overpayment identified for the 6 most recent completed payment years.

0
12. Section 422.503 is amended by -
0
A. Adding paragraph (b)(4)(vi)(C)(3).
0
B. Adding reserved paragraph (b)(4)(vi)(G)(4).
0
C. Revising paragraph (b)(4)(vi)(G)(5).
    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

[[Page 29959]]

providing supplemental training materials to fulfill this requirement.
* * * * *
    (G) * * *
    (5)(i) Not accept, or share, a corporate parent organization owning 
a controlling interest in 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.
    (ii) Not accept, as either the parent organization owning a 
controlling interest of, or subsidiary of, 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.
* * * * *

0
13. Amend Sec.  422.504 by:
0
A. Revising paragraph (i)(2)(i).
0
B. Redesignating paragraph (i)(2)(ii) as (i)(2)(iv).
0
C. Adding new paragraph (i)(2)(ii) and paragraphs (i)(2)(iii) and 
(1)(5).
    The revisions and additions read as follows:


Sec.  422.504  Contract provisions.

* * * * *
    (i)* * *
    (2)* * *
    (i) HHS, the Comptroller General, or their designees have the right 
to audit, evaluate, collect, and inspect any books, contracts, computer 
or other electronic systems, including medical records and 
documentation of the first tier, downstream, and entities related to 
CMS' contract with the MA organization.
    (ii) HHS, the Comptroller General, or their designees have the 
right to audit, evaluate, collect, and inspect any records under 
paragraph (i)(2)(i) of this section directly from any first tier, 
downstream, or related entity.
    (iii) For records subject to review under paragraph (i)(2)(ii) of 
this section, except in exceptional circumstances, CMS will provide 
notification to the MA organization that a direct request for 
information has been initiated.
* * * * *
    (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.
* * * * *

0
14. 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 paragraph (a)(4)(xii).
0
F. By revising paragraph (b)(1)(i) through (iii) and the heading for 
paragraph (b)(2).
0
G. 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
H. 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) * * *
    (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:
* * * * *
    (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
15. 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
16. Amend Sec.  422.756 as follows:
0
A. In paragraph (a)(2), by removing the phrase ``days from receipt'' 
and adding in its place ``days after receipt'' and by removing the 
phrase ``considers receipt of notice'' and adding in its place 
``considers receipt of the notice''.
0
B. In paragraph (b)(4), by removing the cross-reference ''Sec.  423.660 
through Sec.  423.684 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.  422.756  Procedures for imposing intermediate sanctions and civil 
money penalties.

    (c) * * *
    (3) * * *
    (ii) * * *
    (C) During the limited time period, sanctioned sponsoring 
organizations

[[Page 29960]]

offering Part D plans 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.  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
17. Amend Sec.  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
18. 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
19. 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
20. 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 paragraph (b).
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 an MA-PD or an 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 an 
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 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 50 percent of the 
current fair market value cut-off amounts published annually by CMS.
    (iii) If the MA organization contracts with a third party entity 
such as a Field Marketing Organization or similar type entity to sell 
its insurance products, or perform services (for example, training, 
customer service, or agent recruitment)--
    (A) The total amount paid by the MA organization to the third party 
and its agents for enrollment of a beneficiary into a plan, if any, 
must be made in accordance with paragraph (b)(1) of this section; and
    (B) The amount paid to the third party for services other than 
selling insurance products, if any, must be fair-market value and must 
not exceed an amount that is commensurate with the amounts paid by the 
MA organization to a third party for similar services during each of 
the previous 2 years.
    (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.

[[Page 29961]]

    (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 enrollment 
year and, if paid at all, must be paid in full by December 31 of the 
enrollment 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 unless CMS determines that recoupment is not in the best 
interests of the Medicare program.
    (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.
* * * * *
    (h) Finder's (referral) fees. Finder's (referral) fees paid to all 
agents and brokers--
    (1) May not exceed an amount that CMS determines could reasonably 
be expected to provide financial incentive for an agent or broker to 
recommend or enroll a beneficiary into a plan that is not the most 
appropriate to meet his or her needs; and
    (2) Must be included in the total compensation not to exceed the 
fair market value for that calendar year.

Subpart Y--[Reserved]


0
21. Part 422 is amended by adding reserved subpart Y.
0
22. 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.

    (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 MA 
organization.
    (b) Content of request. (1) The request for reconsideration must be 
in writing and specify the findings or issues with which the MA 
organization disagrees.
    (2) The MA organization 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 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 30 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 30 
calendar

[[Page 29962]]

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
23. 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
24. Amend Sec.  423.1 by adding new references in numerical order to 
paragraph (a)(1) 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.
* * * * *

0
25. Amend Sec.  423.44 by adding paragraphs (d)(5)(iii) and (iv) to 
read as follows:


Sec.  423.44  Involuntary disenrollment from Part D coverage.

* * * * *
    (d) * * *
    (5) * * *
    (iii) Incarceration. The PDP must disenroll an individual if the 
PDP establishes, on the basis of evidence acceptable to CMS, that the 
individual is incarcerated and does not reside in the service area of 
the PDP as specified at Sec.  423.4 or when notified of an 
incarceration by CMS as specified in paragraph (d)(5)(iv) of this 
section.
    (iv) Notification by CMS of incarceration. When CMS notifies the 
PDP of the disenrollment due to the individual being incarcerated and 
not residing in the service area of the PDP as per Sec.  423.4, 
disenrollment is effective the first of the month following the start 
of incarceration, unless otherwise specified by CMS.
* * * * *

0
26. In Sec.  423.100, amend the definition of ``Part D drug'' as 
follows:
0
A. By adding paragraph (1)(vii).
0
B. By revising paragraph (2) introductory text.
0
C. In paragraph (2)(i), by removing ``; and'' and adding in its place 
``.''.
0
D. In paragraph (2)(ii), by removing the phrase ``; barbiturates when 
used to treat epilepsy, cancer, or a chronic mental health disorder; 
and benzodiazepines.'' and adding in its place ``.''
0
E. By adding paragraph (2)(iii).
    The additions read as follows:


Sec.  423.100  Definitions

* * * * *
    Part D drug * * *
    (1) * * *
    (vii) A combination product approved and regulated by the FDA as a 
drug, vaccine, or biologic described in paragraphs (1)(i), (ii), (iii), 
or (v) of this 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.
* * * * *

0
27. Section 423.100 is further amended, effective January 1, 2016, by 
revising the definition of ``Negotiated prices'' to read as follows:


Sec.  423.100  Definitions

* * * * *
    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 from network pharmacies 
except those contingent price concessions that cannot reasonably be 
determined at the point-of-sale; and
    (3) Include any dispensing fees; but
    (4) Excludes additional contingent amounts, such as incentive fees, 
if these amounts increase prices and cannot reasonably be determined at 
the point-of-sale.
    (5) Must not be rebated back to the Part D sponsor (or other 
intermediary contracting organization) in full or in part.
* * * * *

0
28. Amend 423.120 by:
0
A. Revising paragraph (b)(2)(v).
0
B. Adding paragraph (b)(3)(vi).
0
C. Adding paragraph (c)(5) introductory text.
0
D. Adding paragraph (c)(6).
    The revisions and additions read as follows:


Sec.  423.120  Access to covered Part D drugs.

* * * * *
    (b) * * *
    (2) * * *
    (v) Until such time as there are established, through notice and 
comment rulemaking, criteria to identify, as appropriate, categories 
and classes of clinical concern, the categories and classes of clinical 
concern are as specified in section 1860D-4(b)(3)(G)(iv) of the Act.
* * * * *
    (3) * * *

[[Page 29963]]

    (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) Before June 1, 2015, the following are applicable:
* * * * *
    (6) Beginning June 1, 2015, the following are applicable: --
    (i) A Part D sponsor must deny, or must require its pharmaceutical 
benefit manager (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 (NPI) is not contained on the claim.
    (ii) A Part D sponsor must deny, or must require its PBM to deny, a 
pharmacy claim for a Part D drug if the physician or eligible 
professional (when permitted to write prescriptions by applicable State 
law)--
    (A) Is not enrolled in the Medicare program in an approved status; 
and
    (B) Does not have a valid opt-out affidavit on file with an A/B 
Medicare Administrative Contractor (MAC).
    (iii) A Part D sponsor must deny, or must require its PBM to deny, 
a request for reimbursement from a Medicare beneficiary for a drug if 
the request is not for a Part D drug that was dispensed in accordance 
with a prescription written by a physician or, when permitted by 
applicable State law, other eligible professional (as defined in 
section 1848(k)(3)(B)(i) or (ii) of the Act) who--
    (A) Is identified by his or her legal name in the request; and
    (B)(1) Is enrolled in Medicare in an approved status; or
    (2) Has a valid opt-out affidavit on file with an A/B MAC.
    (iv) In order for a Part D sponsor to submit to CMS a prescription 
drug event record (PDE), the PDE must contain an active and valid 
individual prescriber NPI and 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 by applicable State law, an eligible 
professional (as defined in section 1848(k)(3)(B)(i) or (ii) of the 
Act) who--
    (A) Is enrolled in Medicare in an approved status, or
    (B) Has a valid opt-out affidavit on file with an A/B MAC.
* * * * *

0
29. 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. The Part D sponsor has identified an 
overpayment when the Part D sponsor has determined, or should have 
determined through the exercise of reasonable diligence, that the Part 
D sponsor has received an overpayment.
    (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.
    (e) Enforcement. Any overpayment retained by a Part D sponsor is an 
obligation under 31 U.S.C. 3729(b)(3) if not reported and returned in 
accordance with paragraph (d) of this section.
    (f) Look-back period. A Part D sponsor must report and return any 
overpayment identified within the 6 most recent completed payment 
years.


Sec.  423.464  [Amended]

0
35. 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
30. Amend Sec.  423.501, effective January 1, 2016, 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 acquisition cost.
    (3) Average manufacturer price.
    (4) Average sales price.
    (5) Maximum allowable cost.
    (6) Other cost, whether publicly available or not.
* * * * *
0
31. Amend Sec.  423.503 by adding paragraphs (a)(3) to read as follows:


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

    (a) * * *
    (3) CMS does 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.
* * * * *

[[Page 29964]]

0
32. Amend Sec.  423.504 by adding paragraphs (b)(4)(vi)(C)(4) and 
(b)(8) and (9) to 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.
* * * * *

0
33. Amend Sec.  423.505 as follows:
0
A. In paragraph (f)(3)(v), by removing ``,'' and adding in its place 
``.''.
0
B. In paragraph (f)(3)(vi), by removing ``; and'' and adding in its 
place ``.''.
0
C. By adding paragraph (f)(3)(viii).
0
D. In paragraph (i)(2)(i), by removing the phrase ``audit, evaluate and 
inspect'' and adding in its place ``audit, evaluate, collect, and 
inspect''.
0
E. By redesignating paragraph (i)(2)(ii) as paragraph (i)(2)(iv).
0
F. By adding new paragraphs (i)(2)(ii)and (i)(2)(iii).
0
G. By removing paragraph (i)(3)(iv).
0
H. By redesignating (i)(3)(v) through (viii) as (i)(3)(iv) through 
(vii).
0
I. By adding paragraph (k)(7).
0
J. By adding a paragraph (m) heading.
0
K. By revising paragraphs (m)(1)(iii).L. By revising paragraph (m)(3).
    The revisions and additions read as follows:


Sec.  423.505  Contract provisions.

* * * * *
    (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 paragraph 
(i)(2)(i) of this section directly from any first tier, downstream, or 
related entity.
    (iii) For records subject to review under paragraph (i)(2)(ii) of 
this section, except in exceptional circumstances, CMS will provide 
notification to the Part D sponsor that a direct request for 
information has been initiated.
* * * * *
    (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) Beneficiary identifier elements on the claim generally are 
encrypted for release, except in limited circumstances, such as the 
following:
    (1) If needed, in the case of release to other HHS entities, 
Congressional oversight agencies, non-HHS executive agencies and the 
States.
    (2) 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.
* * * * *

0
34. Section 423.505 is further amended, effective January 1, 2016, by 
revising paragraphs (b)(21) and (i)(3)(vii) to read as follows:


Sec.  423.505  Contract provisions.

* * * * *
    (b) * * *
    (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.
* * * * *
    (i) * * *
    (3) * * *

[[Page 29965]]

    (vii) If applicable, provisions addressing the drug pricing 
standard requirements of Sec.  423.505(b)(21).
* * * * *

0
35. Amend Sec.  423.509 as follows:
0
A. By redesignating paragraphs (a)(4), through (7), (a)(8) introductory 
text, (a)(8)(i) and (ii), and (a)(9) through (14) as paragraphs 
(a)(4)(i) through (iv), (a)(4)(v) introductory text, (a)(4)(v)(A) and 
(B), and (a)(4)(vi) through (xi), respectively.
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
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.
* * * * *
    (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 (xi) of this section.
* * * * *


Sec.  423.642  [Amended]

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

0
37. 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) of this chapter''.
    The additions and revision read as follows:


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

* * * * *
    (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) of this chapter.
* * * * *

0
38. 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'' and by removing the 
phrase ``considers receipt of notice'' and adding in its place the 
phrase ''considers receipt of the notice''.
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.
    (1) Decline to authorize the renewal of an organization's contract 
in accordance with Sec.  423.507(b); or
    (2) Terminate the contract in accordance with Sec.  423.509.
* * * * *

[[Page 29966]]


0
39. 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 (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
40. 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
41. 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
42. 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 paragraph (b).
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 an MA-PD or an 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 an 
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 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 50 percent of the 
current fair market value cut-off amounts published annually by CMS.
    (iii) If the Part D sponsor contracts with a third party entity 
such as a Field Marketing Organization or similar type entity to sell 
its insurance products, or perform services (for example, training, 
customer service, or agent recruitment)--
    (A) The total amount paid by the Part D sponsor to the third party 
and its agents for enrollment of a beneficiary into a plan, if any, 
must be made in accordance with paragraph (b)(1) of this section; and
    (B) The amount paid to the third party for services other than 
selling insurance products, if any, must be fair-market value and must 
not exceed an amount that is commensurate with the amounts paid by the 
Part D sponsor to a third party for similar services during each of the 
previous 2 years.
    (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

[[Page 29967]]

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 enrollment 
year and, if paid at all, must be paid in full by December 31 of the 
enrollment 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 unless CMS determines that recoupment is not in the best 
interests of the Medicare program.
    (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.
* * * * *
    (h) Finder's (referral) fees. Finder's (referral) fees paid to all 
agents and brokers--
    (1) May not exceed an amount that CMS determines could reasonably 
be expected to provide financial incentive for an agent or broker to 
recommend or enroll a beneficiary into a plan that is not the most 
appropriate to meet his or her needs; and
    (2) Must be included in the total compensation not to exceed the 
fair market value for that calendar year.

Subpart Y--[Reserved]

0
43. Part 423 is amended by adding reserved subpart Y.
0
44. Part 423 is amended by adding subpart Z to read as follows:

Subpart Z--Recovery Audit Contractor Part D 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 30 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 30 
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

[[Page 29968]]

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.

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
45. 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
46. 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 the physician or eligible professional submits his or her 
enrollment application to the Medicare contractor.
* * * * *

0
44. 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 or represents a threat to 
the health and safety of Medicare beneficiaries or both. 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 
eligible professional 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; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: April 30, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: May 1, 2014.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2014-11734 Filed 5-19-14; 2:56 pm]
BILLING CODE 4120-01-P