Medicare Program; Establishment of the Medicare Advantage Program

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417 and 422

[CMS-4069-P]

RIN 0938-AN06

Medicare Program; Establishment of the Medicare Advantage Program

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would implement provisions of the Social Security Act (the Act) establishing and regulating the Medicare Advantage (MA) program. The MA program was enacted in Title II of The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) on December 8, 2003. The MA program replaces the Medicare+Choice (M+C) program established under Part C of title XVIII of the Act, while retaining most key features of the M+C program.

The MA program attempts to broadly reform and expand the availability of private health plan options to Medicare beneficiaries. See the “Executive Summary” in the

SUPPLEMENTARY INFORMATION

section for an outline of the key features of the MA program.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on October 4, 2004.

ADDRESSES:

In commenting, please refer to file code CMS-4069-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of three ways (no duplicates, please):

1.

Electronically.

You may submit electronic comments on issues in this document to

http://www.cms.hhs.gov/regulations/ecomments

(attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word).

2.

By mail.

You may mail written comments (one original and two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-4069-P, P.O. Box 8018, Baltimore, MD 21244-8018.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.

By hand or courier

. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call (410) 786-7195 in advance to schedule your arrival with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and could be considered late.

All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. After the close of the comment period, CMS posts all electronic comments received before the close of the comment period on its public website.

Submission of comments on paperwork requirements

. You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the “Collection of Information Requirements” section in this document.

For information on viewing public comments, see the beginning of the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Eligibility, Election, and Enrollment—Lynn Orlosky, (410) 786-9064 or Randy Brauer, (410) 786-1618.

Benefits and Beneficiary Protections—Frank Szeflinski, (303) 844-7119.

Quality Improvement Program—Tony Hausner, (410) 786-1093.

Submission of Bids, Premiums, and Plan Approval—Ann Hornsby, (410) 786-1181.

Payments to MA Organizations—Anne Hornsby, (410) 786-1181.

Special Rules for MA Regional Plans—Marty Abeln, (410) 786-1032.

Contracts with MA Organizations—Frank Szeflinski, (303) 844-7119.

Beneficiary Appeals—Chris Gayhead, (410) 786-6429.

General Information—(410) 786-1296.

SUPPLEMENTARY INFORMATION:

Executive Summary:

Beginning in 2006, the Medicare Advantage program would:

• Provide for regional plans that would make private plan options available to many more beneficiaries, especially those in rural areas.

• Expand the number of kinds of plans provided for, so that beneficiaries can choose from Health Maintenance Organizations, Preferred Provider Organization plans (the most popular type of employer-sponsored plan), Fee-for-Service plans, and Medical Savings Account plans, if available where the beneficiary lives.

• Enrich the range of benefit choices available to enrollees, including not only improved prescription drug benefits, but also other benefits not covered by traditional Medicare, and the opportunity to share in savings where plans can deliver benefits at lower costs.

• Provide incentives to plans, and add specialized plans, to coordinate and manage care in ways that comprehensively serve those with complex and disabling diseases and conditions.

• Use Open Season competition among plans to provide continuing pressure on plans to improve service, improve benefits, invest in preventive care, and hold costs down in ways that attract enrollees. These improvements would be fostered through enhanced and more stable payments to organizations, improvements in program design, introduction of new flexibility for plans, and reductions in impediments to plan participation. At the same time, the traditional Medicare program will be enhanced by addition of a prescription drug benefit, and beneficiaries will retain the ability to remain in or return to this enhanced Medicare if they prefer it to a private health plan.

• Advance the goal of improving quality and increasing efficiency in the overall health care system. Medicare is the largest payer of health care in the world. As such, Medicare can drive changes in the entire health care system. For example, as providers and health plans implement innovations, such as e-prescribing, that can result in improved quality of care for Medicare beneficiaries, these improvements would be passed on to other public health programs and commercial health care markets. Similarly, competing Medicare health plans will seek efficient ways to provide health care to their beneficiaries, such as through prevention and disease management

strategies to avoid costly care in the future. These efficiencies will spill over into plans' commercial, Medicaid and other markets, driving changes in the overall health care system.

Throughout the preamble we identify options and alternatives. We welcome comments and ideas on our approach and on alternatives to help us design the Medicare Advantage program to operate as effectively, successfully, and efficiently as possible in meeting the needs of Medicare beneficiaries.

Submitting Comments:

We welcome comments from the public on all issues set forth in this proposed rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-4069-P and the specific “issue identifier” that precedes the section on which you choose to comment.

Inspection of Public Comments:

Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone (410) 786-7195.

Copies:

To order copies of the

Federal Register

containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 (or toll-free at 1-888-293-6498) or by faxing to (202) 512-2250. The cost for each copy is $10. As an alternative, you can view and photocopy the

Federal Register

document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the

Federal Register

.

This

Federal Register

document is also available from the

Federal Register

online database through

GPO Access

, a service of the U.S. Government Printing Office. The Web site address is:

http://www.access.gpo.gov/fr/index.html.

I. Background

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

(If you choose to comment on issues in this section, please include the caption “Background—Medicare Prescription Drug, Improvement, and Modernization Act of 2003” at the beginning of your comments.)

Title II of MMA makes important changes to the current Medicare+Choice (M+C) program—it replaces M+C with a new Medicare Advantage (MA) program under Part C of Medicare. This title provides for additional opportunities for organizations to offer private plans to Medicare beneficiaries beginning in 2006. In an effort to increase beneficiary choice of plans across all regions of the country, including rural areas, Title II of the MMA establishes a MA regional contracting option. As discussed below, MA regional plans would be subject to somewhat different rules than MA local plans. MMA also provided extra incentives, such as a stabilization fund, bonus payments, and risk sharing to encourage organizations to participate as regional plans.

The MMA also increases payments to MA organizations beginning in 2004. The increased payments and other changes under MMA are intended to boost plan participation and thus offer more choice of plans to beneficiaries and improve health and overall health system efficiency. The MMA requires that increased payment amounts be used to increase benefits, reduce beneficiary costs, or enhance beneficiary access to services. As explained below, beginning in 2006, we would require MA organizations to submit “bids” for covering Medicare services, and if these bid amounts are below a benchmark amount established under the new law, this difference will be shared with enrollees. These provisions will potentially reduce Medicare costs.

One of the principal goals of the MMA is to provide beneficiaries with a choice in how they get their Medicare benefits. Under the MA program, to the extent that all parts of the country have at least one regional plan, all beneficiaries would have a choice in how they get their Medicare benefits, whether through a Medicare Advantage plan or the traditional fee-for-service program. Also, depending on plan offerings in the area in which they reside, beneficiaries would have the choice of a variety of types of local coordinated care plans, such as health maintenance organizations (HMOs), provider-sponsored organizations (PSOs), and preferred provider organization plans (PPOs) including both regional and local PPOs, as well as Medical Savings Account (MSA) plans and private fee-for-service (PFFS) plans. In addition, the MMA permits us to contract with specialized MA plans that create plans for enrollees with special needs, such as institutionalized or Medicaid-eligible individuals, or those with severe or disabling chronic conditions.

The competition among these various types of plan offerings in a region should improve health care quality for beneficiaries. Plans will have to compete not only on price but on quality to attract beneficiaries' enrollment and to keep them enrolled over time. Such competition based on quality should precipitate development and implementation of innovations to prevent chronic diseases and manage the care of diseases for Medicare enrollees and other enrolled populations.

With these new and improved choices, Medicare beneficiaries, like Federal employees and retirees in the Federal Employees Health Benefits (FEHB) Program, would have the opportunity to obtain improved benefits, improved services, and reduced costs. However, those who prefer would be able to remain in traditional Medicare, enhanced by the new Part D drug benefit. All would have the opportunity to switch among plans, or to or from traditional Medicare, during the annual election period (or “open season”) in November and December. Over time, participating plans will be under continued pressure to improve their benefits, reduce their premiums and cost sharing, and improve their networks and services, in order to gain or retain enrollees. In addition, we would expect plans to use integrated health plan approaches such as disease prevention, disease management and other care coordination techniques. In doing so, integrated plans that combine the traditional Parts A and B of Medicare and the new Part D drug benefit and apply these innovative techniques may be able to pass on savings that may result from the care coordination to the enrollee through reduced premiums or additional benefits.

Beginning in 2006, payments for local and regional MA plans would be based on competitive bids rather than administered pricing. MA organizations would submit an annual aggregate bid amount for each MA plan. An aggregate plan bid is based upon their determination of expected costs in the plan's service area for the national average beneficiary for providing non-

drug benefits (that is, original Medicare (Part A and Part B) benefits), Part D basic prescription drugs, and supplemental benefits if any (including reductions in cost sharing). To determine an organization's payment, CMS would compare the non-drug portion of the aggregate bid to the local or regional plan benchmark, which is an average of county rates in the plan's service area. For a plan with a bid below its benchmark, CMS would pay the MA organization the total plan bid (for Parts A, B, and D benefits plus any supplemental bid amount), risk adjusted for the plan risk profile, plus the rebate amount. (The rebate amount is 75 percent of the difference between the plan bid and benchmark, and is used to provide mandatory supplemental benefits. The remaining 25 percent is retained by the Government.) For a plan with a bid equal to or above its benchmark, CMS would pay the MA organization the plan benchmark, risk adjusted.

We would be able to negotiate bid amounts with plans in a manner similar to negotiations conducted by the Office of Personnel Management with Federal Employees Health Benefits (FEHB) plans. In the spirit of the FEHB process, CMS would work with plans to ensure benefit packages meet the needs of our population and that information is made available to beneficiaries so that they can make decisions about which plans best meet their needs.

Finally, in conjunction with the new drug benefit required under Title I of MMA, which will be addressed in separate rulemaking, changes made in MMA to the M+C program (now called the MA program) are intended to bring about broad-based improvements to the Medicare program's benefit structure, including improved prescription drug coverage under the MA program. Organizations offering local and regional coordinated care MA plans must offer at least one plan with the Medicare prescription drug benefit or the actuarial equivalent.

We have identified many areas in which we believe we can prevent or reduce unnecessary burden, duplication, or complexity either in interpreting the new MMA provisions or in modifying existing rules to accommodate Medicare Advantage reforms. In addition to those specifically discussed, we request suggestions for other burden-reducing reforms or innovations we can incorporate in the final regulation that will improve the ability of plans to participate in the program without compromising quality or services.

B. Relevant Legislation

(If you choose to comment on issues in this section, please include the caption “Background—Relevant Legislation” at the beginning of your comments.)

1. Balanced Budget Act of 1997

Section 4001 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) added sections 1851 through 1859 to the Social Security Act (the Act) establishing a new Part C of the Medicare program, known as the Medicare+Choice (M+C) program. Under section 1851(a)(1) of the Act, every individual entitled to Medicare Part A and enrolled under Medicare Part B, except for individuals with end-stage renal disease, could elect to receive benefits either through the original Medicare program or an M+C plan, if one was offered where he or she lived. The primary goal of the M+C program was to provide Medicare beneficiaries with a wider range of health plan choices through which to obtain their Medicare benefits. The BBA authorized us to contract with private organizations offering a variety of private health plan options for beneficiaries, including both traditional managed care plans (such as those offered by health maintenance organizations (HMOs)) that had been offered under section 1876 of the Act, and new options that were not previously authorized. Three types of M+C plans were authorized under the new Part C, as follows:

• M+C coordinated care plans, including HMO plans (with or without point-of-service options), provider sponsored organization (PSO) plans, and preferred provider organization (PPO) plans.

• M+C MSA plans (combinations of a high deductible M+C health insurance plan and a contribution to an M+C MSA).

• M+C private fee-for-service plans.

The BBA changed the payment methodology to Medicare health plans and initially afforded beneficiaries more choice of plans nationally. However, payment rates grew modestly in relation to costs health plans incurred, resulting in fewer health plans participating in the M+C program, decreased choice of plans available to beneficiaries, and fewer extra benefits available to enrollees. Although there were large payment increases in rural areas as a result of the BBA provisions, access to Medicare coordinated care plans declined significantly in rural areas after 1997.

2. Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000

The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, Pub. L. 106-113 (BBRA), amended the M+C provisions of the BBA. Many of these amendments were reflected in a final rule with comment period published in the

Federal Register

on June 29, 2000 (65 FR 40170). In addition, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, Pub. L. 106-554 (BIPA), enacted December 21, 2000, further amended the M+C provisions of the BBA and BBRA. A final rule containing BIPA provisions was published on March 22, 2002 (67 FR 13278).

These laws enacted subsequent to the BBA made incremental changes to M+C payments and provided financial incentives to plans to participate in the M+C program. While these efforts helped stabilize the M+C program, they did not generally improve plan participation in the M+C program nor did they increase overall beneficiary enrollment or access to plans in rural areas.

The specific sections of Part C of the Social Security Act that were impacted by the MMA are as follows:

Section 1851—Eligibility, election and enrollment.

Section 1852—Benefits and beneficiary protections.

Section 1853—Payments to MA organizations.

Section 1854—Premiums.

Section 1855—Organizational and financial requirements for MA organizations.

Section 1856—Establishment of standards.

Section 1857—Application procedures and contracts with MA organizations

Section 1858—Special rules for MA regional plans.

Section 1859—Definitions; Miscellaneous provisions.

This proposed rule addresses the new MA provisions in Title II of MMA. Subtitle B—Immediate Improvements, contained in Title II, requires immediate payment adjustments for 2004 to MA plans. These payment adjustments were implemented in 2004 and payment adjustments for 2005 will be implemented in 2005. The requirement in 1858(a)(2)(D) to conduct a market survey and analysis before establishing MA regions is occurring concurrent with the publication of this proposed

MA rule. Therefore, the announcement of the MA Regions will not be included in this proposed rule. As noted above, the provisions in Title I of the MMA will be set forth in a separate proposed rule.

Provisions of the MMA addressed in this proposed rule outside of Title II include Section 722—Medicare Advantage Quality Improvement Program, of Title VII. They may be found under Subpart D—Quality Assurance.

C. Codification of Regulations

(If you choose to comment on issues in this section, please include the caption “Background—Codification of Regulations” at the beginning of your comments.)

The proposed regulations set forth here are codified in 42 CFR Part 422—The Medicare Advantage Program. Note that the regulations for managed care organizations that contract with us under cost contracts will continue to be located in 42 CFR part 417, Health Maintenance Organizations, Competitive Medical Plans, and Health Care Prepayment Plans.

D. Organizational Overview of Part 422

(If you choose to comment on issues in this section, please include the caption “Background—Organizational Overview of Part 422” at the beginning of your comments.)

MMA amends the existing provisions of the Medicare statute found in Part C of Title XVIII, sections 1851 through 1859 of the Act, and adds a new section 1858 to the Act. This proposed rule covers a wide range of topics included in the existing part 422, including eligibility and enrollment, benefits and beneficiary protections, payment, contracting requirements, and grievances and appeals. We have generally retained the organization of the sections from part 422, except for reordering subparts F and G to place the bidding and payment provisions in sequential order. Where the MMA did not amend existing statute, this proposed rule does not set forth unchanged regulations text from the previous part 422. Thus, this proposed rule contains only the necessary revisions to existing part 422. In some subparts of part 422, the only changes are in nomenclature, that is, the replacement of M+C references with MA references. The regulations in those subparts, H, L, and N are not set forth in this proposed rule. The subparts with substantive changes are as follows:

Subpart A—General provisions, establishment of the Medicare Advantage program, definitions, types of MA plans, and user fees.

Subpart B—Requirements concerning beneficiary eligibility, election, and enrollment and disenrollment procedures.

Subpart C—Requirements concerning benefits, access to services, coverage determinations, and application of special benefit rules to PPOs and regional plans.

Subpart D—Quality improvement program, chronic care improvement program requirements, and quality improvement projects.

Subpart E—Relationships with providers.

Subpart F—Submission of bids, premiums, and related information and plan approval.

Subpart G—Payments for MA organizations.

Subpart I—Organization compliance with State law and preemption by Federal law.

Subpart J—Special rules for MA regional plans, including the establishment of MA regions, stabilization fund, and risk sharing.

Subpart K—Application and Contract requirements for MA organizations.

Subpart M—Beneficiary grievances, organization determinations, and appeals.

Subpart O—Intermediate Sanctions

Each of these subparts is discussed below in section II of this preamble.

II. Provisions of the Proposed Rule

Part 417—Health Maintenance Organizations, Competitive Medical Plans, and Health Care Prepayment Plans

Subpart J—Qualifying Conditions for Medicare Contracts Extension of Reasonable Cost Contracts (§ 417.402)

(If you choose to comment on issues in this section, please include the caption “Extension of Reasonable Cost Contracts (§ 417.402)” at the beginning of your comments.)

Authority for cost HMOs/CMPs (cost plans) had been due to expire on December 31, 2004. Section 234 of the MMA modified section 1876(h)(5) of the Act to extend authority for cost plans beyond the previous limit of December 31, 2004. Section 234 of the MMA provides an initial extension of cost plans through December 31, 2007. It also provides for a continued extension of cost plans beyond December 31, 2007, under specific conditions.

Effective for contract years beginning on or after January 1, 2008, cost plans may be extended where there are fewer than two coordinated care plan-model MA plans (as defined in section 1851(a)(2)(A)(i) of the Act) of the same type (that is, either two local or two regional plans) available to Medicare beneficiaries in the same service area. Both of the “competing” MA plans of the same type must meet minimum enrollment requirements for the entire previous year in order to trigger mandatory cost plan non-renewal or service area reduction. The minimum enrollment requirements of the “competing” MA plans that would trigger mandatory non-renewal or service area reduction for cost HMOs/CMPs are: (1) At least 5,000 enrollees for the portion of the service area that is within a metropolitan statistical area having more than 250,000 people and counties contiguous to such an area; and/or (2) at least 1,500 enrollees for any other portion of such service area.

We interpret the statute to require cost plan service area reduction where there are two or more MA plans of the same type meeting minimum enrollment requirements competing for Medicare members in a portion of the cost plan's service area. An alternative reading of the statute might permit a cost plan to continue operating in its entire service area until such time as all parts of the cost plan's service area are subject to MA competition meeting applicable thresholds. We believe the approach we have taken is consistent with the stated intent in the Conference Agreement that cost plans be required to operate under the same provisions as other private plans that enter the cost plan's service area. We invite comment on the approach we have taken.

We propose to permit existing cost plans to expand their service areas through September 1, 2006. Thereafter, service area expansion applications by cost HMOs/CMPs will be initially evaluated and accepted only when there are not two or more MA plans of the same type meeting minimum enrollment requirements in the area in which the cost plan proposes to expand.

We incorporate these changes into regulation by removing obsolete text and by revising other portions of § 417.402(b), and by adding a new § 417.402(c).

Subpart A—General Provisions (§ 422.1)

(If you choose to comment on issues in this section, please include the caption “Subpart A—General Provisions” at the beginning of your comments.)

1. Overview

Subpart A begins with a brief section (§ 422.1) that lists the statutory authority that is implemented in part 422 (sections 1851 through 1859 of the Act).

This proposed rule would amend § 422.1(a) by adding the new section 1858 of the Act, which would be implemented in proposed subpart J. Under § 422.2, we set forth new definitions for terms used in part 422 that we believe need clarification. These definitions provide the generally applied meaning for terms that are used throughout part 422. Where necessary, we have included in specific subparts of part 422 definitions for terms used primarily in those subparts. As discussed below, § 422.4 briefly describes the two new types of coordinated care MA plans provided for under section 1851(a)(2)(A) of the Act. The provisions formerly contained in § 422.6 and § 422.8 relating to application requirements and evaluation and determination procedures have been removed from subpart A and added as § 422.501 and § 422.502 of subpart K. Thus, prospective MA plans may find all applications and contracting information organized in one place. Section 422.6 (formerly § 422.10) describes the user fees associated with the Medicare Beneficiary Education and Information Campaign, required under section 1857(e)(2) of the Act.

2. Definitions (§ 422.2)

In § 422.2, we have included new definitions required under MMA and found under section 1859 of the Act. In addition, § 422.2 provides definitions that are not found in specific subparts of the regulation because they apply broadly to part 422. For example, in § 422.2, we provide the definition of “MA regional plans” as set forth in section 1859 of the Act because this term is used throughout part 422. However, a definition like “benchmark” found in section 1853 of the Act, that is specific to § 422.258

et seq.,

is not described here but in that section. Finally, the statute specifies other new definitions under section 1859 of the Act, such as the definition of “specialized MA plans,” and they are incorporated into this section.

We remove definitions for “ACR”, “Additional benefits,” “Adjusted community rate,” and “M+C” as these terms will not apply after 2006. We also revise several existing definitions to make them consistent with the MMA statute. For example, Mandatory supplemental benefits are redefined to incorporate language reflecting that these benefits may be paid for through premiums and cost sharing or through the application of a rebate, or both. Therefore, mandatory supplemental benefits are defined as health care services not covered by Medicare that an MA enrollee must purchase as part of an MA plan. Such benefits may include reductions in cost-sharing for benefits under the original Medicare fee-for-service program—and are paid for in the form of premiums and cost-sharing, or by an application of the beneficiary rebate rule in section 1854(b)(1)(C)(ii)(I) of the Act, or both.

However, optional supplemental benefits retain the same definition as under the M+C program as health services not covered by Medicare that are purchased at the option of the MA enrollee and paid for in full, directly by (or on behalf of) the Medicare enrollee, in the form of premiums or cost-sharing. These services may be grouped or offered individually. Note that throughout the regulation, the phrase “supplemental benefits” refers to both mandatory and optional supplemental benefits. The terms “mandatory supplemental” and “optional supplemental” are used when referring specifically to one of the types of supplemental benefits.

We have removed “additional benefits” from the definition of “basic benefits” since MA plans will no longer offer additional benefits. In addition, we have replaced the word “ACR” process with the words “annual bidding” process in the definition of “benefits” to reflect the new bidding process for submission and approval of benefits. Finally, we have revised the definition of “service area” to incorporate the concept of the new MA regional plan's service area that consists of an entire region.

Under section 1851(a)(2)(A) of the Act, two new types of coordinated care plans are established—Regional MA plans, which are regional PPO plans, and specialized MA plans for special needs individuals. First, we define an “MA local area” as a county or other area specified by us because it is important to distinguish an MA local area from an MA region.

Next, we define an “MA regional plan” because it is a new type of coordinated care plan choice for beneficiaries. While PPOs first became a choice for beneficiaries under the BBA, they operated as “local” plans on a county (including multi-county) or partial county basis. The MA regional plan functions like a local PPO but must serve an entire region.

In all, CMS will establish between 10 and 50 regions, as described in § 422.455 (subpart J). A regional MA plan's service area is one or more entire MA regions. Thus, we define an “MA regional plan” as a private health plan that operates as a PPO, but serves an entire CMS-designated region. Like local PPOs that may offer MA plans under the MA program, the regional PPOs must have a network of contracting providers that have agreed to a specific reimbursement for covered benefits that are offered by the MA regional plan, and must also provide for reimbursement for all covered benefits regardless of whether the covered benefits are provided through the network providers or outside of the network. MA regional plans are further described in § 422.4 below, which describes types of contracting options under the MA program.

We define an “MA local plan” as one that is not an MA regional plan. Also defined under part 422 is the “Prescription Drug Sponsor,” “Prescription Drug Plan (PDP),” and a “Medicare Advantage Prescription Drug (MA-PD) plan.” A sponsor must be a private entity that meets our requirements and standards. PDP sponsors may offer multiple plans throughout the country or in a region, but sponsors must submit an individual bid for each plan.

An MA-PD plan is an MA plan that also provides qualified prescription drug coverage as found in Part D of the Act. An organization offering a coordinated care MA plan must have an MA-PD plan in each of the service areas in which it operates, as required under section 1860D-21(a)(1) and (2) of Part D of the Act.

The other new type of contracting option available is a specialized MA plan for special needs individuals, as provided for under section 231 of the MMA. Section 1851(a)(2)(A) of the Act is amended by adding a new clause (ii) providing for specialized MA plans for special needs beneficiaries. Those specialized MA plans are therefore to be treated as coordinated care plans. In section 1859(b)(6)(A) of the Act, specialized MA plans for special needs beneficiaries are defined to be MA plans that exclusively serve special needs individuals defined in section 1859(b)(6)(B) of the Act, described below.

Currently, MA plans may not selectively limit enrollment to a subgroup, for example, institutionalized individuals (except for areas in which an organization is permitted to limit enrollment to retirees obtaining their employer/union coverage through an MA plan, as permitted through waivers authorized under section 1857(i)(1) of the Act). The establishment of specialized MA plans would allow MA plans to exclusively enroll special needs individuals in MA plans that have targeted clinical programs for these individuals.

We may designate an MA plan as a specialized MA plan, if the plan “disproportionately” serves special needs beneficiaries. We will establish quantitative criteria to be able to designate MA plans that disproportionately serve special needs beneficiaries as specialized MA plans. For example, one possible criterion might consider the presence of four or more chronic conditions for an enrollee to represent a “complex” medical condition. Persons with complex medical conditions might be appropriately treated by a specialized MA plan. We may also establish criteria to validate that specialized MA plans have incorporated processes or clinical programs that are designed to address the unique needs of enrolled special needs beneficiaries. We expect to determine these criteria based on diagnosis data or other administrative data that we collect, such as diagnosis data for risk adjustment. In an effort to focus the care management on special needs individuals, a specialized MA plan may limit enrollment to special needs individuals beginning in January 2004 through December 2009, as described under § 422.52.

An issue related to specialized MA plans for special needs individuals is the availability of prescription drugs. Special needs individuals in particular need access to prescription drugs to manage and control their severe or disabling chronic conditions. From a disease management perspective, a non-prescription drug plan would not serve the interest of special needs individuals. Additionally, effective January 1, 2006, specific dual eligible individuals described in section 1935(c)(6)(A)(ii) of the Act are required to receive drug coverage solely through the Medicare Part D program. In other words, effective January 1, 2006, a full-benefit dual eligible who is also a Part D eligible individual will only be able to receive drug coverage through the Medicare Part D program. Eligibility for drugs under Title XIX will no longer be available for these individuals.

Therefore, we propose that effective January 1, 2006, all special needs plans, as defined in section 1859(b)(6)(B) of the Act, will need to provide Part D coverage. Again, for individuals with special needs enrolled in a special needs plan, this would be the only means for them to receive their Part D coverage as they cannot receive it through an MA plan that does not offer prescription drug coverage. We would welcome comments on this proposed requirement. The authority for such a requirement is found in our establishing requirements for special needs individuals under section 1859(b)(6)(B)(iii) of the Act. In addition, we also are interested in receiving comments on the development of an HIV/AIDS special needs plan that would address the special health needs, including prescription drugs, of the Medicare-eligible population living with HIV/AIDS.

Section 1859(b)(6)(B) of the Act identifies three types of special needs individuals as: Institutionalized individuals (as defined below); individuals entitled to medical assistance under a State plan under Title XIX; and such other individuals with severe or disabling chronic conditions as the Secretary determines would benefit from enrollment in such a plan.

For the purpose of defining a special needs individual above, “institutionalized” means to reside in a long-term care facility for more than 90 days as determined by the presence of a 90-day assessment in the Minimum Data Set (MDS). We are not at this time proposing a definition of “severe or disabling chronic condition.” However, we welcome comments on whether we should set standards for the designation of an individual with severe or disabling chronic conditions and what criteria should be used. For example, does the individual need medical management by a specialist (for example, endocrinologist or cardiologist)? Does the individual have complex medical conditions? Does the individual qualify for the plan's disease or case management program? Are there specific benefits or interventions provided to these individuals that are not provided to the general MA population?

We would also welcome comments on whether we should allow specialized MA plans to exclusively enroll certain subgroups of Medicaid or institutionalized beneficiaries. If it were determined to be appropriate to enroll subgroups of either Medicaid or institutionalized beneficiaries, what would the appropriate subgroups be?

We note that MMA allows for the enrollment of End-Stage Renal Disease (ESRD) beneficiaries in specialized MA plans designed for this population. Thus, ESRD beneficiaries for whom an MA plan would receive payment at the ESRD rates would be considered special needs individuals who would benefit from enrollment in a specialized MA plan.

Finally, we would welcome comments on whether there are appropriate quality oversight mechanisms for specialized MA plans that would be appropriate to require to ensure that special needs individuals experience improved quality.

3. Types of MA Plans (§ 422.4)

The MA program is intended to provide beneficiaries access to a wider array of private health plan choices than the existing plans under the M+C program and to increase the number of areas in which private health care options are available to Medicare beneficiaries. As under the M+C program, entities can contract with us to provide three general categories or types of plans: MA coordinated care plans, MA MSA plans, and MA PFFS plans. However, the establishment of the MA program is designed to afford beneficiaries two additional types of plan choices within the coordinated care plan category—regional PPO coordinated care plans as defined in § 422.2 or specialized MA coordinated care plans, also defined in that section. These new MA coordinated care plan entities must conform to the contracting requirements described in § 422.504

et seq.

Section 520(a)(3) of the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) added section 1852(e)(2)(D) of the Act and defined Preferred Provider Organization plans (PPOs) under the MA program for purposes of quality assurance requirements. As we discussed in the preamble to the final rule with comment period titled, “Medicare Program; Medicare+Choice,” published June 29, 2000 (65 FR 41070), the definition of PPOs at section 1852(e)(2)(D) of the Act was explicitly for purposes of applying quality assurance requirements in 1852(e)(2)(B) of the Act and was limited in its applicability to paragraph (2) of section 1852(e) of the Act. Before the BBRA, PPOs had been treated under the M+C statute and regulations in the same manner as all other M+C coordinated care plans for purposes of applying quality assurance requirements. In the June 29, 2000 final rule with comment period, we incorporated this new definition into the M+C regulations at § 422.4 and by revising § 422.152.

The PPO plan definition added by section 520 of the BBRA included three elements. They were: The PPO (1) has a network of providers that have agreed to a contractually specified reimbursement for covered benefits with the organization offering the plan; (2) provides for reimbursement for all covered benefits regardless of whether those benefits are provided within the network of providers; and (3) is offered by an organization that is not licensed or organized under State law as a health maintenance organization.

Because the definition of PPO plan in section 1852(e)(2)(D) only applies for the limited purpose of eligibility for PPO quality improvement requirements, we do not believe that the limitations in this definition should have been set forth in a generally applicable definition of PPO plan in § 422.4, as is currently the case. We propose to clarify in regulation that it is solely for purposes of the application of the more limited quality assurance requirements in section 1852(e)(2)(B) of the Act that PPOs must be offered by MA organizations that are not licensed or organized under State law as a health maintenance organization. For PPO-type plans that are offered by MA organizations that are licensed or organized under State law as health maintenance organizations, the quality assurance requirements that apply to all other coordinated care plans in section 1852(e) of the Act also apply to those PPO type plans.

Section 722 of the MMA, which amends section 1852(e) of the Act effective January 1, 2006, is consistent with this interpretation insofar as it limits the applicability of the definition of PPOs in section 1852(e)(3)(A)(iv) of the Act (which is the same definition currently appearing in section 1852(e)(2)(D) of the Act) to subparagraph (A) of paragraph 1852(e)(3) of the Act. Effective January 1, 2006, MA organizations that offer MA local plans that are PPOs will only need to provide for the collection, analysis, and reporting of data that permit the measurement of health outcomes and other indices of quality insofar as services are furnished by providers that have contracted with the MA organization under those PPO plans. However, this exception to the normal rule in section 1852(e)(2) of the Act that data are to be collected from all clinical sources is afforded solely to PPOs that are offered by MA organizations that are not licensed or organized under State law as health maintenance organizations—section 1852(e)(3)(A)(iv)(III) of the Act. To the extent that a local PPO is offered by an MA organization that is licensed or organized under State law as a health maintenance organization, the normal data collection, analysis, and reporting requirements in clause (3)(A)(i) continue to apply. We propose to modify the definition of PPOs in § 422.4 to account for this more limited interpretation of State licensure requirements and to modify headings in § 422.152(b) and (e).

Another change in the type of MA plans authorized is the elimination of previous limits on enrollment in MA MSAs, described at § 422.56. As directed by section 233 of the MMA, MA organizations are authorized to offer medical savings account (MSA) plans as a permanent option. A Medicare MSA plan combines a high-deductible insurance policy and a savings account for health care expenses. The Medicare program pays premiums for the insurance policies and makes a contribution to the beneficiaries' medical savings account (MSA). The beneficiaries use the money in their MSAs to pay for their health care before the high deductible is reached. The sum of the premium and the contribution to the account would equal the payment made by Medicare to any other MA plan for a beneficiary.

By way of background, the Balanced Budget Act of 1997 (BBA) authorized a demonstration project for MSA plans when it created the Medicare+Choice program. MMA changes restrictive rules that governed the MSA demonstration. MMA eliminates the limits imposed on MSA plans by the BBA, including a time limit on enrollment and a limit on the number of beneficiaries who could enroll in such plans. It also exempted MSA plans from certain quality assurance requirements that the BBA applied to “network” MSA plans. The Congress made these changes in light of the fact that no MSA plans participated in the demonstration. We are particularly interested in comments on whether these changes are sufficient to attract MSA plan sponsors and beneficiary enrollment.

Finally, we delete the descriptions of M+C network MSA plan and M+C non-network MSA plan as different types of plans at § 422.4(a)(2)(B)(ii), since the distinction between network and non-network MSAs for the purpose of quality assurance requirements is no longer applicable.

4. Expansion of the Beneficiary Education and Information Campaign “User Fees” (§ 422.6, formerly § 422.10)

The last section of subpart A contains regulations implementing the user fees provided for in section 1857(e)(2) of the Act. MMA expands the user fee to include PDP sponsors as well as MA plans as contributors. The expansion of the user fee recognizes the increased Medicare beneficiary education activities that we would require around the new prescription drug benefit. In 2006 and beyond, user fees will help to offset the costs of educating over 41 million beneficiaries about the drug benefit through written materials such as a publication describing the drug benefit, internet sites, and other media. For example, CMS will develop a prescription drug price comparison Web site for beneficiary use. We may also provide information to beneficiaries on quality measures, networks, and other dimensions.

Additionally, as before, the user fee would pay for the ongoing costs of the national beneficiary education campaign that includes developing and disseminating print materials, the 1-800 telephone line, community based outreach to support State health insurance programs (SHIPs), and other enrollment and information activities required under section 1851 of the Act and counseling assistance under section 4360 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 103-66).

In fiscal year 2006 and thereafter, the MMA authorizes up to $200,000,000, reduced by the fees collected from MA organizations and PDP sponsors in that fiscal year (total amount is not indexed in any way). In each year, the total amount of collected user fees may not exceed the estimated costs in the fiscal year for carrying out the enrollment and dissemination of information activities in the MA and Part D prescription drug programs or the applicable portions (discussed below) of $200,000,000, whichever is less.

Finally, these user fee provisions establish the applicable aggregate contribution portions for MA organizations and PDP sponsors. The applicable portion of the user fee for MA organizations would be based on the total proportion of expenditures for Medicare Part C as well as for payments under Part D that are made to MA organizations as a percent of Title XVIII expenditures. The PDP sponsor's applicable portion is the estimate of the total proportion of expenditures under Title XVIII that are attributable to expenditures made to PDP sponsors for prescription drugs under Part D. The fees charged to individual MA plans and PDP sponsors would continue to be determined by CMS. These fees are calculated by a percent of plan's revenue to avoid over-burdening smaller plans.

The remaining portion of the costs of the beneficiary education campaign is the fee-for-service beneficiaries' portion of the campaign. It represents the portion of costs of fee-for-service informational materials, designed to enable beneficiaries to make informed choices among health plans and Medicare fee-for-service. This amount is funded through CMS’ appropriations.

Subpart B—Eligibility, Election and Enrollment

(If you choose to comment on issues in this section, please include the caption “Subpart B—Eligibility, Election and Enrollment” at the beginning of your comments.)

1. Eligibility To Elect an MA Plan (§ 422.50)

The regulations contained in this subpart are largely the same as those now used in the M+C program. We have made the necessary terminology changes throughout subpart B to reflect the replacement of the M+C program with the MA program. Substantive changes are discussed below.

Under § 422.50 introductory text, we would clarify that, for this subpart, a reference to an “MA plan” should be read to include both MA local and MA regional plans, unless specifically noted otherwise in the text.

In addition, based on our experience with the M+C program, we believe that it is important to provide additional optional mechanisms for elections that take advantage of modern technology, such as allowing an individual to enroll at a secure Web site or at a health plan's customer service center. Section 1851(c) of the Act allows the Secretary to designate other enrollment mechanisms. These options promote a more efficient and simplified election process for beneficiaries as well as partner organizations. Therefore, we would revise § 422.50(a)(5) to allow other election methods as approved by us.

2. Eligibility To Elect a Special Needs MA Plan (§ 422.52)

We would include a new § 422.52 to describe the eligibility requirements for enrollment into specialized plans for special needs beneficiaries, which have been authorized under section 231 of MMA. Individuals would be eligible to enroll in these specialized plans if they are institutionalized, entitled to Medicaid (“dual eligible”), or have a severe and disabling condition and meet the requirements specified by CMS. We are considering including in this last category individuals with a disabling condition who are not in an institution but require a similar level of care. We invite comments on this approach. Specialized MA plans would be able to restrict enrollment solely to those individuals who are in one or more classes of special needs individuals.

In general, we believe that the new requirements regarding special needs MA plans primarily are intended to encourage more choices for certain populations by allowing plans that specialize in the treatment of beneficiaries with particular needs by providing and coordinating services for these individuals and to limit plan enrollment to such individuals. This provision could encourage plans to develop new products in the market place by giving them the opportunity to develop expertise in efficiently serving such specialized populations. We also have the authority to waive section 1851(a)(3)(B) of the Act, which precludes beneficiaries with ESRD from enrolling in MA plans. This authority grants us the discretion to permit people with ESRD to enroll in a special needs MA plan. We also are considering whether beneficiaries with ESRD should be considered to meet the requirements for special need status and invite comments on this idea.

We are permitted to apply to special needs plan enrollees a provision under section 1894(c)(4) of the Act that applies to enrollees in the Program of All Inclusive-Care for the Elderly (PACE). This provision provides for continued eligibility in certain situations. Specifically, this provision allows a PACE eligible individual to be deemed to continue to be enrolled even if the individual no longer meets the PACE eligibility requirements if, in absence of continued coverage under a PACE program, the individual reasonably would be expected to meet the requirements within the succeeding 6-month period. Similarly, we propose to allow special needs individuals who no longer meet the “special needs” criteria to remain enrolled in an MA special needs plan if it is reasonable to assume that, absent the continued special needs care available under the plan, they would again meet the eligibility criteria for that MA plan within the succeeding 6-month period.

We note that a special needs plan is described as “an MA plan that exclusively serves special needs individuals.” We have considered the question of whether this means that the plan is exclusively offered to special needs individuals, and exclusively enrolls special needs individuals, or whether it means that it only provides care to special needs individuals, and has no enrollees who do not meet the definition of a special needs individual. In the latter case, if an existing plan were designated as a special needs plan, existing enrollees who did not meet the definition of a special needs individual would be required to terminate their enrollment.

We do not think that this was intended by the Congress, and therefore have interpreted “exclusively serves” special needs individuals to mean that the plan is only offered to special needs individuals, and only enrolls such individuals. Existing enrollees of such a plan, however, would be “grandfathered” and could remain enrolled. Therefore, we are providing in proposed § 422.52(e) that individuals who are enrolled in MA plans that are subsequently designated as “special needs plans” would be able to continue to be enrolled. Those individuals would be able to remain enrolled or choose to elect other MA plans during appropriate election periods provided to all MA eligible individuals.

We invite comment on the above approach, and on the alternative approach under which only special needs individuals could be enrolled and receive services through the plan, and any non-special needs individual would have to terminate enrollment involuntarily if his or her plan wanted special needs plan status. To ensure that the non-special needs individuals would be able to elect a new plan outside of an enrollment period, we intend to establish a special election period for these individuals. We have historically established SEPs for exceptional circumstances in our manual instructions rather than through regulation. Thus, we would establish such an SEP through that process.

We would distinguish the situation of a “grandfathered” plan enrollee who enrolled in the plan before it had special needs status from a case in which a new special needs plan was created that was designed to provide services only to people in a special needs category. For example, if a special needs plan was established to exclusively provide services to institutionalized individuals, and had no capacity to provide care to individuals not in a contracting institution, we would not expect the plan to allow an individual to remain enrolled in the plan if he or she no longer required institutional care.

In this case, unlike the grandfathered enrollees of an existing MA plan designated as a special needs plan, we would expect individuals to be informed before initial enrollment that they could only remain enrolled in this plan for so long as they remained institutionalized. If such a notice is given, we believe that a new special needs plan could require disenrollment when a person no longer had special needs status. Such a disenrollment would be pursuant to section 1851(e)(4)(B) of the Act, as the individual would “no longer be eligible” for that plan “because of a change in * * * circumstances. * * *” (This would also be the basis for disenrollment of grandfathered

enrollees if we were to adopt the alternative reading of the word “serves,” under which grandfathered enrollees could not remain enrolled because the plan could only provide services to special needs individuals.)

The statute also provides us with the authority to designate an MA plan to be a special needs plan if it “disproportionately serve[s] special needs individuals.” Under our current interpretation of the word “serves,” this would mean a plan that disproportionately enrolls special needs individuals. At a minimum, this would mean it enrolls special needs individuals in a proportion greater than such individuals exist in the area served by the plan. We invite comments on the question of whether this “minimum” definition would be appropriate, or whether there is another level of special needs enrollees (for example, 50 percent or more) that should be required in order to be considered a special needs plan under this “disproportionately serves” provision.

We note that under this provision as we are interpreting it, the plan would remain exempt from the requirement to enroll all MA eligible individuals, but would nonetheless enroll some MA individuals who are not special needs individuals. Operationally, this could be accomplished in a number of ways. For example, the plan could impose a cap on the number of non-special needs individuals enrolled at any point in time, or cap the number of special needs individuals served. It also might enroll two special needs enrollees for every one enrollee who does not meet the definition.

Other than the requirement that all MA eligible individuals be permitted to enroll, and—if we choose to waive it'the preclusion on enrolling individuals with ESRD, all other MA provisions would apply to specialized needs plans (for example, payment rules, appeal rights, quality assurance requirements, enrollment procedures).

3. Continuation of Enrollment for MA Local Plans (§ 422.54)

Section 1851(b)(1) of the Act is amended by section 222(l)(3)(A)(i) of the MMA to limit the offering of MA plan continuation areas to MA local plans only. We would revise § 422.54 to specify that this provision would apply only to local MA plans.

4. Enrollment in an MA MSA Plan (§ 422.56)

Section 1851(b)(4)(A) of the Act is amended by section 233 of the MMA to eliminate the cap on the number of individuals that may enroll in MA MSA plans and to make the program permanent by removing the enrollment cut-off date. While unchanged by the MMA, section 1851(b)(2) of the Act states that individuals enrolled in health benefit plans in the Federal Employees Health Benefit Plan, the Veterans Administration, or the Department of Defense may not enroll in an MSA until or unless the Director of OPM adopts policies to ensure that the enrollment will not result in higher government spending under these programs. While the existing exclusion of enrollees of other Federal programs is reflected in current regulations at § 422.56(b), the regulatory language does not provide for such individuals to be eligible following the adoption of new policies by OPM. We understand that the Office of Personnel Management's current policy is to encourage the creation of high deductible plans for Federal employees and retirees, and we will explore with OPM whether such a policy can now or in the future be certified to the Secretary. Therefore, we are revising the regulations to allow for that policy to be implemented in the future, as provided in the statute. We would revise § 422.56 to reflect these changes.

5. Election Process (§ 422.60)

We are proposing conforming changes throughout § 422.60, as in § 422.50(a)(5), to allow us to approve other election mechanisms in addition to paper forms. We are also streamlining § 422.60(e) to allow for notice options for MA plans other than the traditional mailing of a written document.

We are also proposing to clarify the regulation at § 422.60(b) to provide that MA organizations may submit requests to restrict enrollment for capacity reasons at CMS at any time during the year. There are several reasons why MA organizations may need to restrict enrollment for capacity reasons, especially those that are clearly outside of the MA organization's control. For instance, we have allowed capacity limits for certain organizations when a large competitor, in the same service area, has non-renewed its contract. The remaining contractor may not have the capacity to enroll a large percentage of its competitor's enrollees. Another example is a case in which an MA organization loses its contract with a large hospital system or physician group and thus can no longer handle the potential number of enrollees it previously estimated it could.

6. Election of Coverage Under an MA Plan (§ 422.62)

a. Annual Coordinated Election Period

Section 1851(e)(3)(B) of the Act is revised by sections 102(a)(2) and 102(a)(5) of the MMA to permanently establish the annual coordinated election period as November 15 through December 31 of each year. For 2006, the annual coordinated election period is extended through May 15, 2006.

b. Initial Coverage Election Period

Section 1851(e)(1) of the Act is amended to provide that, “if any portion of an individual's initial enrollment period under Part B occurs after the end of the annual, coordinated election period [for 2006, from November 15, 2005 to May 15, 2006], the initial enrollment period under this part shall further extend through the end of the individual's initial enrollment period under Part B.”

We believe that this provision is intended to allow an individual who still has time to decide whether to enroll in Medicare Part B upon becoming eligible for Medicare to be able to enroll in an MA plan upon deciding to enroll in Medicare Part B. In using the words “further extend,” we believe the Congress made clear that this new sentence was designed to expand upon the beneficiary's opportunity to choose to enroll in an MA plan by extending or lengthening the time the beneficiary has relative to the existing rules.

Accordingly, we are interpreting this sentence to apply only to the extent that its application would result in an extension of an initial enrollment period for an MA compared with the period that would apply if the sentence had not been added. Under the alternative interpretation, in which an MA initial enrollment period would end when the Medicare Part B initial enrollment period ends, individuals who defer Medicare Part B enrollment, such as those who decline enrollment while continuing to work, would be adversely impacted. The initial enrollment period for Medicare Part B is directly associated with an individual's eligibility for Medicare Part B, not with an individual's actual enrollment in Medicare Part B.

To ensure that an individual who is first eligible for MA has the full opportunity to elect an MA plan, we are interpreting the statute to provide for an initial coverage election period for MA that ends on the later of the day it would end under pre-MMA rules or the last day of the Medicare Part B initial enrollment period. The new sentence added to section 1851(e)(1) of the Act

accordingly would only extend an individual's MA initial election period, never reduce or eliminate it.

c. Open Enrollment Periods Through 2005

Section 1851(e)(2)(A) of the Act is amended to extend the open enrollment and disenrollment period through 2005, providing unlimited opportunities for MA eligible beneficiaries to enroll in, disenroll from, and or change enrollment in an MA plan. We would revise § 422.62(a)(3) to reflect this extension.

d. Open Enrollment Periods During 2006

Section 1851(e)(2)(B)(1) of the Act is revised to establish that the open enrollment period in 2006 will be the first 6 months of 2006. In addition, for individuals who first become eligible during 2006, an open enrollment period will be provided as the first 6 months the individual is MA eligible during 2006, but not to extend past December 31, 2006. After December 31st, 2006, all individuals are provided the 3-month open enrollment period from January through March, as provided in the next section.

e. Open Enrollment During 2007

Section 1851(e)(2)(C)(i) of the Act is changed to establish that the open enrollment period for 2007 and subsequent years will be the first 3 months of each year. In addition, for individuals who first become MA eligible during 2007 and subsequent years, an open enrollment period will be provided as the first 3 months the individual is MA eligible during the year, but not to extend past December 31, 2006. Although this specific period does not extend past December 31, it is important to remember that all individuals will be provided a 3 month open enrollment period from January through March, as discussed in this section.

A new clause is added to section 1851(e)(2)(C) of the Act that limits a change of election made during an open enrollment period in 2006 and later years to the same type of plan the individual making the election is already enrolled in. Specifically, an individual in an MA plan that does not provide drug coverage may only change to another similar MA plan, or to original Medicare, but may not enroll in an MA plan that provides Part D coverage, or enroll in a Part D plan. An individual enrolled in an MA plan that includes Part D coverage similarly may only enroll in another MA plan with Part D coverage, or change to original Medicare coverage with an election of a Part D plan. (We note that section 1851(e)(2)(C)(iii)(I) of the Act states that an individual who is “enrolled in an MA plan that does provide qualified prescription drug coverage,” may only elect a plan that does not provide that coverage. A literal reading of this language would be in direct conflict with clause (II) of section 1851(e)(2)(C)(iii) of the Act, which says that an individual who is enrolled in an MA plan that provides qualified prescription drug coverage may not enroll in an MA plan that provides no Part D coverage.

This contradiction, plus (1) the fact that section 1851(e)(2)(C)(iii)(I) of the Act refers to a “another” MA plan that “does not” provide Part D coverage, (2) the fact that clause (I) is contrasted with clause (II) with the word “or”, and (3) committee report language, make it clear that the word “not” was inadvertently omitted from the first clause of section 1851(e)(2)(C)(iii) of the Act.) Although the MMA and conference agreement are clear, we think that there may be some concern that the policy set forth in section 1851(e)(2)(C)(iii)(II) of the Act, as added by section 102(a)(6)(C) of the MMA, may be somehow inconsistent with the voluntary nature of the Part D program. Specifically, that policy would require a Medicare beneficiary who has changed their mind after initially electing Part D coverage through an MA plan to maintain drug coverage for the entire year, even if they decide during the open enrollment period that they do not want that coverage. (Of course, a Part D enrollee could always forego Part D coverage through a PDP by failing to pay premiums under the plan). We are soliciting comments from interested parties as to whether there is a way to interpret the statute, and whether it would be advisable, on a policy basis, to excuse the requirement that an enrollee who elects their option to disenroll from an MA-PD plan during an open enrollment period, enroll only in another MA plan with prescription drug coverage or enroll in fee-for-service Medicare with Part D coverage.

7. Coordination of Enrollment and Disenrollment Through MA Organizations (§ 422.66)

We would revise § 422.66 with conforming changes in keeping with our proposed clarification at § 422.50(a)(5) regarding election mechanisms other than, and in addition to, forms. As proposed in § 422.60(e), we are making similar changes in § 422.66(b) to provide for other notice mechanisms, as well as a more efficient notice process. This includes removing the requirement for MA plans to send a copy of the individual's disenrollment request back to the individual.

Section 1860D-21(b) provides the Secretary the authority to implement default enrollment rules at 1851(c)(3)(A)(ii) for the MA-PD program, which begins in 2006. If applied, these rules provide that an individual who is in a health benefits plan providing any prescription drug coverage will be deemed to make an election into an MA-PD offered by the same organization during the individual's initial election period surrounding Medicare entitlement. This statutory provision was originally created under The Balanced Budget Act of 1997 (BBA) for the Medicare+Choice (M+C) program. In developing regulations for the BBA, CMS decided

not

to default individuals to M+C plans offered by the same organization in which they were enrolled. Our rationale was that to implement such a process would require CMS to have access to information prior to the individual's initial coverage election period. Since we did not have access to the individual's information on health plans in which they were enrolled, we did not believe it would be feasible to implement a default process at that time.

Rather than implement a default enrollment process for these individuals who are enrolled in a health plan, we require (at section 422.66(d)(1) of our regulations) that an M+C plan offered by an M+C organization must accept any individual who is enrolled in a health plan offered by that M+C organization the month immediately preceding the month in which the individual becomes entitled to Part A and enrolled in Part B, as well as meeting the other M+C eligibility requirements. This requires an affirmative action by the individual; however it does not extend so far as to automatically enroll the individual (that is, “default”) into the M+C plan.

In addition to our previous concerns regarding this provision, we are also concerned that, beginning in 2006, an individual's ability to choose his/her health care coverage will be limited to certain periods. Within these specified periods, an individual is limited to one election (either enrollment or disenrollment). If an individual makes an election of any type (including one by “default”), s/he is prohibited from making another choice until the next annual election period in November. Default enrollment may therefore limit an individual's choice by utilizing the individual's single election. In addition, automatically enrolling an individual assumes that the “default” plan would

be the plan that the individual would have chosen absent such a default process. This may not be the case. Given the variety of potential options available to these individuals, and the implications of choosing those options (including penalties for late enrollment in Part D), we must carefully consider the consequences of implementing a default enrollment process.

We must also carefully consider the implications a default enrollment process may have on individuals enrolled in employer groups. For example, such a process could conflict with the incentives that the MMA will provide to employers to encourage them to maintain creditable coverage for their employees. Such a provision could negatively impact married individuals enrolled in employer group plans if an individual has just become entitled to Medicare (and is enrolled in plan under default enrollment) while his or her spouse, who is already entitled to Medicare, receives coverage through the employer group in another health plan. On the other hand, we may learn from system processes we are establishing under the new Medicare-approved discount drug plan, such as data sharing with the States and other agencies. We could consider offering MA plans the option to establish a process with its employers to automatically enroll individuals, with an option for individuals to decline before enrollment. We recognize that any strategies to streamline and improve enrollment could lead to an overall reduction in costs. These are all important issues that must be carefully considered.

Since the Secretary has the discretion to not implement the default enrollment provision, we would continue to require affirmative elections by the individual upon becoming entitled to Medicare as provided under § 422.66. This ensures that individuals have the ability to remain with the organization that offers their health plan and protects beneficiary choice by requiring an individual to make an affirmative election. However, we encourage input from the public on this provision given the new Part D program, including the benefits, as well as the impact of implementing such a provision.

We would implement new rules for continuing MA coverage for individuals enrolled in MA plans as of December 31, 2005. Under section 1860D-21(b)(2), individuals enrolled in an MA plan that, as of December 31, 2005, provides any prescription drug coverage, would be deemed to be enrolled in an MA-PD plan offered by that same organization as of January 1, 2006. If an individual is enrolled with an MA organization that offers more than one MA plan that includes drug coverage, and is enrolled in one of those plans as of December 31, 2005, the individual would be deemed to have elected to remain enrolled in that plan on January 1, 2006 if it becomes an MA-PD plan on that date. An individual enrolled in an MA-PD plan on December 31 of a year would be deemed to elect to remain enrolled in that plan on January 1 of the following year (that is, the next day). We would revise § 422.66(e) to add language that incorporates these changes.

8. Effective Dates of Coverage and Change of Coverage (§ 422.68)

To coordinate the effective date of elections with the new special annual coordinated election period, section 1851(f)(3) of the Act is amended by establishing that the effective date of elections for the annual coordinated election period do not apply during the 2006 special annual election period, when enrollment will be effective on the first day of the month following the month in which an election is made. We propose to revise § 422.68(b) to provide for this coordination and make the effective date of elections in the annual coordinated election period for 2006 that are made in 2006 (that is, from January 1-May 15, 2006) the first day of the calendar month following the month in which the election is made.

9. Disenrollment by the MA Organization (§ 422.74)

We are clarifying the regulation at § 422.74(d)(1) regarding disenrollment for nonpayment of premium to provide more flexibility to MA plans in developing rules for those individuals who fail to pay their basic and supplementary premiums. Under the current regulations at § 422.74(d)(1), MA plans are required to provide, at minimum, a 90-day grace period before disenrolling individuals for failure to pay the premium. Thus, MA plans must maintain enrollment for individuals who do not pay their premiums for more than 90 days. We propose to provide greater flexibility to MA organizations by replacing the 90-day grace period in § 422.74(d)(1) with the approach taken in § 417.460(c)(1), which governs disenrollment from HMOs with cost contracts under section 1876. Cost HMOs must take certain actions before an individual may be disenrolled for nonpayment of premium, including demonstrating a reasonable effort was taken to collect the monies and providing the individual with written notice. While no specific timeframe dictates the process, certain steps must be taken. Generally, this process takes at least 30 days before a disenrollment is effective, given that disenrollments are effective the first of the month. Similarly, we propose to remove the mandatory timeframe before disenrollment would occur, focusing on the required and important steps that still must be taken. Such steps would continue to include requiring that proper notice be provided to individuals before that action is taken, and the MA organization would have to be able to demonstrate to us that it has made reasonable efforts to collect unpaid premium amounts. The notice would also inform the enrollee of his or her rights under the organization's grievance procedures. These revisions would not, however, preclude organizations from offering a more generous grace period than provided in the regulation, if they so choose.

Current regulations at § 422.74(d)(2) generally prevent an individual from being disenrolled from an MA plan if his or her behavior is related to “diminished mental capacity.” While we originally intended this provision to protect the rights of individuals with mental illness, the language requiring that the individual's behavior not be related to diminished mental capacity has proven to be overly broad. The unintended impact of the current regulations has been to prohibit disenrollment of individuals whose violent and threatening behavior put the health and safety of enrollees, staff, and the public at risk. Therefore, we are amending the regulation by revising § 422.74(d)(2) to ensure due process and beneficiary protections, while at the same time protecting the health and safety of that individual as well as others. The changes include redefining disruptive behavior as “disruptive or threatening,” as well as retaining the “unruly, abusive, or uncooperative” language. The revised provision would also require that the behavior be by an individual with “decision-making capacity,” meaning someone with the ability to understand the consequences of his or her behavior. In addition, we are proposing limiting re-enrollment in the MA program he or she has been disenrolled from under this provisions, as well as a provision to provide for expedited disenrollment in cases where there is an immediate threat of health and safety to others.

M+C organizations and providers also have expressed concern regarding nonpayment of cost sharing, including co-payments, for health plan services. The statute specifically permits individuals to be disenrolled for non-payment of premiums, but it does not

provide for disenrollment due to nonpayment of cost-sharing. This has proven increasingly problematic since M+C organizations and providers have no effective mechanism to deal with individuals who repeatedly refuse to meet their cost-sharing responsibilities, potentially resulting in disruptions to the plan's ability to maintain its provider network. Thus, we are considering new regulatory language that would include nonpayment of cost sharing as “noncompliant” behavior under the disruptive behavior provisions because it limits the health plan's ability to provide services both to the individual and potentially to other enrollees. Although we are not proposing specific regulatory language at this time, we invite comments on adopting an interpretation of nonpayment of cost sharing as “disruptive behavior,” as well as comments on the elements that we propose to include in language. As part of the regulation, we intend to require the policy be applied consistently, however, we would be clear that an exception would prohibit low-income individuals from being disenrolled under this provision. We would also indicate that the cost-sharing amount must represent a “significant” cumulative amount and that the MA plan would be expected to have an established threshold that would be approved by CMS. CMS envisions MA organizations would submit such thresholds at the time their annual payment rates are submitted to CMS for approval. In addition, we propose to include that the behavior must be based upon a repeated failure to pay cost sharing. Since the language for disenrollment for nonpayment of cost sharing would fall under the regulations for disruptive behavior, the process for disruptive behavior as provided in regulations and in manual instructions would be applied, including: required approval by CMS before such disenrollment is permitted and beneficiary notice requirements. This would also require plans to offer payment agreements with the beneficiary as part of the requirement under disruptive behavior to make a serious effort to work with the beneficiary. We may include guidance on this matter in a final regulation based upon comments received.

10. Approval of Marketing Materials and Election Forms (§ 422.80)

We have in place a program that recognizes consistent compliance with marketing guidelines by providing for streamlined approval of marketing materials submitted by organizations that have demonstrated compliance. Called the “File and Use” program, organizations that have demonstrated to us that they continually meet a specified standard of performance will have certain types of marketing materials (such as advertising materials or other materials that do not describe plan benefits) deemed to be approved by us if they are not disapproved within 5 days of submission to us for prior approval. Thus, under these circumstances, organizations only need to submit material for our approval 5 days befor its distribution.

The advantages of File & Use are that the organization can decrease the time it takes to begin using certain marketing materials and improve planning and budgeting for publication of these materials.

In addition, we are making the time frames under § 422.80(e)(5) consistent with those provided under § 422.80(a)(1). Currently, under § 422.80(a)(1), the review period for marketing materials is at least 45 days, unless using model materials provided by CMS, in which case the review period is decreased to no more than 10 days. However, the standards for M+C marketing under § 422.80(e)(1)(v) refer only to the 45-day period. Hence, we will now add a reference to the 10 day period in this section to be consistent with § 422.80(a)(1).

We are also making clarifying changes under those marketing activities the MA plans may not participate in, such as specifically using the term “targeted marketing” when discussing discriminatory activities and engaging in any marketing activity that CMS prohibits in its marketing guidance.

Finally, while all entities in which CMS does business with are required to adhere to all Federal laws, with regard to marketing, it is important to refer here to section 1140 of the Act prohibiting the misuse of symbols, emblems, or names in reference to Social Security or Medicare. While we have not reiterated this provision in our proposed rule, we believe that it is important to highlight this reference in the discussion of marketing requirements.

Subpart C—Benefits and Beneficiary Protections

(If you choose to comment on issues in this section, please include the caption “Subpart C—Benefits and Beneficiary Protections” at the beginning of your comments.)

In the areas of benefits and beneficiary protections, we are proposing regulatory reforms based on our program experience, as well as provisions implementing new requirements in the MMA. We have tried in these proposed rules to integrate new requirements in the MMA with existing regulations, while at the same time removing impediments in the existing rules that have tended to stifle innovation and, in some extreme cases, have caused Medicare+Choice organizations to nonrenew their contracts or reduce service areas in which they offer Medicare+Choice plans. We have done all this while keeping foremost in our consideration the paramount task of ensuring that beneficiaries continue to be fully informed and protected in their receipt of essential health care services under the Medicare program.

The regulatory reforms we are proposing include: (1) New beneficiary protections in cases in which an MA organization offers an “in-network” point-of-service (POS) option; (2) revisions to the rules limiting beneficiary cost sharing related to emergency episodes, (3) the elimination of administratively burdensome requirements on MA plans that are duplicative of activities already conducted by us, and (4) the elimination of a number of unnecessary, duplicative, or overly burdensome access to care provisions.

We also are proposing new rules that would apply only to MA regional plans, which are created under the MMA. These rules would afford specific additional protections to Medicare beneficiaries that enroll in those plans. For instance, MA regional plans must provide for catastrophic limits, or stop-loss, on beneficiary out out-of-pocket cost-sharing amounts related to original Medicare benefits received in and out of the MA regional plan's network of providers.

Finally, we propose regulations implementing incentives for MA regional plans to serve all areas. These incentives involve a new payment mechanism for “essential hospitals.” We also provide for special access to care rights for enrollees in MA regional plans related to out-of-network cost sharing.

1. General Requirements (§ 422.100)

Section 233(c) of the MMA amended section 1852(k)(1) of the Act to include enrollees in MSA plans offered by an MA organization with MA coordinated care plans described in section 1851(a)(2)(A) of the Act as having protection from balance billing by non-contracting providers. A physician or other entity that does not have a contract with an MSA plan is now required to accept as payment in full,

for covered services provided to an MSA plan enrollee, the amount the physician or other entity could have collected had the individual not been enrolled in the MSA plan.

This provision applies to physicians and other entities, but not to providers of services. For purposes of this portion of the preamble discussion, “provider of services” has the same meaning as “provider of services” defined in section 1861(u) of the Act. Providers of services are covered by section 1866(a)(1)(O) of the Act related to charges they can impose on a Medicare Advantage plan enrollee when the provider of services does not have a contract with the Medicare Advantage organization sponsoring the plan in which the beneficiary is enrolled.

In cases in which participating physicians do not have an agreement in place governing the amount of payment, and treat beneficiaries enrolled in a coordinated care plan described in section 1851(a)(2)(A) of the Act or an MSA plan, they must accept the amount they would have received under fee-for-service Medicare as payment in full. Generally, the amount they would receive under fee-for-service Medicare is based on the participating physician fee schedule and includes both the amount paid by the Medicare carrier as well as the cost-sharing (generally 20 percent) due from the fee-for-service beneficiary or another source (that is, a Medigap plan).

In cases in which non-participating physicians do not have an agreement in place governing the amount of payment, and treat beneficiaries enrolled in a coordinated care plan described in section 1851(a)(2)(A) of the Act or an MSA plan, they also must accept the amount they would have received under fee-for-service Medicare as payment in full. Additionally, non-participating physicians are permitted to accept assignment on a case-by-case basis. If they do accept assignment on a claim, then the amount a non-participating physician must accept as payment in full is generally the non-participating fee-schedule amount. Non-participating physicians that do not accept assignment on a claim can generally balance bill up to, but no more than, 115 percent of the non-participating physician fee schedule amount. This limit on charges is known as the “limiting charge.”

These fee-for-service billing limits have always applied to charges that providers and other entities could impose when providing covered services to enrollees in MA coordinated care plans where there is no agreement in place governing the payment amount. The MMA adds the same protections for MSA plan enrollees.

MSAs are “high deductible” MA plans and are defined at section 1859(b)(3) of the Act. Until the deductible is met, the MSA enrollee is generally responsible for payment of all covered services. Once the deductible is met, the MA organization offering the MSA plan is responsible for payment of 100 percent of the expenses related to covered services. In both cases, whether it is the enrollee or the MSA that assumes responsibility for payment, providers and other entities are required to accept the amount that fee-for-service would have paid as payment in full. We are also proposing to make conforming changes to § 422.214 to account for this new beneficiary protection for MSA enrollees.

To address this MMA requirement and other changes in the MMA and for purposes of administrative simplification and clarification, we propose the following provisions:

• We would delete the parenthetical “(other than an M+C MSA plan)” from the first sentence of § 422.100(b)(2) and replace it with “(and an MA MSA plan, after the annual deductible in § 422.103(d) has been met).”

• We would modify the reference to “additional benefits” in § 422.100(c), as those benefits are no longer applicable to MA plans offered on or after January 1, 2006.

• We would remove § 422.100(e), as it is duplicative of § 422.111(b)(2), and we would accordingly redesignate paragraphs (f) through (j) as paragraphs (e) through (i), respectively.

• We would remove the reference to operational policy letters in § 422.100(f), as instructions on benefit policy guidelines and requirements have been incorporated into the Medicare Managed Care Manual and other written instructions.

• We would add “or encourage disenrollment” to § 422.100(f)(2) after “discourage enrollment,” as one of the prohibitions on the design of benefit packages.

2. Requirements Relating to Basic Benefits (§ 422.101)

Section 221 of the MMA adds a new section 1858 to the Act. Section 1858(g) of the Act provides for a special rule related to the way local coverage determinations (for example, “local medical review policies,” or “LMRPs”) will be applied by MA regional plans. MA regional plans are permitted to elect any one of the local coverage determinations that applies to original Medicare fee-for-service beneficiaries in any part of an MA region to apply to its enrollees in all parts of an MA region. Application of these local coverage determinations by an MA regional plan may be appealed under provisions of section 1869(f)(2) of the Act.

We interpret section 1858(g) of the Act to mean that the MA regional plan, if it chooses to exercise this option, must elect a single fee-for-service contractor's local coverage determination that it will apply to all members of an MA regional plan. The MA organization offering an MA regional plan may not select local coverage policies from more than one fee-for-service contractor that it will apply to all members of the plan. We invite comment on this interpretation and our proposed policy related to it.

We propose the following provisions:

• We would add a new § 422.101(b)(4) related to election of a local coverage determination by MA regional plans to provide for new language in section 221 of the MMA.

• We would remove reference to operational policy letters (OPLs) in § 422.101(b)(2), as all OPLs related to general coverage guidelines have been incorporated into the Medicare Managed Care Manual and other written instructions.

The MMA provides for new cost-sharing requirements in the statute at section 1858(b) of the Act related to MA regional plans. There are three specific requirements:

1. MA regional plans, to the extent they apply deductibles, are permitted to have only a single deductible related to combined Medicare Part A and Part B services. Applicability of the single deductible may be differential for specific in-network services and may also be waived for preventative services or other items and services.

2. MA regional plans are required to have a catastrophic limit on beneficiary out-of-pocket expenditures for in-network benefits under the original fee-for-service program (Medicare Part A and Part B benefits).

3. Regional MA plans are required to have an additional catastrophic limit on beneficiary out-of-pocket expenditures for in-network and out-of-network benefits under the original fee-for-service program. This second out-of-pocket catastrophic limit, which would apply to both in-network and out-of-network benefits under original Medicare, could be higher than the in-network catastrophic limit, but may not increase the limit applicable to in-network services.

We propose to make MA regional plans responsible for tracking these beneficiary out-of-pocket limits and for notifying members when they have been

met. We also propose to require MA regional plans to track and limit incurred rather than paid out-of-pocket expenses.

• We would add § 422.101(d) to account for these new cost-sharing requirements.

The MMA also adds new section 1859(b)(4) to the Act. MA regional plans are required to provide reimbursement for all covered benefits, regardless of whether the benefits are provided within or outside the network of contracted providers.

MA regional plans are preferred provider organizations (PPOs) and are defined at section 1859(b)(4) of the Act. (However, it should be noted that the statute does not preclude HMOs and other entities from offering other MA plan types on a region-wide basis, nor does it preclude other entities from offering MA regional plans as long as these plans meet statutory and regulatory requirements related to MA regional plans including, but not limited to, sections 1859(b)(4), 1851(a)(2)(A), and 1858(b) of the Act.) As PPOs, MA regional plans are permitted to impose differential cost sharing related to non-emergent services received from non-network providers. To the extent differential cost-sharing is part of the benefit package, the MA regional plan would generally be responsible for its portion of payment to a non-network provider and the enrollee would be responsible for the remainder—up to the limits discussed in item 2 and 3 of this part of the preamble.

In applying the actuarially equivalent level of cost sharing with respect to MA bids related to benefits under the original Medicare program option set forth under § 422.308, only the catastrophic limit on out-of-pocket expenses for in-network benefits (item 2 above) is to be taken into account.

We would accommodate these requirements related to MA regional plans by adding a § 422.101(e) to this section.

3. Supplemental Benefits (§ 422.102)

An MA plan may reduce cost sharing below the actuarial value specified in section 1854(e)(4)(B) of the Act as a mandatory supplemental benefit. Beginning in 2006, an MA plan can reduce the cost sharing that applies to plan members below the value that would apply to these members if they remained enrolled in the original Medicare program. This reduction in cost sharing can be included as a mandatory supplemental benefit. We propose the following provisions:

• We would add § 422.102(a)(4).

• We would remove the reference to “additional benefits” in § 422.102(a)(1), as those benefits are no longer applicable to MA plans offered on or after January 1, 2006.

• We would remove the reference to operational policy letters (OPLs) in § 422.102(a)(3), as guidelines related to benefits that had been contained in OPLs have been incorporated into regulation, into the Medicare Managed Care Manual, or into other instructions.

4. Benefits Under an MA MSA Plan (§ 422.103)

We would remove the extraneous word “under” from the second sentence of paragraph (a).

5. Special Rules for Point of Service Option (§ 422.105)

“Point of Service” (POS) is an option in some plans that allows enrollees to use providers who are not preferred, on a fee-for-service basis. To clarify an issue that has created confusion for both beneficiaries and MA organizations, we propose to include the following statement as introductory text to § 422.105 of the regulation:

“If an MA organization does not offer a POS benefit to members of a plan, or if it offers a POS benefit as an optional supplemental benefit and the member has not selected that benefit, then when those members receive what is a covered item or service from contracted providers of that plan, the member cannot be financially liable for more than the normal in-plan cost sharing, if the member correctly identified himself or herself as a member of that plan to the contracted provider before receiving the covered item or service.”

We believe that indemnifying the Medicare member in such a situation conforms with normal industry practice and also clarifies our long-standing policy that members cannot be held financially liable when contracting providers fail to follow or adhere to plan referral or pre-authorization policies before providing covered services. If a plan member insists on receiving what would otherwise be covered services from a contracted provider (but for the lack of a referral or pre-authorization), then the contracted provider would be required to inform the member that those services will not be covered under the plan. The provider would also be required to document the medical record as to why the services are medically necessary but not available through the plan.

In addition, an MA regional plan might choose to provide for a POS-LIKE benefit where beneficiary cost sharing would be less than it would otherwise be for non-network provider services, but where it still might be greater than it would be for in-network provider services. We propose the following provisions:

• We would remove the extraneous word “only” from § 422.105(a)(1) and § 422.105(a)(2), and we would modify § 422.105(a)(1) to account for the fact that beginning January 1, 2006, there will no longer be any additional benefits under the MA program.

• We propose to add § 422.105(a)(4) to clarify that although an MA regional plan may offer a POS-LIKE benefit to members, it still may not deny reimbursement for

any

covered benefit, regardless of whether such benefit is provided within the network of contracted providers.

6. Coordination of Benefits With Employer Group Health Plans and Medicaid (§ 422.106)

Section 222(j) of the MMA revised section 1857(i) of the Act in order to facilitate employer sponsorship of MA plans. Specifically, section 222(j)(1) of the MMA redesignated existing section 1857(i) of the Act as section 1857(i)(1) of the Act and adds a new sub-heading—“Contracts with MA Organizations.” Section 222(j)(2) of the MMA created a new section 1857(i)(2) of the Act with a sub-heading of “Employer Sponsored MA Plans.”

Section 222(j)(2) of the MMA allows us to waive or modify requirements that hinder the design of, the offering of, or the enrollment in an MA plan offered by an employer, a labor organization, or the trustees of a fund established by one or more employers or labor organizations (or combination thereof) to furnish benefits to the entity's employees, former employees (or combination thereof), or members or former members (or combination thereof) of labor organizations. Section 222(j) of the MMA further states that the MA plan may restrict enrollment to individuals who are beneficiaries and participants in such a plan.

We propose a new paragraph (d) to account for this new statutory authority, which is effective for plan years beginning on or after January 1, 2006. We would also revise the paragraph heading for existing paragraph (c) to “Waiver or modification of contracts with MA Organizations.” In addition, we make editorial corrections to the first sentence of paragraph (c)(2) and to remove the second sentence. We remove the second sentence of paragraph (c)(2) because we believe that instructions related to the specific manner in which ACRs or bids are to be filed and specific requirements related to the filings are

better suited to manual instructions and other written instruments.

• We would revise the paragraph (c) heading.

• We would make editorial corrections to paragraph (c)(2).

• We would add a new paragraph (d) to allow for employer sponsored MA plans effective January 1, 2006.

7. Medicare Secondary Payer (MSP) Procedures (§ 422.108)

Section 232 amended section 1856(b)(3) of the Act to remove all ambiguity related to State authority over the MA program. Congressional intent is now unambiguous in prohibiting States from exercising authority over MA plans in any area other than State licensing laws and State laws relating to plan solvency. Therefore, we would amend paragraph (f) to remove language that suggests States can limit the amount an MA organization can recover from liable third parties under Medicare secondary payer procedures. Consistent with specific preemption authority now provided by section 1856(b)(3) of the Act, MAs are permitted by section 1852(a)(4) of the Act to

fully

recover from liable third parties according to section 1862(b)(2) of the Act.

We would amend paragraph (f) of § 422.108 to account for enhanced preemption authority provided by section 232 of the MMA.

8. Effect of National Coverage Determinations (NCDs) (§ 422.109)

Section 1853(c)(7) of the Act requires us to “adjust” MA payments when a national coverage determination (NCD) or legislative change in benefits will result in a significant increase in costs to MAs. We have historically interpreted what constituted “significant” costs in regulation at § 422.109, where the costs of a coverage change are considered “significant” if either the average cost of providing the service exceeds a specified threshold, or the total cost for providing the service exceeds an aggregate cost threshold.

In a final rule published on August 22, 2003, at 68 FR 50839, we amended § 422.109 to refine the definition of “significant” cost to include a new test. By adding a new paragraph at the end of § 422.109(a)(2), we provided that, for purposes of determining whether to make an additional payment adjustment under § 422.256, the tests for reaching the “significant” cost threshold were to include the aggregate costs of all NCDs and legislative changes in benefits made in the prior contract year.

Under this new test, the “average cost” of every NCD and legislative change in benefits for the contract year would have been added together. If the sum of all these average amounts exceeded the threshold under § 422.109(a)(1), then an adjustment to payment would have been made in the following contract year under § 422.256 to reflect this “significant” cost. Alternatively, if the costs of the NCDs and legislative changes in benefits, in the aggregate, exceeded the level set forth in § 422.109(a)(2), an adjustment to payment would also have been made under § 422.256 on that basis.

Among the reasons for the above change, as noted in the preamble to the August 22, 2003 final rule, was that even when the “significant” cost threshold had been met under the existing definition, the methodology then employed for making a payment adjustment under section 1853(c)(7) of the Act did not result in an adjustment in the capitation rate in those counties with the “minimum” update rate (the so-called “2 percent minimum update” counties paid under section 1853(c)(1)(C)) of the Act. In accordance with section 1853(c) of the Act, the CMS Office of the Actuary used the annual growth rate to update only the floor and blended rates, so the “minimum” 2 percent update rate, which was 102 percent of the prior year's rate, did not reflect the costs of new benefits effective in the middle of the previous payment year. Therefore, we decided that payments in counties in which payment was based on the “minimum” 2 percent update rate were not appropriately adjusted to reflect new coverage costs as required by section 1853(c)(7) of the Act.

The MMA has changed the “minimum” percentage payment prong of the former M+C payment methodology by adding a new basis for a minimum update. The “minimum” percentage increase rate is changed, effective January 2004, as follows: Instead of being set at 102 percent of the prior year's rate, the minimum increase rate will now be the

greater of

102 percent of the prior year's rate, or the annual MA growth percentage. This means that under the MMA, the minimum percentage increase rate (the so-called “minimum 2 percent rate”) will now reflect the cost of mid-year NCDs and legislative changes in benefits. These costs are now automatically built into the annual MA growth percentage and will no longer require an additional adjustment under § 422.256.

Therefore, we are proposing to revise the regulatory change established in the August 22, 2003 final rule, in order to implement this new MMA payment provision that became effective January 1, 2004. Specifically, the changes to § 422.109 and § 422.256, which established a new “NCD adjustment factor” effective CY 2004, which was to be added to the county rates in counties receiving the “minimum” 2 percent update, will be eliminated. We propose the following provisions:

• We would remove the final paragraph of § 422.109(a)(2).

• We would amend § 422.109(a)(2) to remove “all” from the first clause of the first sentence.

The “national standardized annual capitation rate” described in § 422.254(f) is already an average and does not need to be further “normalized” by multiplication “by the total number of Medicare beneficiaries for the applicable calendar year.”

• We would remove the portion the first sentence of § 422.109(a)(2) to remove all language after “§ 422.254(f).”

• We would revise § 422.109(c)(3) to read: “Costs for significant cost NCD services or legislative changes in benefits for which our fiscal intermediaries and carriers will make payment are those Medicare costs not listed in paragraphs (c)(2)(i) through (c)(2)(iv) of this section.”

• We would remove paragraphs (c)(3)(i) and (c)(3)(ii).

9. Discrimination Against Beneficiaries Prohibited (§ 422.110)

We would make the following correction to this section, to bring it into conformance with § 422.50(a)(3)(ii). We would modify paragraph (b) to say that if an MA organization chose to apply the rule in § 422.50(a)(3)(ii) and allowed individuals who are enrolled in a health plan offered by the organization at the time of first entitlement to Medicare, but residing outside the MA plan's service area, to remain enrolled that such an allowance would also need to be applied to individuals with end-stage renal disease.

The new paragraph (b) would read:

(b)

Exception.

An MA organization may not enroll an individual who has been medically determined to have end-stage renal disease. However, an enrollee who develops end-stage renal disease while enrolled in a particular MA organization may not be disenrolled for that reason. An individual who is an enrollee of a particular MA organization, and who resides in the MA plan service area at the time he or she first becomes MA eligible, or, an individual enrolled by an MA organization that allows those who reside outside its MA service area to enroll in an MA plan as set forth at § 422.50(a)(3)(ii), then that individual is considered to be “enrolled” in the MA

organization for purposes of the preceding sentence.

We would remove paragraph (c), as it is duplicative of a requirement appearing in § 422.502(h) of the current MA regulation. In the subpart K section of this preamble related to § 422.502(h) (redesignated as § 422.504(h)), we explain why we are proposing to modify the language currently found there.

10. Disclosure Requirements (§ 422.111)

When the Balanced Budget Act of 1997 introduced the M+C program, the Annual Coordinated Election Period was established as the month of November. In subsequent legislation, the Annual Coordinated Election Period for years after 2001 was changed to November 15 through the end of December. We propose that rather than changing the date in § 422.111(d)(2) to a “date certain,” we would leave the date flexible—should the Congress again decide to change the date on which the Annual Coordinated Election Period begins. Additionally, this proposed change is consistent with section 1851(d)(2)(A) of the Act, the authority for this regulatory requirement. The intent of section 1851(d)(2)(A) of the Act and § 422.111(d)(2) of the regulation is simply to provide notice to plan members of impending changes to plan benefits, premiums, and copays in the coming year. That notice is to be provided at least 2 weeks before the onset of the Annual Coordinated Election Period as a means of ensuring that plan members will be in the best possible position to make an informed choice on continued enrollment in or disenrollment from that plan.

Section 422.111(d)(2) would be modified to say that plan members need to be notified of January 1 changes at least 15 days before the Annual Coordinated Election Period defined in section 1851(e)(3)(B) of the Act.

Section 422.111(c)(1) states that an MA plan must disclose the information in § 422.111(f) upon request to individuals eligible to elect an MA plan.

We would remove § 422.111(f)(4), as the requirement to provide information on Medigap and Medicare Select as a Secretarial responsibility under section 1851(d)(2)(A)(i) and (d)(3)(D) of the Act and is to occur as part of the “open season notification” required by section 1851(d)(2)(A) of the Act.

In addition to an “open season” notification, information on Medigap and Medicare Select is available year-round from the Federally funded State Health Insurance Assistance Program (SHIP) and the 1-800 MEDICARE telephone number. Both the local SHIP and the 1-800 MEDICARE telephone numbers are prominently displayed in MA plan literature. In addition, we will continue to require MA plans to publicize the availability of information on Medigap, Medicare Select, and other MA plans through appropriate CMS information channels. This will not only remove unnecessary administrative burden, but it will also ensure that reliable, accurate, and complete information is made available to those seeking it.

Since the introduction of

http://www.medicare.gov

in 1998, we have substantially increased the amount of personalized information available to Medicare beneficiaries, making it one of the government's most comprehensive and customer-oriented sites available to the public. The web site hosts twelve separate database applications to help individuals make their own health care decisions. The most significant ones are: the Medicare Personal Plan Finder (which contains costs, benefits, quality, satisfaction and disenrollment measures), Nursing Home Compare (which contains basic characteristics, staffing information and inspection results), the Prescription Drug and Other Assistance Programs application (which contains the most extensive, nationally complete listing of the Medicare-approved discount drug cards, including price comparisons, as well as other government and private programs designed to help with prescription drug costs), and the Medicare Eligibility Tool (which assists users in determining when they are eligible, how to enroll and what they need to consider when joining Medicare). Other tools providing customized results include: the Participating Physician and Supplier Directories, Home Health and Dialysis Facility Compare, Your Medicare Coverage, Helpful Contacts, Publications, and Frequently Asked Questions. By updating all information on the web site at least once a month, the information provided to Medicare beneficiaries via

http://www.medicare.gov

is the most reliable and consistent information available.

Much of the information available through

http://www.medicare.gov

is also available via the 1-800 MEDICARE helpline. 1-800 MEDICARE is a major information channel for providing the most personalized and reliable information to people with Medicare. As a result of the MMA, we are receiving the largest call volume ever for 1-800 MEDICARE. The beneficiary can call 1-800 MEDICARE to find out the most reliable information on public and private programs that offer discounted or free medication, programs that provide help with other health care costs, and Medicare health plans that include prescription coverage. The caller can always talk to a live person at 1-800 MEDICARE to get the facts they need. When a beneficiary calls 1-800 MEDICARE, we can send them a personalized brochure that allows them to look at discount cards based on their drug needs and their preferences about how to get their medicines, and their enrollment forms. We can also give the beneficiary personalized brochures containing information on their health plan choices, nursing homes and Medicare participating physicians in their area.

1-800 MEDICARE is available 24 hours a day, 7 days a week, to provide the one-on-one service that our Medicare beneficiaries need to make appropriate health care decisions.

We would also remove § 422.111(f)(6), since this is also a Secretarial responsibility under section 1851(d)(2)(A)(ii) of the Act and is also to occur as part of the Secretarial “open season notification.” We propose the following provisions:

• We would redesignate paragraph (f)(5) as paragraph (f)(4), and we would redesignate paragraphs (f)(7) through (f)(11) as paragraphs (f)(5) through (f)(9).

• We would remove a portion of the existing paragraph (f)(7)(iv) and all of paragraph (f)(7)(v) (the new paragraphs (f)(5)(iv) and (f)(5)(v)) to remove the requirement that MAs and MSAs provide comparative information related to other MA plans. The new paragraph (f)(5)(iv) would read, in full: “In the case of an MA MSA plan, the amount of the annual MSA deposit.” The new paragraph (f)(5)(v) would be deleted. The existing paragraphs (f)(7)(vi) through (f)(7)(viii) would be redesignated as paragraphs (f)(5)(v) through (f)(5)(vii).

• We would change “contracted is terminating” to “contract is terminating” in the second sentence, just before the comma, in § 422.111(e).

To prevent what might otherwise be the unreasonable result that MA regional or national plans would be required to provide comprehensive lists of contracting providers to all enrollees, we propose to modify paragraph (b)(3) in this section. We will, however, specifically require MA organizations to provide information on contracted providers in other geographic areas to enrollees who plan to travel (for instance) by adding a new paragraph (f)(10), requiring MA organizations to provide detailed information on contracted providers in other areas upon request.

• We would modify paragraph (b)(3) by inserting “reasonably be expected to”

between “may” and “obtain” in the first sub-clause of the first full sentence, so it would read: “The number, mix, and distribution (addresses) of providers from whom enrollees may

reasonably be expected to

obtain services;”

• We would add a new paragraph (f)(10), which would read: “The names, addresses, and phone numbers of providers from whom the enrollee may obtain in-network coverage in other areas.”

Section 1851(d)(3)(F) of the Act, as modified by the MMA, would require MA regional plans to provide members an annual description (at the time of enrollment and annually thereafter) of the catastrophic stop-loss coverage and single deductible (if any) applicable under the plan. We would add a new paragraph (b)(11) to account for this.

• We would change the existing paragraph (f)(11) (the new paragraph (f)(9)) related to supplemental benefits to read: “

Supplemental benefits.

Whether the plan offers mandatory and optional supplemental benefits, including any reductions in cost sharing offered as a mandatory supplemental benefit as permitted under section 1852(a)(3) of the Act (and implementing regulations at § 422.102) and the terms, conditions, and premiums for those benefits.”

• In § 422.111(c)(1), we would insert “in” between “required” and “paragraph.”

The Internet has proven to be an inexpensive and widely available source of information on health plans. Almost all FEHB insurance plans, most large employer plans, and commercial HMOs maintain websites for the convenience of enrollees. Many MA organizations also currently provide information on the MA plans they offer on websites available through the Internet.

We currently require MA plans to communicate with us via electronic media—§ 422.502(b) (redesignated as § 422.504(b)). Finally, all MA coordinated care plans would be required to offer Part D drug benefits to the enrollees of at least one of their plans and as part of that offering will be required to maintain formulary and other information on an Internet Web site.

Therefore, pursuant to our authority under section 1856(b) of the Act to establish standards by regulation, we are considering imposing a requirement that all MA plans set up an Internet Web site that will make basic MA plan information and materials available to interested Medicare beneficiaries and other parties. The basic information and materials could include the Evidence of Coverage, the Summary of Benefits, and information (names, addresses, phone numbers, specialty) on the network of contracted providers. Those Internet materials and information would duplicate materials already produced in print format and made available by MA organizations relative to the MA plans they offer. We are interested in receiving comments on whether or not such a requirement should become part of the MA regulation.

11. Access to Services (§ 422.112)

There are no new access standards for MA regional plans, and existing MA standards will generally apply. An important provision (discussed below) will likely improve access to hospital services for MA regional plan enrollees. In attempting to create region-wide networks, MA regional plans will be forced to bargain with hospitals, that are, in effect, the only hospital (or the only hospital with a particular service or services) in a broad area. Such a hospital would have what some call “monopoly power” in negotiating with plans that are, in effect, forced to contract with it in order to secure an adequate network of contracted providers with which to serve anticipated Medicare enrollees. The MMA attempts to address this situation through a provision that would make limited funds available to supplement payments to such hospitals.

While we reviewed our existing regulatory requirements related to network adequacy and propose to remove some that are either duplicative or, in our view, overly onerous without a resultant payoff in beneficiary protections, we have retained our core requirements. We expect competition to be the best method for ensuring network adequacy, as enrollees will favor and enroll in plans with more extensive networks and tend to avoid those without. Note that we will continue to require MA organizations to make a list of network providers available to prospective enrollees prior to enrollment. Finally, Medicare beneficiaries can simply choose to remain in the original Medicare fee-for-service program, if they cannot find an MA plan that meets their needs.

We note that the Office of Personnel Management does not mandate specific access standards while it serves nearly 2 million retirees who are located around the country in a manner similar to Medicare beneficiaries. Yet, “An Analysis of the Availability of Medicare+Choice, Commercial HMO, and FEHBP Plans in Rural Areas: Implications for Medicare Reform” by the Rural Policy Research Institute (

at http://rupri.org/healthpolicy/

) shows that 98 percent of rural counties demonstrate usage of three or more FEHB plans, which is in sharp contrast to the 16 percent of rural counties showing access to even a single M+C coordinated care plan. We expect the Medicare Advantage program to produce a pattern of plan availability more like the FEHB program than to the current M+C program.

In order to encourage MA organizations to offer MA regional plans covering rural areas, we are considering one new requirement related to an exception process for enrollees in an area without a preferred provider for a specific medically-necessary service. We discuss this requirement and the exception process later in this section of the preamble. We welcome comment on this possible change and on any of the other changes we propose to make to our access to care standards.

We propose to make three technical corrections to this section of the regulation. By removing unnecessary administrative burden, and in light of protections afforded by the MMA, which makes certain access requirements redundant, we hope to facilitate participation by MA organizations in the new Medicare program. We would remove or modify three current requirements from § 422.112 of the regulation. None of these requirements are based on statutory authority, and many of them become unnecessary as they are replaced or superseded by requirements in the MMA.

Effective January 1, 2006, the MMA—section 1852(e) of the Act—requires all MA coordinated care plans to focus quality assurance activities on “chronic care improvement programs.” We note that MA private fee-for-service plans and MSA plans are already exempt from this requirement. We also note in section 1852(e)(3)(A)(iii) of the Act, that to the extent that MA local PPOs have a contracted network, they must also meet the same quality assurance requirements as do all other MA coordinated care plans. To the extent that all coordinated care plans will be required to focus on quality improvement activities on identifying and monitoring enrollees with multiple or severe chronic conditions, and also to measure and improve the health outcomes of those enrollees, it would be redundant and to a degree unnecessarily proscriptive to suggest a specific approach to those quality improvement activities in the context of and as a means of ensuring enrollee access to care. We would delete § 422.112(a)(4)—serious and complex medical conditions.

Written standards are simply one tool MA coordinated care plans can use to ensure adequate access to medically necessary health care items and services.

The three items enumerated in § 422.112(a)(7) are redundant of other parts of the regulation. Section 422.112(a)(7)(i), related to written standards for access to care, is duplicative of § 422.112(a)(1). Sections 422.112(a)(7)(ii) and (a)(7)(iii), related to written standards that allow for medical necessity determinations and patient input into treatment plans, are duplicative of § 422.206—Interference with health care professionals' advice to enrollees prohibited, § 422.202(b) Participation procedures—Consultation, and § 422.152(b)(3)(paragraph new (b)(2)). We would delete paragraph (a)(7)—written standards.

Section 422.112(b) requires all MA organizations for all MA plans they offer to ensure continuity of care through integration of health care services. Additional requirements in § 422.112(b)(1) through (b)(6) require specific methods by which MA organizations are to ensure an effective continuity and integration of health care services. While all of the enumerated services and processes are clearly desirable, it is not as clear that the responsibility for them is appropriately or reasonably placed on organizations whose business is primarily insurance coverage. While it may be reasonable to expect coordinated care plans to undertake these coordination, continuity, and integration requirements, it is less clear that MA private fee-for-service plans, MSAs, and (to a lesser extent) local PPO plans and MA regional plans (which will be offered as PPOs) should also be expected to. One might argue that continuity of care rules cannot apply in the same manner to MA plans in which the enrollee is free to choose his or her own providers without restraint—such as MSAs and private fee-for-service plans. We are therefore considering eliminating most of the requirements in § 422.112(b) for MSAs and private fee-for-service plans. We are also considering eliminating or modifying many of the requirements in § 422.112(b) for local PPOs and regional MA plans. Finally, we are considering the continued appropriateness of these continuity of care standards for all other coordinated care plans. We are seeking comment on this proposal. We would specifically welcome input on the extent to which requirements similar to those in § 422.112(b)(1) through (b)(6) are established for commercial health insurers offering HMOs, PPOs or indemnity plans.

Special access requirements apply to MA regional plans beginning in 2006 based on section 221(c) of the MMA, which created a new section 1858 of the Act. Specifically, section 1858(h) of the Act creates special access rules for MA regional plans as a means of enabling MA organizations that offer MA regional plans to meet provider access requirements under section 1852 of the Act and thus under § 422.112 of the regulation.

Beginning for benefits offered to MA enrollees of an MA regional plan for contract year 2006, if an MA organization certifies that it was unable to reach an agreement with an “essential hospital” paid under subsection (d) of section 1886 of the Act, under specific circumstances we are authorized to pay additional amounts to that hospital from the Federal Hospital Insurance Trust Fund. This additional payment to the “essential hospital” is in addition to and does not affect the normal monthly MA payment amount that we would make to the MA organization.

An “essential hospital,” for purposes of this section, means a general acute care hospital as defined in section 1886(d) of the Act that we determine the MA regional plan must have under contract in order to meet our access requirements. The determination of “essential hospital” status is only conferred after application to us by an MA organization offering an MA regional plan. Additionally, as part of its application to establish the hospital as an “essential hospital,” the MA regional plan must also certify that it made a good faith effort to contract with the hospital. The MA organization must also provide assurances that it will make payment to the hospital for inpatient hospital services in an amount not less than the amount that would be payable under section 1886 of the Act. Finally, in order to qualify for the additional payment, the “essential hospital” must demonstrate to our satisfaction that the amounts normally payable under section 1886 of the Act are less than the hospital's costs for providing services to MA regional plan enrollees.

The intent of the additional payment to the section 1886(d) “essential hospital” is to facilitate an MA regional plan's ability to meet network adequacy requirements across large geographic areas—an MA region. Such an “essential hospital” would become part of the contracted network of providers of the MA regional plan and in-network enrollee cost-sharing rules would apply.

Payments under this new authority, however, are limited to a total of $25 million for 2006, and the prior year's amount updated by the market basket percentage increase under section 1886(b)(3)(B)(iii) of the Act for future years.

We invite comment from the public as to how we can ensure that payments are limited to the amount specified. We also invite comment on how we can best ensure that a “good faith effort” to contract has actually occurred. For instance, should we require negotiations to occur before the admission of an MA regional plan patient? Or, in the case of an emergency admission, should we permit negotiations between the MA regional plan and the hospital to occur after admission, or perhaps even after discharge?

Additionally, we invite comment on the best way to determine that a hospital's actual costs for services provided to an MA regional plan enrollee actually exceeded the amount that would normally be payable to that hospital under section 1886 of the Act with respect to those services. Total additional payments under this section are limited to $25 million in 2006 and in subsequent years, $25 million increased by the market basket percentage increase as specified in statute. In a specific case, the actual payment to an “essential hospital” from the Federal Hospital Insurance Trust Fund would be the sum of the difference between the amount that would have been paid to the hospital under section 1886 of the Act and the amount of payment that would have been paid for those services under fee-for-service Medicare had the “essential hospital” been a critical access hospital. We would like input on how to best minimize the administrative burden associated with implementing this statutory provision, while still ensuring the accuracy and integrity of the process.

We would add a new paragraph (c) to account for the special access requirements related to MA regional plans beginning in 2006 based on “essential hospitals.”

Instead of always requiring comprehensive, contracted provider networks in all cases, we propose to require MA regional plans to offer beneficiaries reasonable access to in-network cost-sharing, even if there are no contracted providers of a specific type available in a geographic location within the service area. This is the exception process mentioned earlier in this section of the preamble. We also propose a new requirement related to this exception process, which is similar

to a United States Office of Personnel Management (OPM) requirement imposed on the FEHB Blue Cross and Blue Shield Basic Option plan to address similar circumstances.

We propose to permit relaxation of comprehensive network adequacy requirements for MA regional plans, but only to the extent that beneficiaries are not put “at risk” for high cost sharing related to services received from non-network providers. This new tolerance that we propose to afford MA regional plans need not be applied on a plan-wide basis, but rather can be applied in a county or portion of a region where, for example, the MA regional plan is unable to secure contracts with an adequate number of a specific type of provider or providers to satisfy our comprehensive network adequacy requirements.

Such an exception process might require the MA regional plan enrollee to contact the sponsoring MA organization when seeking a specific service that is not otherwise available from a contracted provider. The MA organization, in such a case, could designate a non-contracted provider from whom (or from which) the enrollee could obtain the service at in-plan cost sharing levels. Or, the MA organization could allow the enrollee to seek the service from any provider and guarantee that in-plan cost sharing limits would apply.

In applying the above principle, we need to consider two forms of beneficiary cost sharing. One is the cost sharing related to a specific item or service—for instance, a hospital coinsurance charge. Another is the “catastrophic limits” that MA regional plans must apply to benefits under the original Medicare fee-for-service option. MA regional plans are required to provide reimbursement for all covered benefits regardless of whether those benefits are received from network providers—section 1859(b)(4)(B) of the Act and the new § 422.101(e)(1). MA regional plans are also required to apply a catastrophic out-of-pocket limit on beneficiary cost sharing for covered in-network services and another on all covered services (in and out of network)—section 1858(b)(2)(B) of the Act and the new § 422.101(d)(2) and (d)(3).

We propose to permit MA regional plans with lower out-of-network cost sharing to have less robust networks of contracted providers. While we propose to permit MA regional plans with more robust networks of contracted providers to impose higher cost sharing charges on individuals going out-of-network. This is because if the plans' networks were robust, we would not expect beneficiary access to be unduly limited by higher cost-sharing requirements when they seek care from out-of-network providers. However, for plans with less robust networks, we propose to limit those plans' ability to impose higher cost-sharing requirements for out-of-network care. We believe that higher cost-sharing requirements imposed by plans with limited provider networks could unduly limit access and that more equitable cost-sharing requirements would serve as a safety valve to ensure that beneficiary access is not compromised. For instance, we could require MA regional plans that have less than 20, 50, or 70 percent of hospital beds in the service area (or portion of the service area) under contract to charge lower out-of-network cost sharing to individuals accessing non-network hospitals. In other words, in such a case, we would require the MA regional plan to charge lower coinsurance for out-of-network hospital care as a means of ensuring adequate access to hospital services.

Similarly and related to the “catastrophic limits” on out-of-pocket expenditures, to the extent that an MA regional plan had a less robust network of contracted providers, we would require a convergence in the cost sharing limits that apply to network and all (network and non-network) services. While for plans with more robust contracted networks, we would allow the “catastrophic limits” to diverge.

We ask for comment on the measures we should adopt to assess the robustness of contracted provider networks. We also seek comment on the thresholds we should adopt relative to the cost-sharing limits (related to both individual services and the catastrophic limits on out-of-pocket costs that regional MA plans must provide related to in-network and all services) that should apply to services when contracted provider networks are less than robust. For instance, would it be adequate to adopt fee-for-service cost sharing limits for individual services as a means of ensuring adequate access, or should a different standard apply, and why? We specifically ask for comments in this area. Finally, related to out-of-pocket cost-sharing limits for in-network and all services, is there a formula that we should apply that rationally expresses the maximum out-of-pocket cost sharing that we should permit? Is there a means of quantifying how the two out-of-pocket cost-sharing limits should converge, or how much we should allow divergence, based on the robustness of the contracted provider network?

The preceding discussion is from the perspective of an MA regional plan establishing compliance with our access requirements at the time of initial application or on a continuing basis. From a beneficiary perspective, the MA regional plan would always need to provide an accessible and available source of treatment at network cost sharing levels. Our normal access standards would apply. For instance, where community patterns of care call for travel of no more than 30 minutes or 30 miles to access hospital services, then MA regional plans would need to ensure comparable access to a contracted hospital. To the extent that an MA regional plan did not actually have a contracted hospital within 30 minutes or 30 miles, then the MA regional plan would need to designate a non-contracted hospital from which the member could receive care at network cost sharing levels. Such a requirement would be similar to a requirement imposed by OPM related to the Basic Option plan offered to Federal employees and annuitants under the FEHB program where normal OPM access standards are not met.

We provide for this exception to the normal access requirements related to MA regional plans by proposing to add a new paragraph (ii) to § 422.112(a)(1). We invite comment on the access standards we should establish for primary care, specialty, and institutional providers.

12. Special Rules For Ambulance Services, Emergency Services, and Urgently Needed Services, and Maintenance and Post-Stabilization Care Services (§ 422.113)

Policies on enrollee cost-sharing for emergency care are historically a point of contention. Cost-sharing limits for emergency care are important to ensure that there is no disincentive to receive emergency care that is critical to a beneficiary's health.

On the other hand, since the proposed M+C regulation was published in June 1998, when the cost-sharing limit of $50 on out-of-network emergency services was initially established, there have been unforeseen consequences that have tended to increase confusion rather than contribute to the goal of appropriate access. Additionally, the $50 emergency services cost-sharing limit has not increased since 1998, despite changing market conditions. For instance, in recent years, some M+C plans have established inpatient hospital copays of $200 per day and fee-for-service Medicare coverage has a per-hospital stay deductible of $840 in 2004. These hospital copays, combined with the

regulatory definition of “emergency services” that includes inpatient care “until stabilized,” requires a review of § 422.113(b)(2)(v).

Section 422.113(b)(2)(v) reads: “[The M+C organization is financially responsible for emergency and urgently needed services—] With a limit on charges to enrollees for emergency services of $50 or what it would charge the enrollee if he or she obtained the services through the M+C organization, whichever is less.”

The regulation states that emergency services continue until the enrollee is stabilized. Hence, a strict (and unintended) reading of the current regulation could require an assessment of the exact time that stabilization occurred in order to determine when the $50 “emergency services” cost-sharing limit ends and when inpatient “post-stabilization” cost sharing can begin. A detailed review of the member's medical record is needed to make a stabilization assessment in order to assess cost-sharing liability. This review of the medical record is an administrative burden on plans as well as appeal review entities—our reconsideration contractor and Administrative Law Judges. All are required to spend considerable amounts of time determining when stabilization occurred for purposes of properly assigning enrollee cost sharing. This is contrary to medical practice, which does not generally identify when a patient is stabilized.

We propose to modify the regulation to clarify that the $50 limit for “emergency services” at § 422.113(b)(2)(v) applies only to the emergency department, and that while the limit on cost-sharing for “post-stabilization” care at § 422.113(c)(2)(iv) continues to apply, its application would always begin upon admission. Thus, emergency cost-sharing limits would shift from being tied to the

type

of service (emergency services) to being tied to the

site

of service (emergency department). Making this clarification would retain cost-sharing limits for both emergency services and post-stabilization care, while eliminating the unanticipated complexities and administrative burden associated with this section of the regulation.

We believe that final regulations published on September 9, 2003, and effective November 10, 2003 (68 FR 53222), provide support for this change. These regulations establish the rule that requirements related to the Emergency Medical Treatment and Labor Act (EMTALA)

end

at the time a patient is admitted. We recognize that EMTALA rules related to patients who present to hospitals with emergency medical conditions and our rules related to allowable cost sharing in the MA program are not a perfect fit; however we do believe that similar administrative difficulties warrant similar administrative solutions. In addition to the consonance this change would have with our EMTALA rules, we also believe that this clarification will allow the MA program to reflect current commercial practices. Finally, the clarification is consistent with our intent. We propose the following provisions:

We propose to change “emergency services” to “emergency department services” in § 422.113(b)(2)(v).

13. Access to Services Under an M+C Private Fee-For-Service Plan (§ 422.114)

Section 211(j) of the MMA allows MA private fee-for-service plans that have a contracted network of providers through which the plan entirely meets access and availability requirements (for a specific category of health care professional or provider) to provide for a higher beneficiary copayment in the case of health care professionals and providers of that category who do not have contracts with the plan. Generally, this would permit a private fee-for-service plan to charge higher co-pays to members who opt out of a private fee-for-service plan's contracted network. This provision does not apply to private fee-for-service plans that meet access requirements solely through “deemed” networks as defined in § 422.114(a)(2)(i). We proposed to add a new paragraph (c) to account for section 211(j) of the MMA.

14. Return to Home Skilled Nursing Facility (§ 422.133)

Under our authority under section 1856 of the Act to establish MA standards by regulation, we are proposing to extend the provisions in § 422.133 to SNF services provided in cases in which an MA organization elects, under § 422.101(c), to provide Medicare covered SNF care in the absence of a prior qualifying hospital stay. Note that our policy to waive the 3-day hospital stay requirement for MA plans does not require MA plans to cover SNF stays without a 3-day hospitalization. The policy simply allows such SNF stays to be considered Medicare-covered if the MA plan chooses to cover them. In such an instance, we are proposing to require by regulation that an individual who would be eligible under section 1852(l) of the Act for admission to a “home SNF” upon discharge from a hospital stay, would nonetheless retain his or her right to receive “home SNF” benefits in the absence of such a stay. We propose to deem that a hospital discharge has occurred prior to an admission for SNF services, and provide the MA enrollee full rights to the “home SNF” benefit. For example, the reference in § 422.133(b)(3) to the SNF “in which the spouse of the enrollee is residing at the time of discharge from the hospital” would be deemed to refer to the SNF in which the spouse of the enrollee is residing at the time covered extended care services are initiated. We propose to add a new paragraph (b)(4).

Subpart D—Quality Improvement Program

(If you choose to comment on issues in this section, please include the caption “Subpart D—Quality Improvement Program” at the beginning of your comments.)

1. Overview

The MMA amended section 1852(e) of the Act in a number of significant ways. First the heading of the section was changed from quality assurance to quality improvement. It also deleted the sections of the Act that provided a list of “elements” that an MA plan's quality assurance program was required to address. These provisions were removed and replaced with several new provisions, including the following:

• Each MA plan (other than an MA private fee-for-service plan or an MSA plan) must have an ongoing quality improvement program.

• Each ongoing quality improvement program must have a chronic care improvement program.

• Each MA plan must provide for the collection, analysis, and reporting of data that permits the measurement of health outcomes and other indices of quality, such as HEDIS, CAHPS, and HOS, as discussed below. PPOs however, are only required to collect, analyze, and report data that are furnished by providers that have a contract with the PPO. The MMA also provides for the Secretary to establish separate rules for implementing this requirement with respect to MA regional plans. (See § 422.152(e).)

In response to these amendments, we would change the heading and all references in the section from “quality assurance” to “quality improvement.” In addition, we would modify many of the provisions in § 422.152 that address quality assurance and performance improvement programs. We would also delete the provisions of § 422.154 that address external review, and add requirements related to MA-PD benefits to those that can be “deemed” to be met

based on accreditation under § 422.156(b).

The key provisions of this subpart form the cornerstone for a competition based program in quality of care. We already place information from these systems on the Medicare.gov web site, such as Health Plan Employer Data Information Survey (HEDIS), and Consumer Assessment of Health Plans (CAHPS). We will be exploring additional ways to enhance the use of quality of care systems as part of a competition based program.

2. Quality Improvement Program (§ 422.152)

To reflect the congressional intent to refocus the section on quality improvement, rather than quality assurance, we would change the heading of § 422.152 from “quality assessment and performance improvement program” to “quality improvement program.” The revised section 1852(e)(1) of the Act excludes MA private fee-for-service (PFFS) and MSA plans from the requirement to have an ongoing quality improvement program. This exclusion is, in part, because enrollees of MA PFFS and MSA are not restricted to seeking care from a network of providers. In addition, some believe MA PFFS and MSA plans lack the ability to influence the behavior of providers and enrollees. We would modify § 422.152(a) to reflect that each plan (except MA private-fee-for-service and MSA plans) offered by a MA organization must have an ongoing quality improvement program. As required under section 1852(e)(2) of the Act, we would require MA plans to have a chronic care program in place as part of their quality improvement program. As discussed below, we are proposing that this program be required to meet requirements set forth in § 422.152(c).

Under our authority in section 1856(b)(1) of the Act to establish standards by regulation, we are proposing to require that the quality improvement program required under section 1852(e)(1) of the Act include quality improvement projects that could be expected to have a favorable effect on health outcomes and enrollee satisfaction, and that meet regulatory requirements set forth in proposed § 422.152(d).

We believe that the broad requirements in proposed § 422.152(d) will not present an undue burden for MA organizations, which have years of experience in carrying out performance improvement projects under the current version of § 422.152(d), which, as discussed below, is more prescriptive than the revised version we are proposing in this rule.

In light of the substantially revised quality requirements under this proposed rule, we believe that it is reasonable to expect all MA plans, including regional and local PPOs, to meet the quality improvement project requirements in proposed § 422.152(d). MSAs are excluded from this requirement altogether. We would also require an organization offering an MA plan to encourage its providers to participate in CMS and HHS quality improvement initiatives. Also, MA organizations are encouraged to seek technical assistance from the State quality improvement organization in designing and implementing quality improvement initiatives. By encouraging this participation, MA organizations are facilitating quality improvement in a variety of health care settings.

Our previous quality improvement efforts for M+C coordinated care plans focused on requiring improvement in specific clinical topics and included specific performance measures to be improved. Thus, while we propose to retain regulatory requirements for quality improvement programs, we would revise the requirements in the current § 422.152(b) to enhance plans' ability to target quality improvement efforts to their enrollees' needs by deleting, modifying, and renumbering most of the requirements in this paragraph. Similar to the existing requirements, this paragraph would provide quality requirements for MA coordinated care plans, but would no longer refer to MSA plans. We would also address certain local PPO and all regional MA plan quality requirements in another paragraph—§ 422.152(e) of this section. We are interested in comments on whether or not we should require plans to use comparable measures across plans and making QI program size/scope proportionate to plan size.

The requirements in the existing § 422.152(b)(1) and § 422.152(b)(2) would be retained, as we believe these standards are integral to any plan's quality improvement program, and are consistent with the requirements of private accrediting organizations. Section § 422.152(b)(1), for example, would require that in processing a request for initial or continued authorization of services, MA plans would need to follow written policies and procedures that reflect current standards of medical practice. Section 422.152(b)(2) would require MA plans to have mechanisms in place to detect both under utilization and over utilization of services.

We are directed in section 1852(e)(3)(B)(i) of the Act to require the collection of only the types of data that we collected as of November 1, 2003. We address this requirement in § 422.152(b)(3). We interpret section 1852(e)(3)(B)(i) of the Act to mean that we can continue to require MA coordinated care plans to collect, analyze, and report their performance by using the measurement systems that are currently required, such as HEDIS, Health Outcomes of Seniors (HOS), and CAHPS, as appropriate for the type of plan. We believe that, consistent with private sector practices, we would be allowed to add, delete, or modify measures within these systems. Changes to these measurement systems are generally reviewed and approved by a committee with representatives from managed care plans, beneficiary advocacy groups, private and public health care purchasers.

We are interested in comments on the following options. There are two basic ways to go (1) use the same metrics across all plan types which allows consumers to compare all plans (both groups of plans (for a specific plan type), or specific plans (across or within plan types)) for a larger set of metrics, or (2) tailor the metrics to specific plan types, which limits the dimensions upon which consumers would be able to compare plans.

If, in the future, we believe that a new measurement system should be used to assess MA plans' performance, we are required under section 1852(e)(3)(B)(ii) of the Act to submit a report to Congress that is prepared in consultation with MA organizations and private accrediting organizations. Thus, we have proposed to remove the provisions in § 422.152(c) that address measuring and reporting performance. We also would remove all the requirements relating to minimum performance levels and requirements that address clinical and non-clinical areas.

We will continue to look for cost-effective ways to measure quality for MA plans and will use a variety of procedures to get input from the public, MA organizations, private accrediting organizations, and seek Congressional review.

Proposed § 422.152(b)(3)(ii) would require MA plans to make available to us the information on quality and outcomes measures that will enable beneficiaries to compare health coverage options and select among them, as provided in § 422.64(c)(10).

Section 422.152(b)(4) would require MA local PPO plans that are offered by

an organization that is licensed or organized under State law as a health maintenance organization to follow the same quality improvement requirements as other MA coordinated care plans. Quality improvement requirements for local PPOs that meet the definition of a local PPO that is specified in § 422.152(e)(1) (local PPOs that are not offered by organizations that are licensed or organized under State law as HMOs) are addressed in that paragraph.

3. Chronic Care Improvement Program Requirements (§ 422.152(c))

We would replace the provisions in § 422.152(c) with requirements for MA plans' chronic care improvement programs. As directed by MMA, we would require MA plans to develop criteria for participating in a chronic care improvement program. The criteria must include methods for identifying MA enrollees with multiple or sufficiently severe chronic conditions who would benefit from participating in a chronic care improvement program. The criteria must also provide mechanisms for monitoring MA enrollees that are participating in the chronic care improvement program. We invite comments on these requirements to help us provide additional guidance to MA plans on additional criteria and mechanisms that might be useful to help them identify and monitor MA enrollees that are participating in their chronic care improvement program. For example, are there data or approaches used to identify special needs individuals with severe or disabling chronic conditions who might benefit from enrollment in specialized MA plans that could also be used in the identification of MA enrollees who would benefit from participating in a chronic care improvement program because of their severe chronic conditions?

4. Quality Improvement Projects (§ 422.152(d))

As noted above, we have proposed to delete many of the prescriptive requirements for quality improvement projects that appear in the current § 422.152(d). While MMA has resulted in the deletion of a number of the more prescriptive requirements of quality improvement programs, it still retained the basic requirements of such projects. The MMA retained the requirements of the collection, analysis, and reporting of data that permits the measurement of health outcomes and other indices of quality, for example, HEDIS, HOS, and CAHPS. Furthermore, it added the chronic care improvement program. As mentioned, these aspects of the program provide the cornerstone for a competition based program in quality of care. We already place information from these systems on the Medicare.gov Web site. We will be exploring additional ways to enhance the use of quality of care systems as part of a competition based program. We propose deleting the list of clinical and non-clinical topic areas because it is our intention that MA plans select the topic area for a quality improvement project based on the needs of their enrolled population. It is our intention, however, that MA plans would select topic areas that are relevant to a Medicare population.

We would delete the requirement of including the entire relevant population in the measurement because it has been proven that sampling is an approved method for assessing the performance of providing care and services to a population. Since MA plans conduct quality improvement projects for both the Medicare program and private accreditation organizations, we feel that it is appropriate for them to conduct projects that include both Medicare and non-Medicare enrollees. Thus, they would be allowed to conduct a study of persons with Coronary Artery Disease that includes enrollees that are both over and under 65. However, the sample of enrollees that are studied must be appropriately representative of Medicare beneficiaries. Since the MA plans would be selecting their own topics, it is not necessary for us to ensure that the entire spectrum of clinical and non-clinical areas are addressed by an MA plan. Similarly, we propose deleting the requirement that addresses national and statewide projects because MA plans would be selecting their quality improvement project topics by assessing the needs of their population. Thus, we would delete the following requirements:

• The lists of required clinical and non-clinical areas (§ 422.152(d)(4), § 422.152(d)(5)).

• The requirement that an entire relevant population must be included in the measurement set (§ 422.152(d)(2)).

• The provision authorizing us to ensure that the entire spectrum of clinical and non-clinical areas are addressed by establishing the number and distribution of projects (§ 422.152(d)(3)).

• The requirement for participation in national or site-wide projects (§ 422.152(d)(6)(ii))).

In § 422.152(d)(1), we would require that quality improvement projects be initiatives that include the entire organization and focus on clinical and non-clinical areas. The projects would need to follow the regular quality improvement process (measure, intervene, and then remeasure to determine if the intervention resulted in improvement). We have retained the provisions that quality improvement projects must measure performance, and the interventions must be system-wide and include the establishment or alteration of practice guidelines. In addition, the projects must focus on improving performance and involve systemic and periodic follow-up on the effect of the interventions.

To ensure that the measures (or quality indicators) used in quality improvement projects are reliable and relevant for improving the health care and services furnished to MA enrollees, we would require in § 422.152(d)(2) that the quality indicators be objective, clearly and unambiguously defined, and based on current clinical knowledge or health services research. The measures must also be capable of measuring outcomes, such as changes in health status, functional status, and enrollee satisfaction, or valid proxies of those outcomes.

Likewise, in § 422.152(d)(3), we would require that the data used in an MA plan's quality improvement projects be valid and reliable and based on systemic ongoing collection and analysis of information. We would also require in § 422.152(d)(4) that the interventions achieve measurable and sustained improvement. We would not define what constitutes measurable and sustained improvement in the regulation, but we mean some movement in the quality indicator in an upward or downward direction as appropriate.

Finally, in § 422.152(d)(5), we would retain the requirement that MA plans report the status and results of their projects when requested by us. At this time, we believe that because of the various changes just described, the reporting and review burden would be much less than the current process used in the M+C program. We are considering using a model similar to the one used by private accrediting organizations, where quality projects would be submitted before an onsite monitoring review. For plans selecting MA deeming, their quality improvement projects would be collected and evaluated by the accrediting organization that would be conducting the deeming review.

5. Requirements for MA Regional Plans and MA Local Plans That Are PPOs as Defined in § 422.152(e)

As noted above, section 1852(e)(3)(A)(ii) of the Act provides for us to establish separate regulatory

requirements for MA regional plans relating to the collection, analysis, and reporting of data that permit the measureme

This text is long and has been trimmed here. Open the source document for the complete record.