# Medicare Program; Establishment of the Medicare Advantage Program > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A05-1322 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** January 28, 2005 - **Citation:** 70 FR 4588 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 417 and 422 CMS-4069-F RIN 0938-AN06 Medicare Program; Establishment of the Medicare Advantage Program AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule. SUMMARY: This final rule implements 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. This final rule responds to public comments on a proposed rule published on August 3, 2004 (FR 69 46866). EFFECTIVE DATE : These regulations are effective March 22, 2005 except for the following changes which will become effective on January 1, 2006: amendment of § 417.600(b); removal of § 417.602 through § 417.638; and amendments to § 417.832(d); and § 417.840. 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—Anne 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—Mark Smith, 410-786 8015. Beneficiary Appeals—Chris Gayhead, 410-786-6429. General Information—410-786-1296. SUPPLEMENTARY INFORMATION: 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 . Table of Contents I. Background A. Medicare Prescription Drug, Improvement, and Modernization Act of 2003 B. Relevant Legislation 1. Balanced Budget Act of 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 3. Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) C. Codification of Regulations D. Organizational Overview of Part 422 II. Analysis of and Responses to Public Comments A. Overview 1. Comments on the August 3, 2004 Proposed Rule 2. Organization of the Final Rule B. General Comments 1. Administrative Procedure Act (APA) Issues 2. Other General Comments III. Provisions of the Proposed Rule, Analysis of and Responses to Comments on the Proposed Rule, and Final Decisions IV. Provisions of the Final Rule V. Collection of Information Requirements VI. Regulatory Impact Analysis Regulations Text Acronyms Because of the many terms to which we refer by acronym in this final rule, we are listing the acronyms used and their corresponding terms in alphabetical order below: ABN Advance beneficiary notice ACR Adjusted Community Rate ACRP Adjusted Community Rate Proposal ADL Activities of Daily Living AHRQ Agency for Healthcare Research and Quality AI/AN American Indian and Alaska Native ALJ Administrative law judge APA Administrative Procedure Act BBA Balanced Budget Act of 1997 BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, (Pub. L. 106-113) BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub L. 105-33) CAH Critical Access Hospitals CCPs Coordinated Care Plans CMPs Competitive Medical Plans CORF Comprehensive outpatient rehabilitation facility DSH Disproportionate Share Hospital EGPH Employer and Union Group Health Plans EOC Evidence of coverage ESRD End-Sage Renal Disease FEHB Federal Employees Health Benefits FFS Fee-for-Service plans FI Fiscal Intermediaries HCPP Health care prepayment plan HHA Home health agency HMO Health Maintenance Organizations HOS Health Outcomes Survey ICF/MR Intermediate Care Facilities for Mentally Retarded IHS Indian Health Service IPA Independent Physician Association ISAR Intra-Service Area Rate I/T/U Indian Health Service, Tribal and Urban Health Program LEP Limited English Proficiency LMRP Local Medical Review Policy M+C Medicare+Choice MA Medicare Advantage MA-PD Medicare Advantage Prescription Drug MAC Medicare Appeals Council MCOs Managed Care Organizations MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 MSA Medical Savings Account MYBE Mid-year Benefit Enhancement OACT Office of the Actuary OPM Office of Personnel Management PACE Program All-Inclusive Care for the Elderly P4P Pay for Performance PCP Primary Care Physician PDP Prescription Drug Plan PFFS Private Fee-For-Service POS Point of Service PPOs Preferred Provider Organizations PSOs Provider Sponsored Organizations QI Quality Improvement QIO Quality Improvement Organization RFB Religious Fraternal Benefit SAE Service Area Expansion SEP Special Election Period SHIP State Health Insurance Programs SNF Skilled Nursing Facility SNPs Special Needs Plans I. Background A. Medicare Prescription Drug, Improvement, and Modernization Act of 2003 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) was enacted on December 8, 2003. Title II of the MMA makes important changes to the current Medicare+Choice (M+C) program by replacing it with a new Medicare Advantage (MA) program under Part C of Medicare. On August 3, 2004, we published a proposed rule in the Federal Register (69 FR 46866) that set forth the provisions that would implement Title II of the MMA. Beginning in 2006, the MA program is designed to: • Provide for regional plans that may make private plan options available to many more beneficiaries, especially those in rural areas. • Expand the number and type of plans provided for, so that beneficiaries can choose from Health Maintenance Organizations (HMOs), Preferred Provider Organization (PPO) plans (the most popular type of employer-sponsored plan), Fee-for-Service (FFS) plans, and Medical Savings Account (MSA) plans, if available where the beneficiary lives. • Enrich the range of benefit choices available to enrollees including improved prescription drug benefits, other benefits not covered by original Medicare, and the opportunity to share in savings where MA 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 MA plans to improve service, improve benefits, invest in preventive care, and hold costs down in ways that attract enrollees. • Enhance and stabilize payments to organizations, improve program design, introduce new flexibility for plans, and reduce impediments to plan participation. • 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. Medicare can drive changes in the entire health care system. With these new and improved choices, Medicare beneficiaries, like Federal employees and retirees in the Federal Employees Health Benefits (FEHB) Program, will have the opportunity to obtain improved benefits, improved services, and reduced costs. However, beneficiaries will still be able to remain in traditional Medicare (referred to throughout as “original” Medicare), enhanced by the new Part D drug benefit. All will have the opportunity to switch among plans, or to or from original Medicare, during the annual election period (or “open season”) in November and December. Over time, participating plans will be under continued competitive 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 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 original Parts A and B of Medicare and the new Part D drug benefit and apply these innovative techniques must pass on savings that may result from these care coordination techniques to the enrollee through reduced premiums or additional benefits. Beginning in 2006, payments for local and regional MA plans will be based on competitive bids rather than administered pricing. MA organizations will submit an annual aggregate bid amount for each MA plan. An aggregate plan bid is based upon the MA organization's 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). Our payment to an MA organization for an MA plan's coverage of original Medicare benefits depends on the relationship of the plan's basic A/B bid to the plan benchmark. For a plan with a basic A/B bid below its benchmark, we will pay the MA organization the basic A/B bid amount, adjusted by the individual enrollee's risk factor, plus the rebate amount. (The rebate is 75 percent of the difference between the plan bid and benchmark, and is used to provide mandatory supplemental benefits or reductions in Part B or Part D premiums. The government retains the other 25 percent.) For a plan with a bid equal to or above its benchmark, we will pay the MA organization the plan benchmark, adjusted by the individual enrollee's risk factor. In addition, we would pay the bid amount, if any, for Part D basic coverage. The MMA also requires other adjustments to payments. See the subpart G preamble for a discussion of the geographic Intra-Service Area Rate (ISAR) adjustment and the government premium adjustment (referred to in the MMA as the “adjustment relating to risk adjustment”). We will be able to negotiate bid amounts with plans in a manner similar to negotiations conducted by the Office of Personnel Management(OPM) with FEHB plans. We will 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 is addressed in separate rulemaking found in part 423, changes made in the 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 an actuarially equivalent drug benefit. In addition to the changes because of the MMA, we identified many areas in the proposed rule where we believed we could prevent or reduce unnecessary burden, duplication, or complexity either in interpreting the new MMA provisions or in modifying existing rules to accommodate MA reforms. B. Relevant Legislation 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 (ESRD), could elect to receive benefits either through the original Medicare program or an M+C plan, if one was offered where he or she lived. The primary goal of the M+C program was to provide Medicare beneficiaries with a wider range of health plan choices 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 HMOs that had been offered under section 1876 of the Act), and new options that were not previously authorized. Four types of M+C plans were authorized under the new Part C, as follows: • M+C coordinated care plans, including HMOs (with or without point-of-service options (POS)), provider sponsored organizations (PSOs), and PPOs. • 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 (PFFS) plans. • M+C religious and fraternal benefit (RFBs)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 the 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. To implement these changes, we published an interim final rule in the Federal Register on June 26, 1998 (63 FR 34968); a final rule on February 17, 1999 (64 FR 7968); and a final rule with comment on June 29, 2000 (65 FR 40170). 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 the June 29, 2000 final rule with comment period. 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 in the Federal Register on March 22, 2002 (67 FR 13278), as well as on August 22, 2003 (68 FR 50855). 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. 3. Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 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 [added by the MMA]. Section 1859—Definitions; Miscellaneous provisions. This final rule addresses the new MA provisions in Title II of MMA. The requirement in 1858(a)(2)(D) of the Act to conduct a market survey and analysis before establishing MA regions took place concurrent with the publication of the MA proposed rules. The announcement of the establishment of the MA and Prescription Drug Plan (PDP) regions occurred on December 6, 2004. The regions may be found at http://cms.hhs.gov/medicarereform/mmaregions . Provisions of the MMA addressed in this final rule outside of Title II of the MMA include Section 722—Medicare Advantage Quality Improvement Program, of Title VII. Quality improvement provisions in this final rule may be found under Subpart D—Quality Assurance. C. Codification of Regulations The final provisions set forth here are codified in 42 CFR Part 422, The Medicare Advantage Program. The regulations for managed care organizations (MCOs) that contract with CMS 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 The MMA amended the existing provisions of the Medicare statute found in Part C of Title XVIII, sections 1851 through 1859 of the Act, and added a new section 1858 to the Act. This final 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 final rule does not set forth unchanged regulations text from the previous part 422. Thus, this final 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 that subpart H are not set forth in this final 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 cost-sharing in enrollment-related costs (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 L—Effect of change of ownership or leasing of facilities during term of contract. Subpart M—Beneficiary grievances, organization determinations, and appeals. Subpart N—Medicare contract determinations and appeals. Subpart O—Intermediate sanctions. Each of these subparts is discussed below in section II of this preamble. II. Analysis of and Responses to Public Comments A. Overview 1. Comments on the August 3, 2004 Proposed Rule We received 186 items of correspondence containing more than a thousand specific comments on the August 3, 2004 proposed rule. Commenters included MCOs and other industry representatives, representatives of physicians and other health care professionals, beneficiary advocacy groups, representatives of hospital and other providers, insurance companies, employers, States, accrediting and peer review organizations, members of the Congress, Indian Health Service (HIS), Indian Health Service, Tribal and Urban Health Programs (I/T/U), American Indians and Alaska Natives (AI/AN), and others. Consistent with the scope of the August 3, 2004 proposed rule, most of the comments addressed multiple issues, often in great detail. We received many comments expressing concerns unrelated to the proposed rule. Some commenters expressed concerns about Medicare unrelated to the MA program, while others addressed concerns about health care and health insurance coverage unrelated to Medicare. Because of the volume of comments we received in response to the August 3, 2004 proposed rule we will be unable to address comments and concerns that are unrelated to the proposed rule. Listed below are the six areas of the proposed regulation that generated the most concern: • Bidding and Payment. • Access issues, including network adequacy and access providers, including rural providers. • Specialized Medicare Advantage Plans. • Establishment of MA Regions. • Eligibility and enrollment issues, including disenrollment for failure to pay cost sharing and lock in. In addition, we received many comments on the proposed rule relating to Part 417 for Health Maintenance Organizations; Competitive Medical Plans, and Health Care Prepayment Plans that contract with CMS under cost contracts. A discussion of those comments may be found separately at that Part. 2. Organization of the Final Rule In this final rule, we address all comments received on the proposed rule. We are addressing issues according to the numerical order of the relative regulation sections. B. General Comments 1. Administrative Procedure Act (APA) Issues We received several comments on various aspects of the rulemaking process, as discussed below: Comment : One commenter suggested that we waive the APA provision that requires at least 30 days notice prior to a final regulation becoming effective in order to allow applicants applying to become specialized MA plans for special needs individuals, or “SNPs,” to have the new requirements apply as soon as possible. The commenter made this recommendation in the event that this final regulation was not issued prior to the MMA statutory deadline for issuing a final regulation for SNPs that was 1 year following the date of enactment, or December 8, 2004. Response : The first two categories of special needs individuals, institutionalized persons and dual eligibles, were specified in the statute, and we have already begun working with plans wishing to become specialized MA plans for these categories of special needs individuals. We discuss in subpart A below our approach to allowing for the additional category of special needs individuals—those with severe or disabling chronic conditions. This final rule will take effect March 22, 2005, except where otherwise noted . We do not believe it is necessary to waive the 30-day notice period because it likely will take longer than the 30-day period for a plan's application and approval process to occur. However, we intend to work with applicants who wish to offer specialized MA plans to ensure that the approval process is as efficient and timely as possible. Comment : We received a number of comments on the timing of the regulation and the short timeframe between issuance of the final regulation and preparation of applications and bids early in 2005 for contract year 2006. One commenter stated that the time required to re-contract with its commercial provider networks to ensure that the PPO contracts contain the Medicare required language and rate structure that are reflective of CMS reimbursements, is substantial. The commenter indicated that it needed more time to build the system infrastructure to support a new systems platform than would be required for commercial enrollees. The commenters suggested that plans may have to limit the number of regions in which they participate because of the short timeframes between issuance of the regulation and the application filing deadline. Response : We agree that working within the statutory constraints of the MMA, including the relatively short period of about 13 months between enactment of the legislation and issuance of final regulations, there is little time between issuance of the regulation and the preparation of applications and bids in 2005 for contract year 2006. With respect to the short time frame in applications and submission of bids, please refer to the comments and responses related to bidding at § 422.254 and § 422.502 related to application requirements. Our goal beginning on the date of enactment of the MMA was to issue final regulations as soon as possible so that prospective MA plans would have the necessary information to be able to make business decisions before bids are due mid 2005. Comment : Several commenters recommended that CMS issue a final rule with comment period prior to implementation of the final rules. The commenters expressed concern that certain aspects of the proposed rule that would impact rural providers have not been specified in sufficient detail. One commenter recommended that CMS conduct a second notice of proposed rulemaking incorporating changes from the first round of comments and allowing for public comment on the additional details that are currently under development, or issue the regulations on an interim basis with a second comment period on the additional, important details that are currently under development or that reflect decisions made following this round of comments. Response : Under the APA, we are required to provide the public with the opportunity to review and comment upon proposed regulations. We have done this through the publication of the August 3, 2004 proposed rule and its corresponding comment period. We believe that allowing for a second round of comments or publishing interim regulations would make it difficult for MA organizations wishing to offer MA plans in 2006 to prepare to meet the new requirements imposed by the MMA and implemented by this final rule. 2. Other General Comments Comment : A number of commenters stated that the final regulation must address the unique state of AI/AN people and the Indian health program. In particular, these comments raise concerns about the implications of the proposed rules on the Indian health care delivery system. For example, there is concern that the proposed rules will jeopardize significant revenues the Indian health system now collects from Medicaid for “dual eligibles,” that is, those individuals who are eligible for both Medicare and Medicaid. They ask for substantial modifications to the proposed rules to enable voluntary enrollment by AI/AN populations in MA plans. Some of the suggested modifications include: (1) encouraging MA enrollment by AI/AN by removing financial barriers, such as waiving AI/AN cost sharing for all plans; (2) ensuring that I/T/U Health Programs are held harmless financially, and are fully reimbursed for covered services provided to AI/AN who enroll in a MA plan. Response : We appreciate the numerous comments that provided information on unique health needs for the AI/AN populations. As noted elsewhere, we are implementing the MMA statute through this rulemaking. We do not have the flexibility to include language that would carve out a subset of Medicare beneficiaries, such as AI/AN populations, if it is not provided for in statutory language. Specific comments raised by the AI/AN and I/T/U organizations will be addressed in the respective subparts under which the comments were submitted. In general, however, we believe that the newly created regional plans will create new choices for the AI/AN populations, and that access to MA plans will be improved. Similarly, because MA regional plans must reimburse for all covered benefits in and out of network, IHS facilities may receive reimbursement for out of network care provided to a regional MA plan AI/AN beneficiary by that MA regional plan. Under provisions designed to protect the Medicare program from fraud and abuse, a broad waiver of beneficiary cost sharing of the type the commenter requests would not be permitted. However, we make no statement regarding the applicability of existing statutory and regulatory provisions that may allow for the waiver of cost sharing in certain cases. Comment : One commenter recommended that CMS develop and conduct educational and informational activities on the differences in the various MA options, particularly in areas where there are choices of original Medicare, managed care plans, PPOs, MSAs and PPFs plans. The commenter believes that there is a potential for confusion and error for beneficiaries with so many choices. Response : We agree that strong outreach to beneficiaries about their new choices of MA plans, as well as the drug benefit, is critical to the success of these new programs. We will be devoting more resources to providing new information and education on the new plan choices and drug benefit. Comment : We received a number of general comments on specialized MA plans for special needs individuals, sometimes referred to as “SNPs” or “special needs plans”. Comments relating to definitions of SNPs may be found in subpart A and comments on enrollment may be found in subpart B below. Among the general comments was a suggestion to disseminate a set of guiding principles for SNPs and further refine them as experience increases. We also received a comment that network adequacy for SNPs should be evaluated to ensure timely, accessible, and appropriate care and that all necessary specialists are represented. Further, it was suggested that the provider network should be broad enough to ensure that vulnerable populations served have timely access to all necessary specialists required to address special needs. Additionally, several commenters stated that CMS should incorporate into regulation the authority to waive or modify MA requirements that conflict with the intent of the SNP provision. Finally, some commenters requested that CMS provide guidance with regard to the States' role in developing and approving SNPs for dual eligibles. It was recommended that CMS give states maximum flexibility in using waiver authority to integrate Medicare and Medicaid benefits for dual eligibles under SNP programs. A commenter suggested that CMS consult with State Medicaid agencies where Home and Community-based waivers are operating before allowing these populations to be enrolled in SNPs because this could add to the cost and complexity of providing services. Response : We provided Interim Guidance for SNPs in the 2005 Call Letter in June 2004 and will provide additional operational guidance for SNPs after publication of the final rule. Interim guidance may be obtained at www.cms.hhs.gov/healthplans/specialneedsplans/qaspecneeds06-23.pdf . Consistent with current policy for network adequacy for MA plans as found at § 422.112, we will require that MA organizations submit information about their provider network and will review this information as part of the application and approval process to ensure that timely, accessible, and appropriate care is provided. We will be particularly interested in the availability of care designed to address the needs of the enrolled special needs population. While the MMA allows SNPs to limit enrollment to a defined population, as described in § 422.52, the law does not provide for waiver of other MA requirements for SNPs. We encourage States and MA plans to work cooperatively in developing programs to serve dual eligibles and will help to coordinate these efforts where appropriate. We believe that SNPs can be appropriate for care and services to those in the community and lead to the coordination of the complex services they need. Finally, we note that program oversight is an essential government function that is an integral component of implementing the MA program. Throughout this rulemaking, we refer to government activity necessary to implement this section, which includes program oversight authority. III. Provisions of the Proposed Rule, Analysis of and Responses to Comments on the Proposed Rule, and Final Decisions 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) Authority for cost HMOs/CMPs (cost plans) was due to expire on 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 of the same type 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. We interpreted 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. We asked for comment on our interpretation in the proposed rule related to mandatory service area reductions, saying that an alternative reading of section 234 of the MMA might permit renewal of a cost plan in all parts of its service area until there was competition from two (or more) MA coordinated care plans throughout the cost plan's service area. After reviewing comments and responding (below), we are adopting the proposed policy as final. At § 417.402, we proposed 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. After reviewing comments and responding (below), we are adopting the proposed policy as final. We received the following comments on the proposed provisions for subpart J of part 417 and have provided our responses: Comment : Many commenters supported the non-renewal of cost HMOs/CMPs as proposed in the proposed rule. These commenters made reference to the statutory and Conference Committee Report language that indicated the Congressional intent that cost plans are to be required to operate under the same provisions as other private plans to the extent other private plans are willing to enter the cost plan's service area. Many other commenters objected to the partial non-renewal proposal made in the proposed rule. Many stated that competition from MA coordinated care plans was more likely in urban areas, where most cost plan enrollment is concentrated. These commenters stated that even where there is no MA coordinated care plan competition in rural areas, the viability of a cost plan without an urban “core” would likely be threatened. To the extent CMS non-renewed cost plans in urban areas, the financial viability of the organization offering the cost plan would be undermined in rural areas as well because of the loss of economies of scale. Such a result would be contrary, these commenters said, to an underlying concept of the MMA, which is to increase choices for Medicare beneficiaries in rural areas. Finally, many of these commenters stated that continuity of care would be needlessly lost for members in urban areas enrolled in cost plans that were partly non-renewed, because the members would be forced to change Medicare plans and providers. Response : We generally support the notion of continuity of care. However, we believe that when competing MA coordinated care plans are available in an area that will be non-renewed for a cost plan, non-renewed cost members are able to continue to receive services from current providers through either enrollment in one of the competing MA coordinated care plans or by returning to FFS Medicare. We recognize that when a cost plan is non-renewed in an urban area with MA coordinated care plan competition, the financial viability of the cost plan in rural areas without MA coordinated care plan competition may be undermined. However, we believe that allowing a cost plan to continue to compete for members in areas of MA competition would unfairly undermine the financial viability of the competing MA coordinated care plans. Therefore, we have not modified our regulation. We believe that this interpretation is consistent with the statutory intent that cost plans will not be permitted to compete for new members under different provisions from those applicable to other private plans that have entered the cost plan's service area. Comment : Some commenters stated that the proposed regulation text at § 417.402(c)(1) and (2) did not specify what kind of “year” was meant—calendar year, 12 month period, or something else. All of these commenters also recommended that CMS specify in regulation text that the “year” referred to is a calendar year. Response : We agree with this comment and have modified the regulation text to specify that the “year” in question is a calendar year. This is consistent with the statute, in that MA and cost plan offerings are for calendar years. To the extent that competition has been present for the entire previous calendar year, it should mean the calendar year immediately prior to the year in which the cost plan will be required to non-renew in a portion of its service area or have its contract non-renewed. Comment : Many commenters recommended that CMS distinguish between the meaning of “plan” within the section 1876 cost program and the meaning of “plan” within the MA program. Under the section 1876 cost program, each CMS-contracting HMO/CMP is allowed to offer a single Medicare cost “plan”—see section 1876(c)(2)(A)(I) of the Act. On the other hand, under the MA program, each CMS-contracting MA organization is permitted to offer many MA “plans”—see § 422.4(b). Response : We disagree with the commenters. Section 234 of the MMA expressly provides that a cost contract may not be extended or renewed for a service area if such service area during the previous year was within the service area of two or more coordinated care plans of the same type (that is, regional or local) that meet the relevant enrollment requirements. Because a single MA organization may offer two different MA coordinated care plans within a cost plan's service area, a single MA organization can trigger the non-renewal of the cost contract, if the other requirements of Section 1876(h)(5)(C)(ii) of the Act are met. Comment : Several commenters submitted comments stating that specialized MA plans for special needs individuals (special needs plans or SNPs) (defined at § 422.2) should not count in the MA coordinated care plan competition tests in § 417.402(c)(1) through (3), because they are not available to the general public and therefore not a true test of the availability of MA coordinated care plans in the service area of a cost plan. Response : We agree with the commenter that the Congress intended to permit cost plans to remain in place in an area until the enrollees in that cost plan have at least two local or two regional MA plan options to choose from in the area. Because in many cases cost enrollees would not be eligible to enroll in a SNP, we do not believe that the existence of a SNP in a service area should automatically count as an option available in that service area. We note that the statute refers to a cost plan's service area being within the “service area” of two local or regional MA plans. The MA regulations at § 422.2 define a plan's service area as an area within which an MA-eligible individual may enroll in a particular MA plan offered by an MA organization. Although a SNP's service area is open to all individuals in the service area who are in the special needs category served by the plan, it may not be open generally to MA-eligible individuals (for example, if it is a SNP that exclusively, rather than disproportionately, enrolls special needs individuals). For this reason, we believe that a cost plan may not be “within the service area” of a SNP, as this term is used in the competition test, in some cases. We will therefore apply the competition test on a case-by-case basis with respect to SNPs. If the SNP is an option available to the cost plan's enrollees, and the SNP meets the requirements of section 1876(h)(5)(C)(ii) of the Act and § 417.402(c), it will be taken into account in determining whether the cost plan may be renewed. Similar considerations apply to MA plans that exclusively enroll employer/labor group members under authority provided in section 1857(i) of the Act and § 422.106(c) and (d). To the extent the employer/labor group MA plan is available to the cost plan's enrollees, and the MA plan meets the requirements of section 1876(h)(C)(ii) of the Act and § 417.402(c), it will be taken into account in determining whether the cost plan may be renewed. Thus, we will also apply the competition test on a case-by-case basis with respect to employer/labor group MA plans. Comment : One commenter suggested that implicit in the “competition” tests was the fact that the MA coordinated care plans that caused the non-renewal in a portion of the service area, or that caused the non-renewal of the cost plan in its entire service area, would be available in the coming year. The commenter was concerned that CMS might enforce this section of the cost regulations, even if one of the MA plans used in establishing the “competition” threshold were non-renewing or withdrawing from the service area in the year in which enforcement would occur. Response : Because such a result would be contrary to statutory intent, CMS will not proceed with enforcement when fewer than two MA coordinated care plans will be offered to Medicare beneficiaries in the affected area at the time of enforcement. Comment : One commenter asked CMS to state its clear intent in regulatory text that we will allow cost plans to expand service areas after September 1, 2006. Response : As we said in the preamble of the proposed rule and repeated in this preamble: “We will 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 specifically included the first sentence in regulation text at § 417.402(b). However, service area expansions are not guaranteed after that date. Please note that the regulation text at § 417.402(b) specifically authorizing service area expansions through September 1, 2006, does not preclude them thereafter. Additionally, the new language replaces identical language in this section of the regulation (and which language first appeared in section 634 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA)) which provided service area expansion authority for cost plans through September 1, 2003. The commenter should note that we have previously interpreted the language in BIPA and in our regulations to be permissive in this area, rather than proscriptive. We will continue to apply it permissively in this area to the extent that the conditions for non-renewal under Section 1876(h)(5)(C) and § 417.402(c) are not present. Subpart Q—Beneficiary Appeals Changes to subpart Q are addressed in the preamble discussion for subpart M, which deals with appeals policy for MA plans, cost plans and HCPPs. A. Subpart A—General Provisions (§ 422.1) 1. Conforming Changes Subpart A of the August 3, 2004 proposed rule set forth several general and conforming changes dictated by MMA. Below is a summary of the provisions in subpart A. (For a broader discussion of the provisions, please refer to our proposed rule.) The provisions are as follows: • Section § 422.1 lists the statutory authority that is implemented in part 422. In § 422.1, we have added the new section 1858 of the Act that pertains to “Special rule for MA Regional Plans.” • We removed provisions relating to application requirements and evaluation and determination procedures in § 422.6 and § 422.8 and added them to § 422.501 and § 422.502 of subpart K, so that all application and contracting information is in one place. • We redesignated and amended § 422.10 as § 422.6 and amended newly redesignated § 422.6. Section 422.6 (formerly § 422.10) described 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) The majority of the proposed changes in subpart A concerned new, revised, and obsolete definitions for the new MA Program in § 422.2. The MMA required several new and broad definitions; “MA regional plans,” “specialized MA plans,” “ACR,” “Additional benefits,” “Adjusted community rate,” and “M+C” obsolete after 2006. In proposed § 422.2, we also revised 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. Benefits may include reductions in cost sharing for benefits under the original Medicare FFS 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 retained 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. (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 removed “additional benefits” from the definition of “basic benefits” because MA plans will no longer offer additional benefits. In addition, we 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 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 were established; MA Regional plans, which are regional PPO plans, and specialized MA plans for special needs individuals, or SNPs. We defined 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. We defined 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. A regional MA plan's service area is one or more entire MA regions; thus, we defined an “MA regional plan” as a private health plan that operates as a PPO, but serves an entire CMS-designated region. 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. We defined an “MA local plan” as one that is not an MA regional plan. Also defined under part 422 are the “Prescription Drug Sponsor,” “PDP,” and a “MA 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. In section 1859(b)(6)(A) of the Act, specialized MA plans for special needs individuals or SNPs are defined to be MA plans that exclusively serve special needs individuals defined in section 1859(b)(6)(B) of the Act. The establishment of specialized MA plans allows MA plans to exclusively enroll special needs individuals in MA plans that have targeted clinical programs for these individuals. Section 1859(b)(6)(B) of the Act identifies three types of special needs individual as: (1) institutionalized individuals; (2) individuals entitled to medical assistance under a State plan under Title XIX; and (3) other individuals with severe or disabling chronic conditions as the Secretary determines would benefit from enrollment in a SNP plan. Comment : One commenter supported a broad definition that tracks section 1859(b)(6) of the Act in order to provide CMS with the flexibility needed to approve a wide range of proposals to meet the unique needs of special populations and expand their choices. Response : We agree with the commenter. We are providing general guidelines in our regulations in order to maintain the flexibility to approve a wide range of proposals, while also protecting the interests of special needs beneficiaries. The Secretary may also designate an MA plan as a specialized MA plan for special needs individuals, “SNP,” if the plan “disproportionately” serves special needs individuals. Comment : Several commenters responded to the question in the proposed rule as to whether CMS should allow specialized MA plans that disproportionately enroll special needs individuals, or “disproportionate percentage” plans and how they should be defined. Most commenters supported including “disproportionate percentage” plans in the definition of SNPs. One of the reasons given was to allow married beneficiaries, or children of special needs individuals, to enroll in the same plan as the spouse or parent, even if only one individual meets the definition of a special needs individual. Many commenters suggested that CMS not establish detailed criteria to define disproportionate percentage, particularly at the outset. It was felt that enrollment thresholds might act as a barrier to plan participation and limit choices available to Medicare beneficiaries. Some commenters suggested that CMS identify “exclusive” and “disproportionate” plans at the time of each application. Some commenters recommended that the criteria be national, not regional or local. Several commenters agreed that the criteria should be quantitative, for example, an MA plan risk score in the upper quintile of all MA plans, or a frailty score in the upper quintile of all MA plans as measured by Activities of Daily Living (ADL) scores on the Health Outcomes Survey (HOS). Some commenters recommended that a “disproportionate percentage” SNP enroll fifty (50) percent or more special needs individuals. Another commenter suggested that SNPs remain exclusive, but if plans were able to enroll those without special needs, at least eighty-five (85) percent of the plan's enrollees should be individuals with special needs. Another commenter stated that requiring an upper limit of more than seventy-five (75) percent of special needs individuals would be problematic. One commenter believes that “redesignated” SNPs, that is, regular MA plans that become SNPs, be allowed to continue enrolling non-special needs individuals as long as overall enrollment contains a higher proportion of special needs individuals than exist in the plan's service area. One commenter suggested that—(1) an annual certification and compliance process; (2) that new plans have a 3-year startup period to attain the threshold, and (3) that CMS annually publish risk score distributions. Another commenter recommended that non-exclusive plans be defined as having a higher than average enrollment of one or more of the special needs individuals groups as estimated for MA plans and/or the FFS population. Response : We agree that a special needs individual's family members may want to join the same plan. We acknowledge that MA plans do not have to be exclusive to provide quality specialized programs for special needs individuals. We received a wide range of recommendations for defining a “disproportionate percentage” SNP. We acknowledge that there are numerous ways to define and identify disproportionate percentage SNPs and agree with those commenters who felt the parameters should not be overly restrictive, particularly at the outset. SNPs are a new type of coordinated care plan and we believe that plans and CMS might not anticipate all factors that should be considered in determining an acceptable percentage. We also want to encourage plans to develop programs to more effectively care for special needs individuals. In order to ensure flexibility, and take into consideration the experience gained by plans and CMS as SNPs mature, we will define a “disproportionate percentage” SNP as one that enrolls a greater proportion of the target group (dually eligible, institutionalized, or those with a specified chronic illness or disability) of special needs individuals than occur nationally in the Medicare population based on data acceptable to CMS. We will provide further guidance as to what data sources may be used to determine a national percentage for a special needs group being targeted by the disproportionate percentage plan. Under our authority as provided in section 231(d) of the MMA, we are revising the definition of specialized MA plan to include “disproportionate percentage” plans. Comment : Several comments were received regarding how CMS should identify those with severe or disabling chronic conditions that would make them eligible for enrollment in a SNP. Several commenters suggested using broad flexibility, reflecting the language in section 1858(b)(6) of the Act. Other commenters recommended that SNPs should serve as laboratories for developing population-based management protocols, not single-disease State management protocols for diagnoses that could be well-served by a standard MA plan. Another commenter recommended limiting enrollment to those with late-stage chronic conditions, those with co-morbidities, adult disabled, and frail elderly. Some commenters suggested basing the definition on conditions for which alternate care delivery models, such as disease management and evidence-based medicine, exist, and also take into consideration conditions that are expensive and prevalent for there to be savings and risk-management potential. Commenters also recommended that conditions should be those associated with recognized quality measures, so that CMS may carefully monitor specialized MA plans. None of the commenters objected to including those individuals who are not institutionalized but require an equivalent level of care. ESRD, diabetes, congestive heart failure, Alzheimer's and other dementias along with one or more other serious conditions, HIV/AIDs, and frail elderly and adult disabled with multiple chronic conditions requiring complex medical management were among the specific conditions suggested for specialized MA plans. Another commenter suggested that on an interim basis CMS restrict the definition to those who are nursing home certifiable, as defined by each State; ESRD patients; and those diagnosed with AIDs, and, in the meantime, collect ADL data through the Health Outcomes Survey (HOS) and use this measure in conjunction with Activities of Daily Living (ADL) measures to identify high-risk groups. Other commenters suggested additional detailed formulas for identifying groups eligible for specialized MA plans. Response : Because this is a new “untested” type of MA plan, we are not setting forth in regulation a detailed definition of severe and disabling chronic condition that might limit plan flexibility. We will review and evaluate proposals for specialized MA plans that serve severe or disabling chronic disease categories, including HIV/AIDs, on a case-by-case basis. Among the criteria to be considered will be the appropriateness of the target population, the existence of clinical programs or special expertise to serve the target population, and whether the proposal discriminates against “sicker” members of the target population. Other Comments on § 422.2 We requested comments on § 422.2 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. We received several comments supportive of the development of an HIV/AIDS special needs plan. Therefore, we will consider this type of plan application to become a special needs plan for Medicare-eligible individuals living with HIV/AIDs. For purposes of specialized MA plans, we proposed to define “institutionalized” in the proposed rule as residing 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). Comment : Several commenters suggested that the 90-day residence requirement (as determined by a 90-day assessment in the minimum data set) be modified. One commenter suggested determining institutional status based on the discharge potential at admission. Another commenter suggested changing the requirement to 30 days. One commenter did not object to 90 days, but recommended changing the language to allow CMS to approve exceptions in case the institution failed to perform the assessment. In addition, one commenter suggested that “institutionalized” also include those residing in Intermediate Care Facilities for the Mentally Retarded (ICF/MR). Several commenters recommended that those living in the community while requiring an institutional level of care be considered institutionalized. Response : In response to comments, we are clarifying and broadening the definition of institutionalized for purposes of defining a special needs individual to take into consideration those with chronic mental conditions and other chronic conditions. For purposes of defining a special needs individual, “institutionalized” means residing in or expected to reside in a long-term care facility which is a skilled nursing facility (SNF) as defined in section 1819(a) of the Act; a nursing facility (NF) as defined in section 1919(a) of the Act; a SNF/NF; an intermediate care facility for the mentally retarded (ICF/MR) as defined in section 1905(d) of the Act; or an inpatient psychiatric facility as defined in section 1861(f) of the Act for 90 days or longer. A SNP may enroll special needs individuals prior to a 90-day stay based on an assessment of the potential for a stay of that length as long as the assessment is of a type approved by CMS.. For example, a SNP for individuals with serious mental conditions may show us that the State requires a plan of care or similar assessment prepared by a health professional upon admission. We recognize that this definition is not the same as the definition of “institutionalized individual” in 42 CFR § 423.772. That provision is an income and resource-based definition for the purpose of determining Part D premiums and cost-sharing subsidies for low-income individuals. The term “institutionalized” as used for purposes of defining a special needs individual under this Part is for the purpose of identifying a vulnerable population that might benefit from enrollment into a SNP. We also wish to clarify that our definition of institutionalized for purposes of defining a special needs individual does not relate to the MA payment methodology . For purposes of SNPs, we may also consider as institutionalized those individuals living in the community but requiring a level-of-care equivalent to that of those individuals in the aforementioned long term care facilities. We believe that 90 days is the most appropriate and accurate timeframe for determining long-term residence in an institution. We base this on information we collected showing that, once a beneficiary is institutionalized for 90 or more days, it is less likely that that individual will return to a community setting. However, SNPs may enroll institutionalized beneficiaries based on a CMS-approved assessment (as described in further operational guidance following publication of this rule) showing the beneficiary is expected to reside in the institution for 90 days or more. Given the latitude provided under the disproportionate percentage criteria, we do not think that the 90-day definition for institutionalized will adversely affect specialized MA plans' ability to enroll eligible beneficiaries. Comment : Several commenters supported the proposed approach to require all specialized MA plans to provide Part D coverage. Response : We agree with the commenters, especially in light of the fact that special needs individuals in particular need access to prescription drugs to manage and control their severe or disabling chronic conditions. Therefore, we are including the Part D coverage requirement for all specialized MA plans at § 422.2 in the definition of a specialized MA Plan. Comment : One commenter recommended that CMS change the definition of PDP as it is incorrect and not consistent with the Medicare Prescription Drug Benefit Program proposed rule. Response : We agree with the recommended change to the definitions of PDP and PDP sponsor found at § 422.2. To avoid any confusion, we are revising the definitions in Title II to cross-reference the definitions of PDP and PDP sponsor found in part 423, the Medicare Prescription Drug Benefit. Comment : Several commenters recommended that CMS make a revision to the basic benefits definition found at § 422.2 to add “including covered services received through an IHS program.” Other commenters recommended that CMS add to the special needs individual definition “AI/IN are exempt from mandatory enrollment in Title XIX plans but would qualify for optional enrollment in an AI/AN specialized need plan.” Response : We do not believe there is a statutory basis in the MMA to include non-covered Medicare services received through an IHS program in the definition of basic benefits. We also do not believe it is necessary to include a specific reference to Medicare covered services provided through an IHS program in the definition of basic benefits. If a service is a covered service, it is already included in the definition. Therefore, we are not making the requested change. Similarly, the MMA does not authorize us to revise the definition of special needs individual as suggested. The statute defines special needs individuals who are defined as those who are Medicaid, institutionalized or those with severe or disabling chronic conditions. Clearly, AI/AN individuals who fit any of those definitions could choose to enroll in a specialized MA plan if one were offered in their area. The suggested change to the definition of special needs individuals to add optional enrollment in an AI/AN specialized MA plan suggests that some AI/AN organizations may be interested in offering a specialized MA plan. Under the statute, a specialized MA plan must be open to all eligible Medicare beneficiaries who are within the class of special needs individuals the plan serves. We see no statutory basis for allowing a plan to limit enrollment only to AI/AN Medicare beneficiaries. Conceptually, supplemental benefits could be offered in the specialized MA plan to assist chronically ill enrollees to prevent or treat illnesses that affect AI/AN populations and others enrolled in the plan. As described at § 422.501, a prospective SNP would need to submit an application to CMS detailing its plan for treating those with severe or disabling chronic conditions. Finally, we would note that we are not adding language exempting AI/AN from mandatory enrollment in Title XIX plans as it is not within the scope of this rulemaking. We note however, that under sections 1115 and 1915(b) of the Act, mandatory enrollment under Medicaid for such populations is permitted. Comment : Several commenters suggested that CMS add a new definition to § 422.2 to afford specialized MA plans the status of regional MA plans for most purposes (including special rules and incentives applicable to regional MA plans), without having to cover multiple States. The commenters suggested that plans may be reluctant to take on multiple State regions with enrollment limited to Medicaid eligibles in the region. Response : As described in section 1858(a)(1) of the Act and as reflected in § 422.455(a), a MA plan must cover an entire region, including offering enrollment to all eligible Medicare beneficiaries within that region whether the region is a single State or multiple State area. Therefore, a special needs plan may receive the stabilization fund payments and other incentives for its participation as a regional plan only if the plan would comply with all requirements in section 1858 of the Act applicable to Regional MA plans. This means, that it would have to be open to enrollment for every member of the special needs category in the entire region in question, meet access standards for the individuals in all areas of the region, market to all areas of the region, and offer uniform benefits and cost-sharing in all areas of the region. Comment : A commenter recommended that CMS revise the definition of service area as found in § 422.2. The commenter indicated that as proposed, the language of § 422.2 appears to have established a lower standard for approval of regional PPO service areas. The commenter recommended that CMS separately define service area requirements for HMOs and PPOs and that the requirements for approval of a PPO apply to both local and regional PPO plans alike. The commenter also recommended that CMS consider the more flexible design of a PPO and in turn allow for more flexibility with respect to service area approval. The commenter understands that local PPOs are not required to cover an entire region, but also indicated that it is difficult even in small States to meet the availability and accessibility requirements by the time the service area application is due. Response : We appreciated the comment to clarify this definition as we found it had been improperly numbered and created some confusion. Therefore, we have renumbered the sub-definitions and included language that makes clear that we may consider whether the contracting provider network meets the access and availability standards set forth in § 422.112, for all MA coordinated care plans and network MA MSA plans. We also have made technical corrections because the distinction between non-network and network MSA plans is no longer applicable, as discussed in further detail below. We believe this change will further reduce confusion. 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 under the M+C program and to increase the number of areas in which private health care options are available to Medicare beneficiaries. Entities can contract with us to provide five general categories or types of plans: (1) local MA coordinated care plans; (2) MA MSA plans; (3) MA PFFS plans; (4) regional PPO coordinated care plans; and (5) specialized MA coordinated care plans. In the August 3, 2004 proposed rule, we proposed to clarify that the PPO definition that was in existence before (defined by the BBRA) was solely for purposes of the application of the more limited quality assurance requirements. For PPO-type plans that are offered by MA organizations that are licensed or organized under State law as HMOs, 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. Effective January 1, 2006, MA organizations that offer MA local plans that are PPOs will need to provide only 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, a local PPO offered by an MA organization that is licensed or organized under State law as an HMO will be required to meet the normal data collection, analysis, and reporting requirements. We proposed to modify the definition of PPOs in § 422.4 to account for this more limited interpretation of State licensure requirements and modified headings in § 422.152(b) and (e). Under section 233 of the MMA, MA organizations are authorized to offer MSA plans as a permanent option. MMA also eliminated 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 the plans, and exempted MSA plans from certain quality assurance requirements that the BBA applied to “network” MSA plans. To conform with MMA's changes to MSAs, we proposed to delete the descriptions of the M+C network MSA plan and M+C non-network MSA plan as different types of plans at § 422.4(a)(2)(ii), since the distinction between network and non-network MSAs for the purpose of quality assurance requirements was no longer applicable. As noted above, we are making similar changes to the definition of service area at § 422.2. We are making a technical correction to the final MA regulation. Our current regulations at § 422.2 read “Religious and Fraternal Benefit (RFB) Society.” We are amending the definition of “Religious and Fraternal Benefit (RFB) Society” by removing the words “Religious and fraternal” and adding the words “Religious fraternal” in their place. We are making this change to the definition as it is potentially confusing and is not consistent with the statutory definition of “Religious Fraternal Benefit Society” at section 1859(e)(3) of the Social Security Act. We are also making a technical change to § 422.4(a) to clarify that RFB Society plans may be any type of MA plan, and are not restricted to being a type of coordinated care plan only, as implied by the inclusion of “RFBs” exclusively in § 422.4(a)(1)(iii). Thus, we are removing the reference to RFBs from that section. We also are deleting the word “network” from the parenthetical at the end of § 422.4(a)(1)(iii) because the distinction between network and non-network MSAs no longer applies. Comment : Many commenters suggested that CMS more clearly coordinate between the Medicare Prescription Drug Benefit Rule at part 423 and the MA Program Rule at part 422. Response : In response to this comment, we are making several changes to clarify the interaction between Part C and Part D. Specifically, we are clarifying the language at § 422.4 on types of MA plans and Part D prescription drug coverage. We are adding a new paragraph (c), Rule for MA Plans' Part D Coverage. This paragraph clarifies the requirements for MA coordinated care plans, MA MSAs, and MA PFFS plans by stating that a coordinated care plan must offer qualified Part D coverage meeting the requirements in § 423.104 in that plan or in another MA plan in that area. We also added language that MSAs cannot offer drug coverage, other than that required under Parts A and B of Title XVIII of the Act. Finally, we added language that MA organizations offering PFFS plans can choose to offer qualified Part D coverage meeting the requirement in § 423.104 in that plan. Comment : One commenter recommended that CMS clarify the language at § 422.4(a)(1)(v). The commenter wants to ensure that an organization that wants to apply as a local HMO, but does not have an HMO license in its State, but is otherwise licensed as a risk-bearing entity in its State, will not be considered a PPO and thus subject to the 2-year moratorium on local PPOs as found at section 221(a)(2) of the MMA and proposed at § 422.451. Response : We do not believe that a clarification of § 422.4(a)(1)(v) is required as § 422.400 already provides that an MA organization must be licensed under State law, or otherwise authorized to operate under State law, as a risk-bearing entity (as defined in § 422.2) eligible to offer health insurance or health benefits coverage in each State in which it offers one or more MA plans. Therefore, an organization that wishes to apply as a local MA plan HMO and has a State-risk bearing license would be considered an HMO and not be considered as a local MA plan PPO nor subject to the PPO moratorium described at § 422.451. However, a plan would have to market itself as an HMO or an HMO with a POS option. A plan could not market itself as a PPO because of the potential for confusion. Comment : Several commenters recommended that CMS include new language in the final regulation that ensures that the type of denial of covered services as described in the Government Accountability Office (GAO) report entitled “Medicare Demonstration PPOs: Financial and Other Advantages for Plans, Few Advantages for Beneficiaries (GAO-04-960)” never happens again. One commenter, also referring to the GAO report, expressed concern that the Agency is not effectively enforcing current law, based on the recent GAO findings. Response : In response to the GAO evaluation, we agreed to implement the GAO recommendation for us to instruct Medicare PPO Demonstration plan participants to remove impermissible restrictions on an enrollee's access to providers for all covered plan benefits. We are committed to assuring that local and regional PPOs provide reimbursement for all covered benefits regardless of whether the benefits are provided within the network of providers as found in § 422.4(a)(1)(v). Comment : Several commenters recommended that CMS require non-contracted providers to accept Medicare fees as payment in full with no balance billing to the beneficiary. The commenters believe that this approach will protect beneficiaries from excessive payment liability for out of network services. Response : As discussed in further detail in subpart C of the preamble to this final rule, there are several existing limitations on balance billing that apply to protect Medicare beneficiaries regardless of whether they are enrolled in an MA plan. Further, under existing rules, beneficiaries may not be held liable for more than the amount of out-of-network cost sharing for the service specified in the plan. For these reasons, we do not believe the changes requested by the commenter are necessary. Comment : Several commenters supported the amendment found in the proposed rule that clarifies that a plan licensed as an HMO may still become a PPO under its HMO license as long as the State allows the HMO to offer a PPO under its HMO license. However, the commenters suggested that CMS revise § 422.4(a)(1)(v) in the following two ways: (1) clarify that PPOs may establish before authorization requirements for services obtained out-of-network that would allow for a review based on medical appropriateness; and (2) modify the provision to indicate that PPOs are not obligated to make available out of network certain types of programs, like health and wellness programs, for which no non-network counterpart is available. The commenters also recommended that CMS clarify that only original Medicare benefits must be covered both in and out of network and that covered benefits that are not part of original Medicare need not be covered out of network. The commenters opposed CMS' requirement that for 2005, PPO plans must offer all benefits both in and out of network. The commenters stated that many plans in the private sector and in the FEHB program limit out-of-network coverage for some services. The commenters believe that requiring coverage of all non-original Medicare benefits in and out of network implies that there is a standard allowance or price reference upon which to base payments for these services. The commenters also suggest that there are no balance billing protections for the beneficiary who seeks care out of network. The commenter expressed similar concerns around the Medicare drug benefit and the lack of specificity regarding coverage of non-original Medicare benefits. The commenter also believe that covering certain benefits out of network (for example, disease management, 24-hour advice nurse lines, and wellness programs) will pose a significant challenge. Response : To respond to the first recommended change to § 422.4(a)(1)(v)requesting that MA plans be allowed to impose pre-authorization requirements on out-of-network care by PPOs, section 1852(e)(3)(A)(iv)(II) of the Act states that a PPO plan must provide for reimbursement for all covered benefits, regardless of whether the benefits are provided within the plan's network of providers. Similarly, section 1859(b)(4)(B) of the Act, which defines MA regional PPOs, includes the same requirement to provide for reimbursement for all covered benefits regardless of whether the benefits are provided within the network of providers. These provisions indicate the Congress's clear intent to ensure that PPOs provide coverage for all plan-covered benefits both in and out of network. Further, although other coordinated care plans may include mechanisms to control utilization, such as referrals from gatekeepers for an enrollee to receive services within the plan, the definition of PPO contained in sections 1852(e)(3)(A)(iv) and 1859(b)(4)(b) of the Act indicates that local and regional PPOs may not use similar mechanisms, such as pre-authorization, to restrict enrollee access to out-of-network services. However, there are several ways PPOs can appropriately seek to promote the use of in-network services. For example, PPOs may encourage beneficiaries to notify them before seeking care out of network, so that care is coordinated in and out of network. PPO plans may offer incentives to beneficiaries to provide notice of their intent to seek out-of-network services by discounting out-of-network cost sharing when beneficiaries provide notice before receiving services. Further, MA organizations are required to have procedures for making determinations of whether an enrollee is entitled to receive a health service and the amount that the enrollee will be required to pay for the service. Thus, a PPO plan enrollee and provider may seek an advance determination of coverage before receiving the service, and we encourage PPO enrollees to avail themselves of this option. On the commenters' request to clarify in § 422.4(a)(1)(v) that only original Medicare benefits must be covered in and out of network, we believe that the clear language in the statute at section 1859(b)(4)(B) of the Act relating to regional MA plans and section 1852(e)(3)(A)(iv)(II) of the Act relating to local PPOs, does not permit us to limit the requirement that PPOs provide for reimbursement for all plan-covered benefits both in and out of network. Therefore, we are not modifying the definition of PPOs at § 422.4(a)(1)(v). However, to respond to some of the concerns raised in the comment, we again note that plans can reduce the regular cost sharing for out-of-network benefits for beneficiaries who voluntarily seek pre-authorization for those benefits. As described by another response to comment above, we disagree with the commenter that there are no balance billing protections for beneficiaries. There are limitations on balance billing to protect beneficiaries regardless of whether they are involved in an MA plan or not. Finally, on the issue of benefits, such as nurse advice lines, which plans believe should not be made available out of network, we believe that as a practical matter, most of these types of benefits will be unattainable out of network because they are designed to be provided exclusively to plan members. Additional discussion of these types of out-of-network benefits can be found in the subpart C preamble. Comment : Comments were received on § 422.4(a)(1)(v). Several commenters suggested that CMS address perceived inconsistencies in licensing requirements for PPOs as compared to HMOs by confirming the scope of State licensure requirements that apply to entities offering MA PPO plans, as State licensing laws may restrict an HMO's ability to offer a PPO plan. Response : We do not believe there are inconsistencies. All MA plans must be licensed by the State as a risk-bearing entity. State law controls whether the MA organization is licensed or authorized to offer the type of MA plan it proposes to offer. As we explained in the preamble discussion in subpart A of the proposed rule, the fact that MA organizations offering local PPOs that are (or are not) licensed as HMOs is pertinent to the MA program solely for purposes of the application of quality improvement standards in section 1852(e) of the Act, and has no specific bearing on whether an MA organization has State authority under applicable State law to offer an HMO or PPO under the MA program. Whether an MA organization (licensed either as an HMO or otherwise) can offer a specific type of MA plan continues to rest upon whether the organization has State licensure or authority to offer such a type of MA plan. Comment : One commenter requested that CMS consider enabling the PFFS model as an option under the regional preferred provider organization structure. The PFFS model in the MA program enables broader geographic coverage without the specific provider contracting requirements. This option could expand participation in the regional program by enhancing participation and access in rural areas without specific provider contracting access requirements as is currently available under the existing MA PFFS plans. Response : Since a PFFS plan is not defined as a type of coordinated care plan under section 1851(a)(2)(A)(i) of the Act, it would not be possible to allow an MA organization to offer a PFFS plan as an MA regional plan. Additionally, MA PFFS plans are defined at section 1859(b)(2) of the Act, while MA regional plans are defined at section 1859(b)(4) of the Act. The definitions are mutually exclusive. Comment : A few commenters asked whether SNPs could be any type of coordinated care plan. Response : We believe that section 1851(a)(2)(A)(ii) of the Act clearly states that SNPs can be any type of coordinated care plan. 4. Expansion of the Beneficiary Education and Information Campaign “User Fees” (§ 422.6, formerly § 422.10) The last section of subpart A contained regulations implementing the user fees provided for in section 1857(e)(2) of the Act. MMA expanded 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. 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 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). As indicated in the proposed rule and in this final rule (§ 422.6), 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. (The 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 of $200,000,000, whichever is less. 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 will 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. Comment : One commenter supported CMS' efforts to increase user fees to support beneficiary education. The commenter recommended that CMS collect the entire amount authorized under the statute and work with the Congress to either index it or otherwise lift the cap if needed to adequately inform beneficiaries about the new complexities with private plans. Response : The changes the commenter requested are beyond the scope of this rulemaking. We do not intend for the user fee to be exclusively for education on MA plans. We anticipate that the user fee will also be used on the new Part D drug benefit, which we believe will consume a large portion of the user fees, due to the newness of the benefit. Comment : Two commenters believe that there is insufficient funding of the SHIP program and recommended that CMS use a portion of the MA and PDP user fees to support SHIPs. Response : Early in the implementation of the M+C program, SHIPs received some funding from the user fee. However, for the last several years, SHIP funding has been a specific line item appropriation by the Congress. We have some discretion regarding how the user fees are spent in terms of beneficiary education, so it is possible for SHIPs to get some of their funding from the user fee. However, decisions on how to spend user fees are internal management decisions relating to resource allocation, and therefore will not be included in this regulation. Comment : One commenter recommended that beneficiary educational materials be shared with Congressional committees of jurisdiction prior to releasing them. Response : The timelines for providing education materials are limited. Although we do not intend to seek Congressional authorization before the release of the education materials, the materials will comply with the provisions of the statute and regulations, and we will make every effort to ensure that they are useful to beneficiaries in making their choices. CMS' Office of Legislation works closely with the Congressional offices to ensure that they are aware of and have open access to copies of various educational materials either before or in the same timeframe as their constituents to help with education and outreach activities. Comment : One commenter expressed concern that the funds used to educate beneficiaries may be more focused on explaining the array of choices and not focused enough on encouraging beneficiaries to actually make a choice. The commenter encouraged CMS to work directly with experienced plans to conduct information campaigns that result in significant Part D uptake rates for PDPs and MA-PDs. The commenter was concerned that beneficiaries may be confused by the changes beginning in 2006. Response : We appreciate the commenter's suggestion for us to work with experienced plans to conduct information campaigns that could expand enrollment in MA-PDs and PDPs beginning in 2006 (especially in light of the new options that will be available at that time). We expect to engage a strong network of experienced plans, providers, and other stakeholders and partners to provide input and feedback on beneficiary education plans and to provide specific suggestions on ways to communicate the changes that will occur in the MA program in 2006. Comment : One commenter believes that CMS will require the resources, both financial and human, to help beneficiaries make choices about benefit and plan options that appropriately reflect their needs and preferences. The commenter recommended that CMS bolster programs such as one-on-one counseling, which beneficiaries prefer, and to design beneficiary materials in formats that make information easy to interpret and understand. The commenter also recommended that CMS create information resources, such as the 1-800 number, but also help beneficiaries understand the information that is being presented. Response : We agree that we will have to continue to educate beneficiaries on MA program changes in a way that helps the beneficiary to understand the program and understand what type of Medicare plan would best suit his or her individual health and financial needs. We routinely test education and outreach products with beneficiaries during development to ensure that they are broadly accessible and understandable to the appropriate target audiences. Comment : A commenter indicated that there are high costs to I/T/U for MMA implementation costs related to outreach, education and enrollment of an AI/AN individual. The commenter encouraged CMS to acknowledge the need for funding that is specifically directed to local I/T/U to support these activities where the work is done and where bearing the costs is the most difficult. The commenter believes that unlike other Medicare populations, AI/AN beneficiaries are unlikely to enroll in MA plans without specific information from their I/T/U. Response : We agree that education and outreach efforts should be tailored to the needs of specific populations interested in enrolling in MA plans, to the greatest extent possible. We will continue our collaboration with the IHS and other partners to identify the most effective ways to reach beneficiaries in the AI/AN population. Subpart B—Eligibility, Election and Enrollment We proposed generally to retain the same eligibility, election and enrollment rules that currently apply to the Medicare Advantage program. We received numerous comments on this subpart in response to the August 2004 proposed rule. These comments and our responses are presented below. 1. Eligibility to Elect an MA Plan (§ 422.50) In this section, we specified the following: • Reference to an “MA plan” includes both MA local and MA regional plans, unless specifically noted otherwise in the text. • We reserve the authority to allow additional optional mechanisms for elections (for example, website enrollment) to provide a more efficient and simplified election process for beneficiaries and partner organizations. Comment : Several commenters supported the proposal to retain the authority to allow additional optional MA election mechanisms, stating that this change will promote the development of more efficient and simplified processes for beneficiaries. One commenter requested clarification that any such alternate election mechanism would be optional for individual MA organizations to use. Another commenter supported the change, but stated that CMS should not mandate that MA organizations accept electronic elections. Response : The revision made to this section is intended only to permit us to approve alternate optional election mechanisms (in addition to paper election forms) in the future. We anticipate that such mechanisms will be available at the option of each MA organization. Furthermore, we believe it is important to clarify that, as other election mechanisms are approved and implemented, we do not intend to permit MA organizations to require beneficiaries to use any such election mechanism. We will require all MA organizations to establish a minimum standard process, which, at this time, will be a paper process, and will be made available to prospective enrollees and plan members in conjunction with any optional election mechanism. In the future, as technology evolves, another process may be a more appropriate minimum standard. To ensure that these points are clear, we are amending § 422.50(a)(5) to provide that beneficiaries may make elections by completing an enrollment form or by completing another CMS-approved election mechanism offered by the MA organization. Comment : One commenter requested that CMS clarify the use of alternate election mechanisms with respect to employer or union group MA plans. Response : Section 422.50 applies equally to all beneficiaries making MA elections and therefore applies to those individuals making an election to or from an MA plan sponsored by an employer or union as well. Current processes already established in our manual guidance for MA plans offered by employer or union groups are not changed by this revision. Subpart B—Eligibility, Election and Enrollment 2. Eligibility to Elect a Special Needs MA Plan (§ 422.52) Section 231 of the MMA authorized the creation of a new type of MA coordinated care plan, called a “Specialized MA Plan for Special Needs Individuals.” These plans will be referred to throughout as SNPs. We believe the new requirements regarding SNPs are primarily intended to encourage more choices for certain populations by allowing organizations that specialize in the treatment of beneficiaries with particular needs to have MA contracts. These organizations could provide and coordinate services for these individuals and would be permitted to limit plan enrollment to such individuals, or to a certain proportion of such individuals. This provision could encourage organizations to develop new products in the marketplace by giving them the opportunity to develop expertise in efficiently serving special needs populations. Our overall policy goal will be to allow MA organizations as much flexibility as possible (within defined parameters), while maintaining beneficiary protections. SNPs may restrict enrollment solely to those who are entitled to Medicaid (dually eligible), institutionalized individuals who meet the definition in § 422.2, and/or beneficiaries who have a severe or disabling condition, as defined by the Secretary in regulations. Section 231 of the MMA also gives the Secretary the authority by regulation to designate certain MA plans as SNPs if they “disproportionately serve(s) special needs individuals.” Special needs individuals are defined in § 422.2. In the proposed rule, we asked for comment as to whether SNPs should be allowed to exclusively enroll certain subgroups of those categories of special needs individuals described in § 422.52(b)(1) and § 422.52(b)(2) (dual eligible or institutionalized beneficiaries) and, if so, what categories would be appropriate. The MMA gave us the authority to waive section 1851(a)(3)(B) of the Act, which precludes beneficiaries with ESRD from enrolling in MA plans. In the proposed rule, we solicited comments as to whether we should waive this section of the Act and whether beneficiaries with ESRD should be considered to meet the requirement for special needs status. We also have the authority to apply to SNPs 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 section provides for deemed continued eligibility in certain situations. Specifically, it allows an beneficiary enrolled in a PACE plan who no longer meets the eligibility criteria, but who can reasonably be expected to, in the absence of continued coverage under the PACE plan, meet the criteria of the plan within a period of time not to exceed 6 months. In the proposed rule, we proposed applying this provision to individuals enrolled in SNPs who longer meet a plan's unique eligibility criteria, who can reasonably expected to meet the plans criteria within a period of time not to exceed 6 months. In the proposed rule, we provided in § 422.52(e) that individuals who are enrolled in MA plans that are subsequently designated as SNPs would be “grandfathered,” that is, allowed to continue to be enrolled or choose to elect another MA plan during appropriate election periods provided to all MA eligible individuals. We proposed this based on the belief that the Congress did not intend for individuals already enrolled in an MA plan to be involuntarily disenrolled. However, we also invited comment on an alternative approach wherein any non-special needs individuals in an MA plan that is subsequently designated as an SNP would have to be involuntarily disenrolled. In this situation, we proposed to establish, through further operational guidance, an SEP for these individuals. Statutory language also provided that a newly designated MA plan may restrict future enrollment of individuals to those specialized individuals it intends to serve. We also indicated in the proposed rule that, if we did allow “grandfathered” members to remain in the SNP, we would distinguish them from those individuals who join a new SNP and then lose their special needs status on other than a temporary basis. Those special needs individuals would be involuntarily disenrolled after losing their special needs status (and after any period of deemed continued eligibility, if appropriate) and receiving proper notice. SNPs that exclusively enroll special needs individuals would be required to inform individuals before their initial enrollment that they could only remain enrolled in the plan for as long as they were considered special needs individuals as defined by CMS. Comment : One commenter felt that CMS should not allow SNPs to exclusively enroll certain subgroups of dual eligible or institutionalized beneficiaries. The commenter's rationale was that requiring MA organizations to accept all dual eligibles into its specialized MA plan would maintain the integrity of the dual-eligible risk pool and prevent the offering of an SNP plan to those who are the least poor (and presumably, most healthy) segment of duals. On the other hand, several commenters suggested that CMS allow SNPs that would enroll subgroups of dual eligibles if supported by a State Medicaid agency. The vast majority of commenters supported allowing SNPs to serve subsets of both the dual eligible and institutionalized populations. The most prevalent rationale for allowing subsets of dual eligibles was to allow States to develop specialized Medicaid programs to compliment Medicare coverage by SNPs. Most commenters described the difficulties and complexities of serving all dual eligibles as impediments and disincentives to developing a program to coordinate Medicaid managed care programs with Medicare. If required to serve all dual eligible beneficiaries, MA organizations would have to offer Medicaid-covered benefits, such as long-term care, to individuals who are not eligible for full Medicaid benefits. One commenter stated that allowing subsets of dual eligibles would also facilitate transitioning full dual eligibles from Medicaid prescription coverage to Medicare Part D coverage in 2006. Another commenter suggested that CMS clarify that plans must uniformly offer the same set of benefits to all classes of dual eligibles as provided under the State's Medicaid program. Several commenters recommended that CMS let the MA organization propose eligibility criteria and then evaluate its plan, delivery systems, and related programs, possibly modifying them as part of the review and approval process. Some commenters noted the significant investment of time and resources required to develop targeted clinical programs for different subgroups with different, complex conditions. Commenters also suggested allowing specific subsets, including full benefit dual eligibles, the frail elderly, those who are nursing home certifiable, children or adults with physical disabilities, developmental disabilities or mental impairments, and community-based or institutional individuals. Two commenters recommended that CMS not include subsets of duals in the third category of specialized MA plan eligibles, those with severe or disabling conditions. The rationale given was that the identifying characteristics of subsets of duals are not appropriately described within the third category and these individuals should remain in the second category. Once commenter recommended allowing organizations to serve other subgroups of Medicaid eligible and institutionalized if there is a pervasive justification based on common characteristics of the subgroup, that is, institutionalized beneficiaries in a specified network of nursing homes. Several commenters stated that adverse selection would be mitigated by phase-in of risk adjustment because payment would take into consideration the individual's disease category. Response : Consistent with the majority of these comments, we do not intend to adopt a regulation that would preclude MA organizations from offering SNPs to appropriate subsets of the population in a plan service area, including subsets within the SNP populations identified in the statute. Thus, in the interest of facilitating the coordinated delivery of Medicare and Medicaid services, we will consider requests for SNPs that serve certain subsets of dual eligibles and institutionalized individuals on a case-by-case basis. Subsets of those two categories will be included in category one and category two respectively, rather than in the third category of special needs individuals, those with chronic or disabling conditions. In addition, because of the unique nature of some plans serving the institutionalized and dual eligibles, we will also consider subsets based on common characteristics, such as a specific network of facilities and Medicaid eligibility. We will provide further operational guidance following publication of this rule. Comment : The MMA allows for the enrollment of ESRD beneficiaries in SNPs designed for this population. One commenter said that CMS should delay enrollment of ESRD beneficiaries in MA plans until results of CMS' capitated ESRD Disease Management demonstration are available. The commenter also objected to allowing ESRD patients to enroll in managed care because, in the commenter's view, managed care plans disrupt existing relationships between patients and health care providers. The commenter expressed concerns that an ESRD patient who drops or declines Medigap insurance to join a managed care plan would permanently be locked into the managed care plan and could not switch to Original Medicare, since ESRD would make him/her ineligible for Medigap coverage. The remainder of those commenting on permitting ESRD SNPs supported the proposal. Response : Individuals with ESRD may choose to receive care under an MA plan for a variety of reasons, including coordination of care and lower out-of-pocket costs. Anecdotal experience with the MA program has shown that MA enrollees with ESRD generally remain enrolled in their plan, or join another existing plan if the one in which they are enrolled terminates. We believe that these beneficiaries should have the option of enrolling in an MA plan, if they so desire. Therefore, we will amend § 422.50(a)(2) by adding language to allow SNPs to serve ESRD individuals. In order to mitigate the commenter's concerns, we would require that, prior to enrollment in an MA SNP, the organization notify potential enrollees that enrollment is fully optional and of the potential impact that their enrollment could have on their Medigap rights. In addition, MA Organizations will be required to provide clear and accurate provider information for potential enrollees so they may determine whether their current providers are part of the specialized MA plan's network. Comment : Many commenters supported the proposed approach at § 422.52(e) to allow individuals already enrolled in an MA plan that we subsequently designate as an SNP to remain enrolled or be allowed to elect another other MA plan. Most of these commenters also recommended that CMS allow for a Special Election Period (SEP) to facilitate selecting a new MA plan or Original Medicare. Several commenters remarked on the need to maintain adequate enrollment levels once an SNP gains a new designation. None of the commenters supported the alternative proposal under which non-special needs individuals would have to be involuntarily disenrolled if their MA plan became an SNP. Response : We will allow members of MA plans that are subsequently “redesignated” as SNPs to be “grandfathered,” that is, remain enrolled in that plan indefinitely. These individuals may not be involuntarily disenrolled on the basis of not meeting the definition of special needs individual. However, once a grandfathered individual voluntarily disenrolls from the SNP, he or she would not be eligible to reenroll in that SNP unless he or she meets the definition of special need individual. We will establish an SEP for these individuals for exceptional circumstances in further operational guidance. An SNP that chooses to exclusively enroll special needs individuals will not be considered a “disproportionate share” SNP, as defined in § 422.2, on the basis of serving “grandfathered” members. Comment : Many commenters supported not requiring plans to involuntarily disenroll beneficiaries who lose their special needs plan eligibility if it is reasonable to assume that they would again meet the special needs eligibility criteria within a certain period as determined by CMS. Some commenters stated that it is not uncommon for beneficiaries to have temporary lapses in eligibility, particularly in situations where a dual eligible loses Medicaid eligibility due to a temporary change in financial circumstances or failure to provide information for recertification. The commenters generally believed that continued eligibility leads to continuity of care and improved clinical outcomes. Two commenters requested an additional 6-month “grace period” (commenter's terminology) for individuals who lose their eligibility as well as retroactive payments for their care in the event that eligibility is established retroactively. One commenter recommended that CMS continue funding Part D and other benefits for the entire “30-day notice period” (commenter's terminology) regardless of an individual's eligibility to enroll in a SNP. One commenter requested continued eligibility for “exclusive” as well as “non-exclusive” plans (commenter's terminology), including MA plans that may temporarily fall below the required threshold for the special needs designation. Response : We believe that the Congress' goal was to encourage continuity of care for these at-risk individuals and that a period of deemed continued eligibility for a minimum of 30 days but no longer than 6 months is reasonable for beneficiaries who are likely to regain eligibility. The 6-month period is consistent with the PACE language at § 460.160, which provides that a participant may be deemed to continue to be eligible if, in the absence of continued coverage, the participant reasonably would be expected to meet the requirement within the next 6 months. However, we will not include “in the absence of continued coverage” in § 422.52(d). Our rationale is that this appears to reference ineligibility due to a health condition that could deteriorate without plan membership. In the case of an SNP for dual eligibles, a lapse in SNP eligibility could be due to a lapse of Medicaid eligibility, and such eligibility may be based on the beneficiary's financial circumstances, not his or her health condition. The MA organization may choose any length of time from 30 days through 6 months for deemed continued eligibility as long as it applies this period consistently among all members in its plan and fully informs its members of this time period. Further guidance on applying deemed eligibility will be provided in operational instructions following publication of this regulation. We believe that the “30-day notice period” referred to by one commenter is from our interim guidance for SNPs, issued as part of its 2005 Call Letter. This guidance established a 30-day minimum timeframe for continued eligibility for an SNP enrollee who loses his or her special needs status. This individual is a member during the period of deemed continued eligibility and until his or her disenrollment becomes effective. Payments will continue on the enrollee's behalf until the period of deemed continued eligibility ends and the enrollee is involuntarily disenrolled. Retroactive payment will not be necessary in these instances. All SNPs, including “disproportionate percentage” SNPs, as defined in § 422.2, may apply the deemed eligibility provision. Deemed eligibles would be counted toward the number of special needs individuals enrolled in the SNP rather than toward the number of non-special needs individuals. Comment : Several commenters supported allowing SNPs to disenroll enrollees who no longer meet the special needs eligibility criteria. Two commenters wanted SNPs to have the choice of whether to continue to provide Medicare services to individuals who lose special needs status. Another commenter supported involuntary disenrollment for exclusive MA SNPs only, stating that this requirement would hinder disproportionate SNPs' ability to maintain enrollment at or above the regulatory threshold. Response : In our interim guidance and our proposed rule, we interpreted the statutory phrase “exclusively serves special needs individuals” to mean that the plan is exclusively marketed to special needs individuals and exclusively enrolls special needs individuals. This interpretation allowed us to permit existing non-special needs enrollees to remain enrolled in an MA plan that changed its status to an SNP. Thus, under this definition, existing enrollees who did not enroll when the plan was an SNP would not be affected by the plan definition, and we do not believe they should be disenrolled. Moreover, the existence of such enrollees does not preclude the plan from remaining a plan that “exclusively serves"(that is, markets to and enrolls) special needs individuals. As noted above, however, an individual who enrolls in an SNP as a special needs enrollee is different, since he or she would have no expectation of being enrolled in that plan if he or she were not in the special needs category. The case of an SNP that has never had non-SNP enrollees is also different, as any enrollee that it markets to or enrolls would have to be a special needs enrollee, if it is an “exclusive” plan. In order to address these latter situations, we will add a new part (iv) to § 422.74(b)(2) to show that in these cases loss of special needs status (and of deemed continued eligibility, if applicable) is a basis for required disenrollment from an SNP that enrolls only special needs individuals. We have the authority to waive minimum enrollment requirements as necessary. Therefore, we do not envision the minimum enrollment requirements adversely affecting disproportionate share SNPs. Comment : One commenter recommended that CMS allow MA SNPs to charge an enrollee for benefits no longer covered by the State or Federal cost-sharing arrangements and to terminate coverage for nonpayment of premiums or cost sharing. Response : An SNP is the same as any other MA plan with respect to rules governing the charges that may be imposed on enrollees. Enrollees may be charged for benefits that would not otherwise be covered by Medicare. Under § 422.74(d)(1), coverage may be terminated for a failure to pay premiums. As discussed below in connection with disenrollment for disruptive behavior, a failure to pay cost sharing is not in itself a basis for disenrollment. Comment : Two commenters asked for clarification of whether the regulation refers to Special Needs Health Plans or the Special Needs Health Options. Response : The regulation refers to a “Specialized MA plan for special needs individuals” (SNPs), as created by Section 231 of the MMA. 3. Continuation of Enrollment for MA Local Plans (§ 422.54) The MMA limits the offering of MA plan continuation areas to MA local plans only and we made this conforming change at § 422.54. We received no comments on this section and adopted the conforming changes as proposed. 4. Enrollment in an MA MSA Plan (§ 422.56) Section 233 amended the Act to eliminate the cap on the number of individuals that may enroll in MA MSA plans removed the existing deadline for enrolling in such a plan. Because this deadline had already passed without anyone enrolling in an MSA plan, the original MSA plan provisions had become a nullity. The effect of section 233 was to make the authority to offer MSA plans permanent and unlimited. This change is reflected at § 422.56, along with new language allowing the Secretary to permit enrollment in MSAs by enrollees of other Federal. We included this language to reflect the fact that, under the statute, such enrollment could be authorized contingent on the adoption of new policies by the OPM. Comment : Two commenters suggested deleting the language authorizing the Secretary to permit enrollment in MSAs by enrollees of the Federal programs specified. Both commenters contended that it was unlikely that OPM would ever be able to certify that MSA enrollment would not raise costs in the FEHB, Veterans' Administration, or TRICARE programs and that, accordingly, the inclusion of this language is unnecessary. Response : The statute at section 1851(b)(2) provides for the potential for such individuals to become eligible to enroll in an MSA plan. Therefore, our clarification of § 422.56(b) supporting this provision is appropriate. 5. Election Process (§ 422.60) In proposed § 422.60, we set forth changes that would allow other election and notice mechanisms other than paper forms or written documents. We also clarified that MA organizations may submit requests to restrict enrollment for capacity reasons to CMS at any time during the year. Comment : Two commenters supported the conforming revisions to § 422.60 permitting us to approve alternate election mechanisms, as discussed in the comments on proposed § 422.50(a)(5). The commenters also approved of the clarification to § 422.60(b) regarding requests for enrollment limits due to capacity reasons. Response : We adopt these revisions as proposed. Comment : One commenter suggested that CMS make further amendments to the regulatory text to ensure that the current options we have established for individuals to elect MA plans sponsored by employer or union groups are retained, including the policy that documentation may be retained by an employer or union group rather than the MA plan. Response : As discussed above, we are confident that the proposed revisions provide us with sufficient flexibility to foster innovative election processes that use modern technology for all individuals, not just employer or union groups. Therefore, it is not necessary to reiterate that these alternative enrollment mechanisms are also available to employers or union groups. We will continue to retain current policy for employer or union group elections in our operational guidance and as an option for MA organizations. Comment : One commenter suggested that CMS require MA and MA-PD plans to accept AI/AN enrollees even if a plan has received CMS approval to close enrollment for capacity reasons. Response : The ability to request a capacity limit is an important element of the MA program that helps ensure that plan enrollees will have sufficient access to needed providers and services. CMS' approval of a capacity limit request indicates that we agree with the requesting MA organization that its defined network of providers is sufficient to deliver health care only to a limited number of plan members. Thus, we do not permit the MA organization to enroll any individual beyond the capacity limit of a given plan, and we do not believe it would be appropriate to undermine this protection by waiving capacity limits for the AI/AN population or any other group. Comment : Two commenters requested that CMS modify the regulations to more clearly allow for what the commenter referred to as “passive elections.” Response : The elections to which the commenters are referring are those in which an individual is informed that the process for making an election of a particular plan is taking no action, while other options are exercised by declaring an affirmative intent to elect that option. CMS have limited such a process to situations when it can be reasonably concluded that an individual will clearly want to enroll in the MA plan offered by the same organization. We do not believe that a regulatory change is needed to continue to allow such elections. The revisions made to § 422.50(a)(5) and the conforming revisions to § 422.60 provide us with appropriate flexibility to define and approve MA election mechanisms, including allowing such “passive elections” as described above in specific limited circumstances. 6. Election of Coverage Under an MA Plan (§ 422.62) Similar to the election periods in place in past years, the MA Annual Coordinated Election Period will run from November 15 through December 31 of each year. For 2006, the annual coordinated election period is extended through May 15, 2006. Based on our interpretation of the MMA, we proposed revising § 422.62 to ensure that an individual who is newly eligible for MA has the full opportunity to elect an MA plan as part of their Initial Coverage Election Period . In developing the proposed rule, we determined that the intent of the Congress was 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. This approach extends an individual's MA initial election period in some instances, and never reduces or eliminates it. Through 2005, the [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A05-1322. Public record. Not legal advice.