Medicare Program; Revisions to the Medicare Advantage and Part D Prescription Drug Contract Determinations, Appeals, and Intermediate Sanctions Processes

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4124-FC]

RIN 0938-AO78

Medicare Program; Revisions to the Medicare Advantage and Part D Prescription Drug Contract Determinations, Appeals, and Intermediate Sanctions Processes

AGENCY:

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

ACTION:

Final rule with comment period.

SUMMARY:

This rule with comment period finalizes the Medicare program provisions relating to contract determinations involving Medicare Advantage (MA) organizations and Medicare Part D prescription drug plan sponsors, including eliminating the reconsideration process for review of contract determinations, revising the provisions related to appeals of contract determinations, and clarifying the process for MA organizations and Part D plan sponsors to complete corrective action plans. In this final rule with comment period, we also clarify the intermediate sanction and civil money penalty (CMP) provisions that apply to MA organizations and Medicare Part D prescription drug plan sponsors, modify elements of their compliance plans, retain voluntary self-reporting for Part D sponsors and implement a voluntary self-reporting recommendation for MA organizations, and revise provisions to ensure HHS has access to the books and records of MA organizations and Part D plan sponsors' first tier, downstream, and related entities. Although we have decided not to finalize the mandatory self-reporting provisions that we proposed, CMS remains committed to adopting a mandatory self-reporting requirement. To that end, we are requesting comments that will assist CMS in crafting a future proposed regulation for a mandatory self-reporting requirement.

DATES:

Effective date:

These regulations are effective on January 4, 2008, except for the amendments to §§ 422.503, 422.504, 423.504, and 423.505, which are effective January 1, 2009.

Comment Period:

We will consider comments on the mandatory self-reporting provisions discussed in section II of this final rule with comment period at the appropriate address, as provided below, no later than February 4, 2008.

ADDRESSES:

In commenting, please refer to file code CMS-4124-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1.

Electronically

. You may submit electronic comments on specific issues in this regulation to

http://www.cms.hhs.gov/eRulemaking

. Click on the link “Submit electronic comments on CMS regulations with an open comment period.” (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.)

2.

By regular mail

. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services,

Attention:

CMS-4124-FC, P.O. Box 8020, Baltimore, MD 21244-8020.

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

3.

By express or overnight mail

. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services,

Attention:

CMS-4124-FC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.

By hand or courier

. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members.

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or

7500 Security Boulevard, Baltimore, MD 21244-1850.

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

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

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

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Christine Reinhard, (410) 786-2987.

Kevin Stansbury, (410) 786-2570.

Stephanie Kaisler, (410) 786-0957, for issues regarding voluntary self-reporting, access to records, and compliance.

SUPPLEMENTARY INFORMATION:

Submitting Comments:

We welcome comments from the public on mandatory self-reporting to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-4124-FC and “self-reporting.”

Inspection of Public Comments:

All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:

http://www.cms.hhs.gov/eRulemaking

. Click on the link “Electronic Comments on CMS Regulations” on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Abbreviations

Because of the many terms to which we refer by abbreviation in this final rule with comment period, we are listing these abbreviations and their corresponding terms in alphabetical order below:

ALJ Administrative Law Judge

BBA Balanced Budget Act of 1997

CAP Corrective Action Plan

CMP Civil Money Penalty

CMS Centers for Medicare & Medicaid Services

DAB Departmental Appeals Board

FWA Fraud, Waste, and Abuse

HHS U.S. Department of Health and Human Services

MA Medicare Advantage

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003

M+C Medicare + Choice

OIG Office of the Inspector General

PBM Pharmaceutical Benefit Manager

PDE Prescription Drug Event

I. Background

On May 25, 2007, we published a proposed rule in the

Federal Register

(72 FR 29368, hereafter referred to as the proposed rule), setting forth the proposed provisions relating to contract determinations involving Medicare Advantage (MA) organizations and Medicare Part D prescription drug plan sponsors, intermediate sanction and civil money penalty (CMP) provisions, compliance plans, mandatory self-reporting, and provisions to ensure the Department of Health and Human Services (HHS) has access to the books and records of MA organizations and Part D plan sponsors' first tier, downstream, and related entities. In this final rule with comment period we are finalizing the majority of the provisions of the proposed rule, with some clarifications in response to public comments. At this time, we are not finalizing the proposed provision for mandatory self-reporting of potential fraud and abuse, but we intend to issue future rulemaking on this topic, as discussed below in section II.

A. Overview of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)

The President signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) into law on December 8, 2003. The MMA established the Medicare prescription drug benefit program and renamed the Medicare+Choice (M+C) program the Medicare Advantage (MA) program. In accordance with the MMA, we revised the existing Medicare regulations applicable to the MA program at 42 CFR part 422 and published regulations governing the prescription drug benefit program at 42 CFR part 423.

As we have gained more experience with MA organizations and Part D prescription drug plan sponsors, we proposed clarifications to the Medicare program provisions relating to contract determinations involving MA organizations and Medicare Part D prescription drug plan sponsors, including eliminating the reconsideration process for review of contract determinations; revising the provisions related to appeals of contract determinations and clarifying the process for MA organizations and Part D plan sponsors to complete corrective action plans. We proposed clarifications to the intermediate sanction and civil money penalty (CMP) provisions that apply to MA organizations and Medicare Part D prescription drug plan sponsors. We also proposed changes in both programs to clarify elements of the compliance plan requirements, such as training and education, and changes to clarify our access to the books and records of a MA organization or Part D sponsor's first tier, downstream, and related entities. Finally, we proposed a self-reporting requirement as part of both MA organization and Part D sponsor's compliance plans. We have decided at this time not to finalize the provision requiring mandatory self-reporting of potential fraud and misconduct. Until such time as such a provision is finalized, we have chosen to retain voluntary self-reporting for Part D sponsors and implement a recommendation for voluntary self-reporting for MA Organizations.

B. Relevant Legislative History and Overview

The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established the M+C program. Under section 1851(a)(1) of the Social Security Act (the Act), every individual with Medicare Parts A and 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 the beneficiary lived. The primary goal of the M+C program was to provide Medicare beneficiaries with a wider range of health plan choices.

The Medicare, Medicaid, and State Children's Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), amended the M+C provisions of the BBA. Further amendments were made to the M+C program by the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554), enacted December 21, 2000.

The President signed the MMA into law on December 8, 2003. Title I of the MMA added new sections 1860D-1 through 1860D-42 to the Act creating the Medicare Prescription Drug Benefit program, a landmark change to the Medicare program since its inception in 1965.

Sections 201 through 241 of Title II of the MMA made significant changes to the M+C program. As directed by Title II of the MMA, we renamed the M+C program the MA program. We also revised our regulations to include new payment and bidding provisions based largely on risk, to recognize the addition of regional Preferred Provider Organization (PPO) plans, to address the provision of prescription drug benefits under the Medicare Part D regulations, and to make other changes.

The MMA, at section 1860D-12(b)(3) of the Act, directed that specific aspects of the MA contracting requirements apply to the prescription drug plan benefit program. Consequently, the processes for contract determinations and the administrative appeal rights in the two programs are virtually identical.

We published the regulations implementing the MA and prescription drug benefit regulations separately, though their development and publication were closely coordinated. On August 3, 2004, we published proposed rules for the MA program (69 FR 46866) and prescription drug benefit program (69 FR 46632). The final regulations implementing both the MA and prescription drug programs were published on January 28, 2005 (70 FR 4588 and 70 FR 4194, respectively). We revised some of our proposed provisions in the final rules in response to public comments. For further discussion of the revisions we made to our proposed rules, see the final rules cited above. We have not issued previous guidance, other than regulatory requirements regarding contract determinations, corrective action plans, contract determination appeals, intermediate sanctions, or CMPs. However, we have published guidance on how to develop an effective fraud, waste and abuse (FWA) prevention program. This guidance is found in Chapter 9 of the Prescription Drug Benefit Manual entitled “Part D Program to Control Fraud, Waste and Abuse.” This rule makes further revisions to the MA and prescription drug regulations.

II. Summary of the Provisions of the Proposed Rule and Analysis of and Response to Public Comments

In response to the publication of the May 25, 2007 proposed rule, we received 58 timely items of correspondence from the public. We received numerous comments from various trade associations and health insurance providers. Comments also originated from other providers, suppliers, and practitioners, health care consulting firms, and private citizens.

Brief summaries of each proposed provision, a summary of the public comments we received (with the exception of specific comments on the paperwork burden or the impact analysis), and our responses to the comments are set forth below. Comments related to the paperwork burden and the impact analysis are addressed in the Collection of Information and Impact Analysis Sections in this preamble.

A. General Comments on the Proposed Rule

Comment:

We received a question related to the applicability of the Part 423 provisions to Medicare cost contractors who offer Part D plans.

Response:

Cost plans, per 42 CFR 417.440(b)(2)(ii), which offer a Part D prescription drug program as an optional supplemental benefit, must offer the benefits “in accordance with applicable requirements under Part 423.” The current proposed revisions do not change the existing regulations. Therefore, the Part 423 regulations would continue to apply to cost plans just as they have prior to the publication of this rule.

B. Proposed Changes to the Medicare Advantage Program and the Prescription Drug Benefit Program

Our experience involving contract determinations, appeals, intermediate sanctions, and CMPs since the enactment of the BBA of 1997 led us to propose changes to our regulations. In the proposed rule, we proposed to simplify the procedures for contract determinations; to clarify the procedures regarding submission and review of corrective action plans; to clarify the procedures for imposition of intermediate sanctions and CMPs; and to clarify the procedures to appeal CMPs imposed under the MA and Part D programs.

In addition, we proposed revisions to the appeal procedures for all types of contract determinations, which would make these procedures identical for decisions not to contract, nonrenewals, and terminations. We proposed to provide for enhanced beneficiary protections when we decide to terminate a plan on an expedited basis.

In the proposed rule, we also proposed changes and clarifications to Subpart K, contract requirements under the MA and Part D programs. We proposed changes to clarify HHS’ access to the books and records of a MA organization or Part D sponsor's first tier, downstream, and related entities. We also proposed changes to clarify that certain elements of the compliance plan apply to first tier, downstream, and related entities. We also proposed mandatory self-reporting in both the MA and Part D programs, but we are not finalizing the provision at this time.

Below, we set forth the final regulatory changes, and corresponding final implementation dates:

Regulation change

Implementation

date

Incorporation of Fraud, Waste, and Abuse Prevention Measures into Compliance Plan

1/1/2009

Requirement to apply Compliance Plan's training and communication requirements to first tier, downstream, and related entities

1/1/2009

Voluntary procedures for MA organizations for self-reporting potential fraud and misconduct

1/1/2009

Requirement to obtain access to Part D sponsor's first tier, downstream, and related entity's books and records through contractual arrangements

1/1/2009

Elimination of CMS’ requirement to inform organization of renewal

1/4/2008

Change date of CMS’ notification of non-renewal from May 1 to August 1

1/4/2008

Provide for same administrative appeal rights (including Corrective Action Plans (CAPs)) for all contract determinations (non-renewal, expedited termination, termination)

1/4/2008

Change regarding CAP process may be provided prior to notification of termination, and the imposition of time limits on Corrective Action Plans

1/4/2008

Change immediate termination to expedited termination with CMS setting the effective date of termination

1/4/2008

Elimination of Reconsideration Step for contract determination appeals

1/4/2008

Implementation of Burden of Proof for contract determinations

1/4/2008

Ability for a hearing officer to issue summary judgment

1/4/2008

Request for Administrator review, submission of information, and timeframe associated with Administrator review

1/4/2008

Settlement of Civil Money Penalties

1/4/2008

Appeal procedures for Civil Money Penalties

1/4/2008

We did not receive any comments on the implementation dates we proposed and are generally finalizing the implementation dates as we proposed, with minor modification to reflect that certain provisions will be effective on January 4, 2008. However, since we are not implementing the proposed mandatory self-reporting requirement at this time, we have only included a reference to an implementation date for the voluntary self-reporting recommendation for MA organizations in the above chart. We are retaining the existing voluntary self-reporting recommendation for Part D sponsors so that recommendation is currently in effect and will remain in effect in the future.

C. Distribution Table

The following crosswalk table references the changes we are making to the prescription drug and the MA programs. We proposed making the same changes to 42 CFR parts 422 and 423 with minimal differences. The crosswalk lists the section headings, for parts 422 and 423, and indicates if the section is being deleted.

Table 1.—Crosswalk of Part 422 and Part 423 CFR Sections

Section heading

Section references in part 422

Section references in part 423

Definitions

422.2

423.4

Compliance Plan

422.503(b)(4)(vi)

423.504(b)(4)(vi)

Access to Facilities and Records

422.504(e) and 422.503(d)(2)(iii)

423.505(e)

Contract Provisions

422.504(i)

423.505(i)

Effective Date and Term of Contract

422.505

423.506

Non-renewal of contract

422.506

423.507

Termination of contract by CMS

422.510

423.509

Notice of contract determination

422.644

423.642

Effect of contract determination

422.646

423.643

Reconsideration: applicability

422.648 (delete)

423.644 (delete)

Request for reconsideration

422.650 (delete)

423.645 (delete)

Opportunity to submit evidence

422.652 (delete)

423.646 (delete)

Reconsidered determination

422.654 (delete)

423.647 (delete)

Notice of reconsidered determination

422.656 (delete)

423.648 (delete)

Effect of reconsidered determination

422.658 (delete)

423.649 (delete)

Right to a hearing and burden of proof

422.660

423.650

Request for hearing

422.662

423.651

Postponement of effective date of a contract determination when a request for a hearing with respect to a contract determination is filed timely

422.664

423.652

Time and Place of Hearing

422.670

423.655

Discovery

422.682

423.661

Prehearing and Summary Judgment

422.684

423.662

Review by the Administrator

422.692

423.666

Reopening of initial contract determination or intermediate sanction or decision of a hearing officer or the Administrator

422.696

423.668

Effect of revised determination

422.698 (delete)

423.669 (delete)

Types of intermediate sanctions and civil money penalties

422.750

423.750

Basis for imposing intermediate sanctions and civil money penalties

422.752

423.752

Procedures for imposing intermediate sanctions and civil money penalties

422.756

423.756

Collection of civil money penalty imposed by CMS

422.758

423.758

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

422.760

423.760

Settlement of penalties

422.762

423.762

Other applicable provisions

422.764

423.764

Basis and scope

422.1000

423.1000

Definitions

422.1002

423.1002

Scope and applicability

422.1004

423.1004

Appeal rights

422.1006

423.1006

Appointment of representatives

422.1008

423.1008

Authority of representatives

422.1010

423.1010

Fees for services of representatives

422.1012

423.1012

Charge for transcripts

422.1014

423.1014

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

422.1016

423.1016

Notice and effect of initial determinations

422.1018

423.1018

Request for hearing

422.1020

423.1020

Parties to the hearing

422.1022

423.1022

Designation of hearing official

422.1024

423.1024

Disqualification of Administrative Law Judge

422.1026

423.1026

Prehearing conference

422.1028

423.1028

Notice of prehearing conference

422.1030

423.1030

Conduct of prehearing conference

422.1032

423.1032

Record, order, and effect of prehearing conference

422.1034

423.1034

Time and place of hearing

422.1036

423.1036

Change in time and place of hearing

422.1038

423.1038

Joint hearing

422.1040

423.1040

Hearing on new issues

422.1042

423.1042

Subpoenas

422.1044

423.1044

Conduct of hearing

422.1046

423.1046

Evidence

422.1048

423.1048

Witnesses

422.1050

423.1050

Oral and written summation

422.1052

423.1052

Record of hearing

422.1054

423.1054

Waiver of right to appear and present evidence

422.1056

423.1056

Dismissal of request for hearing

422.1058

423.1058

Dismissal for abandonment

422.1060

423.1060

Dismissal for cause

422.1062

423.1062

Notice and effect of dismissal and right to request review

422.1064

423.1064

Vacating a dismissal of request for hearing

422.1066

423.1066

Administrative Law Judge's decision

422.1068

423.1068

Removal of hearing to Departmental Appeals Board

422.1070

423.1070

Remand by the Administrative Law Judge

422.1072

423.1072

Right to request Departmental Appeals Board review of Administrative Law Judge's decision or dismissal

422.1074

423.1074

Request for Departmental Appeals Board review

422.1076

423.1076

Departmental Appeals Board action on request for review

422.1078

423.1078

Procedures before Departmental Appeals Board on review

422.1080

423.1080

Evidence admissible on review

422.1082

423.1082

Decision or remand by the Departmental Appeals Board

422.1084

423.1084

Effect of Departmental Appeals Board decision

422.1086

423.1086

Extension of time for seeking judicial review

422.1088

423.1088

Basis, timing, and authority for reopening an Administrative Law Judge or Board decision

422.1090

423.1090

Revision of reopened decision

422.1092

423.1092

Notice and effect of revised decision

422.1094

423.1094

We did not receive any comments on the crosswalk distribution table and have made no substantial changes to it. We are finalizing the table as proposed.

D. Proposed Changes to Part 422—Medicare Advantage Program and Part 423—Medicare Prescription Drug Benefit Program

Sections 422.2 and 423.4—Definitions

We proposed to correct a technical oversight in both regulations by including the definitions of “downstream entity,” “first tier entity,” and “related entity,” in the overall definitions sections of both the MA and Part D regulations at § 422.2 and § 423.4 to ensure that these terms are used consistently throughout both programs. Since these three terms are only defined in Subpart K of parts 422 and 423, we proposed to add them to Subpart A, General Provisions at § 422.2 and § 423.4.

Please see page 29372 of the proposed rule for a flow chart that provides examples of, and describes the relationships between, Part D sponsors, and first tier, downstream, and related entities.

Comment:

A few commenters requested more explicit definitions of first tier, downstream, and related entities. They asked us to provide clarification for the terms record retention, administrative services, written arrangements, acceptable to CMS, CMS instructions, and directors. We also received a request that we clarify the phrase “a written agreement, acceptable to CMS,” found in the definition of “downstream entity,” and a request that we clarify which entities are involved in such an arrangement.

Response:

The terms “first tier entity,” “downstream entity,” and “related entity” are already defined in Subpart K of parts 422 and 423, and we are only including them in Subpart A, General Provisions at § 422.2 and § 423.4 for clarity, since these terms were originally defined in only Subpart K. Examples of downstream entities include, but are not limited to, pharmacy benefit managers, mail order pharmacies, retail pharmacies, firms providing agent/broker services, agents, brokers, marketing firms, and call center firms. We are neither providing definitions nor clarifications for the terms “record retention,” “administrative services,” “written arrangements,” “acceptable to CMS,” “CMS instructions,” or “directors,” since these terms are longstanding terms used by us and the industry. We are finalizing the definitions of “first tier entity” and “related entity” as proposed.

Based upon an unintentional oversight in the proposed regulation, we are revising the definition of “downstream entity” for improved clarity, as described below. The definition of a Part D “downstream entity” at § 423.4 states that a “[d]ownstream entity means any party that enters into a written arrangement acceptable to CMS, below the level of the arrangement between a Part D plan sponsor (or applicant) and a first tier entity.” In response to this comment, we are modifying the proposed definition to address with whom the entity is entering into a written arrangement. The definition is revised to read: “Downstream entity means any party that enters into a written arrangement, acceptable to CMS, with persons or entities involved with the Part D benefit, below the level of the arrangement between a Part D plan sponsor (or applicant) and a first tier entity. These written arrangements continue down to the level of the ultimate provider of both health and administrative services.” We are making similar changes to the definition of “downstream entity” in the MA regulation at § 422.2.

Comment:

One commenter questioned whether a pharmacist is a downstream entity.

Response:

As illustrated in the sample flowchart provided on p. 29372 of the proposed rule, and below, a pharmacist would be considered a downstream entity as defined in the regulation.

ER05DE07.014

Sections 422.503 and 423.504—General Provisions

The current regulations at § 423.504 include a requirement that a Part D sponsor's compliance plan consist of training and education, and effective lines of communication between the compliance officer, and the organization's employees, contractors, agents, directors, and managers. The terms “contractor” and “agent” are not defined in the current regulations, and it has been unclear to the industry which entities are subject to the training and education, and the effective lines of communication requirements. In response to industry concerns and to eliminate the confusion associated with using the term “contractor”, currently used in those sections, we proposed to revise paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D) of § 423.504. The proposed revision clarified that a compliance plan must consist of training and education, and effective lines of communication between the compliance officer and the Part D sponsor's employees, managers, and directors, as well as the Part D sponsor's “first tier, downstream, and related entities” which are defined at 422.500 and 423.501. This change clarifies that Part D plan sponsors need to apply these training and communication requirements to all entities they are partnering with to provide benefits or services in the Part D program, not just to their direct employees within their organizations.

Pursuant to our authority under § 1856(b)(1) of the Act to establish MA standards by regulation, we also proposed to make the same changes in the MA program. We similarly proposed to require MA organizations to apply their training and education and effective lines of communication requirements to their first tier, downstream, and related entities, in an effort to make the compliance plan requirements uniform across MA organizations, Medicare Advantage Prescription Drug Plans (MA-PDs), and other Part D sponsors. Additionally, we proposed clarifying paragraph (b)(4)(vi) in § 422.503 and § 423.504 by removing what we believe to be a duplicative and confusing “final element” of the compliance plan—a comprehensive “fraud, waste, and abuse plan to detect, correct, and prevent fraud, waste, and abuse,” at paragraph (b)(4)(vi)(H) of both regulations. We proposed to remove this element because since the Part D program's inception, we received feedback from many Part D sponsors indicating that it was not clear whether we were requiring a fraud, waste, and abuse (FWA) plan separate and distinct from a compliance plan.

In April 2006, we issued Chapter 9 of the Prescription Drug Benefit Manual (“Part D Program to Control Fraud, Waste and Abuse,” hereafter referred to as “Chapter 9”) as best practices guidance for Part D sponsors to develop an FWA plan. We intend for Chapter 9 to be similar to the type of best practices guidance issued by the Office of the Inspector General (OIG) in its Compliance Program Guidance for drug manufacturers and health care providers. While we clarified in Chapter 9 that Part D sponsors could choose whether to incorporate FWA measures in a compliance plan, we believe the final element continues to cause potential confusion to the industry, and therefore, proposed to remove this element from (b)(4)(vi) of § 422.503 (for MA-PDs) and § 423.504 (for Part D sponsors).

We continue to believe an effective compliance plan includes procedures and policies for preventing fraud, waste, and abuse, and so proposed changes to the introductory clause of § 423.504(b)(4)(vi) that reflect our policy stance. Congress mandated that Part D sponsors have a “program to control fraud, waste, and abuse.” See § 1860D-4(c)(1)(D) of the Act. Therefore, we are also clarifying that if Part D plan sponsors develop an effective compliance plan that incorporates measures to detect, prevent, and correct fraud, waste, and abuse, this compliance plan would also satisfy the statutory requirement that sponsors have a FWA plan in place. Part D sponsors should continue to look to Chapter 9 as recommended guidance for the types of measures we recommend in detecting and preventing fraud, waste, and abuse. Chapter 9 can be viewed at:

http://www.cms.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf.

We recognize that Chapter 9 was specifically developed for Part D sponsors and is not applicable for MA organizations that do not offer a prescription drug benefit. In the interim,

MA organizations should refer to Chapter 9 as a reference regarding how to incorporate fraud, waste, and abuse detection and prevention into their compliance plans. We plan to develop separate guidelines for MA organizations for implementation by January 1, 2009.

Pursuant to our authority under section 1856(b)(1) of the Act, we also proposed to make the same change to the introductory clause of § 422.503(b)(4)(vi), so that the compliance plan requirements for MA organizations will be identical to those for Part D sponsors. We proposed that MA organizations must include “measures to detect, correct, and prevent fraud, waste, and abuse” throughout the 7 elements of the compliance plan requirement. Before this proposed change, only MA-PDs were explicitly required to include detection and prevention of fraud, waste, and abuse into their compliance plans. However, it has always been our expectation that fraud, waste, and abuse would be addressed through the implementation of all 7 elements in a MA organization's compliance plan, enumerated at paragraphs (A) through (G) of § 422.504(b)(4)(vi). It has been our longstanding policy that an effective MA compliance plan addresses the detection, correction, and prevention of fraud, waste, and abuse in the MA program, and we believe that our proposed change makes this policy explicit in our regulations. As previously stated in this final rule with comment period, MA organizations may refer to Chapter 9 in the interim, and further guidance on the types of measures we recommend in detecting and preventing fraud, waste, and abuse will be developed specifically for MA organizations.

Comment:

A number of respondents requested further clarification regarding who must provide training and education under the compliance plan and who must be trained and educated.

Response:

We did not intend to imply that MA organizations and Part D sponsors are required to directly provide Part D compliance training and education to all of their first tier, downstream, and related entities. Instead, we seek to reaffirm the role and responsibilities of the MA organization and Part D sponsor in this area. To the extent that aspects of the compliance plan are delegated, it is important to remember that the MA organization's or Part D sponsor's compliance officer must maintain appropriate oversight of those delegated activities. The Part D sponsor and the MA organization maintain ultimate responsibility regardless of whether training has been delegated to the first tier, downstream, or related entities. In accordance with the Part D and MA applications, the Part D sponsor or MA organization must attest it will implement a compliance plan that includes effective training and education between the compliance officer, organization employees, contractors, agents and directors. In addition, as part of plan audits, CMS will verify that all necessary training has been provided. Therefore, CMS would expect that a Part D sponsor and MA organization would have training logs and copies of attestations from the first tier, downstream or related entities to comply with this requirement. As previously stated in this final rule with comment period, MA organizations may refer to Chapter 9 in the interim, and further guidance will be developed for MA organizations.

Comment:

A few commenters questioned “who would be responsible” for implementing the compliance program's fraud, waste, and abuse detection and prevention efforts related to Part D.

Response:

The MA organization or Part D sponsor is ultimately responsible for meeting the compliance plan requirement to implement measures for detecting and preventing fraud, waste, and abuse. However, we realize that each MA organization and Part D sponsor has a unique business model and structure, and that some will choose to perform certain functions themselves while some MA organizations and Part D sponsors will subcontract certain functions and rely on the expertise and operations that first tier, downstream, and related entities offer. The job of the compliance officer cannot be delegated. But MA organizations and Part D sponsors have the flexibility to determine how, and to what extent, they will delegate their compliance activities, which may include training and education to control fraud, waste, and abuse. MA organizations and Part D sponsors have the flexibility to determine how and to what extent they will delegate other aspects of their contractual requirements. To the extent that any compliance activities are delegated to first tier, downstream, and related entities, MA organizations and Part D sponsors are ultimately responsible for compliance plan oversight, including monitoring training and education, and complying with all statutory and regulatory requirements, as well as any additional guidance identified by us. One option MA organizations and Part D sponsors may choose is to contractually require their first tier, downstream, and related entities to train their own workforce on delegated activities and establish lines of communication to the appropriate managers in those entities. We recommend that Part D sponsors review chapter 9 of the Prescription Drug Benefit Manual for further guidance regarding accountability and oversight of first tier, downstream, and related entities. As previously stated in this final rule with comment period, MA organizations may refer to Chapter 9 in the interim, and further guidance will be developed specifically for MA organizations.

MA organizations and Part D sponsors should consider requiring that any first tier, downstream, and related entities performing activities on behalf of the MA organization or Part D sponsor, provide their own training in accordance with § 422.504(b)(4)(vi)(C) or § 423.504(b)(4)(vi)(C) respectively, or where there are sufficient organizational similarities, the MA organization or sponsor may choose to make its training programs available to these entities. This will allow the first tier, downstream, and related entities the choice of accessing the MA organization or Part D sponsor's training and education materials, or providing proof to them of their compliance with the training and education requirement. For further guidance, please refer to chapter 9 of the Prescription Drug Benefit Manual.

Employees with specific responsibilities in Medicare Part D business areas should receive specialized training on issues posing compliance risks based on their job function (for example, pharmacist, statistician, and so on), upon initial hire, when requirements change, or when an employee works in an area previously found to be noncompliant with program requirements or associated with past misconduct. Such training should also be required at least annually thereafter as a condition of employment. Specialized training content may be developed by the sponsor or employees may attend professional education courses that help meet this objective. Further discussion related to this subject may be found in Chapter 9.

In Chapter 9, we discuss how delegation of training would be applicable, if deemed appropriate by the sponsor, for General Compliance Training and Specialized Compliance Training. We did not make any changes to our proposed provisions as a result of this comment.

Comment:

We received some comments suggesting that we should work with the industry to develop a

standardized training and communication plan applicable to all stakeholders, and make it available on the internet. This way, stakeholders would receive one comprehensive training and communication package.

Response:

We believe this to be a valuable suggestion, and we will take it under consideration.

Comment:

Some commenters requested that we conduct certifications to verify that training and education had been completed for Part D plans and their first tier, downstream, and related entities.

Response:

At this time, we do not require a certification process but rather, through our audit and review process, will determine whether or not the training and education requirements were fulfilled. We hold the Part D sponsor or MA organization responsible for fulfilling this requirement regardless of whether first tier, downstream, and related entities certify to that effect. We may revisit the idea of certification in the future.

Comment:

One respondent questioned who downstream entities should contact with “compliance concerns.”

Response:

We have contracted with program integrity contractors who will use innovative techniques to monitor and analyze data to help identify and prevent fraud, waste, and abuse. Any person or entity at a first tier, downstream, or related entity level that wishes to report potential fraud or misconduct may contact a program integrity contractor and/or the MA organization or the Part D sponsor, depending on the type of violation.

Comment:

Another respondent questioned who would be responsible for reporting potential prescription drug fraud.

Response:

The Part D sponsor or MA organization maintains ultimate responsibility regardless of whether oversight duties have been delegated. To the extent that any of the compliance activities for Parts C or D are delegated, it is important that the MA or Part D compliance officer maintain appropriate oversight of those duties that have been delegated. The compliance officer is responsible for determining whether voluntary self-reporting of any potential fraud or misconduct related to the MA or Part D program is appropriate. In addition, first tier, downstream, and related entities are encouraged to report fraud, waste, or abuse to the program integrity contractor and/or the MA organization or the Part D sponsor.

Sections 422.503(b)(4)(vi)(G)(

3

) and 423.504(b)(4)(vi)(G)(

3

)—Mandatory Self-Reporting

At § 422.503(b)(4)(vi)(G)(

3

) and § 423.504(b)(4)(vi)(G)(

3

), we proposed mandatory self-reporting of potential fraud or misconduct in both the MA and Part D programs. We believe that it is important for the government to have information on potential fraud or misconduct as soon as possible. The comments we received on the May 25, 2007, proposed rule highlighted the challenges in establishing the parameters of a mandatory self-reporting process in the context of MA and PDP plans. Commenters expressed several concerns during the public comment period, including the need for us to better define what constitutes “potential” fraud and misconduct, the process for reporting, and the need to be consistent with other agencies' guidance regarding self-reporting. After reviewing these comments, we determined that additional analysis needs to be undertaken and additional information sought before implementing a mandatory self-reporting requirement.

In the meantime, we believe that self-reporting is a valuable component of an MA organization's or Part D sponsor's compliance plan. Therefore, in an effort to make the compliance plan requirements uniform across MA organizations, Medicare Advantage Prescription Drug Plans (MA-PDs), and other Part D sponsors, we will amend proposed paragraph (b)(4)(vi)(G)(

3

) of both §§ 422.503 and 423.504 to read: A MA organization or Part D sponsor “should have procedures for voluntary self-reporting of potential fraud or misconduct * * *.” We are essentially retaining the voluntary self-reporting recommendation for Part D sponsors, but merely moving it within the regulatory text to accommodate other regulatory changes we are making, and implementing a voluntary self-reporting recommendation for MA organizations. We are strongly recommending that, if after conducting a reasonable inquiry, it is determined that potential fraud or misconduct has occurred, the conduct should be promptly referred to the program integrity contractor for further investigation. While we are not requiring mandatory self-reporting in this final rule with comment period, there may be instances under federal criminal and fraud and abuse statutes where MA organizations and Part D sponsors are potentially subject to prosecution if certain issues are not properly addressed. We further note that our decision not to amend the existing MA and PDP requirements further at this time does not mean that organizations may not be liable under other Federal laws or regulations if they fail to disclose a violation they have discovered.

We wish to call attention to the existing guidance we provide on self-reporting. Key documents include Chapter 9 of the Prescription Drug Benefit Manual, concerning fraud, waste, and abuse (at

http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf

) and the Medicare Part D Reporting Requirements for Contract Year 2007 (at

http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PartDReportingRequirements_CurrentYear.pdf

). While these documents are not codified rules, the guidance they contain provides clear direction to plans as to our expectations. We will periodically revise these guidelines to reflect additional guidance on ways to improve reporting of fraud, waste, and abuse.

We are committed to implementing mandatory self-reporting and we intend to issue a proposed rule. Finally, we believe that it would be valuable to obtain additional input at this time, in order to inform our evaluative, analytic, and guidance efforts. Accordingly, we are asking for additional public comments on this issue. Specifically, we ask for comments regarding the following:

• We proposed requiring MA organizations and Part D sponsors to report potential “fraud or misconduct.” We seek guidance as to how to define what kinds of offenses would constitute fraud and misconduct for purposes of this reporting requirement. We seek specific examples of what constitutes potential fraud and misconduct.

• Alternatively, we seek input as to whether there is an alternate formulation, rather than “fraud or misconduct” that would better describe the categories of offenses that should be reported to CMS (for example violations of administrative, civil and/or criminal authorities).

• Who are the entities that would be responsible for reporting to CMS (sponsor, first tier, downstream entities)?

• At what point would CMS require that a MA or Part D plan report a potential issue that could fall into the category of offenses that would require self-reporting (for example, upon initial discovery or after an opportunity for reasonable inquiry or due diligence)?

• How should this information be reported to CMS (through the MEDICs, disclosure to the CMS plan manager, or

CMS central office)? Please provide a discussion of the advantages or disadvantages of any of these or other reporting mechanisms.

• In addition to the specific questions raised above, please provide us with any other comments or constructive feedback that might assist us in crafting a mandatory self-reporting requirement.

Sections 422.504 and 423.505—General Provisions

We proposed to clarify which entities under contract to MA organizations and Part D sponsors are subject to the contract provisions in the MA and Part D programs. Currently, the contract provisions at 422.504 and 423.505 refer to such entities as the MA organization or Part D sponsor's “contractors” and “subcontractors,” which as we described in the proposed rule, are undefined terms in the statute and regulations. We proposed, where applicable, to delete the term “contractor,” because of potential confusion and redundancy, and replace the term “subcontractor” with the terms “first tier entity” and “downstream entity” in 422.504(e) and (i), to clarify which entities are subject to the contract provisions at 422.504.

We also proposed, where applicable, to delete the term “contractor,” and replace the term “subcontractor” with the terms “first tier entity” and “downstream entity” in the Part D contract provisions at 423.505(e) and (i) for the same reasons. We believed using “first tier and downstream, entities” instead of “subcontractor” would lessen the potential for confusion in the Part D program. Please see page 29372 of the proposed rule for examples of first tier, downstream, and related entities.

Comment:

We received a number of technical comments concerning the definitions of “contractor” and “subcontractor.”

Response:

Based on these comments, we are correcting a few typographical errors in § 423.505(i)(3)(v) by replacing the phrase “related entity, contractor or subcontractor” with the phrase “first tier, downstream, and related entities” to be consistent with the other parts of the regulation. In §§ 423.505(i)(3), and §§ 423.505(i)(3)(ii), (i)(4), and (i)(4)(v), we are deleting the term “pharmacy” as it was included in error and is redundant. Section 423.505(i)(4) will now read: “If any of the Part D plan sponsor's activities or responsibilities under its contract with CMS is delegated to other parties, the following requirements apply to any first tier, downstream, and related entity,” and § 423.505(i)(4)(v) will read: “All contracts or written arrangements must specify that the first tier, downstream, or related entity must comply with all applicable Federal laws, regulations, and CMS instructions.” We also are making similar corrections to § 422.504(i)(3), (i)(3)(ii), and (i)(4) where the term “provider” was left in the regulations unintentionally. All references to “provider” have been deleted in the final regulations.

We proposed to add a provision to the contracts and written arrangements between sponsors and their first tier, downstream, and related entities at § 423.505(i)(3)(iv) to clarify that this information can be provided to either the Part D sponsor to give to CMS, or can be provided directly to CMS or its designees. We discussed in the proposed rule at page 29373 our existing authority under section 1860D-12(b)(3)(c) of the Act and § 422.504(e) and § 423.505(e) to inspect and audit any books, contracts, requests, and records of a Part D sponsor or MA organization relating to the Part D program. Because of the proposed contract provision, we also proposed to redesignate § 423.505(i)(3)(iv) as § 423.505(i)(3)(v). We are finalizing these changes as proposed.

Comment:

A few commenters questioned our authority to access the books and records of first tier, downstream and related entities. One commenter suggested a need for more formal rulemaking on this topic.

Response:

We have existing authority under section 1860D-12(b)(3)(c) of the Act and § 422.504(e)(2) and § 423.505(e)(2) to inspect and audit any books, contracts, and records of a Part D sponsor or MA organization and its first tier, downstream, and related entities that pertain to any aspect of services performed, reconciliation of benefit liabilities, and determination of accounts payable under the contract or as the Secretary may deem necessary to enforce the contract. Therefore, it is not necessary, as the commenters suggested, to propose a more formal regulation and offer another public comment period. These third party disclosure requirements were finalized in the final MA and Part D rules and were approved under the Paperwork Reduction Act approval under OMB #0938-1004 (Part C) and OMB #0938-1000 (Part D). Additionally, in the preamble to the Part D proposed rule, published on January 28, 2005 (70 FR 4194), we clearly stated our inspection and audit rights with respect to a Part D sponsor and its contractors, subcontractors, and related entities under the section entitled “Access to Facilities and Records” (69 FR 46632-46712). In this regulation, we have further clarified that our access rights apply to “first tier, downstream, and related entities,” and not “contractors, subcontractors, and related entities.”

The limited rebate and other price concession information provided to the Part D sponsor by its contracting entities may provide some payment information to us, but it may not be enough for us to determine in all cases whether appropriate payments have been made to the sponsor. Therefore, it may be necessary for us to rely on our authority to access books and records to obtain more detailed rebate and other price concession information in order to verify proper payments were made to the Part D sponsor.

Comment:

We received a number of comments questioning whether books and records must be made available to us directly or through the Part D sponsor.

Response:

We have chosen not to be prescriptive regarding whether first tier, downstream, and related entities must make their books and records available to us directly or through the Part D Sponsor. It is our opinion that this is considered to be part of the negotiation process between the Part D sponsor and its first tier, downstream, and related entities. The provision must be clear as to whether or not the requested documentation is to be submitted through the Part D sponsor to us (or our designee(s)), or submitted directly to us (or our designee(s)). The parties could also decide to have such books and records made directly available to us, or our designee(s), through onsite access. The Part D sponsor must be prepared to submit evidence of this agreed upon provision in its executed contracts to us. To clarify, the “designee” either refers to entities under a program integrity contract with us, or entities, such as law enforcement, working in collaboration with us to fight fraud, waste and abuse in the Medicare Part D program.

HHS, the Comptroller General, or its designees have the authority to collect any information from the first tier, downstream, or related entities that is related to the Medicare Part D prescription drug transaction. Examples of the type of information collected are provided at § 423.505(e)(2).

In addition to proposing a new contract provision at § 423.505(i)(4)(iv), we also proposed minor regulatory changes which clarify the Part D sponsor's CMS contractual requirements. While we continue to believe our regulations clearly state our authority to access the books and records of a Part D sponsor's first tier, downstream, and related entities, we proposed to add language about these

partnering entities to § 423.505(b)(10), and proposed to consolidate § 423.505(e)(2) and (3) into one provision at (e)(2). We proposed these revisions to make explicit the Part D plan sponsor's contractual obligation to ensure HHS, the Comptroller General, or their designees have access to any books and records related to the Part D program, including those of a sponsor's first tier, downstream, and related entities. These revisions do not impose any new requirements on Part D sponsors or its partnering entities. We are finalizing these proposed provisions without change.

Comment:

A few commenters noted that the proposed revision to § 422.504 and § 423.505 has not prescribed “typical” data sets to be reported within the context of our request for books and records of first tier, downstream, and related entities. Another commenter indicated that the information that could be collected is too broad.

Response:

We want to clarify that the “books and records” we are entitled to access do not make up a typical data set included in the Medicare Part D Reporting Requirements. There is no report form to be defined, as the format will be dependent upon the information being requested and the unique circumstances upon which the request is based. The scope of the information collected will be based on the type of audit being performed. If upon review of the information submitted we, or our designee(s), determine that additional information or clarification is warranted, the scope of the review may be expanded.

Comment:

A commenter suggested that we should rely on subpoena authority, regulation, provider contracts, or some other method to collect books and records in connection with investigations.

Response:

We do not have subpoena authority; however, our law enforcement partners such as OIG and DOJ do. The government may use a variety of methods to obtain records and books from entities under contract with MA organizations and/or Part D sponsors. There may be instances where we may need to see books and records without involving law enforcement. These provisions at § 422.504 and § 423.505 only clarify one method we may employ to do so.

We clarified in the preamble to the proposed rule that HHS, the Comptroller General, or their designees have the authority under the statute to request records from MA organizations and Part D sponsors or their first tier, downstream, or related entities. MA organizations and Part D plan sponsors must maintain, as required by § 423.505(d), “books, records, documents and other evidence of accounting procedures and practices,” pertaining to determinations of amounts payable under the contract, agreements, contracts, and subcontracts. Since Part D sponsors have delegated many Part D functions to their first tier entities, we are aware that many of these records reside with first tier and downstream entities, such as pharmaceutical benefits managers (PBMs). We are taking the opportunity again, in this final rule with comment period, to make explicit that we have the authority to request for verification of payment purposes, any records relating to rebates and any other price concessions between PBMs and manufacturers that may impact payments made to sponsors in the Part D program.

Comment:

We received a comment addressing the 10-year record retention requirement.

Response:

This requirement was implemented in a prior regulation and is outside the scope of this final rule with comment period.

Comment:

A number of commenters expressed concern that information submitted by first tier, downstream, and related entities, especially proprietary information, would not be kept confidential by us.

Response:

As an agency, we are subject to various Federal disclosure laws, such as the Trade Secrets Act, the Privacy Act, and the Freedom of Information Act (FOIA) (5 U.S.C. 552). We are also subject to confidentiality and disclosure regulations at 42 CFR Part 401 Subpart B. In addition, sections 1860D-15(d)(2)(B) and (f)(2) of the Act place restrictions on the Secretary's disclosure of certain payment data collected in the Part D program to anyone outside of HHS. Therefore, we believe there are sufficient legal restrictions to protect the disclosure of such proprietary data outside of the agency.

Comment:

One commenter questioned our need to gather information about rebate agreements between potential first tier and downstream entity contracted partners.

Response:

Our proposal to obtain rebate and price-concession related records is supported by statute. Sections 1860D-15(d)(2) and 1860D-15(f)(1)(A) of the Act authorize us to request any information “necessary” to carry out the payment provisions in section 1860D-15 of the Act, which include payments of direct subsidies, reinsurance, and risk corridor costs to sponsors. While the rebate and other price concession information reported by the sponsors may provide some payment information, it may not be enough for us to determine in all cases whether appropriate payments have been made to the sponsor. It may be “necessary” for us to obtain more detailed rebate and other price concession information from first tier, downstream, and related entities in order to verify proper payments made to the sponsor. For example, we must receive accurate and complete rebate and other price concession information in order to determine what was “actually paid” and to clearly reflect what was a gross prescription drug covered cost, which excludes administrative costs.

As stated in the CMS 2007 Prescription Drug Sponsor Call Letter, “CMS must assume that if a PBM retains a portion of the manufacturer rebates it negotiates on behalf of the Part D sponsors then the direct payment the sponsor pays the PBM for its services will be less, that is, the sponsor receives a price concession from the PBM.” If the rebates are passed completely through to the Plan then the charge from the PBM to the Plan would be an administrative cost that will need to be deducted from the “gross covered prescription drug costs” which along with the “actually paid costs” are a basis for CMS payment to the plans.

In addition, such rebate and other price concession information is critical to our oversight efforts in curbing fraud, waste, and abuse in the Part D program. Under section 1860D-2(d)(3) of the MMA, Congress granted us the right to conduct periodic audits of a sponsor's financial statements, books, and records “to protect against fraud and abuse and to ensure proper disclosure and accounting” in the Part D program.

Given the history of rebate reporting problems the government has encountered with PBMs in administering the Medicaid Drug Rebate Act, we believe we must have the ability to evaluate and inspect records relating to Part D rebates and other price concessions in order to fulfill our statutory duty of protecting beneficiaries from fraud and abuse and to ensure the financial integrity of the Part D program. Therefore, we are restating in this final rule with comment period that we reserve the right to request records relating to Part D rebates and price concessions from the sponsor's first tier entities, downstream, and related entities when appropriate.

Comment:

A commenter questioned whether certain contracted partners are considered to be downstream entities.

Response:

In Exhibit 1 of the proposed rule, on p. 29372, and in this final rule with comment period, we

provided examples of first tier and downstream entities. We encourage you to contact the CMS staff listed at the beginning of this final rule with comment period if you have any questions as to whether a contracted partner is a downstream entity.

Sections 422.505 and 423.506—Effective Date and Term of Contract

We proposed removing § 422.505(c)(1) and § 423.506(c)(1), which state that contracts with MA organizations or Part D plan sponsors are only renewed if CMS informs the MA organization or Part D sponsor that it has authorized a renewal. Section 1857(c)(1) of the Act provides that the contract renews automatically, unless CMS or the organization notifies the other party of its intent to terminate the contract at the end of the existing contract term. Therefore, we proposed to revise § 422.505(c) and § 423.506(c) to state that in accordance with § 422.506 and § 423.507, contracts are renewed annually only if the MA organization or Part D plan sponsor has not provided us with a notice of intent not to renew and we have not provided the MA organization or Part D plan sponsor with a notice of intent not to renew. This change better aligns the regulations with the statute and we are finalizing the provision as proposed.

Comment:

One commenter asked whether contracts needing amendment as a result of this final rule with comment period could be made at the time of contract renewal.

Response:

As indicated in the proposed rule and finalized here, the implementation date of this provision is January 1, 2009. Therefore, all revised contracts need to be in place by that date. We did not make any changes based on this comment and are finalizing the provision as proposed.

Sections 422.506 and § 423.507 Nonrenewal of a Contract

We proposed revising the introductory text for § 422.506(b)(2) and § 423.507(b)(2). In addition, we proposed revising § 422.506(b)(2)(i) and § 423.507(b)(2)(i). The existing provisions require us to provide plans with notice of both renewal and nonrenewal decisions by May 1. We proposed that a notice only be provided if we decide not to renew an MA organization or a Part D plan sponsor's contract with us. As discussed in the proposed rule, Section 1857(c)(1) of the Act provides for an automatically renewable contract and does not require us to provide notice when we decide to renew a plan or sponsor's contract with us.

We proposed revising the § 422.506(b)(2) introductory text and the § 423.507(b)(2) introductory text to clarify that we must provide notice of our decision not to authorize renewal of a contract. In addition, we proposed to revise § 422.506(b)(2)(i) and § 423.507 (b)(2)(i) to require that we provide such notice by September 1 of the contract year, rather than May 1. If an MA organization or Part D sponsor receives a nonrenewal notice from CMS, we will not provide information regarding the MA or Part D plans that the organization or sponsor offers in certain hard copy materials, such as the “Medicare & You” handbook. Information regarding the plans would continue to be available on the CMS Web site. For purposes of this final rule with comment period, a nonrenewal would take effect on January 1 of the following contract year (unless a nonrenewal is being appealed through the administrative appeals process and the appeals process is ongoing, or additional time is required to comply with our requirements with respect to providing notice to beneficiaries of the nonrenewal, in which case the nonrenewal may become effective during the following calendar year), whereas a termination may take effect at any time during the contract year. Our proposed provisions make contract renewal automatic, without notice, unless we notify the MA organization or Medicare Part D plan sponsor of our intent to nonrenew the contract by September 1 of the current contract year. Please see the proposed rule for our rational for changing the nonrenewal notification date to a date later than May 1.

Comment:

We received several comments concerning the proposed September 1 nonrenewal notification date. Several commenters believed that plans will have to incur significant expenditures prior to September 1 to prepare for the following calendar year, and that a September 1 date would require plans to incur expenditures that would not have been incurred before the existing May 1 nonrenewal notification date, in the event that we take action to nonrenew a plan.

Response:

We understand that MA organizations and Part D sponsors expend effort in preparing for the following contract year. Therefore, while we will not retain the existing May 1 nonrenewal notification date, we are revising our proposal and finalizing a notification date of August 1, instead of our proposed September 1 notification date.

We understand that MA organizations and Part D sponsors expend effort in preparing for the following contract year. Therefore, while we will not retain the existing May 1 nonrenewal notification date, we are responding to commenters' concerns and revising our proposal and finalizing a notification date of August 1, instead of our proposed September 1 notification date. We believe that this is an appropriate compromise. While we appreciate commenters' concerns, we believe we have a significant countervailing interest in moving the current May 1 nonrenewal notification date to later in the calendar year. As we explained in the preamble to the proposed rule, these additional months will allow us to have access to significantly more information about plan performance, which will allow for more informed and educated decisions about MA organizations and Part D sponsors that have serious compliance problems and may be the subject of a nonrenewal determination. We believe that allowing for the opportunity to access this data will benefit both CMS and the MA organizations and Part D sponsors.

Comment:

Another commenter said that the September 1 date would not provide for enough time for beneficiary notification.

Response:

As explained above, we are finalizing a nonrenewal notification date of August 1, rather than September 1 as we proposed. We believe this change is more likely to result in administrative appeals of CMS nonrenewal actions being completed in time to allow for 90 days notice of the nonrenewal to be provided to members and the general public prior to the end of the calendar year.

Comment:

One commenter requested clarification as to whether deficiencies could be cured after receiving the notice of an intent to nonrenew. The commenter stated that a September 1 date would not give enough time for an organization to make necessary changes to come into compliance for the next contract year. This commenter also expressed concern about the inability of a plan to participate in the program for the following year because of the timeframes associated with Corrective Action Plans (CAPs) and appeal rights, potentially rendering a plan's appeal rights moot.

Response:

We believe comments related to plan participation in the following calendar year based on CAP submission dates reflect a misunderstanding of our proposals in the proposed rule. We clarified in our proposed rule that we will offer plans an opportunity to submit an acceptable CAP

prior to notifying

them of our intent to nonrenew or terminate their

contract. If an acceptable CAP is submitted to us, we will not take action to nonrenew or terminate the sponsor or organization's contract. Once a sponsor or organization receives a nonrenewal notification from us (or a termination notice), the sponsor or organization is not entitled to an additional opportunity to submit another CAP. We will not be required to provide any additional time for a MA organization or Part D sponsor to come into compliance or cure deficiencies once we have notified a sponsor or organization of our intent to nonrenew (or terminate) its contract. We proposed this clarification in an effort to streamline the CAP and nonrenewal process. We have added additional language at § 422.506, § 422.510, § 423.507, and § 423.509 to expressly clarify that the opportunity to submit an acceptable CAP is afforded to a MA organization or Part D sponsor prior to our decision to nonrenew or terminate a contract.

With respect to the comment regarding ongoing administrative appeals, if a MA organization or Part D sponsor is in the process of appealing a nonrenewal or termination, and the appeal process has not been concluded, the organization will be able to participate in the program the following calendar year until such time during the following calendar year as the appeals process is concluded and appropriate notice is provided to beneficiaries. Therefore, appeal rights will not be moot.

Comment:

Several commenters believed that the September 1 date would place an undue burden on pharmacies to join plan provider networks and the commenters recommended that we provide some sort of contingent renewal notice for organizations and sponsors to send to providers for the following year.

Response:

MA organizations and Part D sponsors who have not received a request for a CAP from us as a result of deficiencies are not in jeopardy of receiving a nonrenewal notification, making the need for a contingent nonrenewal notice unnecessary. Furthermore, as explained above, we are changing the proposed September 1 nonrenewal notification date to August 1, affording pharmacies an additional month to make network decisions.

We proposed redesignating § 422.506(b)(3) as § 422.506(b)(4) and redesignating § 423.507(b)(3) as § 423.507(b)(4). We proposed adding a new paragraph at § 422.506(b)(3) and § 423.507(b)(3) which would clarify the CAP process for nonrenewals. The Act requires us to provide MA organizations and Part D plan sponsors with a reasonable opportunity to develop a CAP prior to terminating a contract, either through the termination process or the nonrenewal process. The CAP process for nonrenewals would be the same process as we proposed for terminations. We proposed a more defined process than currently exists and we proposed a process and timeframes for the submission and review of CAPs. Our proposal clarified that, in the future, once we issue a nonrenewal notice or a termination notice, the MA organization or Part D plan sponsor will not be entitled to an opportunity to submit a CAP. We will provide that opportunity to organizations and sponsors prior to issuing a notice of intent to nonrenew or terminate a contract. MA organizations and Part D plan sponsors should take very seriously any request from us to develop and implement a CAP since a failure to fully comply may result in a nonrenewal or termination action.

Comment:

One commenter questioned whether the termination and CAP process applied to all contract years and if the termination would be retroactive to the beginning of a plan contract.

Response:

The most recent finding of deficiencies and the request for a CAP would be relied upon to support a termination or other contract determination. Prior CAPs may provide additional information to us and support for our action if the MA organization or Part D sponsor has had continued compliance problems that have not been resolved, but would not be the basis of a contract determination if the prior CAPs have been accepted by us and implemented to our satisfaction. A termination action would affect the existing contract with us. Given that we have already adopted automatically renewable multi-year contracts, failure to substantially carry out a contract term necessarily would apply to the entire term of the contract (that is, the life of the contract). Part D and MA contracts are evergreen, so the existing contract is not just the current calendar year's contract, but is a continuing contract that existed during prior calendar years (assuming the Part D sponsor or MA organization participated in the program in prior calendar years).

We proposed time limits at § 422.506(b)(3) and § 423.507(b)(3) for the development and implementation of a CAP. We proposed to provide the MA organization or Part D plan sponsor 45 days in which to submit a CAP to us. If we find that the CAP is unacceptable, the MA organization or Part D plan sponsor would have an additional 30 days to revise and resubmit the CAP. If we then find the CAP acceptable, we would provide the MA organization or Part D plan sponsor with a deadline by which the CAP must be implemented. If we find that the second version of the CAP is unacceptable, we would be under no obligation to accept further revisions to the CAP and would have the discretion to proceed directly to issuing a notice of nonrenewal to the MA organization or Part D plan sponsor.

Comment:

One commenter requested clarification on whether the timeframe is measured in business or calendar days. The commenter requested that we leave open lines of communication with organizations with respect to working to develop acceptable CAPs. The commenter was concerned that there would only be one chance to provide an acceptable CAP.

Response:

We are clarifying here, and at §§ 422.506(3) and 423.507(3), that the CAP timeframes are measured in calendar days. We will provide MA organizations and Part D sponsors two opportunities to submit acceptable CAPs. Prior to requesting a CAP, or simultaneous with a request for a CAP, we will inform the MA organization or Part D sponsor about the deficiencies that must be addressed and corrected. If the first CAP submission is unacceptable to us, we will inform the MA organization or Part D sponsor as to what is unacceptable. The MA organization or Part D sponsor will then have a second opportunity to submit an acceptable CAP.

It is our intent to assist plans in submitting acceptable CAPs, while implementing a limit on the number of CAP submissions in order to bring some closure to this process when Part D sponsors or MA organizations are unable or unwilling to bring their organizations into compliance with our requirements. Aside from the clarification explained above regarding the use of calendar days, we are finalizing our proposed processes and timeframes for the submission and review of CAPs as proposed.

Sections 422.510 and 423.509—Termination of Contract by CMS

We proposed revising § 422.510(a)(1) and § 423.509(a)(1) to clarify one of the bases for contract termination. The existing provision states that we may terminate an MA organization or Part D plan sponsor's contract with us if the MA organization or Part D plan sponsor “failed substantially to carry out the terms of its contract with CMS.” We proposed language to clarify that we may terminate an MA organization or Part D plan sponsor's contract if the organization substantially failed to carry

out the terms of its contract with us during the current calendar year or for a prior calendar year. This clarification is consistent with section 1857(c)(1) of the Act, which states that a contract must be for a period of at least 1 year with the contract being automatically renewable from term to term (that is, calendar year to calendar year), absent notice from either party of an intent to terminate the contract at the end of the current term. Given that we have already adopted automatically renewable multi-year contracts, failure to substantially carry out a contract term necessarily would apply to the entire term of the contract (that is, the life of the contract).

We have made a minor change to the regulatory text at §§ 422.510(a)(1) and 423.509(a)(1) to clarify our proposal. The change is a technical edit to accurately reflect the multi-year nature of our contracts with MA organizations and Part D sponsors.

We proposed revising § 422.510(b) and § 423.509(b) introductory text and revising the paragraph heading for § 422.510(b)(2) and § 423.509(b)(2) to delete the term “immediate” and replace it with “expedited”. In addition, we proposed revising § 422.510(b)(2)(i) and § 423.509(b)(2)(i) to state that an expedited termination would take effect on a date specified by us. According to the existing regulations, an immediate termination takes effect once the MA organization or Part D plan sponsor receives notice that we intend to immediately terminate the plan's contract with us and a plan's enrollees are automatically disenrolled from the plan on the date such notice is received. The proposed change will provide greater protection for Medicare beneficiaries because we would have time between notifying a plan of an expedited termination decision and the actual date of termination to provide enrollees of the MA or Part D plan with enough information to enroll in another plan. We are finalizing this proposal without change.

Comment:

We received a recommendation that we auto-enroll beneficiaries into another plan for seamless continuity of care, provided the beneficiary was able to make another health care choice. Another commenter felt that the effective date should be made in consultation with the terminated plan to better meet the needs of beneficiaries.

Response:

We will take actions to ensure beneficiaries are protected and that continuity of care is a priority in our planning for all termination actions. We are not addressing beneficiary auto-enrollment in regulation since it is an operational issue. We have considered the suggestion that we involve the terminated plan in determining the effective date of the termination but believe that we are in the best position to determine the effective date of the termination. Determining the effective date of an expedited termination is a decision that should be made solely by us. We are finalizing the provision as proposed.

Comment:

A few commenters did not believe we should be able to terminate a contract based on deficiencies during prior years. Commenters also stated that deficiencies that have been cured should not be the basis for a contract termination.

Response:

We clarify here that failure to carry out contract terms means the MA organization or Part D sponsor is not currently in compliance. The failure to be in compliance currently may be a continuation of a failure to be in compliance in the previous year and/or the result of an incident(s) that occurred during the prior year or years. For example, a notice of intent to terminate provided to an organization in February of the current year might be based on the organization failing to provide an acceptable CAP for an audit that occurred in December of the previous year. In addition, the deficiencies found in December of the previous year may be unresolved deficiencies from a prior audit, never having been cured. We need the ability to look into previous contract terms for uncured deficiencies. We proposed the ability to terminate a contract based on current, open deficiencies, no matter how long they have been open deficiencies. It is not our intent to terminate a contract based on deficiencies that have been, and remain, cured.

Comment:

One commenter recommended an expedited hearing process for expedited terminations.

Response:

The current regulations provide for a hearing process to occur after an immediate, proposed expedited, termination has occurred. Current regulations do not provide for an expedited appeals process. Our proposed changes to the appeals process do not provide for an expedited appeals process. We do not believe an expedited appeals process is warranted. However, we note that eliminating the reconsideration process for all contract determinations, as we have proposed and are finalizing, will have the effect of accelerating the appeals process for all contract determinations. We are finalizing this provision as proposed.

Comment:

One commenter requested guidance or examples of what we consider to be “imminent and serious risk to enrollees.”

Response:

We do not wish to provide examples of what “imminent and serious risk to enrollees” might entail because of the complexities of each and every expedited termination that may take place. Each case is different and we do not feel that past examples will necessarily help plans in preventing future expedited terminations.

We also proposed to clarify that we are able to invoke the expedited termination process when a determination regarding an MA organization is made according to § 422.510(a)(5). The existing regulations state that we invoke the current immediate termination process when a determination is made according to § 422.510(a)(4) for the MA program and § 423.509(a)(4) or (a)(5) for the Medicare Part D program. By adding (a)(5) as a basis for an expedited termination for MA organizations, the grounds for expedited terminations would be identical for the MA and Part D programs. The addition of § 422.510(a)(5) would provide consistency between the Part C regulations and the Part D regulations.

Comment:

One commenter did not agree that expedited terminations should be based on instances where an MA organization or Part D sponsor provides “false” data without any fraudulent intent or knowledge that false data was provided. The commenter believes that expedited terminations should be reserved for instances of beneficiary harm and intentional fraud.

Response:

We proposed in the Part C regulations, at 422.510, that the submission of false data may serve as the basis for an immediate termination (proposed name change to expedited termination) to correlate with existing Part D regulations. Our ability to immediately terminate based on the submission of false data has already been subject to notice and comment during the comment period for the existing Part D regulations. We now proposed this change to the Part C regulations to ensure that the Part C and Part D regulations mirror each other where appropriate. We believe that this change is necessary to ensure the integrity of the Part C program and to continue to ensure that conduct under both the Part C and Part D programs is handled similarly. Therefore, we are finalizing our proposal without modification.

We proposed to amend our procedures at § 422.510(c) and § 423.509(c) to more clearly define the process for the submission and review of CAPs prior to a termination action.

The Act requires us to provide MA organizations and Part D plan sponsors with a reasonable opportunity to develop and implement a CAP before we terminate the organization or sponsor's contract. The CAP process we proposed is the same process for nonrenewals outlined above and which we proposed at § 422.506 and § 423.507, providing for a more structured process and timeframes for the development and implementation of a CAP. We received comments concerning CAPs as applied to terminations, and have addressed them above in §§ 422.506 and 423.507, given that the CAP process is identical for nonrenewals and terminations.

Subpart N—Medicare Contract Determinations and Appeals

We proposed revisions to subpart N of 42 CFR part 422 and 42 CFR part 423 to coordinate and improve the contract determination and appeals processes for MA organizations and Part D plan sponsors. We proposed eliminating the reconsideration process for appeals of all types of contract determinations. We also proposed to make the appeals process consistent for all three types of contract determinations (terminations, nonrenewals, and decisions by us not to enter into a contract with an applicant). In addition, we proposed that the MA organization or Part D plan sponsor have the burden of proof in appealing a contract determination. Please see the proposed rule for a more detailed explanation of our proposals.

Sections 422.644 and 423.642—Notice of Contract Determination

We proposed to make conforming changes to § 422.644(b)(2) and § 423.642(b)(2) as a result of the changes we are making to the immediate termination process. Consistent with the proposed revisions we have previously described, we proposed to revise § 422.644(c) and § 423.642(c) to state that we would determine the effective date of an expedited termination. We also proposed adding § 422.510(a)(4) as a basis for which we may undertake an expedited termination. We are finalizing these provisions as proposed.

We also proposed to revise the provisions at § 422.644(d) and § 423.642(d) to conform to the proposed change previously described whereby we would provide notice of nonrenewal to MA organizations or Part D plan sponsors by September 1, rather than the current May 1. Please see above for a discussion of nonrenewal notification dates. We are finalizing these proposals with a modification to reflect the fact that we are finalizing the nonrenewal notification date as August 1, rather than September 1 as we proposed.

Sections 422.646 and 423.643—Effect of Contract Determination

We proposed making conforming changes to the provisions at § 422.646 and § 423.643 to reflect our proposal to eliminate the reconsideration process. The current regulations state that a contract determination is final unless an MA organization or Part D plan sponsor requests reconsideration. Since we proposed eliminating the reconsideration process, we also proposed a conforming change to indicate that a contract determination would be a final decision unless a timely request for a hearing is filed.

Comment:

One commenter felt that eliminating a step for “informal collaboration” with us would create a process that is not in the best interest of beneficiaries. The commenter stated that by eliminating the reconsideration process, we appear to be eliminating opportunities to remedy potential problems prior to taking a formal contract action.

Response:

We have reviewed the comment and have decided to finalize our proposal without modification. The commenter seems to be under the impression that the existing reconsideration process is an informal, collaborative process which provides the organization with another opportunity to come into compliance with our requirements. The commenter is misinformed about the nature of the current reconsideration process. The reconsideration is the first formal step in the administrative appeals process for organizations. The time for informal collaboration is prior to the commencement of an appeal, and prior to the seeking of reconsideration.

Sections 422.660 and 423.650—Right to a Hearing and Burden of Proof

We proposed conforming changes to the provisions at § 422.660(a) and 423.650(a) to reflect our proposal to eliminate the reconsideration process. These provisions would state that if we determine that an applicant is not qualified to enter into a contract with us and the applicant chooses to appeal the determination, a hearing before a CMS hearing officer would be the first step in the appeal process. We proposed to make similar conforming changes to § 422.660(b) and § 423.650(b), to indicate that a hearing before a CMS hearing officer would be the first step in appealing a nonrenewal determination or a termination decision. We did not receive any comments on these provisions and are revising them as proposed.

We proposed to add a new provision at § 422.660(c) and at § 423.650(c) to clarify that the burden of proof would be on the MA organization or Part D plan sponsor at a hearing appealing a CMS contract determination. The MA organization or Part D plan sponsor must demonstrate that they were in compliance at the stated time by a preponderance of the evidence. We believe case law supports our decision to place the burden of proof on the affected party in an administrative hearing on a contract determination involving a Part D plan sponsor or MA organization. See Hillman Rehabilitation Center, DAB No.1611 (1999), aff'd

Hillman Rehabilitation Center

v.

U.S.

No.98-3789 (GEB) (D.N.J. May 13, 1999).

Comment:

We received comments related to our effort to clarify that burden of proof is on the MA Organization or Part D sponsor. Commenters stated that the burden of proof should be on us, and not the organization or sponsor, since we are taking the contract action and that imposing the burden of proof on the organization or sponsor is contrary to traditional principles of jurisprudence and is unfair. One commenter suggested that if the burden is on the organization or sponsor, then there should be a rebuttable presumption of non-compliance with the organization or sponsor assuming the burden of proof to rebut the presumption on a going forward basis. The commenter stated that if the organization or sponsor submits at least colorable evidence of substantial compliance the burden of persuasion should shift to CMS to prove non-compliance by clear and convincing evidence.

Another commenter stated that putting the burden of proof on the organization or sponsor effectively removes the organization or sponsor's ability to self-regulate and come into compliance once the compliance issue has been identified. The commenter stated that the date of compliance must allow for entities to fix identified deficiencies and cure the deficiencies.

Response:

We have considered these comments and have determined that the proposed provision should be finalized without modification. Plans, following an audit, receive a report notifying the plan of any non-compliance. Following the report, plans have an opportunity to dispute the findings. For those compliance issues not related to formal audits, we continue to notify the plan about deficiencies of which we become aware, giving the plan an opportunity to

dispute the allegation. Whenever a plan is found to be non-compliant, we will request a CAP to cure the deficiencies. We are finalizing regulations that will provide a MA organization of Part D sponsor with an opportunity to submit an acceptable CAP before we decide to take contract action. It is important to understand that the date we notify an organization of our intent to take a termination or nonrenewal action is not the first time the organization learns that it is out of compliance with our requirements.

In addition, we also proposed that the MA organization or Part D sponsor must demonstrate substantial compliance with the relevant MA or Part D plan requirements as of the earliest of the following dates: (1) The date the organization or sponsor received written notice of the contract determination; (2) the date of the most recent on-site audit conducted as the basis of the termination; (3) or the date of the alleged breach of the current contract or past substantial noncompliance as determined by CMS.

Comment:

We received a comment stating that the date of compliance should be the hearing date, not the earliest of the three dates proposed in the regulation. The commenter stated that using the earliest of the three dates violates due process.

Response:

We have reviewed the comment and do not believe requiring compliance at the earliest of the three dates violates due process. MA organizations and Part D sponsors are required to be in compliance at all times. If we used the hearing date as the date by which we measured compliance, we would have absolutely no way of disputing a MA organizations or Part D sponsor's assertion that they are currently in compliance. Under no circumstance to we believe that the date for determining compliance should be after the date of termination notification. We are finalizing the proposal without modification.

Sections 422.662 and 423.651—Request for a Hearing

We proposed to revise § 422.662(b) and § 423.651(b) to conform to our proposed change to eliminate the reconsideration process. These provisions specify that a request for a hearing must be filed within 15 days after the date of the initial determination. We did not receive any comments on this provision and are adopting it as proposed.

Sections 422.664 and 423.652—Postponement of Effective Date of a Contract Determination When a Request for a Hearing Is Filed Timely

We proposed to revise § 422.664 and § 423.652 to postpone the effective date of a contract determination when an MA organization or Part D sponsor timely requests a hearing to appeal the contract determination. However, the postponement would not override the requirement that any final decision in favor of the plan or sponsor must be issued by July 15 for an initial contract to be effective for the upcoming year. Thus, if an organization's application is not approved and the hearing officer's decision is not provided until August, the applicant would not be able to have a contract for the next year. This is consistent with our current process. We do not currently postpone the effective date of termination in cases of immediate termination, and did not propose any change in policy with respect to expedited terminations. We did not receive any comments on this provision and are adopting it as proposed.

Sections 422.670 and 423.655—Time and Place of Hearing

We proposed revising § 422.670(a) and § 423.655(a), to require the hearing officer to send written notice to the parties specifying the general and specific issues to be resolved at the hearing, outlining the burden of proof and providing any information about the hearing procedures. In addition, the notice would inform the parties that they may conduct formal discovery. We did not receive any comments on this provision and are adopting it as proposed.

Sections 422.682 and 423.661—Discovery

We proposed revising § 422.682 and § 423.661, to clarify the scope of permissible discovery, and to require the hearing officer to conclude discovery and provide all documents to both the hearing officer and the opposing party at least 10 days prior to the hearing. We did not receive any comments on this provision and are adopting it as proposed.

Sections 422.684 and 423.662—Prehearing and Summary Judgment

We proposed to amend the provisions at § 422.684 and § 423.662 (and revise the section heading accordingly) to permit the hearing officer to rule on a motion for summary judgment filed by either of the parties to the hearing. In ruling on such a motion, we propose that the hearing officer would be bound by CMS regulations and general instructions. Where no factual dispute exists, the hearing officer may make a decision on the papers, without the need for a hearing. We did not receive any comments on this provision and are adopting it as proposed.

Sections 422.692 and 423.666—Review by the Administrator

The existing regulations only explicitly permit Administrator review of a hearing officer's decision in appeals of a contract termination. We clarify that this review is available for all appeals of CMS contract terminations, including decisions not to contract with an applicant and nonrenewals.

We proposed revising the provisions at § 422.692(a) and § 423.666(a) to allow us to request Administrator review of a hearing officer's decision regarding a contract determination. The existing regulations permit only the MA organization or Part D sponsor to request Administrator review. In addition, we proposed to amend the same provisions to permit both the parties to submit written arguments to the Administrator.

Comment:

One commenter did not feel that we should be able to request an appeal to the Administrator.

Response:

We believe that we should have the right to request a review by the Administrator. We feel that appeal rights should be provided to both parties to provide for an equal opportunity to be heard by the Administrator. Therefore, we are not making any changes to the proposed regulations based on these comments.

We proposed revising the provisions at § 422.692(b) and § 423.666(b), to permit the Administrator, upon receipt of a request for Administrator review, to accept or decline to review the hearing decision. The existing regulations require the Administrator to review the decision when a request for review is received. We believe that providing the Administrator with the discretion to accept or decline the request for review would lead to a more expeditious resolution of appeals of contract determinations.

Comment:

We received a comment stating that the Administrator failing to take action within 30 days authorizes an unstructured, unrecorded exercise of the Administrators decision that can hide unequal treatment which evades review. The commenter stated that the Administrator taking no action does not afford the plan the level of review of other plans in which the Administrator reviews the appeal.

Response:

We believe the Administrator has the authority to either

accept to review Hearing Officer decisions or to decline to review Hearing Officer decisions. This right is well-founded in current Provider Reimbursement Review Board policy. We are not making any changes to the proposed regulation as a result of this comment.

We proposed redesignating § 422.692(c) as § 422.692(e) and redesignating § 423.666(c) as § 423.666(e). We proposed adding a new § 422.692(c) and § 423.666(c), to require the Administrator to make a determination as to whether to accept or decline the request for review within 30 days of the request of the review. The failure of the Administrator to make a determination within 30 days of the request would be treated as a decision to decline the request for review. We believe that providing this timeline assists all parties in reaching a final decision in an expeditious manner. We did not receive any comments on this provision and are adopting it as proposed.

In addition, we proposed amending our existing regulations to add a new paragraph at § 422.692(d) and § 423.666(d) which specifies that Administrator review is based on the hearing record and any written arguments submitted by the parties. However, review would not be based on any new evidence, such as evidence that was not before the hearing officer. We believe the specified sources provide a sufficient basis for the Administrator to make a determination.

Comment:

A commenter stated that Administrator review should not be limited to the record but should accept additional evidence.

Response:

The Administrator review does allow for each party to submit additional arguments, but the current regulation does not provide for additional evidence to be submitted. We feel that the hearing record is sufficient, with enough information provided for the Administrator to make a determination. Therefore, we are not making any changes to the proposed regulations based on these comments.

Sections §§ 422.696 and 423.668—Reopening of Initial Contract Determination or Intermediate Sanction or Decision of a Hearing Officer of the Administrator

We proposed to revise the section headings for § 422.696 and § 423.668 from “Reopening of a contract or reconsidered determination or decision of a hearing officer or the Administrator” to “Reopening of an initial contract determination or decision of a hearing officer or the Administrator” to conform to our proposed elimination of the reconsideration process described above. We did not receive any comments on this provision and are adopting it as proposed.

Sections §§ 422.698 and 423.669—Effect of Revised Determination

We proposed a conforming change to reflect our proposed elimination of the reconsideration process by removing in its entirety § 422.698 and § 423.669, “Effect of revised determination.” We did not receive any comments on this provision and are adopting it as proposed.

Subpart O—Intermediate Sanctions

We proposed several changes to our regulations in Subpart O—Intermediate Sanctions in 42 CFR Part 422 and 42 CFR Part 423, to clarify our policies and procedures for imposing intermediate sanctions and Civil Money Penalties (CMPs) on MA organizations and Part D sponsors. Specifically, we proposed to modify the appeals procedures for intermediate sanctions and clarify which set of procedures affected parties should use to appeal a CMP.

General Comments:

Comment:

We received a few comments concerning bifurcated hearings for intermediate sanctions and/or CMPs. The commenters felt that one hearing should be used for both CMS imposed intermediate sanctions or CMPs and OIG imposed CMPs.

Another commenter expressed concern that there is no explanation as to when both CMS and OIG may impose CMPs based upon the same set of facts. The commenter stated that only in the most egregious cases should both CMS and the OIG impose CMPs.

Response:

Appeals of CMS intermediate sanctions or CMPs and OIG imposed CMPs are governed by different regulatory processes and therefore cannot be combined in one hearing. In addition, CMS and OIG may impose sanctions/CMPs under different and independent authorities. The regulations currently provide for both OIG and CMS to impose sanctions on the same set of facts. We have considered the comment and are not making any changes to the regulations.

Sections §§ 422.750 and 423.750—Types of Intermediate Sanctions and Civil Monetary Penalties

We proposed reorganizing § 422.750 and § 423.750, to distinguish the three different types of intermediate sanctions from CMPs. We also proposed to clarify that each of the three intermediate sanctions, (suspension of enrollment, suspension of payment, and suspension of marketing) would remain in effect until we are satisfied that the reasons for the initial suspensions have been corrected and are not likely to reoccur. This revision reflects our current policy and practice.

Comment:

We received a comment stating that the suspension of all marketing activities is too severe for “noncompliant behavior.” The commenter stated that the suspension should only be for the particular MA or Part D plan that is non-compliant.

Response:

We are revising § 422.750(a) and § 423.750(a) to clarify that the marketing sanctions will be imposed only on CMS-specified plans. We did not intend to expand the scope of the sanction with our proposed change. Therefore, we have changed the proposed regulatory language to be consistent with the existing provisions.

For clarity, we proposed specifying at § 422.750(b) and § 423.750(b) that we may impose CMPs in the dollar amounts specified in § 422.760 and § 423.760. We proposed to remove the prior reference at § 422.750(a)(1) and § 423.750(a)(1) to the range of CMPs because it is confusing. We did not receive any comments on this provision and are adopting it as proposed.

Sections §§ 422.752 and 423.752—Basis for Imposing Intermediate Sanctions and Civil Money Penalties

At § 422.752 and § 423.752, we proposed to reorganize the regulation to clarify the breakdown of responsibility between CMS and the OIG for imposing intermediate sanctions and CMPs based on the type of violation involved. Specifically, we clarify that CMS may impose a suspension of enrollment, payment, or marketing on an MA organization or Part D sponsor for violations specified in § 422.752(a)(1) through (a)(8) and for violations specified in § 423.752(a)(1) through (a)(6).

As part of the reorganization to the regulation, we also proposed to add a new § 422.752(c) and § 423.752(c), to clarify that in addition to the intermediate sanctions, we continue to have authority to impose CMPs for contract determinations made under § 422.510(a) and § 423.509(a). However, as specified in § 422.752(c)(2) and § 423.752(c)(2), OIG would continue to have sole authority to impose CMPs for any determinations concerning the MA organization or the Part D sponsor committing or participating in false, fraudulent, or abusive activities affecting the Medicare program, including the submission of false or

fraudulent data, as stated in § 422.510(a)(4) and § 423.509(a)(4). We did not receive any comments on this provision and are adopting it as proposed.

Sections §§ 422.756 and 423.756—Procedures for Imposing Intermediate Sanctions and Civil Money Penalties

At § 422.756 and § 423.756, we proposed to eliminate the existing informal reconsideration process used for review of a decision by CMS to impose an intermediate sanction, and allow an MA organization or Part D sponsor to proceed directly to a hearing, pursuant to the same procedures used to appeal contract determinations in Subpart N. (See § 422.660 through § 422.698 and § 423.650 through § 423.669.) We believe it would be more efficient and effective to allow the MA organization or Part D sponsor to proceed to a hearing in appealing an intermediate sanction. We note that a request to appeal an intermediate sanction before a hearing officer does not delay the intermediate sanction from taking effect on the date specified in the sanction notice. We did not receive any comments on this provision and are adopting it as proposed.

Because we proposed to eliminate the informal reconsideration process, we proposed that an MA organization or Part D sponsor have an opportunity to present information to us that may affect our decision to impose an intermediate sanction prior to the sanction taking effect. We recognize there may be occasions when we receive information that we previously did not have when making a decision to impose an intermediate sanction. Therefore, we proposed that MA organizations and Part D sponsors have an opportunity to submit a written rebuttal statement as specified at § 422.756(a)(2) and § 423.756(a)(2), and to require the rebuttal statement be provided to us within ten (10) calendar days after the MA organization or sponsor receives notice of the intermediate sanction. The 10 calendar days begin the day after the notice of intermediate sanction is mailed to the plan. A notice of intermediate sanction is sent by overnight mail and by e-mail or fax.

In some cases we may decide to take multiple actions, for example, contract termination, intermediate sanction, or CMP, against an MA organization or Part D sponsor. We proposed to have the appeals of CMPs go to an ALJ while the appeals of other actions, such as an intermediate sanction or a termination, will be before a CMS hearing official. Although the same underlying conduct may be the basis for both actions we believe that the separate processes would result in more consistent decision making by hearing officers and ALJs. We did not receive any comments on this provision and are adopting as proposed.

In addition, in preparing this final rule with comment period, we recognized that we inadvertently omitted some corresponding revisions to the existing regulatory text. These changes are necessary to implement the policies that we articulated in the proposed rule and are finalizing here. Specifically, we are revising § 422.756(c) and § 423.756(c) to reflect the fact that we have eliminated the reconsideration process and that an intermediate sanction imposed by CMS will go into effect on the date specified in the notice (15 days after the date of notification) and a reconsideration, or now an appeal to a hearing officer, will not delay the effective date of the sanction. See page 29379 of the proposed rule. We are also revising §§ 422.756(d) and 423.756(d) to reflect the fact that we have eliminated the reconsideration process, that an appeal will not delay the effective date of the sanction, and that where the exception at § 422.756(d)(2) or § 423.756(d)(2) applies, CMS may make the sanction effective on a specified date prior to 15 days after the date of notification. The changes to § 422.756(d)(2) and § 423.756(d)(2) are consistent with our existing authority. We interpret the existing provisions to allow us to make a sanction effective at any time when there is a serious threat to an enrollee's health and safety, including prior to 15 days after notification. It is critical that we continue to have the ability to protect the interests of Part C and D enrollees by taking immediate action in some cases.

In addition, upon review, we realized that some typographical corrections to the proposed regulatory text at § 423.756(f) were necessary. Specifically, in the proposed rule, we realized that we had typographical errors at § 423.756(f)(2) and (f)(2)(v). We have corrected the cross-reference to § 423.509(c)(1) and replaced it with a cross-reference to § 423.752(c)(1). We have also replaced the reference at (f)(2)(v) to § 423.650 with a reference to Subpart T since those are now the appeals provisions that govern appeals of CMPs.

Sections §§ 422.758 and 423.758—Collection of Civil Money Penalties Imposed by CMS

At § 422.758 and § 423.758 we proposed to revise the section heading “Maximum amount of civil money penalties imposed by CMS” to read “Collection of civil money penalties imposed by CMS.” In addition, we proposed to revise § 422.758 and § 423.758. Specifically, we proposed that we would initiate collection of the CMPs if the MA organization or Part D sponsor does not timely request a hearing, or if our decision to impose a CMP is upheld by an ALJ. We did not receive any comments on this provision and are adopting as proposed.

Sections §§ 422.760 and 423.760—Determinations Regarding the Amount of Civil Money Penalties and Assessment Imposed By CMS

We proposed redesignating the existing § 422.760 as § 422.764 and redesignating the existing § 423.760 as § 423.764 because in this rule we have explicitly outlined the CMP appeals procedures in proposed subpart T in parts 422 and 423.

We proposed adding a new § 422.760 and § 423.760 to clarify that we use the statutory factors in section 1128(A) of the Act in determining the appropriate amount of civil money penalties or assessments to impose on an MA organization or Part D sponsor. These factors, if applicable, include the nature of the conduct, the degree of culpability, the prior history of offenses, the financial condition of the MA organization or Medicare Part D sponsor presenting the claims, and other matters as fair administration may require. These factors are based on the same statutory factors used in other Medicare enforcement programs, including the nursing facility enforcement context.

We also proposed to clarify, in § 422.760(b) and § 423.760(b), the amounts that may be assessed for CMPs that we impose.

Comment:

We received a comment stating that we should provide for additional mitigating factors that would affect the penalty determination as a result of the MA organization or Part D sponsor's noncompliance/deficiencies. The commenter suggested that we review mitigating factors such as the corrective action that the organization has taken and the nature and extent to which the organization has cooperated with CMS.

Response:

We have reviewed the comment and believe that consideration of mitigating factors is already included in the proposed provision. We state that factors that may be reviewed include the degree of culpability of the MA organization, the history of the prior offenses by the organization and other matters as justice may require. We believe these proposed factors provide sufficient opportunity for us to adjust

sanctions as warranted. We are finalizing our proposal without modification.

Sections §§ 422.762 and 423.762—Settlement of Penalties

We proposed to add a new § 422.762 and § 423.762 to clarify that in accordance with section 1128A(f) of the Act, we have the authority to settle CMPs imposed by us. This provision would make it explicit that the parties may agree to settle the dispute instead of litigating an appeal. We did not receive any comments on this provision and are adopting as proposed.

Sections §§ 422.764 and 423.764—Other Applicable Provisions

We proposed to redesignate § 422.760 and § 423.760 as § 422.764 and § 423.764 respectively to conform to the changes proposed at the new § 422.760 and § 423.760. No substantive changes to the text were proposed. We did not receive any comments on this provision and are adopting it as proposed.

Subpart T—Appeal Procedures for Civil Money Penalties

We proposed to reserve subparts P, Q, R, and S in Part 422. In addition, we proposed to add a new subpart T in Part 422 and Part 423, respectively. These new subparts would outline the CMP appeal procedures for MA organizations and Part D sponsors.

Our current MA and Part D regulations do not specify which procedures an MA organization or Part D sponsor must use to appeal a CMS-imposed penalty under either of these two programs. The regulations at 42 CFR part 422.760 and 42 CFR part 423.760 state only that the provisions of section 1128A of the Act (except paragraphs (a) and (b)) apply to CMPs under this subpart to the same extent that they apply to a CMP or procedure under section 1128A of the Act. Nor have we issued any guidance directing parties to the appropriate appeals procedures for MA and Part D CMPs.

Therefore, to ensure a consistent approach in this area, we proposed incorporating appeals procedures for parties to use when appealing a CMP imposed under the MA or Part D program in a new subpart T in Parts 422 and 423 respectively.

Based on certain statutory requirements and policy considerations, we proposed to adopt CMP appeals procedures almost identical to those in part 498 of Title 42, which are used by certain Medicare providers and suppliers to challenge adverse agency enforcement decisions. Part 498 sets forth the rules for administrative and judicial review of CMS determinations that affect participation in the Medicare and Medicaid programs for a wide array of medical providers of services. These rules, issued on June 12, 1987 (52 FR 22446), have been used by CMS for more than 20 years and provide established appeals procedures for various types of adverse agency determinations, including civil money penalties imposed on nursing facilities. For numerous reasons laid out in the proposed rule, we believe the part 498 appeals procedures are the most appropriate procedures to use for hearing disputes involving a wide range of violations. We did not receive any comments on this provision and are generally adopting it as proposed. We are making a technical revision to remove proposed paragraphs § 422.1004(a)(2) and (a)(3), and § 423.1004(a)(2) and (a)(3) because they were inadvertently retained from the part 498 procedures.

While the statute authorizing CMPs in the MA and Part D programs requires the provisions of section 1128A of the Act, (except for subsections (a) and (b)), to apply to MA and Part D CMP proceedings, it does not require that section 1128A's provisions apply to other CMP appeals procedures in the exact same manner, or without some consideration for the MA or Part D program's unique characteristics. In fact, section 1857(g)'s “same manner” language appears throughout the Act and serves as the statutory basis for several different types of CMP enforcement and appeals procedures. Because program violations may vary by the type and nature of the violation, we have modified our CMP appeal procedures when necessary. Since the MA and Part D programs differ from the nursing facility program, we proposed modifying certain sections of part 498 to take into account some of these differences.

For example, we proposed removing the reconsideration step in the MA and Part D CMP appeals procedures since this step in part 498 only applies to initial determinations made for prospective providers entering the Medicare or Medicaid program and is not applicable to CMP appeals. Removing the reconsideration step in subpart T would also help expedite the CMP appeals process.

Since it is not clearly stated in part 498's regulations, we proposed to make explicit in our regulations that in a hearing of a CMP appeal before an ALJ or the Departmental Appeals Board (DAB), the ultimate burden of persuasion would rest on the MA organization or Part D sponsor. See the proposed rule for instances when the DAB has held that in a provider termination proceeding by the Secretary, the facility bears the ultimate burden of proving it is in compliance with program requirements (Hillman Rehabilitation Center, DAB No.1611 (1999), aff'd

Hillman Rehabilitation Center

v.

U.S.

No.98-3789 (GEB) (D.N.J. May 13, 1999)). We believe the administrative caselaw supports our decision to place the burden of proof on the affected party in an administrative hearing on the imposition of MA and Part D CMPs. We did not receive any comments on this provision and are finalizing it as proposed.

III. Provisions of the Final Rule With Comment Period

In this final rule with comment period, we are adopting the provisions as set forth in the May 25, 2007 proposed rule with the following revisions:

Amend § 422.2, “Definitions,” by—

• Revising the proposed definition of the term “downstream entity” to read as follows:

Downstream entity

means any party that enters into a written arrangement, acceptable to CMS, with persons or entities involved with the MA benefit, below the level of the arrangement between an a MA organization (or applicant) and a first tier entity. These written arrangements continue down to the level of the ultimate provider of both health and administrative services.

Amend § 422.503 “General Provisions” by—

• Revising proposed paragraph (b)(4)(vi)(G)

(3)

to read as follows: The MA organization should have procedures to voluntarily self-report potential fraud or misconduct related to the MA program to CMS or its designee.

Amend § 422.504 “Contract provisions” by—

• Revising proposed paragraph (e)(2) for clarity.

• Revising proposed paragraph (i)(2)(i) for clarity.

• Revising paragraphs (i)(3) introductory text, (i)(3)(ii), and (i)(3)(iii) for clarity, and by deleting the term “providers.”

• Revising paragraph (i)(4) introductory text by deleting the phrase “provider or.”

Amend § 422.506 by—

• Revising proposed paragraph (b)(2)(i) to make the date of notice of nonrenewal by CMS August 1.

• Revising proposed paragraph (b)(3)(i) to clarify that a MA organization will have an opportunity to submit a corrective action plan (CAP) prior to

CMS providing a notice of intent to nonrenew.

• Revising proposed paragraphs (b)(3)(i) and (b)(3)(ii) to clarify that CAP submission deadlines are measured in calendar days.

Amend § 422.510 “Termination of contract by CMS” by—

• Revising proposed paragraph (a)(1) for clarity.

• Revising proposed paragraph (c)(1) to clarify that MA organizations will have the opportunity to submit a CAP before CMS notifies them of an intent to terminate.

Amend § 422.644 by—

• Revising proposed paragraph (d) to clarify that a CMS notice of an intent to nonrenew will be sent to a MA organization by August 1.

Amend § 422.750 by—

• Revising proposed paragraph (a)(3) to clarify that suspension of all marketing activities to Medicare beneficiaries by an MA organization applies only to specified MA plans.

Amend § 422.752 by—

• Revising proposed paragraph (c)(2) to reference section 1003 of chapter V of this title.

Amend § 422.756 by—

• Revising paragraph (c) to reflect the fact that we have eliminated the reconsideration process, and that an intermediate sanction imposed by CMS will go into effect on the date specified by the notice, and that an appeal will not delay the effective date of the sanction.

• Revising paragraph (d) to reflect the fact we have eliminated the reconsideration process, that an appeal will not delay the effective date of the sanction, and that where the exception at § 422.756(d)(2) applies, CMS may make the sanction effective on a specified date prior to 15 days after the date of notification.

Amend § 422.1004 by—

• Deleting proposed paragraphs (a)(2) and (a)(3).

• Redesignating paragraph (a)(1) as paragraph (a).

Amend § 422.1070, “Removal of hearing to Departmental Appeals Board,” by—

• Revising paragraph (a) to correct a typographical error. The revised paragraph now reads: “At any time before the ALJ receives oral testimony, the Board may remove to itself any pending request for a hearing.”

Amend § 423.4, “Definitions,” by—

• Revising the proposed definition of the term “downstream entity” to read as follows:

Downstream entity

means any party that enters into a written arrangement, acceptable to CMS, with persons or entities involved with the Part D benefit, below the level of the arrangement between a Part D plan sponsor (or applicant) and a first tier entity. These written arrangements continue down to the level of the ultimate provider of both health and administrative services.

Amend § 423.504, “General Provisions” by—

• Revising paragraph (b)(4)(vi)(C) for clarity.

• Revising proposed paragraph (b)(4)(vi)(G)

(3)

to read: The Part D plan sponsor should have procedures to voluntarily self-report potential fraud or misconduct related to the Part D program to CMS or its designee.

Amend § 423.505, “Contract Provisions,” by—

• Revising proposed paragraph (e)(2) for clarity.

• Revising proposed paragraph (i)(2)(i) for clarity.

• Revising proposed paragraph (i)(3) introductory text to read as follows: All contracts or written arrangements between Part D sponsors and first tier, downstream, and related entities must contain the following:

• Revising proposed paragraph (i)(3)(ii) to read as follows: Accountability provisions that indicate that the Part D sponsor may delegate activities or functions to a first tier, downstream, or related entity, only in a manner consistent with requirements set forth at paragraph (i)(4) of this section.

• Revising proposed paragraph (i)(3)(iv) to read as follows: A provision requiring the Part D sponsor's first tier, downstream, and related entities to produce upon request by CMS or its designees any books, contracts, records, including medical records and documentation of the MA organization, relating to the Part D program to either the sponsor to provide to CMS, or directly to CMS or its designees.

• Revise proposed paragraph (i)(3)(v) to read as follows: All contracts or written arrangements must specify that the first tier, downstream, and related entities must comply with all applicable Federal laws, regulations, and CMS instructions.

• Revise proposed paragraph (i)(4) introductory text and paragraph (i)(4)(v) to remove the word pharmacy.

Amend § 423.507 “Nonrenewal of Contract” by—

• Revising proposed paragraph (b)(2)(i) to make the date of notice of nonrenewal by CMS August 1.

• Revising proposed paragraph (b)(3) to clarify that a Part D sponsor will have an opportunity to submit a CAP prior to receiving a letter of intent to nonrenew.

• Revise proposed paragraphs (b)(3)(ii) and (b)(3)(iii) to clarify that CAP submission deadlines are measured in calendar days.

Amend § 423.509 “Termination of contract by CMS” by—

• Revising proposed paragraph (a)(1) for clarity.

• Correcting a typographical error in paragraph (a)(9) by replacing the reference to § 423.128 with a reference to § 423.50.

• Revising proposed paragraph (b) introductory text for clarity.

• Revising paragraph (c)(1) to clarify that before providing an intent to terminate, CMS will provide a Part D sponsor with an opportunity to submit a CAP.

• Correcting a typographical error in paragraph (c)(1) by replacing the term “MA organization” with the term “Part D plan sponsor.”

Amend § 423.642 by—

• Revising proposed paragraph (d) to clarify that a CMS notice of an intent to nonrenew will be sent to a MA organization by August 1.

Amend § 423.750 by—

• Revising proposed paragraph (a)(3) to clarify that suspension of all marketing activities to Medicare beneficiaries by a Part D plan sponsor applies only to specified Part D plans.

Amend § 422.752 by—

• Revising proposed paragraph (c)(2) to reference section 1003 of Chapter V of this title.

Amend § 423.756 by—

• Revising paragraph (c) to reflect the fact that we have eliminated the reconsideration process, and that an intermediate sanction imposed by CMS will go into effect on the date specified by the notice, and that an appeal will not delay the effective date of the sanction.

• Revising paragraph (d) to reflect the fact we have eliminated the reconsideration process, that an appeal will not delay the effective date of the sanction, and that where the exception at § 423.756(d)(2) applies, CMS may make the sanction effective on a specified date prior to 15 days after the date of notification.

• Revising paragraph (f) to correct typographical errors.

Amend § 423.1004 by—

• Deleting proposed paragraphs (a)(2) and (a)(3).

• Redesignating paragraph (a)(1) as paragraph (a).

Amend § 423.1070, “Removal of hearing to Departmental Appeals Board,” by—

• Revising paragraph (a) to correct a typographical error. The revised paragraph now reads: “At any time

before the ALJ receives oral testimony, the Board may remove to itself any pending request for a hearing.”

IV. Collection of Information Requirements

We received no public comments concerning the collection of information requirements of the proposed rule. Under the Paperwork Reduction Act of 1995 (PRA), we are required to provide 60-day notice in the

Federal Register

and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

The following information collection requirements included in this proposed rule and their associated burdens are subject to the PRA.

We solicited public comment on each of the issues for the following sections of this document that contain information collection requirements and are not currently approved by the OMB.

Section § 422.503 General Provisions

Sections 422.503(b)(4)(vi)(C) and (b)(4)(vi)(D) require a MA organization to have a compliance plan, which includes measures to detect, correct, and prevent fraud, waste, and abuse. The compliance plan shall include effective training and education between the compliance officer and the MA organization's employees, managers and directors, the MA organization's first tier, downstream, and related entities; and, effective lines of communication between the compliance officer, members of the compliance committee, the MA organization's employees, managers and directors, and the MA organization's first tier, downstream, and related entities.

The burden associated with this requirement is the time and effort put forth by the MA organization to prepare a compliance plan that meets the requirements of this section. While this requirement is subject to the PRA, it is currently approved under OMB #0938-1004.

Section 422.503(b)(4)(vi)(G)(

3

) recommends a MA organization to have procedures in place for voluntary self-reporting of potential fraud or misconduct related to the MA program to the appropriate government authority. We recommend that the MA organization report potential fraud or misconduct related to the MA program to the appropriate government authority.

The burden associated with this recommendation is the time and effort put forth by the MA organization to implement procedures for voluntary self-reporting. We estimate it would take one MA organization 40 hours to fulfill this recommendation. The total number of MA organizations affected by this recommendation is 393. The total one-time burden for this recommendation would be 15,720 hours. We cannot anticipate how many plans will report any potentially fraudulent activities to CMS. However, based on historical evidence, we believe that less than 10 MA organizations will self-report potential fraud or misconduct related to the MA program. While this burden is subject to the PRA, we expect that less than 10 entities will be affected. Therefore, we believe these collection recommendations are exempt as specified at 5 CFR 1320.3(c)(4).

Section 422.504 Contract Provisions

Section 422.504(e)(2) requires MA organizations to agree to allow HHS, the Comptroller General, or their designees to audit, evaluate, and inspect any books, contracts, records, including medical records and documentation of the MA organization, its first tier, downstream, related entity, or its transferee that pertain to any aspect of services performed, reconciliation of benefit liabilities, and determination of amounts payable under the contract, or as the Secretary may deem necessary to enforce the contract.

The burden associated with this requirement is the time and effort put forth by the MA organization to maintain appropriate records and documentation. While this requirement is subject to the PRA, it is currently approved under OMB #0938-1004.

Section 422.504(i)(2) requires the MA organization to require all first tier, downstream, and related entities to agree that HHS, the Comptroller General, or their designees have the right to audit, evaluate, and inspect any books, contracts, records, including medical records and documentation of the first tier, downstream, and related entities involving transactions related to CMS’ contract with the MA organization.

The burden associated with this requirement is the time and effort put forth by the MA organization's first tier, downstream, and related entities to maintain appropriate records and documentation. While the burden associated with this requirement is subject to the PRA, it is currently approved under OMB #0938-1004.

Section 422.505 Effective Date and Term of Contract

Section 422.505(c) requires MA organizations who wish not to renew their contract to submit a notice of intent to CMS.

The burden associated with this requirement is the time and effort put forth by the MA organization to prepare the notice and submit it to CMS. While this requirement is subject to the PRA, it is currently approved under OMB #0938-0753.

Section 422.506 Nonrenewal of Contract

Section 422.506 provides a MA organization an opportunity to develop and submit a CAP to correct the deficiencies that are the basis of the termination decision. The MA organization must submit the CAP within 45 days of receiving notice of termination.

The burden associated with this requirement is the time and effort it would take for the MA organization to develop and submit a CAP. While this requirement is subject to the PRA, we expect less than 10 entities will be affected by receiving a notice of intent to nonrenew. Therefore, we believe these collection requirements are exempt as specified at 5 CFR 1320.3(c)(4).

Section 423.504 General Provisions

Sections 423.504(b)(4)(vi)(C) and (b)(4)(vi)(D) require Part D Sponsors to have a compliance plan, which includes measures to detect, correct, and prevent fraud, waste, and abuse. The compliance plan shall include effective training and education between the compliance officer and the Part D sponsor's employees, managers and directors, and the Part D plan sponsor's first tier, downstream, and related entities; and, effective lines of communication between the compliance officer, members of the compliance committee, the Part D sponsor's employees, managers and directors, and the Part D sponsor's first tier, downstream, and related entities.

The burden associated with this requirement is the time and effort put

forth by the Part D sponsor to prepare a compliance plan that meets the requirements of this section. While this requirement is subject to the PRA, it is currently approved under OMB #0938-1000.

Section 423.504(b)(4)(vi)(G)(

3

) recommends a Part D sponsor have procedures in place for voluntary self-reporting of potential fraud or misconduct related to the Part D program to the appropriate government authority. We recommend that the Part D sponsor report potential fraud or misconduct related to the Part D program to the appropriate government authority.

The burden associated with this recommendation is the time and effort put forth by the Part D sponsor to implement procedures for voluntary self-reporting. We estimate it will take one Part D sponsor 40 hours annually to fulfill this recommendation. The total number of Part D sponsors affected by this recommendation is 91. The total one-time burden would be 3,640 hours. We cannot anticipate how many plans will report any potentially fraudulent activities to CMS. However, in the event a Part D sponsor self-reports potential fraud or misconduct related to the Part D sponsor the total burden would be 5 hours annually. If every sponsor reports potential fraud or misconduct, the total burden would be 455 annual hours.

Section 423.505 Contract Provisions

Section 423.505(e)(2) requires Part D sponsors to make available its premises, physical facilities, equipment, and records that relate to its Medicare enrollees, and any additional relevant information that CMS may require. The Part D sponsor also agrees to make available any books, contracts, records, including medical records and documentation of its first tier, downstream, and related entities involving transactions related to CMS’ contract with the Part D sponsor.

The burden associated with this requirement is the time and effort put forth by the Part D sponsor to make available records that relate to its Medicare enrollees. The burden associated with this requirement is currently approved under OMB #0938-1000.

Section 423.505(i)(2) requires the Part D sponsor to require all first tier, downstream, and related entities to agree that HHS, the Comptroller General, or their designees have the right to inspect, evaluate, and audit any books, contracts, records, including medical records and documentation of the first tier, downstream, and related entities involving transactions related to CMS’ contract with the Part D sponsor.

The burden associated with this requirement is the time and effort put forth by the Part D sponsor's first tier, downstream, and related entities to maintain appropriate records and documentation. While this requirement is subject to the PRA, it is currently approved under OMB #0938-1000. However, we have prepared the following analysis of the costs and burden associated with our proposal to require sponsors to include a provision in their contracts requiring their first tier and downstream entities to produce or make available their books and records.

In the January 28, 2005 final rule that implemented the Medicare Prescription Drug Program (70 FR 4194), we noted that “The administrative cost estimates are based on taking into account the normal fixed costs associated with administering a prescription drug benefit, for example, such functions as claims processing, responding to customer inquiries, information, dissemination, appeals processes, pharmacy network negotiations, and contracting. The other factor taken into account when developing our estimate is that Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs) will likely incur slightly higher administrative costs during the initial few years of the Part D benefit due to start-up costs related to implementation and initial operation for a new benefit.” The narrative explains that the average administrative costs associated with insurance products are typically expressed as a percentage relative to net standard benefit expenses and that the administrative load is expected to decline slightly over time. For purposes of this analysis, the impact is presented in burden hours and broken out into requests for purposes of:

1. Provision in contracts;

2. BI Audit; and

3. Investigation of complaints.

1. Provision in Contracts

Ultimately, this additional provision would have to be discussed like all other provisions of a contract between a Part D sponsor and its first tier, downstream, and related entities. Since we have the authority to request this information and the Part D sponsor has attested to providing this data, we do not believe that this issue would be contentious or constitute negotiation discussion. We believe that, at the most, this provision would require 1 hour of attorney time to draft and discuss the provision.

2. BI Audit

Currently, there are a total of 650 Part D contracts (90 of those contracts represent PDPs and the remainder, 560 contracts, represents MA-PDs and employer groups). A further breakdown of those numbers out to the plan level would be: 4,927 total MA-PDs and PDP plans (including employer groups). We note that if employer groups are excluded, the actual number drops to 4,191.

Based on this information, it is believed that 16 percent of the plans will be audited during the course of a contract year. Of the plans audited, it is estimated that approximately 10 percent of the plans will be required to produce evidence or other supporting documentation related to “first tier, downstream and other related entities.” It is further asserted that the labor hours required to produce the required documentation for those entities would be estimated at 10 hours per plan. Therefore, based on the number of Part D plans, the percentage of organizations that might be required to produce documentation for “first tier, downstream, and other related entities” and the number of labor hours required to produce this documentation we expect that the total impact would be 140 hours in administrative costs. The following table summarizes our calculation of the burden estimate for Part D plans:

Total number of Part D plans (PDP, MA-PD & Employer Groups)

650

Percentage of plans to be audited (16%)

104

Percentage of plans audited that would be required to produce additional documentation for “first tier, downstream and related entities” (10%)

10

Burden hours required to assemble documentation and submit to CMS (10 hours/plan)

100

3. Investigation of Complaints

Based on the past 18 months, we assume that investigation of complaints that require contacting a Part D plan to request documentation from first tier, downstream, and related entities would be approximately six instances. In the following table, we show our estimate of burden hours for downstream entities:

Total number of Part D plans (PDP, MA-PD & Employer Groups)

650

Percentage of plans to be audited (16%)

104

Percentage of plans audited that would be required to produce additional documentation for “first tier, downstream and related entities” (10%)

10

Average number of “downstream entities” (e.g. pharmacy network):

Retail

55,000

Mail Order

1

Home Infusion

150

Long Term Care

593

I/T/U

329

Total burden hours required for downstream entities to assemble and submit documentation to the Part D organizations (hours/organization) at 3 hrs/downstream entity

166,440

Section 423.506 Effective Date and Term of Contract.

This section states that an entity is determined qualified to renew its contract annually only if the Part D sponsor has not provided CMS with a notice of intention not to renew and CMS has not provided the Part D sponsor with a notice of intention not to renew.

The burden associated with this requirement is the time and effort put forth by the Part D sponsor to prepare a notice of intent not to renew and submit it to CMS. While this requirement is subject to the PRA, it is currently approved under OMB #0938-0964.

Section 423.507 Nonrenewal of Contract.

Section 423.507 provides a Part D Plan Sponsor an opportunity to develop and submit a corrective action plan (CAP) to correct the deficiencies that are the basis of the termination decision. The Part D Sponsor must submit the CAP within 45 days of receiving notice of termination.

The burden associated with this requirement is the time and effort it would take for the Part D Sponsor to develop and submit a CAP. While this requirement is subject to the PRA, we expect less than 10 entities will be affected by receiving a notice of an intent to nonrenew; therefore, we believe these collection requirements are exempt as specified at 5 CFR 1320.3(c)(4).

As reflected in the table that follows, the aggregate annual burden associated with the collection of information section totals 73,236 hours.

OMB No.

Requirements

Number of respondents

Burden hours

Total annual burden

0938-1004

422.503(b)(4)(vi)(C) and (b)(4)(vi)(D), 422.504(e)(2) & 422.504(i)(2)

393

96 hours

12,576 hours (based on 131 responses per year).

None-requesting OMB approval

422.503(b)(4)(vi)(G)(3)

393

40 hours

15,720 hours (based on every plan reporting fraud or misconduct).

0938-0753

422.505(c)

5-10

2 hours per notice

20 hours (estimated using 10 respondents).

None/Exempt

422.506

Less than 10

N/A

N/A.

0938-1000 *

423.504(b)(4)(vi)(C) and (b)(4)(vi)(D), 423.505(e)(2), & 423.505(i)(2)

430

96 hours

41,280 hours.

None-requesting OMB approval

423.504(b)(4)(vi)(G)(3)

91

40 hours

3,640 hours.

Exemption mentioned in 0938-0964

423.506

Less than 10

N/A

N/A.

None/Exempt

423.507

Less than 10

N/A

N/A.

Total Annual Burden

73,236 hours.

* This package will be revised to reflect new respondent numbers & annual burden, which are previously discussed in this section (166,440 hours). The total annual burden of 73,236 hours includes 19,360 new hours, which added to 166,440 gives a total new burden of 185,800 hours which have not previously been approved.

If you comment on any of these information collection and recordkeeping requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Regulations Development Group,

Attn.:

Melissa Musotto, CMS-4124-F, Room C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850; and

Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503,

Attn:

Carolyn Lovett, CMS Desk Officer, (CMS-4124-P),

carolyn_lovett@omb.eop.gov.

Fax (202) 395-6974.

V. Regulatory Impact Statement

We have examined the impact of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This rule does not reach the economic threshold and thus is not considered a major rule. The provisions of this final rule with comment period would require MA and Part D sponsors to spend a total of approximately 186,000 additional hours on the functions addressed in this proposed rule. This includes our reestimates of burden. The details behind these estimates are presented in the preceding Paperwork Reduction Act section.

Assuming an average cost to plans and downstream entities of $37.50

1

an

hour for staff time spent on auditing and related functions covered by this final rule with comment period, the total net incremental cost of this proposal would be approximately $7 million ($37.50 × 185,000 hours), far below the $100 million threshold for a major rule. This cost will be spread more or less evenly across participating plans, and hence would impose negligible burden on any plan in relation to existing administrative costs.

1

The hourly rate of $37.50 for the burden requirement was developed using the Department of Labor May 2006 National Average wage for management analysts. The May 2006 rate for this

occupation was $37.15. The $37.50 rate accounts for an increase of approximately 1%.

In the Regulatory Impact Analysis of the January 28, 2005 final rule that implemented the Medicare Prescription Drug Program (70 FR 4194), we noted that “The administrative cost estimates are based on taking into account the normal fixed costs associated with administering a prescription drug benefit, for example, such functions as claims processing, responding to customer inquiries, information, dissemination, appeals processes, pharmacy network negotiations, and contracting.” This estimate included audit and related costs. The estimate was that administrative costs would constitute about one tenth of the cost of the program, or about $5 billion a year. (Similar estimates were prepared for the Medicare Advantage program's final rule.) Accordingly, the estimated cost of this final rule with comment period adds negligibly to the total administrative costs of these programs.

With respect to economic benefits, we have no reliable basis for estimating the effects of these proposals. It is important to understand that MA and Part D sponsors—not the government—bear the direct consequences of all their program costs, including unnecessary costs created by downstream entities. These plans are paid on a capitated basis and the amounts paid are not adjusted for realized costs. Hence, these plans already have strong incentives to prevent all forms of waste, including fraud and abuse. Accordingly, we estimate the benefits of these proposals as likely to be small, though larger than the costs involved. These benefits will accrue primarily to the plans themselves and, over time, to the participants who pay lower premiums as a result of plans' cost-reducing incentives.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year. For details, see the Small Business Administration's regulation that set forth the current size standards for health care industries (65 FR 69432). Individuals and States are not included in the definition of a small entity. As explained above, this final rule with comment period will not impose consequential costs on affected entities. Accordingly, we have determined that this final rule with comment period will not have a significant economic impact on a substantial number of small entities, and are not preparing an initial regulatory flexibility analysis.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we have determined that this rule will not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. This rule will have no consequential effect on State, local, or tribal governments or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications.

List of Subjects

42 CFR Part 422

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

42 CFR Part 423

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

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

PART 422—MEDICARE ADVANTAGE PROGRAM

1. The authority citation for part 422 continues to read as follows:

Authority:

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

Subpart A—General Provisions

2. Section 422.2 is amended by adding the definitions “Downstream entity”, “First tier entity”, and “Related entity” to read as follows:

§ 422.2

Definitions.

Downstream entity

means any party that enters into a written arrangement, acceptable to CMS, with persons or entities involved with the MA benefit, below the level of the arrangement between an MA organization (or applicant) and a first tier entity. These written arrangements continue down to the level of the ultimate provider of both health and administrative services.

First tier entity

means any party that enters into a written arrangement, acceptable to CMS, with an MA organization or applicant to provide administrative services or health care services for a Medicare eligible individual under the MA program.

Related entity

means any entity that is related to the MA organization by common ownership or control and

(1) Performs some of the MA organization's management functions under contract or delegation;

(2) Furnishes services to Medicare enrollees under an oral or written agreement; or

(3) Leases real property or sells materials to the MA organization at a cost of more than $2,500 during a contract period.

Subpart K—Contracts With Medicare Advantage Organizations

3. Amend § 422.503 by—

A. Revising paragraph (b)(4)(vi) introductory text.

B. Revising paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D).

C. Adding paragraph (b)(4)(vi)(G)(

3

).

D. Removing paragraph (b)(4)(vi)(H).

The revisions and additions read as follows:

§ 422.503

General provisions.

(b) * * *

(4) * * *

(vi) A compliance plan, which must include measures to detect, correct, and prevent fraud, waste, and abuse, shall include the following elements:

(C) Effective training and education between the compliance officer and the MA organization's employees, managers and directors, and the MA organization's first tier, downstream, and related entities.

(D) Effective lines of communication between the compliance officer, members of the compliance committee, the MA organization's employees, managers and directors, and the MA organization's first tier, downstream, and related entities.

(G) * * *

(

3

) The MA organization should have procedures to voluntarily self-report potential fraud or misconduct related to the MA program to CMS or its designee.

4. Amend § 422.504 by—

A. Republishing paragraph (e) introductory text.

B. Revising paragraph (e)(1) introductory text.

C. Revising paragraph (i) heading and (i)(1).

D. Revising paragraph (i)(2) introductory text.

E. Revising paragraph (i)(2)(i).

F. Revising paragraph (i)(3) introductory text.

G. Revising paragraph (i)(3)(ii).

H. Revising paragraph (i)(3)(iii).

I. Revising paragraph (i)(4) introductory text.

The revisions and additions read as follows:

§ 422.504

Contract provisions.

(e)

Access to facilities and records

. The MA organization agrees to the following:

(1) HHS, the Comptroller General, or their designee may evaluate, through inspection, audit, or other means—

(2) HHS, the Comptroller General, or their designees have the right to audit, evaluate, and inspect any books, contracts, records, including medical records and documentation of the MA organization, its first tier, downstream, related entity(s), or its transferee that pertain to any aspect of services performed, reconciliation of benefit liabilities, and determination of amounts payable under the contract, or as the Secretary may deem necessary to enforce the contract.

(i)

MA organization relationship with first tier, downstream, and related entities.

(1) Notwithstanding any relationship(s) that the MA organization may have with first tier, downstream, and related entities, the MA organization maintains ultimate responsibility for adhering to and otherwise fully complying with all terms and conditions of its contract with CMS.

(2) The MA organization agrees to require all first tier, downstream, and related entities to agree that—

(i) HHS, the Comptroller General, or their designees have the right to audit, evaluate, and inspect any books, contracts, records, including medical records and documentation of the first tier, downstream, and related entities involving transactions related to CMS’ contract with the MA organization.

(3) All contracts or written arrangements between MA organizations and first tier, downstream, and related entities must contain the following:

(ii) Accountability provisions that indicate that the MA organization may only delegate activities or functions to a first tier, downstream, or related entity, in a manner consistent with the requirements set forth at paragraph (i)(4) of this section.

(iii) A provision requiring that any services or other activity performed by a first tier, downstream, or related entity in accordance with a contract or written agreement are consistent and comply with the MA organization's contractual obligations.

(4) If any of the MA organizations' activities or responsibilities under its contract with CMS are delegated to other parties, the following requirements apply to any first tier, downstream and related entity:

5. Amend § 422.505 by revising paragraph (c) to read as follows:

§ 422.505

Effective date and term of contract.

(c)

Renewal of contract.

In accordance with § 422.506, contracts are renewed annually only if the MA organization has not provided CMS with a notice of intention not to renew and CMS has not provided the MA organization with a notice of intention not to renew.

6. Amend § 422.506 by—

A. Revising paragraph (b)(2) introductory text.

B. Revising paragraph (b)(2)(i).

C. Redesignating paragraph (b)(3) as (b)(4).

D. Adding a new paragraph (b)(3).

The revisions and additions read as follows:

§ 422.506

Nonrenewal of contract.

(b) * * *

(2)

Notice of non-renewal.

CMS provides notice of its decision not to authorize renewal of a contract as follows:

(i) To the MA organization by August 1 of the contract year.

(3)

Corrective action plan

.

(i) Before providing a notice of intent to non-renew the contract, CMS will provide the MA organization with a reasonable opportunity to develop and submit a corrective action plan (CAP).

(ii) The MA organization must develop and submit the CAP within 45 calendar days of receiving a request for a CAP.

(iii) If CMS determines the CAP is unacceptable, CMS will provide the MA organization with an additional 30 calendar days to submit a revised CAP.

(iv) If CMS determines the CAP is acceptable, CMS will notify the MA organization of a deadline by which the CAP must be fully implemented. CMS has sole discretion on whether the CAP is fully implemented.

(v) Failure to develop and implement a CAP within the timeframes specified in paragraphs (b)(3)(i) through (b)(3)(iii) of this section may result in the non-renewal of the MA contract.

7. Amend § 422.510 by—

A. Republishing paragraph (a) introductory text.

B. Revising paragraph (a)(1).

C. Revising paragraph (b) introductory text.

D. Revising paragraph (b)(2) heading.

E. Revising paragraph (b)(2)(i).

F. Revising paragraph (c).

The revisions read as follows:

§ 422.510

Termination of contract by CMS.

(a)

Termination by CMS.

CMS may terminate a contract for any of the following reasons:

(1) The MA organization has failed substantially to carry out the terms of its current or previous contract terms with CMS.

(b)

Notice.

If CMS decides to terminate a contract for reasons other than the grounds specified in

§ 422.510(a)(4) or § 422.510(a)(5), it gives notice of the termination as follows:

(2)

Expedited termination of contract by CMS.

(i) For terminations based on violations prescribed in § 422.510(a)(4) or § 422.510(a)(5), CMS notifies the MA organization

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