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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, 423, and 480

[CMS-4085-F]

RIN 0938-AP77

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

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule makes revisions to the regulations governing the Medicare Advantage (MA) program (Part C) and prescription drug benefit program (Part D) based on our continued experience in the administration of the Part C and D programs. The revisions strengthen various program participation and exit requirements; strengthen beneficiary protections; ensure that plan offerings to beneficiaries include meaningful differences; improve plan payment rules and processes; improve data collection for oversight and quality assessment, implement new policies and clarify existing program policy.

DATES:

Effective Date:

These regulations are effective on June 7, 2010. However, we note that because health and drug plans under the Part C and D programs operate under contracts with CMS that are applicable on a calendar year basis, the provisions will not be applicable prior to contract year January 1, 2011, except where otherwise noted.

FOR FURTHER INFORMATION CONTACT:

Alissa Deboy, (410) 786-6041, General information and Part D issues.

Sabrina Ahmed, (410) 786-7499, Part C issues.

Terry Lied, (410) 786-8973, Collection of information requirements and regulatory impact analysis issues.

Kristy Nishimoto, (410) 786-8517, Part C and D enrollment and appeals issues.

Jennifer Smith, (410) 786-2987, Part C and D compliance and sanction issues.

Frank Szeflinski, (303) 844-7119, Part C payment issues.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

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

B. History and Overview

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

A. Changes to Strengthen Our Ability To Distinguish for Approval Stronger Applicants for Part C and D Program Participation and To Remove Consistently Poor Performers

1. Require Notice of Intent to Apply Under Part C and D Within the Application Requirements (§ 422.501 and § 423.502)

2. Application Requirements (§ 422.501(c) and § 423.502(c)) and Evaluation and Determination Procedures for Determining Whether Applicants are Qualified for a Contract Under Parts C and D (§ 422.502 and § 423.503)

3. Deny Contract Qualification Applications Based on Past Contract Performance (§ 423.750 and § 422.750)

4. Use of Data to Evaluate Continued Ability to Act as a Qualified Sponsoring Organization Under Parts C and D (§ 422.504, and § 423.505)

5. Compliance Programs Under Part C and D (§ 422.503(b)(4)(vi) and § 423.504(b)(4)(vi))

6. Network Adequacy of Coordinated Care and Network-Based Private Fee-for-Service Plans Under Part C (§ 422.112)

7. Deemable Program Requirements Under Parts C and D (§ 422.156(b) (7), § 422.156 (f), § 423.165(b), and § 423.165(f))

8. Modify the Corrective Action Plan (CAP) Process as it Relates to Procedures for Termination and Nonrenewal of a Part C or D Contract By CMS (§ 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1))

9. Procedures for Imposing Intermediate Sanctions and Civil Money Penalties Under Part C and D (§ 422.756 and 423.756)

10. Termination of Contracts Under Parts C and D (§ 422.510(a) and § 423.509(a))

11. Request for Hearing Under Parts C and D (§ 422.662 and § 423.651)

12. Burden of Proof, Standard of Proof, Standard of Review and Conduct of Hearing (§ 422.660, § 423.650, § 422.676, and § 423.658)

13. Expedited Contract Terminations Procedures (§ 422.510, § 423.509, § 422.664, § 423.652, § 422.644, and § 423.642) Under Parts C and D

14. Time and Place of Hearing Under Parts C and D (§ 422.670 and § 423.655)

15. Discovery Under Parts C and D (§ 422.682 and § 423.661)

16. Review by the Administrator Under Parts C and D (§ 422.692(a) and § 423.666(a))

17. Reopening of an Initial Contract Determination or Decision of a Hearing Officer or the Administrator Under Parts C and D (§ 422.696 and § 423.668)

18. Prohibition of MA and Part D Applications for 2 Years after a Mutual Termination (§ 422.503(b)(6) and § 423.504(b)(5))

B. Changes to Strengthen Beneficiary Protections

1. Broker and Agent Requirements Under Parts C and D

2. Beneficiary Communications Materials Under Parts C and D (§ 422.2260, § 423.2262, § 423.2260, and § 423.2262)

3. Required Use of Standardized Model Materials Under Parts C and D (§ 422.2262 and § 423.2262)

4. Involuntary Disenrollment for Failure to Pay Plan Premiums Under Parts C and D (§ 422.74 and § 423.44)

5. Maximum Allowable Out-of-Pocket Cost Amount for Medicare Parts A and B Services (§ 422.100)

6. Maximum Allowable Cost Sharing Amount for Medicare Parts A and B Services and Prescription Drugs (§ 422.100 and § 423.104)

7. Prohibition on Prior Notification by PPO, PFFS, and MSA Plans Under Part C (§ 422.2, § 422.4, and § 422.105)

8. Requirements for LIS Eligibility Under Part D (§ 423.773)

9. Enrollment of Full Subsidy Eligible Individuals and Other Subsidy Eligible Individuals Under Part D (§ 423.34)

10. Special Enrollment Periods Under Part D (§ 423.380)

11. Transition Process Under Part D (§ 423.120(b)(3))

12. Part D Sponsor Responsibility for Retroactive Claims Adjustment Reimbursements and Recoveries Under Part D (§ 423.464)

13. Time Limits for Coordination of Benefits (§ 423.466)

14. Use of Standardized Technology Under Part D (§ 423.120)

15. Absence from Service Area for More Than 12 Months Under Part D (§ 423.44)

16. Prohibition of Mid Year Mass Enrollment Changes by SPAPS Under Part D (§ 423.464(e))

17. Non-renewal Beneficiary Notification Requirement Under Parts C and D (§ 422.506 and § 423.507)

18. Notice of Alternative Medicare Plans Available to Replace Non-Renewing Plans Under Parts C and D (§ 422.506(a)(2)(ii) and § 423.507(a)(2)(ii))

19. Timeframes and Responsibilities for Making Redeterminations Under Part D (§ 423.590)

20. Requirements for Requesting Organization Determinations Under Part C (§ 422.568)

21. Organization Determinations Under Part C (§ 422.566 and § 422.568)

22. Representatives (§ 422.561, § 422.574, and § 422.624)

23. Disclosure Requirements Under Parts C and D (§ 422.111(g) and § 423.128(f))

24. Definition of MA Plan Service Area (§ 422.2)

C. Changes to Provide Plan Offerings With Meaningful Differences

1. Meaningful Differences in Bid Submissions and Bid Review (§ 422.254, § 423.265, § 422.256, and 423.272)

2. Transition Process in Cases of Acquisitions and Mergers (§ 422.256 and § 423.272)

3. Non-renewing Low-enrollment Plans (§ 422.506(b)(1)(iv) and § 423.507(b)(1)(iii))

4. Medicare Options Compare and Medicare Prescription Drug Plan Finder

D. Changes to Improve Payment Rules and Processes

1. Definitions Related to Risk Adjustment Data Validation Appeals (§ 422.2) and Proposed Addition of Medicare Advantage Organization Risk Adjustment Data Validation—Dispute and Appeal Procedures (§ 422.311)

2. Payments to Medicare Advantage Organizations—Certification of Actuarial Valuation (§ 422.254)

3. Determination of Acceptable Administrative Cost by HMO/CMP Cost Contractors and Health Care Prepayment Plans (HCPPs) (§ 417.564)

4. Calculation of the Minimum Percentage Increase Under Part C (§ 422.306)

E. Changes to Improve Data Collection for Oversight and Quality Assessment

1. Requirements for Quality Improvement Programs Under Part C (§ 422.152, § 422.153, and § 480.140)

a. Quality Improvement Programs

b. New Quality Measures

c. Use of Quality Improvement Organization Review Information

2. CAHPS Survey Administration Under Parts C and D (§ 417.472, § 422.152, and § 423.156)

3. Validation of Part C and Part D Reporting Requirements (§ 422.516 and § 423.514)

4. Collection of Additional Part D Claims' Elements for Nonpayment-Related Purposes (§ 423.505)

F. Changes to Implement New Policy

1. Protected Classes of Concern Under Part D (§ 423.120(b)(2)(v))

2. Pro-rating the Plan Deductible for Part C MSA Enrollments Occurring During an Initial Coverage Election Period (§ 422.103)

G. Changes to Clarify Various Program Participation Requirements

1. Uniform Benefits Under Parts C and D (§ 422.100(d) and § 423.104))

2. Ensuring the Security of Protected Health Information and Other Personally Identifiable Information (§ 422.504 and § 423.505)

3. Requirement for Sponsoring Organizations Under Parts C and D to Report Other Payer Information to the Coordination of Benefits Contractor (§ 422.108 and § 423.464)

4. Visitor/Traveler Benefit Under Part C for the Purpose of Extending Enrollment Up to 12 Months (§ 422.74)

5. Medication Therapy Management Programs Under Part D (§ 423.153(d))

6. Formulary Requirements—Development and Revision by a Pharmacy and Therapeutics Committee (§ 423.120)

7. Generic Equivalent Disclosure Under Part D (§ 423.132)

8. Access to Covered Part D drugs (§ 423.120)

9. Standard Timeframe and Notice Requirements for Coverage Determinations Under Part D (§ 423.568)

10. Expediting Certain Coverage Determinations (§ 423.570)

11. Timeframes and Notice Requirements for Expedited Coverage Determinations (§ 423.572)

12. Clarify Novation Agreements Under Part D (§ 423.551)

13. Cost Contract Program Revisions: Appeals and Marketing Requirements (§ 417.428, § 417.494, § 417.500, and § 417.640)

a. Cost Contract Determinations (§ 417.492 and 417.494), Civil Money Penalties (§ 417.500), and Intermediate Sanctions (§ 417.500)

b. Extending MA Marketing Requirements to Cost Program Plans (§ 417.428)

14. Out of Scope Comments

H. Changes to Implement Corrections and Other Technical Changes

1. Application of Subpart M to Health Care Prepayment Plans (§ 417.840)

2. Generic Notice Delivery Requirements (§ 422.622 and 422.626)

3. Revision to Definition of Gross Covered Prescription Drug Costs (§ 423.308)

4. Application Evaluation Procedures (§ 422.502(c and d) and § 423.503(c and d))

5. Intermediate Sanctions (§ 422.750(a) and § 423.750(a))

6. Basis for Imposing Intermediate Sanctions and Civil Money Penalties (§ 422.752 and § 423.752)

III. Provisions of the Final Rule

IV. Collection of Information Requirements

A. ICRs Regarding Basic Contract Requirements (§ 417.472)

B. ICRs Regarding Apportionment and Allocation of Administrative and General Costs (§ 417.564)

C. ICRs Regarding Medicare Secondary Payer (MSP) Procedure (§ 422.108 and § 423.462)

D. ICRs Regarding Disclosure Requirements (§ 422.111)

E. ICRs Regarding Quality Improvement Program (§ 422.152)

F. ICRs Regarding Application Requirements (§ 422.501 and § 423.502)

G. ICRs Regarding General Provisions (§ 422.503 and § 423.504)

H. ICRs Regarding Contract Provisions (§ 422.504 and 423.505)

I. ICRs Regarding Nonrenewal of Contract (§ 422.506 and § 423.507)

J. ICRs Regarding Request for Hearing (§ 422.662 and § 423.651)

K. ICRs Regarding Time and Place of Hearing (§ 422.670 and § 423.655)

L. ICRs Regarding Review by the Administrator (§ 422.692 and § 423.666)

M. ICRs Regarding Procedures for Imposing Intermediate Sanctions and Civil Monetary Penalties (§ 422.756 and § 423.756)

N. ICRs Regarding Disclosure of Part D Plan Information (§ 423.128)

O. ICRs Regarding Consumer Satisfaction Surveys (§ 423.156)

P. ICRs Regarding Validation of Part C and Part D Reporting Requirements (§ 422.516 and § 423.514)

Q. ICRs Regarding Drug Utilization Management, Quality Assurance, and Medication Therapy Management Programs (MTMPs) (§ 423.153)

R. ICRs Regarding Timeframes and Notice Requirements for Standard Coverage Determinations (§ 423.568)

S. ICRs Regarding Timeframes and Notice Requirements for Expedited Coverage Determinations (§ 423.572)

T. ICRs Regarding Access to Covered Part D Drugs (§ 423.120)

U. ICRs Regarding Timeframes and Responsibility for Making Redeterminations (§ 423.590)

V. Annual Information Collection Burden

V. Regulatory Impact Analysis

A. Need for Regulatory Action

B. Overall Impact

C. Increase in Costs to MA Organizations and Part D Sponsors

D. Expected Benefits

E. Anticipated Effects—Effects of Cap on Out-of-Pocket Costs and Cost Sharing Amounts

F. Alternatives Considered

1. Strengthening CMS' Ability to Take Timely, Effective Contract Determinations or Intermediate Sanctions (Part C & D)

2. Changing the Standards of Review, Clarifying the Standard of Proof and Burden of Proof for Appeals, and Modifying the Conduct of Hearing for Contract Decisions (Including Denials of Initial Applications to Contract, Service Area Expansions for Existing Contracts, Contract Non-Renewals and Terminations, and Intermediate Sanctions)

3. Clarify That CMS May Require a “Test Period” During an Enrollment/Marketing Sanction

4. Right for CMS to Require an Independent Audit of Sponsoring Organizations under Intermediate Sanction

5. The Ability for CMS to Require Sponsors to Disclose To Current and Potential Enrollees Compliance and Performance Deficiencies

6. Reducing Duplicative and Low Enrollment Plans (Parts C & D)

7. Validation of Part C and Part D Reporting Requirements

G. Accounting Statement

H. Conclusion

Regulations Text

Acronyms

AO Accrediting Organization

ADS Dispensing System

AEP Annual Enrollment Period

AHFS American Hospital Formulary Service

AHFS-DI American Hospital Formulary Service—Drug Information

AHRQ Agency for Health Care Research and Quality

ALJ Administrative Law Judge

BBA Balanced Budget Act of 1997 (Pub. L. 105-33)

BBRA [Medicare, Medicaid and State Child Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000 (Pub. L. 106-554)

CAHPS Consumer Assessment Health Providers Survey

CAP Corrective Action Plan

CCIP Chronic Care Improvement Program

CCS Certified Coding Specialist

CMR Comprehensive Medical Review

CMP Civil Money Penalties

CMR Comprehensive Medical Review

CMS Centers for Medicare & Medicaid Services

CMS-HCC CMS Hierarchal Condition Category

CTM Complaints Tracking Module

COB Coordination of Benefits

CORF Comprehensive Outpatient Rehabilitation Facility

CPC Certified Professional Coder

CY Calendar year

DOL U.S. Department of Labor

DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)

EGWP Employer Group/Union-Sponsored Waiver Plan

EOB Explanation of Benefits

ESRD End-stage renal disease

FACA Federal Advisory Committee Act

FDA Food and Drug Administration (HHS)

FEHBP Federal Employees Health Benefits Plan

FFS Fee-For-Service

FY Fiscal year

GAO General Accounting Office

HCPP Health Care Prepayment Plans

HEDIS HealthCare Effectiveness Data and Information Set

HHS [U.S. Department of] Health and Human Services

HIPAA Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191)

HMO Health Maintenance Organization

HOS Health Outcome Survey

HPMS Health Plan Management System

ICD-9-CM Internal Classification of Disease, 9th, Clinical Modification Guidelines

ICEP Initial Coverage Enrollment Period

ICL Initial Coverage Limit

ICR Information Collection Requirement

IVC Initial Validation Contractor

LEP Late Enrollment Penalty

LIS Low Income Subsidy

LTC Long Term Care

LTCF Long Term Care Facility

MA Medicare Advantage

MAAA American Academy of Actuaries

MAO Medicare Advantage Operations

MA-PD Medicare Advantage-Prescription Drug Plans

M+C Medicare+Choice program

MPDPF Medicare Prescription Drug Plan Finder

MIPPA Medicare Improvements for Patients and Providers Act of 2008

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173)

MSA Metropolitan statistical area

MSAs Medical Savings Accounts

MSP Medicare Secondary Payer

MTM Medication Therapy Management

MTMP Medication Therapy Management Programs

NAIC National Association Insurance Commissioners

NCPDP National Council for Prescription Drug Programs

NGC National Guideline Clearinghouse

NIH National Institutes of Health

NOMNC Notice of Medicare Non-coverage

OEP Open Enrollment Period

OIG Office of Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management

OTC Over the Counter

PART C Medicare Advantage

PART D Medicare Prescription Drug Benefit Programs

PPACA Patient Protection and Affordable Care Act (Pub. L. 111-148)

PBM Pharmacy Benefit Manager

PDE Prescription Drug Event

PDP Prescription drug plan

PFFS Private Fee For Service Plan

POS Point of service

PPO Preferred Provider Organization

PPS Prospective Payment System

P&T Pharmacy & Therapeutics

QIO Quality Improvement Organization

QRS Quality Review Study

PACE Programs of All Inclusive Care for the Elderly

RADV Risk Adjustment Data Validation

RAPS Risk Adjustment Payment System

RHIA Registered Health Information Administrator

RHIT Registered Health Information Technician

SCHIP State Children's Health Insurance Programs

SEP Special Enrollment Periods

SHIP State Health Insurance Assistance Programs

SNF Skilled Nursing Facility

SNP Special Needs Plan

SPAP State Pharmaceutical Assistance Programs

SSI Supplemental Security Income

TrOOP True Out Of Pocket

U&C Usual and Customary

USP U.S. Pharmacopoeia

SUPPLEMENTARY INFORMATION:

I. Background

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

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) was enacted on December 8, 2003. The MMA established the Part D program and made revisions to the provisions in Part C of the Medicare statute governing the Medicare Advantage (MA) program. The MMA directed that important aspects of the new Medicare prescription drug benefit program under Part D be similar to and coordinated with regulations for the MA program.

Generally, the provisions enacted in the MMA took effect January 1, 2006. The final rules for the MA and Part D prescription drug programs appeared in the

Federal Register

on January 28, 2005 (70 FR 4588-4741 and 70 FR 4194-4585, respectively). While the provisions of the final rule did not govern plan payment or benefits until January 1, 2006, given the fact that provisions relating to applications, marketing, contracts, and the new bidding process for the MA and Part D programs, many provisions in these final rules became effective on March 22, 2005, 60 days after publication of the rule.

As we have gained experience with the MA program and the prescription drug benefit program, we periodically have revised the Part C and D regulations to continue to improve or clarify existing policies and/or codify current guidance for both programs. For example, in December 2007, we published a final rule with comment on contract determinations involving Medicare Advantage (MA) organizations and Medicare Part D prescription drug plan sponsors (72 FR 68700). In April 2008, we published a final rule to address policy and technical changes to the Part D program (73 FR 20486). In September 2008 and January 2009, we finalized revisions to both the Medicare Advantage and prescription drug benefit programs (73 FR 54226 and 74 FR 1494, respectively) to implement provisions in the Medicare Improvement for Patients and Providers Act (MIPPA) (Pub. L. 110-275), which contained provisions impacting both the Medicare Part C and D programs, and make other policy clarifications based on experience with both programs (73 FR 54208, 73 FR 54226, and 74 FR 2881).

B. History and Overview

The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established a new “Part C” in the Medicare statute (sections 1851 through 1859 of the Social Security Act (the Act) which provided for what was then called the Medicare+Choice (M+C) program. Under section 1851(a)(1) of the Act, every individual entitled to Medicare Part A and enrolled under Medicare Part B, except for most individuals with end-stage renal disease (ESRD), could elect to receive benefits either through the original Medicare program or an M+C plan, if one was offered where he or she lived. The primary goal of the M+C program was to provide Medicare beneficiaries with a wider range of health plan choices. The M+C provisions in Part C were amended by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-111), and further amended by the Medicare, Medicaid, and State Children's Health Insurance Program SCHIP) Benefits Improvement Act of 2000 (BIPA) (Pub. L. 106-554).

As discussed above, the MMA, enacted on December 8, 2003, added a new “Part D” to the Medicare statute (sections 1860D-1 through 42 of the Act) creating the Medicare Prescription Drug Benefit Program, and made significant changes to the M+C program.

Also as noted above, MIPPA, enacted on July 15, 2008, addressed a number of provisions impacting the Part C and D programs, including provisions impacting marketing under both programs which were implemented in regulations published in the

Federal Register

on September 18, 2008 (73 FR 54208), a final rule effective October 1, 2008, that paralleled provisions in MIPPA, and in the same issue of the

Federal Register

(73 FR 54226), a separate interim final rule that addressed the other provisions of MIPPA affecting the MA and Part D programs. We also clarified the MIPPA marketing provisions in a November 2008 interim final rule (73 FR 67407 and issued a separate interim final rule in January 2009 to address MIPPA provisions related to Part D plan formularies (74 FR 2881).

In October 22, 2009

Federal Register

(74 FR 54634), we published a proposed rule (file code CMS-4085-P), hereinafter referred to as the October 22, 2009 proposed rule) addressing additional policy clarifications under the Part C and D programs. As noted when issuing this proposed rule, we believe that additional programmatic and operational changes are needed in order to further improve our oversight and management of the Part C and D programs and to further improve beneficiary experience under MA or Part D plans.

Indeed, one of the primary reasons set forth in the preamble for issuing the October 22, 2009 proposed rule was to address beneficiary concerns associated with the annual task of selecting one plan from so many options. We noted that while it is clear that the Medicare Part D program has improved access to drug coverage for elderly and offered beneficiaries a wide range of plans from which to choose, some have suggested that a significant numbers of beneficiaries are confused by the array of choices and find it difficult to make enrollment decisions that are best for them. Moreover, experience has shown that organizations submitting bids under Part C and D to offer multiple plans have not consistently submitted plan benefit designs that were significantly different from each other, which can add to beneficiary confusion. In this rule, we finalize a number of proposals to the way we administer the Part C and D programs to promote beneficiaries making the best plan choice that suits their needs. Although we believe these provisions will go a long way to further that goal, we are committed to additional explorations of ways to structure choices for seniors to aid them in making better plan choices, and will continue to evaluate program changes in this area.

We also proposed additional provisions aimed at strengthening existing beneficiary protections, improving payment rules and processes, enhancing our ability to pursue data collection for oversight and quality assessment, strengthening formulary policy, and finalizing a number of clarifications and technical corrections to existing policy. Except as noted or otherwise modified, we finalize these requirements in this rule.

Section 902 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and requires the Secretary, in consultation with the Director of the Office of Management and Budget, to establish and publish timelines for the publication of Medicare final regulations based on the previous publication of a Medicare proposed or interim final regulation. Section 902 of the MMA also states that the timelines for these regulations may vary but shall not exceed 3 years after publication of the preceding proposed or interim final regulation except under exceptional circumstances.

This final rule has been published within the 3-year time limit imposed by section 902 of the MMA, and thus is in accordance with the Congress' intent to ensure timely publication of final regulations.

On March 23, 2010, the Patient Protection and Affordable Care Act (Pub. L. 111-148) was enacted. Several provisions of this public law affect the Part C and D programs. In sections II.B. and II.F. of this final rule, we provide a discussion of the effects of two of these provisions on our proposed policies regarding MA cost sharing and “protected classes” of drugs under Part D, respectively.

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

We received approximately 114 items of timely correspondence containing comments on the October 22, 2009 proposed rule. Commenters included health and drug plan organizations, insurance industry trade groups, pharmacy associations, pharmaceutical benefit manager (PBM) organizations, provider associations, representatives of hospital and long term care institutions, drug manufacturers, mental health and disease specific advocacy groups, beneficiary advocacy groups, researchers, and others.

In this final rule, we address all timely comments and concerns on the policies included in the proposed rule. We note that there were several comments submitted that were outside the scope of the proposals set forth in the proposed rule and, as such, we do not address them within this final rule. Generally, the commenters supported our efforts to improve plan offerings by the same sponsor that are meaningfully different from each other in order to support improved beneficiary decision making and our efforts to clarify and codify existing policy through rulemaking.

A. Changes to Strengthen Our Ability To Distinguish for Approval Strong Applicants for Part C and D Program Participation and To Remove Consistently Poor Performers

This section finalizes a number of proposed revisions designed to strengthen our ability to approve strong applicants and remove poor performers in the Part C and D programs. Since the implementation of revisions to the MA and initial implementation of the prescription drug programs in January 2006, we have steadily enhanced our ability to measure MAO and PDP sponsor performance through efforts such as the analysis of data provided routinely by sponsors and by our contractors, regular review of beneficiary complaints, marketing surveillance activities, and routine audits. This information, combined with feedback we have received from beneficiary satisfaction surveys, HEDIS data, and information from MAOs and PDP sponsors themselves, has enabled us to develop a clearer sense of what constitutes a successful Medicare organization capable of providing quality Part C and D services to beneficiaries. Additionally, this information has also allowed us to identify and take appropriate action against organizations that are not meeting program requirements and not meeting the needs of beneficiaries.

As set forth below, we are finalizing changes and clarifications to our regulations to make certain that all current and potential MAOs and PDP sponsors clearly understand and can reasonably anticipate how we measure sponsor performance, determine when there is noncompliance, and when enforcement actions are warranted.

These provisions are described in detail in Table 1.

Table 1—Provisions Strengthening Our Ability To Distinguish for Approval Strong Applicants and To Remove Consistently Poor Performers

Provision

Part 422

Subpart

Section

Part 423

Subpart

Section

Notice of Intent to Apply

Subpart K

§ 422.501

Subpart K

§ 423.502.

Application Standards

Subpart K

§ 422.502

Subpart K

§ 423.503.

Compliance Measures/Analysis

Subpart K

§ 422.502

Subpart K

§ 423.503.

Compliance Programs

Subpart K

§ 422.503(b)(4)(vi)

Subpart K

§ 423.504(b)(4)(vi).

Network Adequacy of Coordinated Care and Network-Based Private-Fee-For-Service plans under Part C

Subpart C

§ 422.112

N/A

N/A.

Clarify programmatic elements that are “deemable”

Subpart D

§ 422.156(b)(7), § 422.156(f)

Subpart D

§ 423.165(b), § 423.165(f).

Procedures for termination and Nonrenewals: Part C and D

Subpart K

§ 422.510(c)(1), § 422.506(b)(3)

Subpart K

§ 423.509(c)(1), § 423.507(b)(3).

Intermediate Sanctions: procedures for imposing civil and money penalties

Subpart O

§ 422.756

Subpart O

§ 423.756.

Contract Termination

Subpart K

§ 422.510(a)

Subpart K

§ 423.509(a).

Proper request for hearings

Subpart N

§ 422.662

Subpart N

§ 423.651.

Burden of Proof, Standard of Proof, Standard of Review and Conduct of Hearing

Subpart N

§ 422.660, § 422.676(d)

Subpart N

§ 423.650, § 423.658(d).

Postponement of effective date of determination when a request is being filed

Subpart N

§ 422.664

Subpart N

§ 423.652.

Extending timeframe for contract determination hearings

Subpart N

§ 422.670

Subpart N

§ 423.655.

Appeal times: require each party provide witness list and documents 5 calendar days before hearing

Subpart N

§ 422.682

Subpart N

§ 423.661.

Appeal times: require request for a review by the administrator must be received with 15 days after receipt of hearing decision

Subpart N

§ 422.692(a)

§ 422.692(a)

Subpart N

§ 423.666(a).

Contract redeterminations and reopening

Subpart N

§ 422.696

Subpart N

§ 423.668.

Mutual termination of contract

Subpart K

§ 422.503(b)(6)

Subpart K

§ 423.504(b)(6).

1. Require Notice of Intent To Apply Under Part C and D Within the Application Requirements (§ 422.501 and § 423.502)

Under the authority of section 1871(a)(1) of the Act, which authorizes us to prescribe such regulations as may be necessary to carry out the administration of the Medicare program, we proposed an administrative requirement in the October 22, 2009 proposed rule for both the Part C and D programs related to the application submission to qualify as MA and PDP sponsor contractors. We specifically proposed in § 422.501 and § 423.502 to codify our existing guidance that initial applicants and existing contractors seeking to expand complete a nonbinding Notice of Intent to Apply.

We noted that as a result of the fully electronic submission process and restrictions on access to the CMS Health Plan Management System (HPMS), every applicant must complete a Notice of Intent to Apply as described in the HPMS memo dated October 10, 2008. This includes both initial applicants and current contractors seeking to expand their organizations' service area and current contractors adding a Special Needs Plan (SNP) or an Employer Group/Union-Sponsored Waiver Plan (EGWP) to their existing contract.

We also noted that submitting a Notice of Intent to Apply does not bind that organization to submit an application for the following year. However, without a pending contract number and completed CMS User ID connectivity, an organization will not be able to access the appropriate modules in HPMS to complete the application materials.

In this final rule, we address comments received and finalize this provision with modification. As explained below, we modified § 422.503(b)(2) and § 423.502 (b)(2) to clearly indicate that the decision not to submit an application after submission of a notice of intent will not result in any compliance consequences.

Comment:

Several commenters supported this provision.

Response:

We appreciate the commenters support of our proposal.

Comment:

Some commenters were concerned about the due date of the Notice of Intent to Apply and wanted exceptions to allow CMS the flexibility to accept notice of intent after the due date. Some commenters were particularly concerned about special need plans offered in conjunction with Medicaid. Commenters also urged CMS to provide organizations adequate time to make the decision whether to apply and stated that some organizations may not consider submitting an application at the time notices are due.

Response:

As stated in the proposed regulation at § 422.503(b)(2) and § 423.503(b)(2), the Notice of Intent to Apply does not bind the organization to submit an application. For this reason, we do not believe it is necessary to be flexible with the due date of the notice of intent. Organizations are free to submit a Notice of Intent to Apply and then consider whether or not to submit an application without risking any negative consequences from CMS. We also believe that the notice of intent requirement will benefit applicants as it will serve as a 3-month advance reminder to begin preparation for their submission. We anticipate that the additional lead time will result in more successful applications.

Comment:

One commenter questioned whether the three month lead time is necessary, particularly for existing sponsors, to ensure timely connectivity to CMS systems.

Response:

Our preparation for the receipt of applications is a process that can take up to 3 months. We encourage interested parties to see the October 2, 2009 HPMS memo for an example of the timeline from submission of the Notice of Intent to Apply to the application submission.

Comment:

One commenter wanted CMS to add language indicating that for those notices of intent that do not result in the submission of an application, lack of submission would not be considered as part of any punitive evaluation.

Response:

As we stated in the October 2009 proposed rule, the Notice of Intent

to Apply does not bind the organization to submit an application. We want to make clear that the submission of a notice of intent without a subsequent application submission would present no risk of reprimand or sanction by us. For this reason, we are modifying § 422.503(b) and § 423.502 (b) to clearly indicate that the decision not to submit an application after submission of a notice of intent will not result in any compliance consequences.

2. Application Requirements (§ 422.501 (c) and § 423.502 (c)) and Evaluation and Determination Procedures for Determining Whether Applicants Are Qualified for a Contract Under Parts C and D (§ 422.502 and § 423.503)

In the October 2009 proposed rule, we proposed a single clarification that applies to both MA organizations and Part D sponsors related to our application evaluation procedures and appeals of our determinations regarding applications. At § 422.502 and § 423.503, we specifically proposed to make explicit that we will approve only those applications that demonstrate that they meet all (not substantially all) Part C and D program requirements.

We noted that the application process under Part C and D requires an applicant to submit for our review a combination of attestations that it will comply with stated program requirements, as well as submit contracts with organizations the applicant has contracted with to perform key Part C or D functions, evidence of the applicant's risk-bearing licenses, and data documenting that the applicant can provide its members access to Part C and D services consistent with the programs' requirements. We proposed at § 422.501(c)(1) and (2), § 422.502(a)(2), § 423.502(c)(1) and (2), and § 423.503(a)(2) to require that applicants demonstrate that they meet all requirements outlined in the MA organization and Part D sponsor applications.

We simplified the application evaluation process under § 422.502(a)(1) and § 423.503(a)(1) by limiting the evaluation of an entity's application to information contained in the application and any additional information that we obtain through onsite visits. As we noted in the proposed rule, limiting our review to this information ensures that we will afford all applicants (numbering in the hundreds each of the last 4 years) a fair and consistent review of their qualifications. Organizations can be assured that we will not consider additional sources of information regarding one applicant's qualifications that we do not consider for others.

We also proposed to clarify our authority to decline to consider application materials submitted after the expiration of the 10-day period following our issuance of a notice of intent to deny an organization's contract qualification application. We clarified § 422.502(c)(2) and § 423.503(c)(2) by proposing to add a new paragraph (iii) to establish that if we do not receive a revised application within 10 days from the date of the intent to deny notice, or if after timely submission of a revised application the applicant still appears unqualified to contract as an MA organization or Part D sponsor or has not provided enough information to allow us to evaluate the application, we will deny the application.

Further, we noted that consistent with the revisions to § 422.650(b)(2) and § 423.660(b)(2), which are discussed elsewhere in this final rule, the applicant would not be permitted to submit additional revised application material to the Hearing Officer for review should the applicant elect to appeal the denial of its application. Allowing for such a submission and review of such information as part of the hearing would, in effect, extend the deadline for submitting an approvable application. In this final rule, we adopt these provisions as proposed.

Comment:

A number of commenters expressed support for all areas of this provision.

Response:

We appreciate the commenters support of our proposal.

Comment:

Many commenters urged CMS to be flexible and allow for unique circumstances. Several commenters noted that SNPs have only limited ability to influence the terms and timelines that State Medicaid agencies follow in executing the SNP agreements.

Response:

We design our solicitations to ensure that all organizations have a fair opportunity to demonstrate their qualifications for an MA or PDP contract. As noted in the preamble to the October 2009 proposed rule, allowing exceptions to requirements to address unique circumstances would undermine the need for a uniform application process applied fairly to all applicants. With respect to Medicaid agency contracts, we may require that organizations submit those documents as part of an application to qualify to offer a SNP plan. When we include that requirement in a particular year's SNP application, we have determined that organizations can reasonably be expected to obtain the executed agreements in time for us to determine that it is qualified to operate a SNP during the coming contract year. We do not anticipate the need to provide any flexibility on this particular matter.

Comment:

One commenter stated that the “all” standard is not practical given that there is not a narrative of requirements in the applications, but a series of attestations and tables (with detailed requirements stated in regulations and CMS subregulatory guidance).

Response:

We believe the “all” standard is practical. Applicants receive enough information to successfully apply and are given two opportunities with instructions to cure deficiencies. While we advise that applicants should be familiar with Part C and D program regulations and guidance, in most instances they are not required to describe how their organization will meet a requirement; rather they simply attest that they will meet the requirement. Therefore, an explanation of all the program requirements in the application is not necessary for organizations to submit successful Part C or D applications to us.

Comment:

Several commenters stated that CMS has been unclear in its previous deficiency responses to applicants and that it has been difficult to obtain guidance from CMS. Commenters urged CMS to provide clear rules and be consistent. In light of the inconsistencies with which applications are reviewed, one commenter recommended using a standard that emphasizes the materiality of the requirements that sponsors must meet.

Response:

We agree that in order for applicants to have a consistent understanding of the expectations on which we base our contract approval and denials, we must ensure the clarity and transparency of the program requirements and review criteria. Applicants receive up to three communications which explain our application requirements and provide clear instructions on how to be a successful applicant. Organizations that fail to completely and accurately apply receive a courtesy e-mail explaining the deficiencies and are given an opportunity to cure. Organizations that are still deficient after the initial opportunity to cure receive a notice of intent to deny and are given another opportunity to cure. All application communications include contact information for CMS subject matter specialists. We are always willing to work with applicants to ensure a complete understanding of program and contracting requirements.

Comment:

One commenter stated that the applicants that have disagreed with CMS' network adequacy determinations have been reluctant to seek re-

evaluation of their network adequacy in specific counties because of the possibility that CMS will confirm its original finding and deny the entire application. A denial of one county in one state could result in the denial of an entire application. To address this problem, the commenter recommended that CMS revise its policy to provide that an applicant for a network-based plan or service area expansion (SAE) may drop a county or portion of its service area that has been identified in the intent to deny notice after receiving CMS' final decision based upon the additional information submitted by the organization.

Response:

We afford sponsors multiple opportunities during the application review process for applicants to modify their proposed service area. However, when we conduct our final review of an application prior to the issuance of a notice of intent to deny, we must make the reasonable assumption, for the sake of consistency, that the applicant seeks approval for its entire proposed service area, not some portion that the applicant will identify at a later date. Therefore, we will not allow applicants to modify their service areas after they have received a final notice of denial of their application from us.

Comment:

One commenter recommended that CMS explicitly provide in the regulation for a process to permit applicants to cure deficiencies identified by CMS subsequent to the issuance of the notice of intent to deny; and that if such an opportunity is not provided, CMS should base any denial notice only on issues raised in the notice of intent to deny and not on deficiencies that are identified later in the application review process.

Response:

When we have discovered a deficiency after we have issued a notice of intent to deny, we have not disapproved that application based on the failure to correct the new deficiency. Rather, we approve the application (assuming all corrections have been made based on deficiencies identified in the Notice of Intent to Deny), but communicate to the applicant that the newly identified deficiency must be corrected prior to executing a Medicare contract. If the issue is not so corrected, it immediately becomes the subject of a CMS contract compliance action.

Comment:

One commenter requested that we clarify the type of information gained via the onsite visits and how this information will be used in evaluation of applications.

Response:

We clarify, that we limit our application reviews (with the exception of the past performance analysis) to the materials organizations submit in response to the annual solicitations. We would also make clear that we retain our authority to conduct site visits to conduct compliance and monitoring activities.

Comment:

One commenter noted that it would be beneficial to sponsors if CMS provided a tool that allows sponsors to self-determine network adequacy. The commenter stated that the CMS network adequacy standards are subject to reviewer discretion and stated that this ambiguity is unfair when the sponsor must identify, negotiate, and complete contract terms, sometimes with multiple entities, within a 10-day period.

Response:

We have developed standardized network criteria and an automated review process that we will use, starting with the contract year 2011 application cycle, to review network adequacy. Applicants may request exceptions where they do not meet the standardized criteria for individual provider types in individual counties under limited, defined circumstances. We believe these changes will increase the consistency and transparency of network reviews.

3. Deny Contract Qualification Applications Based on Past Contract Performance (§ 422.750 and § 423.750)

As described in the existing provisions at § 422.502(b) and § 423.503(b), we may deny an application based on the applicant's failure to comply with the terms of a prior contract with CMS even if the applicant currently meets all of the application requirements. In the October 22, 2009 proposed rule, we proposed to modify these provisions at § 422.502(b) and § 423.503(b) to clarify that we will review past performance across any and all of the contracts held by the applicant, by specifically revising the language to refer to “any current or prior contract” held by the organization, instead of the current language referring to a “previous year's contract.” We also clarified that the period that will be examined for past performance problems will be limited to those identified by us during the 14 months prior to the date by which organizations must submit contract qualification applications to CMS. Fourteen months covers the time period from the start of the previous contract year through the time that applications are received for the next contract year.

In making these proposed changes, we noted that indicia of performance deficiencies that might lead us to conclude that an organization has failed to comply with a current or prior contract include, but are not limited to, poor performance ratings as displayed on the Medicare Options Compare and MPDPF Web sites; receipt of requests for corrective action plans (CAPs) unrelated to an audit (as these types of CAPs generally involve direct beneficiary harm); and receipt of one or more other types of noncompliance notices from CMS (for example, notices of noncompliance or warning letters).

Additionally, consistent with the proposed changes to § 422.503(b), § 422.508(c), § 423.504(b), and § 423.508(e), we indicated that the withdrawal of Part C or D operations from some or all of an organization's newly contracted service area prior to the start of a benefit year (through mutual termination or otherwise) is an indication of poor performance. Such a situation can arise when, for example, an organization, after it has signed its Medicare contract for the upcoming program year, loses a contract with a significant number or type of providers, jeopardizing its ability to provide its members adequate access to services. Also, an organization may suddenly face financial difficulties that threaten its ability to offer the benefit packages approved by us throughout the upcoming contract year. In such instances, we noted that we could simply leave the contract in place and take enforcement actions against the organization. However, under such an approach, we would knowingly be permitting beneficiaries to remain enrolled with an organization that cannot effectively deliver the benefit. Instead, we indicated our preference to act in the best interests of the beneficiaries by agreeing with the organization to terminate its contract and work with the organization to make certain that beneficiaries receive uninterrupted access to Medicare services through another MA organization, PDP sponsor, or original Medicare. We are adopting these proposed changes without further modification in this final rule.

Comment:

Several commenters expressed their support for our use of the past performance review authority to ensure that underperforming sponsors are not permitted to expand their participation in the Part C and D programs.

Response:

We appreciate the commenters' support.

Comment:

Several commenters requested that CMS more clearly articulate the methodology it will apply to past performance reviews conducted under this regulatory provision. For example, commenters were interested in knowing the relative weights CMS will

be assigning to different types of compliance actions (such as, corrective action plan requests, warning letters) and whether we will afford organizations the opportunity to correct deficiencies before CMS makes past performance determinations.

Response:

We expect to make past performance methodology available through publication in our manuals. We believe that the manuals provide us and sponsors with the best available avenue for providing such detailed information and making updates to it as we continue to gain more experience with conducting past performance analysis. Given that, we note that the information on which we will base our past performance analysis has already been made available to organizations. For example, at any time an organization can review its own record of compliance correspondence received from us to get a sense of the degree to which the organization should be concerned about the likelihood that CMS would deny an application for a new contract.

We believe that questions regarding corrective action opportunities are not relevant to our process for reviewing past performance in making application determinations. The purpose of the past performance review is to determine whether the sponsor has demonstrated, over a 14-month period, whether it has operated its Part C or D contract in a manner that suggests that it is generally meeting and capable of meeting program requirements and that new Medicare business would not jeopardize that status. While some organizations take corrective action to address any and all compliance issues prior to the expiration of the 14-month review period, such corrective action would not change the fact that during that period of time, the organization demonstrated a pattern of noncompliance that may raise questions about its ability to take on new Medicare business.

Comment:

Some commenters advised that the 14-month review period is too long, while others stated that a longer period (for example, 3 years) would provide a more comprehensive view of a sponsor's contract performance.

Response:

We believe that the 14 month look-back provides an adequate amount of time for us to review an MA organization's or Part D sponsor's performance and the choice of 14 months as the look-back period was not arbitrary. As we noted previously, and in the proposed rule, 14 months covers the period spanning the start of the previous contract year to the time we receive applications for the following contract year. To shorten that time period to, say, 12 months would leave a gap in our past performance review. Similarly, limiting the period to the 14-month timeframe gives sponsors and organizations the opportunity and incentive to promptly establish a positive compliance track record so that the next CMS past performance review will find them eligible for additional Part C or Part D business.

Comment:

Several commenters asked that CMS indicate whether the withdrawal from all or part of a service area, non-renewal of one or more plans (on the Part C or Part D sponsor's initiative), withdrawal of an application or bid, or termination of a contract after it has been executed would be counted against an organization for purposes of past performance analysis.

Response:

We would not consider a sponsor-initiated non-renewal of all or a portion of an MA or PDP sponsor contract as an indication of poor contract performance. (However, under separate regulatory authority sponsors that non-renew their contracts may not be permitted to reenter the program for a period of 2 years.) We would treat non-renewed plan benefit packages similarly, assuming the organization had met the Part C or D requirements for providing timely notice to us and our enrollees. We do not consider the withdrawal of an application for qualification as Medicare contractor or of a bid prior to the publication of the annual benchmark calculation as relevant to a performance evaluation.

We do look unfavorably on organizations that withdraw bids after the benchmark has been announced. Also, we consider the termination of a contract for an upcoming benefit year after the organization has executed the contract as a failure to meet Part C and D program requirements. Accordingly, organizations should expect that these occurrences would be considered against them when we evaluate their past contract performance.

Comment:

Several commenters offered suggestions on factors CMS should take into consideration when developing and applying our past performance review methodology. These included accounting for distinctions between national and local organizations, beneficiary impact of noncompliance (or lack thereof), unique characteristics of SNP plans, and whether difficulties in an organization's operation of a contract can be attributed to an entire organization or are limited to operation of only one or more of its contracts.

Response:

As noted previously, we plan to address issues raised by some of the commenters more fully in guidance issued through our manual update process. At this time, we can provide a general discussion of some of the principles we intend to apply to the development of our past performance methodology. We are cognizant of the variety of products offered by Medicare contractors, and when an element of our past performance evaluation is affected by the unique feature of a particular plan type, we will adjust the application of our methodology as appropriate. We also want to emphasize that we intend to be conservative in our determinations. We expect to use our authority under this provision to exclude only those organizations demonstrating a pattern of poor performance. Finally, we acknowledge that not all types of noncompliance will be given equal weight, and our methodology will assign weights to different measures based on factors such as beneficiary impact or program stability.

Comment:

A number of commenters suggested that CMS provide the results of its past performance analysis prior to the due dates for the submission of notices of intent to apply or for the applications for contract qualification.

Response:

We will explore the feasibility of providing a preliminary analysis in response to sponsors' requests. However, we note that such a report would not be final, and in no case would even a preliminary report be available before December of each year.

Comment:

A number of commenters requested assurance that the past performance review described previously in this final rule and in the October 2009 proposed rule would not include information concerning a sponsor's performance under contracts other than those governing Medicare managed care and prescription drug plan operations (such as, Medicaid, QIC contracts).

Response:

Absent extraordinary circumstances, we plan to limit our past performance review to the operations of organizations in the performance of their Part C and D contracts only.

Comment:

One commenter objected to CMS' use of past performance analysis asserting that is equivalent to taking a second punitive action for a single instance of noncompliance.

Response:

In this final rule, we are clarifying the scope of our existing authority and we do not believe it is equivalent to an additional compliance or enforcement action taken against any of the organization's existing Medicare contracts. Our denial of an application based on an applicant's past contract performance is a reflection of our belief that an organization demonstrating significant operational difficulties

should focus on improving its existing operations before expanding into new types of plan offerings or additional service areas. Such a determination has no impact, punitive or otherwise, on a sponsor's current Medicare contract rights and obligations.

Comment:

One commenter requested that organizations be permitted to attest that they will meet all Part C or D program requirements as of no earlier than January 1 of the upcoming contract year, as organizations are focused on enrollment and readiness activities prior to that date.

Response:

This comment concerns an aspect of the Part C and D application and contracting processes unrelated to our exercise of the past performance review authority. Thus, it is outside the scope of our proposal, and we will not address it here.

4. Use of Data to Evaluate Continued Ability to Act as a Qualified Sponsoring Organization Under Parts C and D (§ 422.504, and § 423.505)

In the October 22, 2009 proposed rule, we clarified our authority to find organizations or sponsors out of compliance with MA and Part D requirements. We noted that under the authority of Sections 1857(e)(1) and 1860D-12(b)(3)(D) of the Act, the Secretary may add terms to the contracts with MA and Part D sponsors including terms that require the sponsor to provide the Secretary “with such information * * * as the Secretary may find necessary and appropriate.” Additionally, under that authority, CMS established § 422.516 and § 423.514, which support the submission of Part C and D Reporting Requirements. We clarified that the data acquired through the reporting requirements are often used for the purpose of monitoring an organization's or sponsor's continued compliance with MA and Part D requirements. We also explained that in some instances, we may use an outlier analysis to determine a MA organization's or Part D sponsor's performance relative to industry standards established by the performance of all the other organizations and sponsors as described earlier in the preamble in our discussion of the development of our policies concerning the awarding, monitoring, and enforcement of Medicare contracts.

As part of the proposed rule, we added paragraphs § 422.504(m)(1) and (2) and § 423.505(n)(1) and (2) to make explicit our existing authority to find organizations or sponsors out of compliance with MA and Part D requirements when the organization's or sponsor's performance fails to meet performance standards articulated in statutes, regulations, and guidance or when an organization's or sponsor's performance represents an outlier relative to the performance of other organizations or sponsors. In this final rule, we adopt the provisions as proposed.

Comment:

Some commenters supported this provision, specifically the development of consistent performance data evaluation processes.

Response:

We appreciate the comments.

Comment:

Many commenters recommended that CMS not use outlier data to make compliance determinations for a variety of reasons. Some commenters believed that CMS should only use specific, previously articulated criteria to determine non-compliance. Other commenters stated that the outlier analysis is arbitrary, inconsistent, and capricious at least in part because it would result in CMS holding sponsors to standards that are developed simply by measuring sponsors' performance relative to each other, not what is actually required to comply with Part C and D program requirements. One commenter noted that such an approach is inconsistent with the operation of a program where Medicare sponsor contracts are not awarded on a competitive basis. Still other commenters recommended that if an outlier analysis is used, it should only be used as a means by which CMS identifies plans in need of improvement not as a determination of non-compliance.

Response:

We appreciate these comments, but we maintain our belief that outlier analysis remains a valid method for identifying non-compliant plan sponsors and a valuable tool in our efforts to monitor hundreds of contracting organizations in a timely and effective manner. Technically, the Part C and D regulations require 100 percent compliance with all program requirements. We acknowledge that it can be impractical to hold sponsors to such an absolute standard. When attempting to establish an acceptable level of noncompliance, it makes sense for us to compare a sponsor's performance to that of its peers. Such outlier analysis gives us a sense of the general performance capabilities of a set of sponsors. From such an analysis it is reasonable, in most instances, for us to conclude that organizations whose performance trails that of other similarly situated sponsors are not making reasonable efforts to provide an acceptable level of service to their enrollees. As we noted in the discussion of our proposed rule, inherent in the use of outlier analyses to evaluate compliance is the application of the well-accepted principle that we should look to evolving industry standards to establish program requirements.

We recognize our obligation, as both a business partner and a regulatory agency, to use the outlier analysis tool in a manner that is fair to sponsors and is legally supportable. For example, we want to reassure organizations that we understand that effective outlier analysis is concerned not just with which organizations' performance scores are lower than others, but also with the degree to which some sponsors may trail their peers. Therefore, an outlier analysis does not by definition and in every case result in a finding of non-compliance. Also, we remind organizations that we have adopted over the last several years, a graduated system of compliance notices, and we expect that in the large majority of instances, we will make organizations aware of their non-compliance with an outlier-based standard through the lower-level types of notice. These are the types of notices issued in the earlier stages of CMS' compliance efforts and would afford organizations reasonable opportunities to take corrective action. Finally, we are committed to publishing regularly outlier-based performance standards, as they are developed, in guidance materials, including our program manuals, HPMS memoranda, and our annual call letter, and to update these standards over time. Further, compliance communications to sponsors concerning an area of noncompliance where the basis for the finding relied on outlier analysis include an explicit description of the methodology employed to make such a determination.

Comment:

Many commenters requested that CMS compare like plans with respect to several identifiers, including: plan types (with particular consideration given to SNPs), size, market conditions, open vs. closed formularies, and age of enrollees. Some commenters noted that meaningful comparisons across sponsors might be difficult.

Response:

Where appropriate, we compare like sponsors and frequently take enrollment (both numbers and types of beneficiaries, such as, LIS-eligible) into consideration. Identifiers that the commenters mentioned are taken into consideration as part of our data analysis. Our goal is to do meaningful analysis that can aid us in identifying potential weaknesses.

Comment:

Several commenters were concerned with how CMS will conduct outlier analysis and requested that CMS

define and develop standardized methods for determining outliers. One commenter recommended that CMS work with the industry to establish methods for outlier analysis. Another commenter recommended that the methodology should include different weights assigned to measures based on the magnitude of beneficiary impact and program integrity. One commenter requested that the outlier analysis be done at the contract level as opposed to the plan benefit package (PBP) level. Another commenter recommended that CMS be specific about whether compliance action would be taken for first-time outliers or only for sponsors with a history of being an outlier.

Response:

We understand the importance of working with the industry to establish methodologies and do so where appropriate. For example, we have and will continue to share drafted or proposed plan rating (star ratings) measures and their analyses. Comments from sponsors are reviewed and considered as we finalize those measures. The Part C and D reporting requirements also undergo similar public comment periods.

The issue of assigning different weights to measures is not relevant here as the proposed change concerns the use of outlier analysis for particular, not aggregated, operational requirements. We incorporate weighting into our analysis of sponsors' overall contract performance. This analysis is typically done at the contract level at least in part because we collect data at that level, not the PBP level.

As discussed previously, we account for whether a sponsor is a first-time or repeat outlier when it determines the type of compliance notice to issue. Depending on the circumstances, organizations identified as first-time outliers may receive only a notice of noncompliance, while those that are repeat outliers may receive a CAP request or be subject to an enforcement action.

Comment:

Several commenters urged CMS to make the outlier methodology available to all sponsors through, for example, the Call Letter or Technical Specifications. Many of these commenters requested an opportunity to review and comment on the methodology. A couple of commenters were concerned about CMS' use of outlier analysis and being able to predict how other sponsors will perform to ensure that their own performance is aligned and compliant.

Response:

Where appropriate, we will make methodologies available to sponsors, as we discussed earlier in our response to comment on this proposal. An example of the importance we place on the need for clarity and transparency is the fact that we currently make available our methodologies in the technical specifications for the Reporting Requirements and the plan ratings (star ratings). In another example, we recently (January 2010) released an HPMS memo and incorporated into the Part D manual a comprehensive description of our outlier methodology for ensuring appropriate access to home infusion pharmacies. In an effort toward complete transparency, we also provided the underlying data and necessary information for Part D sponsors to conduct their own independent analyses on this topic.

Comment:

Many commenters noted that there are reasons other than non-compliance that may result in a sponsor being an outlier. Outlier, by definition, means that there will always be a sponsor underperforming.

Response:

We acknowledge that outlier status does not necessarily mean non-compliance. We review the list of statistical outliers and set thresholds on a number of factors for the purposes of identifying potential compliance problems. This is consistent with our goal to do meaningful analysis that can aid in identifying potential weaknesses. Most often, a sponsor will receive a request for information, as opposed to a compliance letter, to help us better understand why that particular sponsor was an outlier. These requests frequently result in the sponsor gaining a better understanding of our requirements and promote program improvement.

Comment:

There were a few comments on the validity of current analyses performed by CMS. Some commenters discussed their observation that the findings resulting from some of CMS' outlier analyses methodology may penalize some organizations unfairly because—(1) the underlying data on which the analysis was based was flawed; or (2) analyses based on self-reported data may indicate that one sponsor is reporting data more accurately data than its peers. A commenter noted that the compliance letters that result from outlier analysis come months after the data has been collected and that there is little opportunity for an organization to correct its performance. A few commenters requested that CMS give sponsors the opportunity to appeal or explain the outlier status to CMS.

Response:

We are always open to information and feedback from sponsors on our analyses and make corrections to our compliance determinations where the new information supports such a step. We also note that we are developing requirements concerning sponsors submitting audited data to address the concerns about data accuracy that the commenters raise.

Comment:

One commenter believed that the annual audits and the outlier analyses appear to be duplicative.

Response:

We use audits, outlier analysis, and other methods to ensure compliance with program requirements and to help identify potential compliance problems. Audits and outliers analyses are two distinct monitoring methods that utilize different sources of information and apply different types of analyses to evaluate sponsors' compliance with program requirements. Audits represent an in-depth review of selected sponsor's documentation related to the operation of their Medicare contracts. Outlier analysis, by contrast, consists of an agency review of performance data (generated by CMS or the sponsor) across all contracting organizations which results in the identification of potential noncompliance and the need for further investigation.

5. Compliance Programs Under Parts C and D (§ 422.503(b)(4)(vi) and § 423.504(b)(4)(vi))

In the October 2009 proposed rule, we proposed to modify the language at § 422.503(b)(4)(vi) and § 423.504(b)(4)(vi) to explicitly provide clarification as to what constitutes an “effective” compliance program. We also proposed clarifying language for each of the required elements of an effective compliance program in order to assist sponsoring organizations with implementing more effective compliance programs and to more clearly articulate our expectations.

We proposed to add language to the first element at § 422.503(b)(4)(vi)(A) and § 423.504(b)(4)(vi)(A) to require that written policies and procedures must describe a commitment to comply with all Federal and State standards, compliance expectations as embodied in the standards of conduct, implement the operations of the compliance program, provide guidance to others, identify how to communicate compliance issues to compliance personnel, describe how compliance issues are investigated and resolved and include a policy of non-intimidation and non-retaliation.

The second element requires a sponsoring organization to have a compliance officer and committee accountable to senior management. We proposed to add language at § 422.503(b)(4)(vi)(B) and § 423.504(b)(4)(vi)(B) that the

compliance officer must be employed by the sponsoring organization, and the compliance officer and committee must periodically report directly to the governing body and that body must be knowledgeable about the compliance program and exercise reasonable oversight over the implementation and effectiveness of the program.

The third element requires the sponsoring organization to have an effective training and education program. We proposed to add language at § 422.503(b)(4)(vi)(C) and § 423.504(b)(4)(vi)(C) to specify several key groups and individuals (the chief executive or other senior administrator, managers, and governing body members) among the sponsoring organization's employees who are required to have compliance training and education. We also proposed to add language that this training must occur at a minimum annually and must be made a part of the orientation for a new employee, new first tier, downstream and related entities, and new appointments of a chief executive, manager, or governing body member. The required compliance training must include training regarding the prevention and detection of fraud, waste and abuse. We proposed to add that providers who have met the requirement for fraud, waste and abuse training and education through enrollment into the Medicare program are deemed to have met that portion of the training and education requirement.

We noted that, in some instances, a particular pharmacy or other provider may contract with dozens of MA or PDP plans, each of which is required by the existing language at § 422.503(b)(4)(vi)(C) and § 423.504(b)(4)(vi)(C), read literally, to provide the required fraud, waste and abuse prevention and detection training to the pharmacy, or other provider, and its staff. Since we did not intend to require duplicative training, we offered two options in our proposed rule. One option was that the sponsoring organization “assures” or “obtains an assurance” that the first tier, downstream, and related entity has received such training. Another option was to leave existing language unchanged, but issue interpretive guidance on this point. We requested workable suggestions to assure that our objective is met, while eliminating unnecessary duplication.

The fourth element requires a sponsoring organization to have effective lines of communication. We proposed to add language at § 422.503(b)(4)(vi)(D) and § 423.504(b)(4)(vi)(D) that requires that these lines of communication be confidential and accessible to all employees and allow for compliance issues to be reported anonymously and in good faith as issues are identified.

The fifth element requires a sponsoring organization to enforce standards through well-publicized disciplinary guidelines. We proposed to add language at § 422.503(b)(4)(vi)(E) and § 423.504(b)(4)(vi)(E) that more specifically described that these guidelines must be implemented to include policies that articulate expectations for reporting issues and their resolution, identify noncompliance or unethical behavior, and provide for timely, consistent and effective enforcement of the standards when noncompliance or unethical behavior is detected.

The sixth element requires a sponsoring organization to have procedures for internal monitoring and auditing. We proposed to add language at § 422.503(b)(4)(vi)(F) and § 423.504(b)(4)(vi)(F) to more specifically describe that an effective system for routine monitoring and identification of compliance risks includes internal monitoring and audits and, as appropriate, external audits, in order to evaluate the sponsoring organization's compliance with our requirements and overall effectiveness of the compliance program. We also proposed to add language that these audits should include the sponsoring organization's first tier entities.

The seventh element requires a sponsoring organization to have procedures for ensuring prompt responses to detected offenses. We proposed to add language at § 422.503(b)(4)(vi)(G) and § 423.504(b)(4)(vi)(G) to more specifically describe the implementation of a system for promptly responding to compliance issues as they are raised, investigating potential compliance problems identified in the course of self-evaluations and audits, correcting such problems promptly and thoroughly to reduce the potential for recurrence and ensuring ongoing compliance with our requirements.

We are adopting all of these proposed changes into the final rule without further modification with the exception of changes made to § 422.502(b)(4)(vi)(B), § 423.504(b)(4)(vi)(B) and § 423.504(b)(4)(vi)(C), to provide that the compliance officer must be an employee of the sponsoring organization, parent organization or corporate affiliate and clarify that he or she may not be an employee of a first tier, downstream or related entity of the sponsoring organization and must be accountable to the governing board of the sponsoring organization. In addition, at § 423.504(b)(4)(vi)(C)(3), we adopt a new regulation for the Part D program to specify that first tier, downstream, and related entities that have met the fraud, waste, and abuse certification requirements through enrollment into the fee-for-service Medicare program and accreditation as a durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier are deemed to have met the fraud, waste and abuse training and educational requirements.

We received the following comments on the first element, which requires written policies and procedures:

Comment:

Two commenters raised concerns about the resources necessary to satisfy our requirements related to written policies and procedures. One commenter stated that sponsoring organizations are currently spending significant time and resources drafting and redrafting policies and procedures and are still uncertain if these policies and procedures will cover the items we expect to be covered in requisite detail. Both commenters suggested that we release our audit worksheets which outline CMS's expectations for the contents of policies and procedures, which would allow sponsoring organizations to tailor their policies and procedures accordingly. Additionally, one commenter suggested that CMS should not be dictating the scope or components of such policies and disagreed with our inclusion of more “prescriptive standards” into the regulatory text and alternatively suggested that certain requirements be issued through subregulatory guidance.

Response:

Our proposals are intended to significantly strengthen our oversight of compliance programs, and provide more specificity and clarity to sponsoring organizations with regard to what we expect to see when we review a compliance program. We believe the proposals we have made are important changes and are necessary to maintain consistency and promote appropriate focus on these requirements and that going through the rulemaking process is the best way to promote these goals. We also believe that the proposed changes to the first element provide important information as to what we consider a framework for an effective compliance program. We do not intend to be prescriptive as to the choice of particular processes or procedures, only to provide the minimum amount of information we would expect to see in a comprehensive set of written policies,

procedures and standards of conduct. With respect to the comment regarding releasing audit materials, we must balance the goals of transparency regarding our audit program with the goals of conducting an effective evaluation of whether organizations have in fact instituted effective compliance programs (and not just “paper” compliance programs). To the extent that sponsoring organizations are looking to tailor their policies and procedures for compliance programs to materials released by us, they should be looking to our regulations, including the changes made by this final rule, and any subregulatory guidance issued by CMS, and not documents related to our audit program, as these may only be a subset of CMS' larger set of requirements.

We received the following comments regarding our proposed revisions to the second element, which addresses the designation of a compliance officer and a compliance committee who report directly to the organization's chief executive or other senior management:

Comment:

Commenters expressed concern with CMS' proposal to require that the compliance officer, vested with day to day operations of the compliance program, be an employee of the sponsoring organization. Commenters recommended that CMS broaden this portion of the provision to permit the compliance officer to be employed by the sponsoring organization or an affiliate in its corporate group. These commenters indicated that “the entity who employs the compliance officer is a corporate structure issue that may have no effect or bearing on the issues of accountability and oversight.” One commenter further insisted that in instances when related entities are MA organizations and PDP sponsors who hold separate contracts with CMS, having one centralized compliance officer is not only effective and efficient, but it also promotes consistency with respect to the implementation of the compliance program across the contracting entities. Several commenters also stated that having the compliance officer at a parent or affiliated group level would not lessen the accountability of the compliance officer with respect to each entity.

Response:

We agree that having a compliance officer being employed at a parent company or corporate affiliate may not necessarily lessen the accountability of the compliance officer to the governing body of the sponsoring organization. Our proposal was intended to provide further clarity on how sponsoring organizations can meet the key requirement of having a compliance officer and compliance committee that is accountable to the governing body of the sponsoring organization. We have issued extensive subregulatory guidance on this issue, both in the 2007 call letter and in Chapter 9 of the Medicare Prescription Drug Benefit Manual (“Chapter 9”). This guidance was issued in part in response to us learning that sponsoring organizations were subcontracting the compliance officer function to their first tier, downstream and related entities. We do not view subcontracting that function as an acceptable alternative for a number of reasons, including the potential for conflicts of interest that would exist by virtue of the compliance function residing in a subcontracted entity that is being paid by the entity whose compliance the subcontractor is charged with monitoring. As a result of the comments received, we are modifying the language in this final rule to provide that the compliance officer must be an employee of the sponsoring organization, parent organization or corporate affiliate and to provide that the compliance officer may not be an employee of a first tier, downstream or related entity of the sponsoring organization.

Comment:

Proposed sections § 422.503(b)(4)(vi)(B)(2) and § 423.504(b)(4)(vi)(B)(2) specify that the compliance officer and committee must periodically report to the governing body of the sponsoring organization on the activities and status of the compliance program. One commenter emphatically supported CMS' proposal to strengthen the compliance program by increasing the requirements with respect to interaction with the executive leadership and board members. One commenter recommended that CMS revise the language of this provision to state that the compliance officer and committee, “or their delegate”, report directly to the governing body. Lastly, one commenter stated that although they supported CMS' goal of ensuring sponsoring organizations' senior leadership and governing body are informed of key developments, the commenter opposed CMS dictating internal reporting obligations and reporting structures.

Response:

We disagree with the suggestion to add “or their delegate” to the language at § 422.503 (b)(4)(vi)(B)(2) and § 423.504(b)(4)(vi)(B)(2), which would expand the scope of individuals who could provide periodic reports to the governing body of the sponsoring organization. The purpose of this provision is to ensure communication between the compliance officer, committee and the governing board. We do not intend that this reporting responsibility be delegated to someone other than the compliance officer as that would defeat the purpose of the proposed provision. Therefore, we will not be incorporating the commenter's suggested change into the final rule.

We also do not believe that the proposed regulatory language in this section results in CMS dictating to MA organizations and Part D sponsors their internal reporting obligations and reporting structures. The proposed language does not specify the means or manner in which the report should be communicated to the governing body, nor does it provide specific requirements as to how often such reports are made.

We received the following comments concerning our proposed changes to the third compliance program element, which—(1) states that sponsoring organizations must establish and implement effective training and education between the compliance officer and the sponsoring organization's employees, governing board, first tier, downstream and related entities; (2) specifies that this training and education must occur at a minimum annually and must be made a part of new employee orientation; and (3) provides deeming of fraud, waste and abuse educational requirements to first tier, downstream and related entities who have met the fraud, waste and abuse certification requirements though Medicare program enrollment:

Comment:

Some commenters stated that organizations should have the flexibility to modify and tailor the training for the governing body so that it is not a replication of the training needed for front line staff, and expressed specific concern with CMS requiring training of the governing body annually. Additionally, several commenters stated that requiring sponsoring organizations to conduct compliance training at new employee orientations and annually thereafter is administratively and financially burdensome, and may even result in organizations having to conduct such training on a weekly basis. Commenters made numerous recommendations, including providing sponsoring organizations with flexibility in determining the appropriate level and timing of training depending on the audience; modifying the education and training requirements to apply to only those involved in the administration of the Medicare Advantage and Part D lines of business within the organization; clarifying that the annual education and training requirement is limited to general compliance training, and does not include the specialized

training that sponsoring organizations have to implement in accordance with Chapter 9; and the suggestion that CMS develop a Web-based compliance training tool or certify an independent industry entity to provide consistent and efficient compliance training; and finally, providing additional clarification on the required training for downstream entities.

Response:

We believe that the proposed regulatory language allows organizations the flexibility to tailor the content of the training and many aspects of how the training is provided. We have not specified the manner in which the training would be provided at new employee orientations, or to senior leadership or members of the governing body upon their appointment to these positions. Organizations can decide to provide new employees with a copy of the organization's compliance policies and procedures and ask new employees to attest that they have been provided with a copy and have read the material. We do not believe that such a requirement is overly burdensome or difficult for sponsoring organizations to implement.

We also do not believe that it is appropriate to clarify in regulation text that we are referring to general versus specific compliance training, as discussed in Chapter 9. The proposed language makes no reference to the training being specialized and we believe that the regulatory language should be left general as the level of training and education will vary depending on the level and responsibilities of the person receiving the training. We believe that the proposal is sufficiently clear in its description of what is expected of the sponsoring organization in the implementation of its compliance training and education program and the requirements are reasonable. If we determine in the future that further guidance is necessary, we will issue subregulatory guidance.

Lastly, in response to those commenters who suggested that CMS develop a Web-based compliance training tool, we have determined that additional analysis needs to be undertaken and additional information sought before providing guidance on how training of first tier, downstream, and related entities is to be provided and the content managed. Additional clarification will be issued in subregulatory guidance.

Comment:

Some commenters stated that requiring sponsoring organizations to conduct compliance training for all delegated entities (first tier, downstream and/or related) or insuring that all delegated entities conduct such training on their own imposes a significant burden on sponsoring organizations.

Response:

In response to those commenters who stated that requiring that first tier, downstream and related entities to receive compliance training is overly burdensome, we would like to reiterate that this is an existing requirement, not a proposed new requirement. We agree that duplicative training is inefficient and we believe that commenters have offered valuable suggestions. After reviewing these comments and recommendations, we have determined that additional analysis needs to be undertaken and additional information sought before providing guidance on how training of first tier, downstream, and related entities is to be provided and the content managed. Additional clarification will be issued in subregulatory guidance.

Comment:

Commenters also suggested striking the word “effective” from the language of this section which specifies that the sponsoring organization must establish, implement and provide “effective” training and education. Alternatively the commenter requested that CMS at least clarify how we would determine if training were “effective” and clarify CMS' definition of sufficient oversight.

Response:

The use of the term “effective” is existing regulatory language and has already gone through notice and comment rulemaking. “Effective” is not a new requirement, therefore, we do not believe it is necessary to remove the word “effective” from this regulatory provision.

Comment:

Commenters suggested that CMS consider revising the requirement that fraud, waste, and abuse training and education occur at least annually and be a part of the orientation for a new employee, new first tier, downstream and related entities, and new appointments to chief executive, manager or governing body member. Commenters believe that CMS should require that training only at the time of initial hire or when there are significant changes in the laws and regulations related to fraud, waste, and abuse.

Response:

We disagree and believe that annual training is a necessary component of an effective compliance program that addresses the detection, correction, and prevention of fraud, waste, and abuse in the MA and Part D programs. The intent of this regulation is to codify the existing CMS expectation that fraud, waste and abuse training be provided at a minimum on an annual basis, which is contained in Chapter 9 of the Prescription Drug Benefit Manual (Part D Program to Control 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 (prescription drug plan) sponsors. In previous guidance, we have directed MA organizations to apply the provisions of Chapter 9 to Part C (Medicare Advantage) programs as well. We are in the process of updating this document to specifically address any particular Part C measures for detecting and preventing fraud, waste, and abuse.

Comment:

Several commenters expressed support for our proposed revisions to § 422.503 (b)(4)(vi)(C)(2), which clarify that first tier, downstream, and related entities who have met the fraud, waste, and abuse certification requirements through enrollment into the fee-for-service Medicare program are deemed to have met the training and educational requirements for fraud, waste, and abuse under this rule. One commenter disagreed with the proposed revision.

Response:

We believe that the proposed regulatory language eliminates redundant certification made when these entities enroll in the Medicare program. We also wish to clarify that the reference to deeming in this regulation is distinct from the MA deeming and accreditation program described at § 422.156, § 422.157, and § 422.158.

Comment:

A number of commenters recommended that CMS extend the regulatory change proposed for the Part C program at § 422.503(b)(4)(vi)(C) to the Part D program at § 423.504(b)(4)(vi)(C). The commenters noted that Part D first tier, downstream, and related entities that have enrolled in the Medicare program as a supplier of Part B covered medications or as a supplier of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) go through the same application and certification process as MA providers. They contend that including Part D providers in this deeming would ensure the requirements for Part D sponsors will be identical to those for MA organizations and would reduce unnecessary additional burden.

Response:

We agree with the commenters and have adopted a new regulation for the Part D program at § 423.504(b)(4)(vi)(C)(3) to specify that first tier, downstream, and related entities who have met the fraud, waste, and abuse certification requirements through enrollment into the Medicare program accreditation as a DMEPOS supplier are deemed to have met the

training and educational requirements for fraud, waste, and abuse training. We wish to clarify that the reference to deeming in this regulation is distinct from the Part D deeming and accreditation program described at § 423.165, § 423.168, and § 423.171.

We received the following responses to our request for comments on whether or how to best revise the requirement that first tier, downstream, and related entities receive training in how to prevent and identify fraud, waste, and abuse to address the issue of duplication of training for providers or entities that contract with multiple MA organizations or Part D sponsors:

Comment:

Several commenters recommended requiring MA organizations and Part D sponsors to create training materials or approve first tier, downstream, and related entity-created materials and require attestations that the training was provided to all appropriate parties. These commenters noted that in order to avoid duplicative training, all sponsoring organizations would be required to accept attestations from their first tier, downstream, and related entities that they completed training provided by any other sponsoring organization in order to fulfill this requirement. Commenters also suggested that another option to ensure consistent training content and minimize duplication is for CMS to create a standardized training and require all sponsoring organizations to use it for training their first tier, downstream, and related entities. Commenters also recommended that CMS permit first tier, downstream, and related entities to create and implement their own training programs and attest to their contracting MA organizations and/or Part D sponsors that they have fulfilled the training requirement.

Response:

We believe the commenters have offered valuable suggestions. After reviewing these comments and recommendations, we have determined that additional analysis needs to be undertaken and additional information sought before providing guidance on how training of first tier, downstream, and related entities is to be provided and the content managed. Additional clarification will be issued in subregulatory guidance.

Comment:

A few commenters requested that CMS provide more specificity regarding which entities must complete fraud, waste, and abuse training. These commenters believe that CMS should limit the training requirement for first tier, downstream and related entities to only staff of those entities that are involved in patient care and/or claims submission, and should not require administrative or retail clerk/cashier staff to complete the training.

Response:

The requirement for fraud, waste, and abuse training applies to all MA organization and Part D sponsor employees (including chief executive or other senior administrator, managers and governing body members) and first tier, downstream and related entities. We will issue additional clarification in subregulatory guidance.

The fourth element requires a sponsoring organization to have effective lines of communication. We did not receive comments regarding this element.

We received the following comment concerning the proposed revisions to the fifth compliance program element which details a sponsoring organization's obligation to ensure its compliance program has well publicized disciplinary standards.

Comment:

The commenter requested that CMS provide guidance regarding its expectations as to sponsoring organization's enforcement of disciplinary standards, and asked for clarification as to whether a policy identifying the different types of disciplinary actions a sponsoring organization may impose would be sufficient to meet the requirement.

Response:

We believe that our proposal is sufficiently detailed to provide sponsoring organizations with necessary guidance on how to implement an effective compliance program.

We received the following comment regarding the proposed revisions to the sixth compliance program element concerning requirements for sponsoring organizations monitoring and identification of compliance risks.

Comment

A commenter requested that CMS specify that its reference to external audits, especially of first tier entities, does not require sponsoring organizations to hire an independent, external auditor to perform this function but rather that sponsoring organizations may undertake the auditing of these contractors through their internal audit units.

Response:

Our expectation, when referring to a sponsoring organization conducting an external audit of itself or a first tier entity, was that that sponsoring organization would utilize an auditor who is external of both the sponsoring organization and the first tier entity being audited.

Comment:

A commenter recommended that CMS share its preamble language that further defines the expectations for an effective compliance program with other areas of the Federal government, such as the Department of Defense, so that all government contractors will have the same compliance program expectations.

Response:

We believe that this comment is outside the scope of this regulation.

The seventh element requires a sponsoring organization to have procedures for ensuring prompt responses to detected offenses. We did not receive comments regarding this element.

6. Network Adequacy of Coordinated Care and Network-Based Private Fee-for-Service Plans Under Part C (§ 422.112)

In the October 22, 2009 proposed rule (74 FR 54644), we requested comments on proposed criteria for determining whether an MA plan network meets the network availability and accessibility requirement in section 1852(d)(1) of the Act. As we discussed in the proposed rule, we have developed an automated system for reviewing network adequacy on a continuing basis based on the elements that we have determined reasonably reflect community patterns of health care delivery. As we noted in the proposed rule, our operational experience has demonstrated that the concept of community patterns of health care delivery provides a useful benchmark for measuring a proposed provider network, because it allows for varying geographical and regional conditions to be taken into consideration in determining what constitutes “reasonable” access in a given area.

In the proposed rule, we described the elements of community patterns of health care delivery that we proposed to include in our evaluations of provider networks, and stated that our goal was to make the standard of community patterns of care more transparent and consistent across the country. Specifically, we proposed adding a new paragraph (a)(10) to § 422.112 to specify the factors comprising community patterns of health care delivery that we would use as a benchmark in evaluating a proposed MA plan health care delivery network. Under proposed § 422.112(a)(10), these factors would include, but not be limited to—

• The number and geographical distribution of eligible health care providers available to potentially contract with an MAO to furnish plan covered services within the proposed service area of the MA plans;

• The prevailing market conditions in the service area of the MA plan—specifically, the number and distribution of health care providers

contracting with other health care plans (both commercial and Medicare) operating in the service area of the plan;

• Whether the service area is comprised of rural or urban areas or some combination of the two;

• Whether the MA plan's proposed provider network meets Medicare time and distance standards for member access to health care providers including specialties; and

• Other factors that we determine to be relevant in setting a standard for an acceptable health care delivery network in a particular service area.

We proposed providing more detail about how we would operationalize these requirements through subregulatory guidance (for example, the annual Call Letter). We solicited comment on whether our proposed regulatory provisions are sufficiently clear and whether clarification should be provided through regulation or subregulatory guidance, such as the annual Call Letter.

After considering all the timely comments we received on our proposal, we are adopting § 422.112(a)(10) without modification in this final rule.

Comment:

Many commenters expressed concern that the proposed CMS approach to evaluating network adequacy based on community patterns of care would be too limiting, and would not allow organizations sufficient flexibility to develop networks in rural areas or areas with unique conditions. Several commenters were concerned that CMS' interpretation of what constitutes community patterns of care would result in an approach that would not adequately take into account special plan-specific factors, such as the size of a plan or the quality of its providers. Also, a number of commenters were concerned that unique characteristics of a particular community, such as provider willingness to contract, would not be captured in the CMS network adequacy standards. One commenter expressed concern that the proposed requirements for network adequacy appear to encourage a fee-for-service and fragmented care model based on geographic access rather than a defined network of high quality primary care practices, supported by a limited network of sub-specialists. One commenter was concerned that CMS would only use the prevailing community standard of care to evaluate network adequacy, citing as an example a plan with a network that did not meet the prevailing community standard of care but was nevertheless adequate or even better in terms of the access it actually provides health care services to enrollees.

Response:

In developing standards for network adequacy we chose the overarching principle of community patterns of care because it is a robust model that allows CMS the necessary flexibility to develop standards that can be adapted to the significant variations that exist in health care delivery in the United States. Our proposed regulation outlined the broad elements that we have found from years of experience to be relevant in evaluating a particular community pattern of care. However, we are cognizant of the fact that there exist a number of unique local circumstances related to such factors as geography, market conditions, and provider availability. Accordingly, this final rule codifies an approach to determining network adequacy that builds on our experience with evaluating health plan provider networks but is also flexible enough to adapt to evolving and unique local market conditions. The automated process we have established to assess network adequacy is likely to be refined as we gain more experience, and maintaining flexibility in our regulatory requirements for network adequacy supports this goal. We also note that the automated system we are using does not specify the providers with which a plan contracts. Rather, it furnishes a benchmark so we can determine if a plan's provider network is adequate given the availability of providers in the area where the plan is being offered and the expected enrollment in the plan. In other words, our standards address the relative size and scope of an acceptable MA provider network given the community patterns of care. However, MA plans still have discretion to select the providers they contract with as long as that network is adequate to meet the health care needs of its enrollees. In addition, we will have an exceptions process by which plans can highlight special circumstances that affect their ability to meet our access standards.

Comment:

Many commenters had very detailed, specific questions about our automated system for assessing network adequacy, and much of this feedback has already been provided to CMS through other mechanisms. For example, one commenter asked for certain adjustments to the ratio of providers to beneficiaries. Other comments questioned how CMS would implement various features of network adequacy and whether they would be codified in regulations text.

Response:

As noted previously, we have developed and implemented automated systems to evaluate the network adequacy of MA plans. As part of that implementation, we have provided considerable subregulatory guidance regarding implementation of community patterns of care through this automated process. An example of this subregulatory guidance is the provision of time and distance standards (available on the CMS Web site) by category of health care provider for a number of rural and metropolitan counties throughout the United States. Because we did not propose to incorporate the technical specifics of our automated system into regulation text, we believe it is most appropriate to address specific technical suggestions in the context of implementing and fine-tuning the automated network adequacy system.

Comment:

Several commenters expressed concern about how CMS would implement time and distance standards for determining network access. One commenter asked that CMS be mindful of the impact of imposing time and distance standards equally among different types of providers. One commenter stated that the prevailing 30 minute/30 mile access to services standards need to be fine-tuned specifically for urban, rural, and other medically underserved areas. Other comments included recommendations to establish separate and distinct network adequacy standards for Parts A and Part B services, as well as standard for measuring network adequacy in rural areas for services that are only in hospitals.

Response:

As noted in the October 22, 2009 proposed rule, we have historically used the 30 minute/30 mile access to services as a rough standard for evaluating provider networks. However, we agree that this standard is not sufficiently nuanced to stand on its own, and does not fully address our needs. Our operational experience has demonstrated that the concept of community patterns of health care delivery furnishes a more useful benchmark for measuring a proposed provider network because it allows for varying geographical and regional conditions to be taken into consideration.

Comment:

One commenter asked CMS to consider Medicaid provider networks as part of the assessment of network adequacy for dual eligible integrated products. This commenter also suggested comparing contracting rates across plans serving duals as an additional measure of network adequacy. In addition, the commenter suggested that a comparison of the plan's provider availability to those actually open to new Original Medicare enrollees might indicate the value of the plan to potential enrollees. Another

commenter asked that CMS include in its regulation defining network adequacy the following factors derived from the Medicaid access standards under § 438.206: (1) The mode of transportation used by Medicare beneficiaries, particularly those who are dually eligible and those who rely on transportation for the disabled; (2) whether the location furnishes physical access for enrollees with disabilities; and (3) delivery of services in a culturally competent manner.

Response:

We recognize that special needs plans (SNPs) that specifically serve the dual eligible population have unique requirements. It is for that reason that in 2011, SNPs that exclusively serve the dual eligible population will be required to have contracts with State Medicaid agencies where they operate. While transportation is not a Medicare covered benefit, it is our expectation that MA plans' facilities are available and accessible to plan enrollees.

7. Deemable Program Requirements Under Parts C and D (§ 422.156(b)(7), § 422.156(f), § 423.165(b), and § 423.165(f))

In the October 2009 proposed rule, we proposed to clarify what regulatory requirements are “deemable” for MA organizations that offer prescription drug benefit programs by modifying the language at § 422.156(b)(7) to refer to the list of deemable requirements for Part D sponsors set out at § 423.165(b)(1) through (b)(3). In addition, we proposed modification to § 422.156(f) and § 423.165(f) to add language clarifying that CMS may use its statutory authority to impose intermediate sanctions and civil money penalties (CMPs), initiate contract terminations, and perform evaluations and audits of a sponsoring organization's records, facilities and operations, notwithstanding our deeming provisions. We also proposed to remove language at § 423.165(b)(4) regarding programs to protect against fraud, waste and abuse from the items listed as deemable program requirements. After considering the comments we received in response to these proposals, we are adopting all of these proposals without further modification into this final rule.

Comment:

One commenter asked if CMS will create an avenue for accrediting organizations who are currently approved under the Medicare Advantage program to apply for deeming under the Prescription Drug program.

Response:

Our proposal did not address the process for becoming an accrediting organization. Any organization that wishes to be an accrediting organization for the Medicare Prescription Drug program must first apply and be approved by CMS in accordance with existing requirements.

Comment:

One commenter asked if we will define possible roles and responsibilities for accrediting organizations under the revised Part D monitoring and oversight audit program.

Response:

Our proposal did not address the Part D accrediting process and we do not intend to address this process in this final rule. We will evaluate whether or not there is a need to release more detailed information in the future through subregulatory guidance or other appropriate means.

Comment:

One commenter indicated that Part D plan sponsors have not been given information on accrediting organizations that could grant plans deemed status for Part D. The commenter further recommended that there be an opportunity to work with us to identify accredited organizations for pharmacy benefit manager operations in order to simplify the audit process.

Response:

Our proposal did not address the Part D accrediting process and we do not intend to address this process in this final rule. However, as of the date of the publication of this regulation, CMS has not approved any accrediting organizations to grant deemed status for Part D sponsors. We will evaluate whether or not there is a need to release more detailed information in the future through subregulatory guidance or other appropriate means.

Comment:

We received a few comments indicating that the regulatory provisions provided in this section should be further clarified either through rulemaking or subregulatory guidance.

Response:

We will evaluate whether or not there is a need to release more detailed information in the future through subregulatory guidance or other appropriate means.

Comment:

One commenter suggested that we provide clarification on the criteria we would use to determine whether to perform evaluations, conduct audits, or impose sanctions or civil money penalties relative to a sponsoring organization's compliance with deemable requirements.

Response:

Our proposal did not intend to modify or affect the manner in which CMS conducts compliance evaluations, audits or the process for imposing intermediate sanctions. These processes are not directly affected by whether the underlying subject of the deficiency is a deemable requirement.

Comment:

One commenter encouraged us to consider adding additional deemable requirements based on differences between the Part D program and the Part C program.

Response:

We have been granted limited statutory authority regarding what specific requirements are deemable. Our proposals reflect our current statutory authority.

Comment:

One commenter requested that since the fraud, waste and abuse program was being removed as a deemable requirement we consider allowing “certification” from an external qualified source to serve in the deeming capacity.

Response:

We have been granted limited statutory authority regarding what specific requirements are deemable. We proposed modifications to our regulations to mirror our current statutory authority. To the extent the commenter is proposing that CMS consider ways of assessing an organization's compliance with fraud, waste, and abuse requirements that suggestion would be outside the scope of this proposal.

8. Modify the Corrective Action Plan (CAP) Process as It Relates to Procedures for Termination and Nonrenewal of a Part C or D Contract by CMS (§ 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1))

In the October 2009 proposed rule, we proposed eliminating the existing language contained in regulations at § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1) that require corrective action plans (CAPs) to be submitted for our approval prior to us issuing a notice of intent to terminate or nonrenew a contract. Instead, we proposed that the sponsoring organization be solely responsible for the identification, development, and implementation of its CAP and for demonstrating to us that the underlying deficiencies have been corrected within the time period afforded under the notice and opportunity for corrective action.

We also proposed amending the existing language at § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1) which sets forth the specific timeframes afforded sponsoring organizations for the development and implementation of a CAP prior to CMS issuing a notice of intent to terminate or nonrenew. Specifically, we proposed to afford sponsoring organizations with at least 30 calendar days to develop and implement a CAP, prior to issuing the notice of intent to terminate or nonrenew. CMS is adopting the proposed language into the final rule

with a few technical changes to § 422.506(b)(3)(i) and (ii), § 422.510(c)(1)(i) and (ii), § 423.507(b)(3)(i) and (ii), and § 423.509(c)(1)(i) & (ii). First, we are deleting the phrase “that formed the basis for the determination to non-renew the contract” from the proposed revised regulations governing non-renewals at § 422.506(b)(3)(i) and § 423.507(b)(3)(i) and deleting the phrase “that formed the basis for the determination to terminate the contract” from the proposed revised regulations governing terminations at § 422.510(c)(1)(i) and § 422.509(c)(1)(i). The reason for this revision is that, upon further consideration, we have concluded that this language is superfluous and has the potential to cause confusion concerning when CMS must provide notice and reasonable opportunity to correct deficiencies.

Next, we are modifying § 422.506(b)(3)(i), § 423.507(b)(3)(i), § 422.510(c)(1)(i), § 423.509(c)(1)(i) to state that CMS will provide the sponsoring organization a “reasonable opportunity” of “at least 30 calendar days” to develop and implement a corrective action plan. This modification made the propose provision at § 422.506(b)(3)(ii), § 423.507(b)(3)(ii), § 422.510(c)(1)(ii), and § 423.509(c)(1)(i) duplicative and unnecessary, therefore we are deleting that provision.

These revisions do not alter the meaning and purpose of the proposed revised regulations and are strictly editorial changes.

Comment:

We received numerous comments regarding our proposal to modify the overall approach and timeframe sponsoring organizations are afforded for developing and implementing a CAP prior to CMS issuing a notice of intent to terminate or nonrenew. Although almost all commenters were supportive of CMS' proposal to move to an outcome oriented approach for reviewing CAPs, some commenters believe that 30 days is not enough time for sponsoring organizations to develop and implement a CAP. Commenters provided several reasons to support this concern, including the fact that CAPs may involve complex and time consuming programming or modification of systems and that the proposed change could result in sponsoring organizations pursuing a more cursory or manual remediation rather than a fuller remediation. Other commenters recommended that rather than specifying a time period, CMS and sponsoring organizations should mutually agree on a time period that is best for completing a CAP. A few commenters expressed that 30 days was more than enough time to correct deficiencies and that the regulations need to state more clearly that the corrective action should be completed within the same 30-day period.

Response:

Our proposal specifically stated that the time period afforded sponsoring organizations would be “at least” 30 days, thereby proposing the minimum amount of time that CMS would afford a sponsoring organization to develop and implement a CAP. We believe our proposal is reasonable and accounts for those situations where we determine that longer periods of time are warranted to demonstrate correction (for example, when corrections must be made to electronic information systems). Our proposal does not intend to limit the development and implementation of a CAP to 30 days in all cases because we agree that there are some deficiencies of a complex or technical nature that may require additional time to rectify.

Comment:

A few commenters requested that CMS clarify how it will determine if a sponsoring organization has attained compliance (for example, what are CMS' expectations and what supporting documents would we require in such situations to demonstrate compliance).

Response:

Our proposal to change to an outcome based approach is not making modifications in the current methodologies for assessing whether an entity is in (or out of) compliance with our requirements. For example, CMS currently conducts validation activities based on account management data and information, audit results, beneficiary complaints, sponsoring organization reporting requirements and performance data indicators to determine whether a sponsoring organization is in compliance with our requirements. We will continue to determine if the sponsoring organization in is in compliance with our statutory, regulatory and program requirements by utilizing these kinds of monitoring and oversight measures. The proposed language is only clarifying that for non-renewal and termination actions, we will not be requiring the sponsoring organization to submit its corrective action plans for approval by us, but instead the sponsoring organization must submit proof that identified deficiencies have been corrected.

Comment:

One commenter suggested that if CMS retains the authority to reject a CAP based on the process used to fix the deficiency, the sponsoring organization should be allowed to submit its CAP to CMS for approval, and if not disapproved by CMS within a specified period, assume that the CAP is approved from a process perspective.

Response:

The commenter has misunderstood our proposal. We are proposing to modify the current CAP process to be entirely outcome oriented and we will no longer be requiring sponsoring organizations to submit corrective action plans for approval (that is, the process for how the plan goes about correcting its deficiencies will not be approved or disapproved by CMS). Rather, the process will be independently developed and implemented by the sponsoring organization and our focus will be on determining whether the deficiencies/problems that created the need for the CAP have been corrected.

Comment:

A commenter requested that CMS not apply the 30-day CAP timeframe to “routine or ad-hoc audits.”

Response:

The procedures governing the corrective action plan process associated with routine or ad-hoc audits are not specified in regulation. To the extent, however, that we would initiate a termination or nonrenewal action against a sponsoring organization based on a routine or ad-hoc audit CAP, we would follow the procedures outlined in this regulation.

Comment:

A commenter recommended that sponsoring organizations, which are currently under a CAP, be allowed to engage the services of an independent auditor to evaluate whether the sponsoring organization is in compliance with CMS' requirements.

Response:

Our proposed language was not intended to prevent a sponsoring organization from taking the initiative to use an independent auditor to help identify and correct underlying compliance deficiencies.

9. Procedures for Imposing Intermediate Sanctions and Civil Money Penalties Under Parts C and D (§ 422.756 and § 423.756)

In the October 2009 proposed rule, we proposed two changes to the regulations to provide additional tools to assist us in making the determination to lift an intermediate sanction as stated in § 422.756(d)(3) and § 423.756(d)(3). First, we proposed providing CMS with the discretion to require a sponsoring organization, under an intermediate sanction, to hire an independent auditor to provide us with additional information that we will use to determine if the deficiencies upon which the sanction is based have actually been corrected and are not likely to recur. We also proposed an alternative proposal in which we would

grant sponsoring organizations the discretion to hire an independent auditor to evaluate the sponsoring organization's compliance with our requirements and would afford the results of the independent auditor's review some weight in our determination of whether the bases for the sanction have been corrected and are not likely to recur. After considering the comments we received in response to this proposal, we are adopting the proposal without modification, which provides CMS with the discretion to require a sponsoring organization, under an intermediate sanction, to hire an independent auditor.

Second, we proposed changes to § 422.756(d)(3) and § 423.756(d)(3) to provide CMS with the discretion to require a sponsoring organization, subject to a marketing and enrollment sanction, to go through a test period during which the organization could market and accept enrollments for a limited time in order for us to determine if the sponsoring organization's deficiencies have been corrected and are not likely to recur. Additionally, we proposed to revise these provisions to provide that following the test period, if we determine the deficiencies that formed the basis for the sanction have not been corrected and are likely to recur, the intermediate sanction will remain in effect until such time that we are assured the deficiencies have been corrected and are not likely to recur. The sponsoring organization, in these instances, would not have a right to a hearing to challenge our determination to keep the sanction in effect. We are finalizing this proposal without modification.

We also proposed deleting existing provisions at § 422.756(c) and § 423.756(c) because these provisions are duplicative of the list of sanctions at § 422.750(a) and § 423.750(a) and are unnecessary. In this final rule, we are adopting all of these proposals without further modification.

Comment:

CMS received numerous comments regarding the engagement of an independent auditor by a sponsoring organization under sanction by CMS, with most commenters supporting the alternative proposal in which CMS may allow the sponsoring organization the discretion to hire an independent auditor. Commenters provided various rationales for their support of the alternative proposal, including the potential financial and operational burden to sponsoring organizations when required to engage an outside auditor; that sponsoring organizations may already have the internal resources available to provide the information to CMS; and that absent standards, CMS could impose this requirement in an arbitrary and capricious manner. A commenter opposing both proposals because the commenter did not believe it was necessary for CMS to grant the sponsor the discretion to hire independent auditors, and that by allowing discretion to hire an independent auditor, a sponsoring organization that did not hire the auditor would then be viewed in a negative light. Finally, one commenter expressed concern with our alternative proposal that when an independent auditor was not required by CMS, but was retained by the sponsoring organization at their discretion, CMS would merit only “some weight” in the decisionmaking process to lift the sanction. Specially, the commenter recommended that the independent auditor's evaluation should have the same standard of weight regardless of whether the independent auditor was required or was discretionary.

Response:

When a sponsoring organization has been sanctioned, the organization's deficiencies have risen to a serious and significant level. We believe that we should have the flexibility to require the sponsoring organization to hire an independent auditor for the benefit of both us and the sponsoring organization. To ensure that the use of the independent auditor will be beneficial for the sponsoring organization and to us, we intend to consider the sponsoring organization's ability to afford an independent auditor as well as the sponsoring organization's ability to demonstrate through its own resources that it has corrected its deficiencies and they are not likely to recur. To determine whether or not we would require an independent auditor, we would check to see if the sponsoring organization was on our financial watch list as well as on the financial watch list of any of the States or commonwealths in which the sponsoring organization was licensed. Also, whenever a sponsoring organization is under sanction, we engage in ongoing discussions with its senior leaders and management. If we were considering the use of an independent auditor, we would discuss this with the sponsoring organization and solicit their feedback in order to fully comprehend the financial makeup and stability of the organization.

As the proposed regulatory language reflected, this authority will not be exercised in all circumstances because we recognize that an independent auditor may not be needed or beneficial in all circumstances. For these reasons, we are maintaining the requirement in the final rule that when a sponsoring organization has been sanctioned CMS may require that the sponsoring organization hire an independent auditor.

Comment:

CMS received a number of comments requesting that CMS provide more clarification related to our use of the term independent auditor in our proposal, including providing a definition, minimum qualifications, and whether conflict of interest rules would apply. One commenter suggested that CMS provide a list of auditors for sponsoring organizations to choose from. Another commenter seemed to be concerned that an independent auditor is generally used in the context of a financial audit and referred to “Sarbanes Oxley” stating that it has fairly clear rules with regard to conflicts of interest. In that respect, commenters requested that CMS clarify what context it used the phrase “independent auditor.”

Response:

We intend that sponsoring organizations will choose the independent auditor. We will work with sanctioned organizations to determine if the independent auditor they are proposing is appropriate. Some basic examples, however, of standards that we will require for independent auditors are knowledge of the Part C and Part D programmatic requirements and experience evaluating an organization's performance in the areas specific to the deficiencies. To the extent that one commenter was referencing financial audits under the Sarbanes Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745, enacted July 30, 2002), this proposal is not governed by the standards in Sarbanes Oxley. The type of audit contemplated by Sarbanes Oxley is a financial audit and not a program compliance audit. The audits proposed here would involve an independent evaluation of whether the sponsoring organization is in compliance with CMS requirements. We will evaluate whether or not there is a need to release more detailed information in the future through subregulatory guidance or other appropriate means.

Comment:

Several commenters requested that CMS provide standards for when an independent auditor would be needed. Commenters wanted clarity on when an independent auditor would be required, what types of issues the auditor would be called to review, and the parameters under which an auditor would perform its work. One commenter requested that we limit the focus of the audit to the bases for the sanction.

Response:

During the period of the sanction, we communicate regularly with the sponsoring organization and,

therefore, we intend to fully discuss with the sanctioned organization the basis for concluding an independent auditor is necessary prior to requiring the organization to retain the independent auditor. We intend to utilize the requirement in our proposal when we determine that an independent auditor would be beneficial, such as in situations where the deficiencies are highly technical in nature. Also, if the sanctioned organization is having difficulty demonstrating to us that its deficiencies have been corrected, an independent auditor can provide us with assurances that the deficiencies have in fact been corrected through a neutral third party evaluation. We intend to determine what areas the independent auditor should assess depending on the nature and extent of the deficiencies. We do not believe it is possible or appropriate to provide this information in regulation since each sanctioned organization may require a different assessment based on its particular deficiencies. With respect to the comment that the focus of the audit should be limited to the bases for the sanction, based on our experience, we believe the independent auditor would need the flexibility to broaden the assessment because new or related issues may arise in the period after the sanction is imposed that need to be evaluated in order to ensure that the deficiencies have been corrected and are not likely to recur.

Comment:

Several commenters were concerned with our comparison of the independent auditor in this requirement to the Corporate Integrity Agreements (CIA) used by the HHS Office of Inspector General (OIG) because information found under the CIA is not publicly disclosed, and the commenters believe that the results should be publicly disclosed. Commenters also stated that in the case of nursing homes, experience has shown that CIAs have not been effective and that nursing homes have not improved as a result of CIAs.

Response:

When a sponsoring organization is subjected to an intermediate sanction, this information, along with the bases for the sanction, is publicly disclosed through the CMS Web site. Additionally, the public subsequently is notified as to whether we have determined that these deficiencies have been corrected and are not likely to recur. We do not believe that there is any significant value in making the public aware of audit results related to an internal technical assessment of the correction of these deficiencies that may be relied on to make our ultimate determination. However, to the extent these documents would be required under existing law to be disclosed we fully intend to comply with those requirements.

With regard to the commenters who were concerned about the overall effectiveness of using independent auditors to assist us in evaluating compliance, correcting the deficiencies is ultimately the responsibility of the sanctioned organization. Although, the independent auditor may consult with the sanctioned organization on the best way to fix its deficiencies, the main purpose of the independent auditor is to provide evidence and additional assurances which would assist us in making the determination that those deficiencies have been corrected. We intend that independent auditor results will be weighed with a host of other validation activities conducted by us and will not be the sole source of information concerning whether deficiencies have been corrected and are not likely to recur.

Comment:

One commenter stated that the audit findings of an independent auditor should be subject to attorney-client privilege and that they would only be subject to release to CMS if the sponsoring organization waived the privilege.

Response:

We disagree with the commenter that results of the independent auditor are protected by attorney client privilege. The purpose of the independent auditor is to provide a neutral third party evidenced-based evaluation of whether a sanctioned organization is in compliance with CMS requirements. Attorney-client privilege is a legal concept which protects communications between an attorney and his or her client and keeps certain communications between the parties confidential. Independent audit findings are by no means necessarily subject to the attorney-client privilege and, in this case, the sole purpose of the audit being performed is to provide information to CMS.

Comment:

One commenter stated that CMS' determination not to lift the sanction after the results of the independent audit should be appealable and such appeal is required by law.

Response:

There is no statutory right to appeal a decision by CMS to keep a sanction in effect. Appeal rights are afforded at the time the sanction is imposed.

Comment:

One commenter requested that we remove the language “not likely to recur” from the independent auditor requirement. The commenter stated that it was not general practice for an auditor to opine as to whether the deficiencies were not likely to recur.

Response:

We did not propose and do not intend to require the independent auditor to opine as to whether the deficiencies are not likely to recur. The independent auditor will perform an assessment to determine if the sponsoring organization is in compliance with our requirements and we would use that evaluation, along with other information provided by the sponsoring organization, to make our determination as to whether the deficiencies that formed the basis for the sanction have been corrected and are not likely to recur. The independent auditors report is evidentiary and not dispositive as to whether the deficiencies have been corrected and are not likely to recur. We make that determination.

Comment:

We also received a number of comments on the proposal that in instances where marketing or enrollment sanctions have been imposed, CMS may require a sponsoring organization to engage in a marketing or enrollment “test period” in order to assist CMS in making a determination as to whether the deficiencies have been corrected and are not likely to recur. Most commenters wanted more clarity regarding the parameters of the “test period,” including any limitation on enrollment during the test period, the duration, when it would be required and the level of performance required during the test period.

Response:

The details concerning implementing a test period will vary from organization to organization depending on the nature and extent of the deficiencies that formed the basis for the sanction and other factors such as the organization's size, complexity of operations, etc. We intend to work closely with any sanctioned organization prior to establishing a “test period” and the organization will receive specific notice of the standards the organization must meet to demonstrate that its deficiencies have been corrected during the test period.

Commen

t: Several commenters asserted that sanctioned organizations should be afforded appeal rights if, after the marketing and enrollment “test period,” CMS determines to keep the sanction in effect.

Response:

Under our proposed provision, the “test period” is a validation activity that will help us to determine that the deficiencies that formed the basis for the sanction have been corrected and are not likely to recur. For example, when we validate a sponsoring organization's compliance with appeals and grievances requirements, we may perform an audit to test those areas. If the audit

demonstrates that the sponsoring organization has not corrected its deficiencies or that they are likely to recur, the sanction will remain in effect and the sponsoring organization cannot appeal that determination. Appeal rights are afforded at the time the sanction is imposed.

Comment:

Several commenters expressed concern that sponsoring organizations subject to a “test period” would be under heightened scrutiny and that CMS would have sole discretion to determine the point at which the sponsoring organization has corrected the basis for the sanction. One other commenter questioned the value of a “test period” as well as the independent auditor and seemed to equate these validation activities to a situation where the sponsoring organization has been issued a corrective action plan (CAP).

Response:

We intend to use a “test period” as one of a host of validation activities and we intend to work closely with any sanctioned organization prior to imposing a “test period” to ensure the sponsoring organization receives specific notice of the standards it must meet to demonstrate that its deficiencies have been corrected and are not likely to recur. We fully intend to subject all sponsoring organizations placed under a sanction to heightened scrutiny both during the sanction period and for some period afterwards to ensure that the deficiencies that formed the basis for the sanction are corrected and are not likely to recur. The “test period” requirement simply provides organizations under marketing/enrollment sanctions the same opportunity other organizations would have to demonstrate compliance with our standards for releasing the organization from the sanction during an established enrollment test period. The provision is not applicable to an organization that has been asked to implement a CAP and has not had a marketing and enrollment sanction imposed. This provision is limited to sponsoring organizations subject to intermediate sanctions.

Comment:

One commenter requested that CMS adopt alternative approaches for evaluating whether it is appropriate to lift a marketing and enrollment sanction imposed on a sponsoring organization when the deficiencies that led to the sanction are ones where CMS cannot appropriately evaluate the extent of remediation through a trial enrollment and marketing period.

Response:

We fully intend to continue to explore other ways to effectively validate whether deficiencies have been corrected while a sponsoring organization is under sanction. The test period proposal was intended to address the specific dilemma faced by CMS and the sponsoring organization when a sanctioned organization cannot market and enroll during the sanction period so as to demonstrate that the deficiencies have been addressed.

Comment:

One commenter suggested that CMS specify that any decision not to lift an intermediate sanction at the end of such “test period” is a separate decision from, and shall not automatically result in, an action to terminate a contract.

Response:

We do not intend to use the decision not to approve a sponsoring organization's request to release the sanction, in and of itself, as a basis for reaching a determination to terminate a contract. Termination determinations must always meet our specific statutory and regulatory requirements.

10. Termination of Contracts Under Parts C and D (§ 422.510(a) and § 423.509(a))

In the October 2009 proposed rule, we proposed to delete the enumerated bases for termination contained at § 422.510(a)(5) through (12) and § 423.509(a)(5) through (11). We proposed to modify language at § 422.510(a) and § 423.509(a) to separate the language into two paragraphs with the first paragraph, (a)(1), listing the statutory bases for termination and the second paragraph, (a)(2), clarifying that a sponsoring organizations (i) failure to comply with our regulations, (ii) failure to meet performance standards; and/or (iii) participation in false, fraudulent, or abusive activities, may constitute a basis for CMS to determine that the sponsoring organization meets the requirements for contract termination in accordance with paragraph (a)(1).

Based on the comments we received on the proposed rule, we have decided not to finalize our proposal and as an alternative to slightly modify existing regulations. First, we are finalizing the proposed modified language in provisions § 422.510(a)(1)-(3) and § 422.509(a)(1)-(3) so that the regulatory text mirrors the statutory language. Second, we are finalizing proposed modified language for § 422.510(a)(4) and § 423.509(a)(4), which states that CMS may now terminate under this provision when Medicare, Medicaid, or other State or Federal health care programs are affected. Next we are finalizing our proposed deletion of existing § 422.510(a)(5) and § 423.509(a)(5) because we believe that the provision is a basis for expedited termination and therefore inappropriately located in this part. We have decided to retain the remaining enumerated bases for termination that we previously proposed to delete at § 422.510(a)(6) through (12) and § 423.509(a)(6) through (11). We are, therefore, redesignating § 422.510(a)(6)-(12) and § 423.509(a)(6)-(11) as § 422.510(a)(5)-(11) and § 423.509(a)(5)-(10) respectively. Finally, we are adding the two new proposed bases, with modified language, to the existing enumerated list at § 422.510(a)(12) and § 423.509(a)(11) (failure to comply with regulatory requirements) and § 422.510(a)(13) and § 423.509(a)(12) (failure to comply with performance standards). The discussion of these revisions is set forth in more detail below.

Comment:

A number of commenters expressed specific concerns about our proposed changes to § 422.510(a) and § 423.509(a), namely our proposal to remove the enumerated standards for termination and proposal to mirror the statutory language. Commenters stated that the proposed language is too broad and vague, gives CMS unprecedented discretion and authority and invites arbitrary or inconsistently applied determinations by CMS. One commenter suggested that CMS maintain the existing language.

Response:

We disagree that the proposed changes to § 422.510(a)(1) through (3) and § 423.509(a)(1) through (3) provide CMS with unprecedented authority and discretion. The proposed language merely mirrors the authority provided to CMS through statute. We have, however, after considering all of the comments, decided to retain the existing provisions from § 422.510(a)(6) through (12) and § 423.509(a)(6) through (11) into the final rule. These examples of substantive bases are now redesignated as § 422.510(a)(5) through (11) and § 423.509(a)(5) through (10) respectively.

Comment:

A number of commenters expressed concern with the proposed language at § 422.510(a)(12) and § 423.509(a)(11) (formerly § 422.510(a)(2)(i) and § 423.509(a)(2)(i)) which provided that CMS may determine that a basis exists to terminate a sponsoring organization's contract if the sponsoring organization fails to comply with

any

regulatory requirement contained in parts 422 or 423. While one commenter strongly supported the proposed change, many commenters believed that the revision removed the “substantiality” or “materiality” tests explicit or inherent in each of the existing requirements, and in effect it would allow CMS to terminate on the basis of a single instance in which a particular requirement is not met.

Response:

We have considered the comments and have decided to remove the word “any” from the proposal to avoid confusion and have modified the regulatory text in the final version of the regulation to reflect this change. Adherence to all our regulatory requirements is important and necessary, but we acknowledge that in making a decision to terminate a contract, we would take into account the nature and extent of the failure to meet our regulatory requirements and the materiality of the requirement as compared to other requirements.

Comment:

A number of commenters also expressed concern about the proposed language at § 422.510(a)(13) and § 423.509(a)(12) (formerly § 422.510(a)(2)(ii) and § 423.509(a)(2)(ii)) supporting the use of outlier analysis to reach a termination decision. These commenters opposed this proposal and argued that it is inconsistent with law and unfair to equate outlier status to noncompliance. Another commenter stated that it was improper to make contract termination decisions based on a determination that a sponsoring organization is the lowest performer among a cohort when the organization may still be performing adequately. Some commenters stated that they needed more clarity on the specifics associated with the outlier standards and access to the data underlying these standards. Additionally, commenters asserted that the outlier standards are too vague of a standard to serve as a basis for contract terminations, particularly when CMS has not disclosed the relevant standards or methodology and organizations have not be notified in advance of these standards in order to be afforded an opportunity to improve. Two commenters recommended that CMS allow sponsoring organizations to appeal CMS findings as a result of outlier analysis.

Response:

Outlier analysis is an oversight mechanism by which we can more effectively focus our limited resources in determining which sponsoring organizations to target for further compliance analysis and assessment. We do not intend to use this analysis in and of itself as a basis to terminate a contract. Therefore, we have decided to remove this outlier language from the final rule, to avoid misunderstandings and confusion among sponsoring organizations concerning the use of this data to take termination actions.

Comment:

CMS proposed to modify language at § 422.510(a)(4) and § 423.509(a)(4) (formerly § 422.510(a)(2)(iii) and § 423.509(a)(2)(iii)) to revise the agency's existing regulatory authority to allow CMS to terminate a sponsoring organization when there is credible evidence that shows that the sponsoring organization has committed or participated in false, fraudulent or abusive activities affecting the Medicare, Medicaid, or other State or Federal health care programs. Two commenters on this proposed provision, one in support and the other opposing the provision, stated that CMS should not terminate contracts in cases where the employees committing the fraudulent acts have no involvement with the administration of the Medicare lines of business offered by the sponsoring organization.

Response:

Our proposal was not intended to indicate that we will terminate a contract in the case of employee fraudulent acts unrelated to Medicare, Medicaid, or other State or Federal health care programs.

11. Request for Hearing Under Parts C and D (§ 422.662 and § 423.651)

In the October 2009 proposed rule, we proposed to modify the language at § 422.662(a) and § 423.651(a) stating that the sponsoring organization must file a request for a hearing in accordance with the requirements specified in the notice of the contract determination or intermediate sanction. This proposed change would ensure that the proper officials within CMS receive the request and are able act upon it in a timely manner. Current regulations at § 422.662(a) and § 423.651(a) governing the hearing procedures require sponsoring organizations to file a request for a hearing on contract determinations with the Hearing Officer and to also file it with “any CMS office.” As we stated in the preamble to the proposed rule, we believe this procedure is ineffective and inefficient because it is likely to result in a request for hearing not being received by the appropriate officials within CMS.

We also proposed a conforming change at § 422.662(b) and § 423.651(b) which governs the timeframes for filing the request for hearing to provide that the request must be filed within 15 calendar days after receipt of the notice (versus the existing language which states 15 calendar days from the “date CMS notifies” the sponsoring organization of its determination). This proposed change was made to ensure consistency with the way deadlines are described in other regulatory provisions of parts 422 and 423 governing contract determinations or the imposition of intermediate sanctions (including related appeals processes).

Since we received no comment on these sections, these changes are adopted without modification in this final rule.

12. Burden of Proof, Standard of Proof, Standards of Review, and Conduct of Hearing (§ 422.660, § 423.650, § 422.676, and § 423.658)

In the October 2009 proposed rule, we proposed to delete the references to “substantial compliance” as a standard of review at hearing and delete the existing regulations which provide for an “earliest of” test from § 422.660 and § 423.650. We also proposed to explicitly state that the preponderance of the evidence is the standard of proof that we believe applies during the appeal of a contract determination or intermediate sanction. We also proposed to delete the existing language contained at § 422.660(b) and § 423.650(b) and replace it with language that provides that the sponsoring organization has the burden of proving by a preponderance of the evidence that our determination was inconsistent with the requirements of the applicable part. Additionally, we specified in our proposal that the applicable requirements are § 422.501 and § 422.502 for the processes and standards for applicants for the MA program, § 423.502 and § 423.503 for applicants for the Part D program, § 422.506 or § 422.510 for MA contract determinations, § 423.507 or § 423.509 for Part D contract determinations, and § 422.752 or § 423.752 for intermediate sanctions.

We proposed to modify § 422.660(c) and § 423.650(c), which specified that the notice of any decision favorable to a Part C or D applicants appealing a determination that it is not qualified to enter into a contract with us must be issued by July 15th for the contract in question to be effective on January 1st of the following year. We proposed a change from the July 15th deadline to September 1st.

Finally, we proposed to modify existing regulations at § 422.676(d) and § 423.658(d) governing the conduct of the hearing to provide that, consistent with the burden of proof, during the hearing the sponsoring organization bears the burden of being the first to present its argument to the Hearing Officer according to any briefing schedule determined by the Hearing Officer.

We are adopting all of the proposed changes as the final rule without further modification.

Comment:

Several commenters opposed CMS' removal of the

“

substantial compliance

”

standard

asserting that this standard was well established and well understood as opposed to the new language that CMS proposed, which these commenters stated was vague and unclear.

Response:

We disagree that the “substantial compliance” standard is clear and easy to apply in making a determination. As explained in the preamble to the October 2009 proposed rule, the “substantial compliance” language has led to confusion among parties to the hearing, has been difficult for the Hearing Officer to apply, and does not reflect the nuances of the different legal standards provided in the Act for making contract determinations and imposing intermediate sanctions. Our proposal, which provided that the standard of review is whether CMS' determination is inconsistent with the regulatory requirements for taking the underlying action (for example, application denial, non-renewal, termination or intermediation sanction) provides the requisite specificity to be applied by the hearing officer and the parties to these actions. We also believe the proposal properly focuses the hearing officer and all parties to the hearing on the correct standard, and the pertinent issue under review at the hearing.

Comment:

Several commenters expressed concern that the proposed changes result in the sponsoring organizations bearing the burden of proof in appeal proceedings and one commenter added that CMS' proposal is inconsistent with the general rule articulated by the Supreme Court that the party seeking to take action ordinarily bears the burden of persuasion and cited to

Schaffer

v.

Weast,

546 U.S. 49 (2005).

Response:

The commenters have misunderstood the scope of our proposals because we did not propose a change as to which party bears the burden of proof. Existing regulations explicitly state that the sponsoring organization bears the burden of proof. Also, we believe that the commenter is mistaken in its reading and interpretation of the ruling in

Shaffer

v.

Weast.

In that case, the Supreme Court held that the burden of proof in an administrative hearing is properly placed upon the party seeking relief (

“

[T]he burdens of pleading and proof with regard to most facts have been and should be assigned to the plaintiff who generally seeks to change the present state of affairs and who therefore naturally should be expected to bear the risk of failure of proof or persuasion.

”

) In our appeal proceedings, the party seeking relief is the sponsoring organization, thereby making it appropriate for that party to bear the burden of proof. Thus, existing regulations which require that the sponsoring organization bear the burden of proof are consistent with the legal precedent cited by the commenter.

Comment:

One commenter requested that CMS provide a definition for the

“

preponderance of the evidence standard.

”

Response:

The preponderance of the evidence standard is a well established and defined legal standard. To make a showing by the preponderance of the evidence, one must show that it is more likely than not that the fact that the claimant seeks to prove is true.

Comment:

Some commenters opposed changing the notification date from July 15th to September 1st. Some commenters noted that notification by September 1 of a favorable determination would not leave a sponsor with sufficient time to prepare for the upcoming year given that sponsors are permitted to start marketing for the upcoming year on October 1. One commenter recommended moving the application deadline to March to allow for adequate preparation of the application and suggested that adequate preparation may reduce the number of appeals.

Response:

In most cases, we do not believe a favorable determination issued by the CMS hearing officer will be rendered as late as September 1st. However, moving the notification date of the favorable determination from July 15th to September 1st affords applicants that receive a favorable decision the opportunity to be sponsors in the contract year for which they applied. In all instances, this regulatory change works to the benefit of sponsors.

We believe that sponsors are given adequate time and instruction to complete the application. We believe changing the application due date would not significantly impact the number of appeals.

13. Expedited Contract Terminations Procedures (§ 422.510, § 423.509, § 422.644, § 423.642, § 422.664, and § 423.652) Under Parts C and D

In the October 2009 proposed rule, we proposed to delete the references to expedited terminations based on false, fraudulent or abusive activities and severe financial difficulties contained in the termination procedures at § 422.510(b)(2)(i), § 423.509(b)(2)(i), § 422.510(c)(2) and § 423.509(c)(2) and in the appeal procedures at § 422.644(c)(2), § 423.642(c)(2), § 422.664(b)(2) and § 423.652(b)(2). We proposed to modify these provisions instead to reflect the more general statutory language concerning our ability to take an expedited termination when we determine that a delay in termination caused by adherence to the required procedures would pose an imminent and serious risk to the health of the individuals enrolled with the sponsoring organization. We are adopting our proposal to include this statutory language, and based on the comments we have decided to retain and amend the two existing bases for expedited termination currently located at § 422.510(a)(4) & (a)(5) and § 423.509(a)(4) &(a)(5).

Comment:

We received several comments on our proposals. Commenters were concerned that our proposal was overly broad, lacked specificity and that there were no examples of situations where we would pursue an expedited termination. Additionally, a few commenters were concerned that a sponsoring organization might be subjected to an expedited termination for a single, isolated incidence of non-compliance and that sponsoring organizations would not be afforded the opportunity for a hearing before the termination took effect.

Response:

After considering all of the comments we received, we have decided to retain the two existing examples for when CMS may pursue an expedited termination as well as incorporate the statutory language into the final rule.

The existing regulation references § 422.510(a)(5) and § 423.509(a)(5) as one example of a situation where CMS would pursue and expedited termination, but it is also listed as a basis for termination. In the proposed regulation, we proposed removing this instance as a basis for termination, thereby removing its associated reference in expedited termination. We believed that this language created some confusion because it intertwines a basis for termination (that is, failure to make services available) with the

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