Medicare and Medicaid Programs; Programs of All-Inclusive Care for the Elderly (PACE)

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 423 and 460

[CMS-4168-F]

RIN 0938-AR60

Medicare and Medicaid Programs; Programs of All-Inclusive Care for the Elderly (PACE)

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule updates the requirements for the Programs of All-Inclusive Care for the Elderly (PACE) under the Medicare and Medicaid programs. The rule addresses application and waiver procedures, sanctions, enforcement actions and termination, administrative requirements, PACE services, participant rights, quality assessment and performance improvement, participant enrollment and disenrollment, payment, federal and state monitoring, data collection, record maintenance, and reporting. The changes will provide greater operational flexibility, remove redundancies and outdated information, and codify existing practice.

DATES:

Effective Date:

These regulations are effective on August 2, 2019.

FOR FURTHER INFORMATION CONTACT:

Brandy Alston, 410-786-1218.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary

A. Purpose

B. Summary of Key Economic Provisions

C. Summary of Costs and Benefits

II. Background

A. Program Description

B. Legislative and Regulatory History

C. PACE Regulatory Framework

III. Summary of the Provisions of the Proposed Rule, and Analysis of and Responses to Public Comments

A. Global Change Regarding Quality Assessment and Performance Improvement

B. Subpart A—Basis, Scope, and Definitions

C. Subpart B—PACE Organization Application and Waiver Process

D. Subpart C—PACE Program Agreement

E. Subpart D—Sanctions, Enforcement Actions, and Termination

F. Subpart E—PACE Administrative Requirements

G. Subpart F—PACE Services

H. Subpart G—Participant Rights

I. Subpart H—Quality Assessment and Performance Improvement

J. Subpart I—Participant Enrollment and Disenrollment

K. Subpart J—Payment

L. Subpart K—Federal/State Monitoring

M. Subpart L—Data Collection, Record Maintenance, and Reporting

IV. Provisions of the Final Rule

V. Collection of Information Requirements

VI. Regulatory Impact Statement

Regulation Text

I. Executive Summary

A. Purpose

The purpose of this final rule is to revise and update the requirements for the Programs of All-Inclusive Care for the Elderly (PACE) under the Medicare and Medicaid programs. The rule addresses application and waiver procedures, sanctions, enforcement actions and termination, administrative requirements, PACE services, participant rights, quality assessment and performance improvement, participant enrollment and disenrollment, payment, federal and state monitoring, data collection, record maintenance, and reporting. The changes will provide greater operational flexibility, remove redundancies and outdated information, and codify existing practice.

B. Summary of Key Economic Provisions

1. Compliance Oversight Requirements

Compliance programs, as found in the Medicare Advantage (MA) and Medicare Part D programs, have long been recognized as key to protecting against fraud, waste, and abuse. The importance of these programs has been highlighted by several of our oversight bodies. In the August 16, 2016

Federal Register

(81 FR 54666), we published the proposed rule, entitled “Medicare and Medicaid Programs; Programs of All-Inclusive Care for the Elderly (PACE).” In that rule, as authorized by sections 1934(f)(3) and 1894(f)(3) of the Social Security Act (the Act), we proposed to adopt two key elements of the Part D compliance program in the PACE regulations. Specifically, we proposed to require each PACE organization (PO) to develop a compliance oversight program that will be responsible for monitoring and auditing its organization for compliance with our regulations. Additionally, we proposed to require POs to have measures that prevent, detect and correct non-compliance with CMS' program requirements, as well as measures that prevent, detect, and correct fraud, waste, and abuse. We received comments that indicated these requirements would potentially present a significant burden to POs and possibly take key staff away from providing participant care. After careful consideration of these concerns, and after re-analyzing the burden estimates, we are finalizing this provision in part.

2. Monitoring and Oversight of PACE Organizations

As a result of our experience with oversight and monitoring of the PACE program, we proposed flexibilities in connection with the current requirement that POs be monitored for compliance with the PACE program requirements during and after a 3-year trial period. We stated in the proposed rule that we must balance the responsibilities of ensuring that all of our beneficiaries are receiving quality care with our duty to effectively manage our resources and ensure proper oversight over all of the programs we manage. We proposed to use technology to enhance efficiencies in monitoring by remotely reviewing PO documents, which we have to date reviewed primarily through site visits. We also proposed to reduce the number of on-site visits after the 3-year trial period by utilizing a risk assessment to select which POs will be audited each year. We stated in the proposed rule that this risk assessment would rely primarily on an organization's past performance and ongoing compliance with CMS and state requirements. However, the risk assessment would also take into account other information that could indicate a PO needs to be reviewed, such as participant complaints or access to care concerns. We are finalizing the provisions related to federal and state monitoring as proposed.

3. Additional Flexibility for Interdisciplinary Team

This final rule makes several changes intended to expand the flexibilities of the interdisciplinary team (IDT) that comprehensively assesses and provides for the individual needs of each PACE participant. Key provisions in this final rule include permitting one individual to fill two separate roles on the IDT if the individual has the appropriate licenses and qualifications for both roles, and permitting the primary care provider that is required for each IDT to include nurse practitioners, physician assistants and community-based physicians, in addition to physicians. Another flexibility we are finalizing in this rule is removal of the requirement that members of the IDT must serve primarily PACE participants.

C. Summary of Costs and Benefits

Table 1—Summary of Costs and Benefits

Provision description

Total costs to POs

Total cost to government

(without transfer)

Compliance Oversight Requirements

This provision requires POs to create a compliance oversight program to allow prompt identification of non-compliance and report of fraud, waste and abuse. We estimate a one-time burden of $116,026.8 in the first year for developing the written materials and training necessary for the prompt identification and reporting of fraud, waste and abuse (124 PO × 15 hours per PO × 62.38 (hourly rate)). This cost when annualized over 3 years is $38,675.6. We further estimate an annual cost of $154,702 per year for POs reporting and responding to any suspected fraud, waste and abuse (124 PO × 20 hours per PO × $62.38 hourly rate). Thus, the total cost would be $38,675.6 initially and $154,702 afterwards

The creation of this program does not have cost or savings to the government since it is the POs who are creating and using the compliance oversight program.

Monitoring

This provision reduces the required monitoring by CMS of POs. We estimate that there will be an annual savings to POs based on our proposal of $1,523,253. We expect 72 PO audits under the current regulations but only 35 audits as a result of this final rule. Consequently, the savings to PO would be the effort saved by not having to produce documentation and other administrative burdens that occur during an audit for 37 audits. Consequently, we are estimating the savings per audit for a PO to be approximately $41,169 (1 Nurse Manager at $53.69/hour × 2 (Factor for fringe benefits) × 150 hours per person plus 1 Executive Assistant at $28.56/hour × 2 (Factor for fringe benefits) × 150 hours per person) plus 1 Medical Record Technician at 20.59/hour × 2 (Factor for Fringe benefits) × 150 hours per person plus 1 Compliance Officer at 34.39/hour × 2 (Factor for Fringe benefits) × 150 hours per person). Therefore, the total savings to POs will be $41,169 × 37 = $1,523,253

We estimate an annual savings of $2,638,144 to the government. We expect 72 PO audits under current regulations. We expect only 35 audits under this final rule. The savings to the government would be the effort saved by not having to perform 37 audits.

The cost per audit is 2 GS-13 × $1,980 travel + 200 hours for GS-13s × $46.46/hr GS-13 wage × 2 (Fringe benefit factor) + 60 hours for GS-15s × $64.59/hr GS-15 wage × 2 (Fringe benefit factor) + 20 hours for 1 GS-13 × 46.46/hr GS-13 wage × 2 (Fringe benefit factor) = $71,301.20. Hence, the total savings is $71,301.20 × 37 = 2,638,144.

The audit work includes all of the pre-audit work, including (i) compiling and (ii) submitting audit documentation; (iii) 2 weeks of audit fieldwork; the post-audit work of (iv) collecting and (v) submitting impact analyses, (vi) reviewing and (vii) commenting on the draft audit report, and (viii) submitting and (ix) implementing corrective action plans for conditions of non-compliance.

Additional Flexibility for the Inter-disciplinary Team (IDT)

This provision provides administrative flexibility for POs without compromising care by: (i) Permitting one individual to fill two separate roles on the IDT if the individual has the appropriate licenses and qualifications for both roles; (ii) permitting the primary care provider (required for each IDT) to include nurse practitioners, physician assistants and community-based physicians, in addition to physicians; and (iii) removing the requirement that members of the IDT must serve primarily PACE participants. While this provision provides greater flexibility in creating the IDT, it does not create cost or savings

This provision has neither cost nor savings to the government due to the fact that many POs are currently exercising these flexibilities through PACE waivers.

Participant Assessments

The provision provides clarity on initial assessments, removes duplicative requirements for periodic reassessments, and provides greater flexibility for unscheduled reassessments. More specifically: The provision clarifies that: (i) Initial assessments must be done in-person and prior to completion of the plan of care (within 30 days); (ii) reassessments must be done semi-annually and requires a minimum of three IDT members; (iii) “change in participant status” reassessments require a minimum of three (instead of eight) IDT members; and (iv) remote technology may be used to conduct certain reassessments for participant requests that will likely be deemed necessary to improve or maintain the participants overall health status. The use of remote technologies to conduct these reassessments for participant requests under § 460.104(d)(2) results in savings from reduced travel costs for PO staff and PACE participants. We are scoring this as a qualitative savings since there are challenges with quantifying it. Similarly, the other provisions are qualitative savings to POs

These provisions will not result in additional costs or savings to the government.

PACE Program Agreement—Include Medicaid Rate Methodology

This provision provides states and POs the ability to adapt to potential payment rate changes and variations by allowing the inclusion of the Medicaid payment rate methodology in the PACE program agreement instead of the actual rates. Although this provision may reduce the burden of POs having to update agreements to include the actual Medicaid payment rates, this is not a mandatory requirement and we are not scoring this change since some states may elect to continue to include the Medicaid rates

Since this is an option on the part of states, and some states may continue to elect to include the actual Medicaid rates in the program agreement, and because CMS will continue to review and approve state Medicaid PACE capitation rates, there is neither cost nor savings to the government.

Enforcement Actions

This provision allows CMS the discretion to take less punitive action, such as sanctions or CMPs, when authorized to terminate a PO. Because the provision authorizes lesser sanctions under the existing disciplinary process, the provision has neither cost nor savings to POs

Because the provision authorizes lesser sanctions under the existing disciplinary process, the provision has neither cost nor savings to the government.

Application Process

This provision allows an electronic and automated PACE application and waiver process. Since this provision codifies existing practice it results in neither costs nor savings

This provision codifies existing practice, and therefore, has neither cost nor savings to the government.

PACE Marketing

The provision strengthens beneficiary protections by prohibiting POs from: (i) Using agents/brokers that are not directly employed by the PO to market PACE programs, unless appropriately trained; (ii) unsolicited marketing by direct contact, including phone calls and emails. Since the purpose of prohibiting these marketing practices is to strengthen existing beneficiary protections, this provision is not considered a cost or savings

This provision has neither cost nor savings to the government.

II. Background

A. Program Description

The PACE program is a unique model of managed care service delivery for the frail elderly, most of whom are dually-eligible for Medicare and Medicaid benefits, and all of whom are assessed as being eligible for nursing home placement according to the Medicaid standards established by their respective states.

B. Legislative and Regulatory History

1. Demonstration Project

Section 603(c) of the Social Security Amendments of 1983 (Pub. L. 98-21), as extended by section 9220 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) (Pub. L. 99-272), authorized the original demonstration PACE program for On Lok Senior Health Services (On Lok) in San Francisco, California. Section 9412(b) of the Omnibus Budget Reconciliation Act (OBRA) of 1986 (Pub. L. 99-509), authorized CMS to conduct a PACE demonstration program to determine whether the model of care developed by On Lok could be replicated across the country. The number of sites was originally limited to 10, but the OBRA of 1990 (Pub. L. 101-508) authorized an increase to 15 PACE demonstration programs. The PACE demonstration program was operated under a Protocol published by On Lok, Inc. as of April 14, 1995.

The PACE model of care includes, as core services, the provision of adult day health care and IDT care management, through which access to and allocation of all health services is managed. Physician, therapeutic, ancillary, and social support services are furnished in the participant's residence or on-site at a PACE center. Hospital, nursing home, home health, and other specialized services are generally furnished under contract. Financing of the PACE demonstration model was accomplished through prospective capitation payments under both Medicare and Medicaid. Under section 4118(g) of the OBRA of 1987 (Pub. L. 100-203), PACE demonstration programs had to assume full financial risk progressively over the initial 3 years. As such authority was removed by section 4803(b)(1)(B) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), PACE demonstration programs approved after August 5, 1997 had to assume full financial risk at start-up.

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

Section 4801 of the BBA authorized coverage of PACE under the Medicare program by amending title XVIII of the Act to add section 1894 of the Act, which addresses Medicare payments and coverage of benefits under PACE. Section 4802 of the BBA authorized the establishment of PACE as a state option under Medicaid by amending title XIX of the Act and adding section 1934 of the Act, which directly parallels the provisions of section 1894 of the Act. Section 4803 of the BBA addresses implementation of PACE under both Medicare and Medicaid, the effective date, timely issuance of regulations, priority and special consideration in processing applications, and extension and transition for PACE demonstration project waivers.

As directed by section 4803 of the BBA, we published an interim final rule with comment period (IFC) on November 24, 1999, establishing requirements for PACE under sections 1894 and 1934 of the Act (64 FR 66234). The 1999 IFC was a comprehensive rule that addressed eligibility, administrative requirements, application procedures, services, payment, participant rights, and quality assurance under PACE.

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

The following three sections of BIPA modified the PACE program:

• Section 901 extended the transition period for the PACE demonstration programs to allow an additional year for these organizations to transition to the permanent PACE program.

• Section 902 gave the Secretary of Health and Human Services (the Secretary) the authority to grandfather in the modifications these programs had implemented as of July 1, 2000. This provision allowed the PACE demonstration programs to continue

program modifications they had implemented and avoid disruptions in participant care where these modifications were determined to be consistent with the PACE model.

• Section 903 specifically addressed flexibility in exercising the waiver authority provided under sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act. It authorized the Secretary to modify or waive PACE regulatory provisions in a manner that responds promptly to the needs of PACE organizations (POs) relating to the areas of employment and the use of community-based primary care physicians. Section 903 of BIPA also established a 90-day review period for waiver requests. On October 1, 2002, we issued an IFC to implement section 903 of BIPA (67 FR 61496).

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

On December 8, 2003, Congress enacted the MMA. Several sections of the MMA affected POs. Most notably, section 101 of the MMA affected the way in which POs are paid for providing certain outpatient prescription drugs to any Part D eligible participant. The MMA altered the payment structure for Part D drugs for POs by shifting the payer source for PACE enrollees who are full-benefit dual-eligible individuals from Medicaid to Medicare, and, in part, from the beneficiary to Medicare for individuals that are not full-benefit dual-eligible beneficiaries who elect to enroll in Part D. The MMA did not affect the manner in which POs are paid for the provision of outpatient prescription drugs to non-part D eligible PACE participants.

Section 101 of the MMA added section 1860D-21(f) of the Act, which provides that POs may elect to provide qualified prescription drug coverage to enrollees who are Part D eligible individuals. The MMA allows CMS the flexibility to deem POs as MA plans with prescription drug coverage (MA-PD) local plans and to treat POs that elect to provide qualified drug coverage in a manner similar to MA-PD local plans. Due to inconsistencies in the PACE and MMA statutes, we chose to treat POs in a similar manner as MA-PD plans, thereby avoiding conflicting requirements. The requirements that apply to POs that elect to provide qualified prescription drug coverage to Part D eligible enrollees are described in section II.T.3. of the January 2005 Part D final rule (70 FR 4426 through 4434).

In addition, section 236 of the MMA amended the Act to extend to POs the existing statutory Medicare and Medicaid balance billing protections that had previously applied to POs under the PACE demonstration program authority.

Section 301 of the MMA amended the Medicare Secondary Payer (MSP) provisions in section 1862(b) of the Act. These amendments clarify the obligations of primary plans and primary payers, the nature of the insurance arrangements subject to the MSP rules, the circumstances under which Medicare may make conditional payments, and the obligations of primary payers to reimburse Medicare. To implement section 301 of the MMA, we issued an IFC published in the February 24, 2006

Federal Register

(71 FR 9466). The provisions in the IFC were finalized in a final rule published in the February 22, 2008

Federal Register

(73 FR 9679). The IFC revised pertinent MSP regulations found at 42 CFR part 411. Our PACE regulations at § 460.180(d) specify that Medicare does not pay for PACE services to the extent that Medicare is not the primary payer under part 411. The MSP regulations found at 42 CFR part 411 set forth our current policies regarding MSP obligations involving other payers.

5. 2006 PACE Final Rule

On December 8, 2006, we issued a final rule (71 FR 71244) (hereinafter 2006 final rule) that finalized both the PACE IFC published in the November 24, 1999

Federal Register

(64 FR 66234) and the PACE IFC published in the October 1, 2002

Federal Register

(67 FR 61496).

For a complete history of the PACE program, please see the 2006 final rule (71 FR 71244 through 71248).

C. PACE Regulatory Framework

Sections 1894(f) and 1934(f) of the Act set forth the requirements for issuing regulations to carry out sections 1894 and 1934 of the Act. Sections 1894(f)(2) and 1934(f)(2) of the Act state that the Secretary must incorporate the requirements applied to PACE demonstration waiver programs under the PACE Protocol when issuing interim final or final regulations, to the extent consistent with the provisions of sections 1894 and 1934 of the Act. However, the Secretary may modify or waive these provisions under certain circumstances. Sections 1894(a)(6) and 1934(a)(6) of the Act define the PACE Protocol as the Protocol for PACE as published by On Lok, Inc., as of April 14, 1995, or any successor protocol that may be agreed upon between the Secretary and On Lok, Inc. We issued the 1999 and 2002 IFCs and the 2006 final rule under authority of sections 1894(f) and 1934(f) of the Act.

We believe sections 1894(f) and 1934(f) of the Act primarily apply to issuance of the initial interim and final PACE program regulations because they refer to the PACE Protocol,

1

which has now been replaced by the PACE program agreement.

2

Sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act permit the Secretary to modify or waive provisions of the PACE Protocol as long as any such modification or waiver is not inconsistent with and does not impair any of the essential elements, objectives, and requirements of the PACE Protocol and, in particular, does not modify or waive any of the following five provisions:

1

https://www.gpo.gov/fdsys/pkg/FR-1999-11-24/pdf/99-29706.pdf

(Addendum A).

2

https://www.cms.gov/Medicare/Health-Plans/pace/downloads/programagreement.pdf.

• The focus on frail elderly qualifying individuals who require the level of care provided in a nursing facility.

• The delivery of comprehensive integrated acute and long-term care services.

• The IDT approach to care management and service delivery.

• Capitated, integrated financing that allows the PO to pool payments received from public and private programs and individuals.

• The assumption by the PO of full financial risk.

While we believe sections 1894(f) and 1934(f) of the Act no longer have direct application to the PACE program in many respects, we believe the limitations on waivers and modifications continue to apply to updates to the PACE program to the extent the updates concern essential elements, objectives, and requirements of the PACE Protocol, as replaced by the PACE program agreement, or any of the five listed provisions.

III. Summary of the Provisions of the Proposed Rule, and Analysis of Responses to Public Comments

In the August 16, 2016 proposed rule, we proposed to revise and update the policies finalized in the 2006 final rule to reflect subsequent changes in the practice of caring for the frail and elderly and changes in technology (for example, the use of electronic communications, including email, and the automation of certain processes) based on our experience implementing and overseeing the PACE program. We explained in the proposed rule that PACE has proven successful in keeping frail, older individuals, many of whom are eligible for both Medicare and

Medicaid benefits (dual eligibles), in community settings.

3

However, it is necessary to revise some regulatory provisions to afford more flexibility to POs and state administering agencies (SAAs) as a means to encourage the expansion of the PACE program to more states, thus increasing access for participants, and to further enhance the program's effectiveness at providing care while reducing costs. Therefore, we proposed a number of flexibilities, including allowing non-physician medical providers practicing within the scope of their state licensure and clinical practice guidelines to serve in place of primary care physicians in some capacities, and permitting POs to better tailor the IDTs to improve efficiency, while continuing to meet the needs of their participants.

3

See the Medicare Payment Advisory Commission's June 2012 Report to the Congress, Medicare and the Health Care Delivery System, pp. 76-77, available at

http://www.medpac.gov/docs/default-source/reports/june-2016-report-to-the-congress-medicare-and-the-health-care-delivery-system.pdf.

We received approximately 110 public comments on the proposed rule from POs, individuals, health care providers, advocacy groups, and states. In the sections that follow, we describe each proposed provision, summarize any public comments received on each provision, and provide our responses to the comments.

A. Global Change Regarding Quality Assessment and Performance Improvement

Part 460 encompasses the regulatory provisions pertaining to PACE. We proposed to replace all references to “quality assessment and performance improvement” in part 460 of the regulations (including subpart and section headings) with “quality improvement.” We noted in the proposed rule that we proposed this change because, in practice, the term “quality improvement” is used by the POs, SAAs, CMS, and the industry when referring to quality assessment and performance improvement for POs. Furthermore, the term “quality improvement” is used to mean the same thing in other CMS programs, such as the CMS Quality Improvement Organization Program and the MA Quality Improvement Program, so this change would allow for consistency in use of language across CMS programs. We stated that this would be a change in terminology only and would not designate a change in the requirements for the PACE quality program. As proposed, the change would affect the following sections and headings in the current regulations: §§ 460.32(a)(9), 460.60(c), 460.62(a)(7), 460.70(b)(1)(iii), 460.120(f), 460.122(i), 460.130(a), 460.132(a) and (c)(3), 460.134(a), 460.136(a), (b), (c), (c)(1) and (2), 460.138(b), and 460.172(c), and the headings of subpart H and §§ 460.132, 460.134, and 460.136. We noted in the proposed rule that, because we were proposing to remove § 460.140 in its entirety, we would not need to change the reference in that section.

As we received no comments on this global change, we are finalizing it as proposed.

B. Subpart A—Basis, Scope, and Definitions

1. Part D Program Requirements (§ 460.3)

In the 2006 final rule (71 FR 71248), we indicated that MA-PD requirements with respect to Part D prescription drug coverage would apply to POs that elect to provide qualified Part D prescription drug coverage. However, the PACE regulations make no mention of Part D program requirements. To clarify this policy, we proposed to add § 460.3, “Part D Program Requirements,” to state that the POs offering qualified prescription drug coverage and meeting the definition of a Part D plan sponsor (as defined at § 423.4) must abide by all applicable Part D program requirements in 42 CFR part 423. We explained in the proposed rule that when we issue Part D program guidance we often receive questions regarding applicability to PACE, and it has been our experience that POs are not always aware they must comply with Part D requirements unless a specific requirement has been waived. (For a list of the Part D regulatory requirements that are waived for POs, see section 2.4 of the Part D application for new POs, available at

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxContracting_ApplicationGuidance.html.

) We stated that we believed the proposed change is consistent with our current policy and does not involve any change in the current treatment of POs offering qualified Part D prescription drug coverage.

The following is a summary of the public comments we received on the proposed provision regarding Part D program requirements and our responses to comments.

Comment:

Several commenters generally supported the proposal to include in the PACE regulations the requirement that POs offering Part D qualified prescription drug coverage comply with Part D program requirements in 42 CFR part 423. However, one commenter requested that the regulatory text include a list of Part D requirements that are waived for PACE and suggested that CMS issue Health Plan Management System (HPMS) guidance specifying which Part D requirements are applicable to PACE. The same commenter requested that CMS audits take into account differences between PACE and MA-PDs and Medicare prescription drug plans (PDPs). The commenter also requested that CMS help in reducing Part D premiums and other costs for PACE participants.

Response:

Regarding the suggestion to list in the PACE regulations the specific Part D requirements that are waived for PACE, we prefer to maintain our current approach of listing the waived regulations in the Part D application for new POs, as well as the PACE program agreement. We believe our approach provides greater administrative flexibility (for example, to remove or add waived requirements) than if we codified the list in regulation. Further, we believe listing the waived regulations in the Part D PACE application is appropriate so that this information is readily available to all entities submitting an application. However, we agree that when we need to change how a waiver of Part D requirements is applied in PACE, or revoke a waiver based on new information or legal requirements, we should issue guidance to address those changes. For example, we will be issuing an HPMS memo to clarify the requirements for drug management programs in PACE to reflect the regulatory changes made in the final rule to implement the Comprehensive Addiction and Recovery Act (CARA) (83 FR 16440). Because the other comments concerning audits and assistance with reducing premiums and other costs address topics that were not covered in our proposal, we consider those comments to be outside the scope of this rule. We are finalizing the new § 460.3 as proposed, with one technical change to refer to the definition of a Part D sponsor “in” § 423.4 instead of “at” § 423.4.

C. Subpart B—PACE Organization Application and Waiver Process

1. Purpose (§ 460.10)

Section 460.10 describes the purpose of subpart B, which sets forth the processes for an entity to apply to become a PO and to apply for a waiver of certain regulatory requirements. We proposed to revise this section to add a new paragraph (a) to address the

application process and a new paragraph (b) in which we proposed to move the current language in this section regarding the waiver process by which a PO may request a waiver of certain regulatory requirements. We also proposed to add § 460.10(a)(2) and (3) to describe the process for a PO to seek approval from CMS to expand an existing service area or add a new PACE center. We did not receive any comments on this proposal, and therefore, we are finalizing it as proposed.

2. Application Requirements (§ 460.12)

Section 460.12 sets forth the application requirements for an organization that wishes to participate in the PACE program. Section 460.12(a) currently requires an individual authorized to act for an entity to submit a complete application to CMS that describes how the entity meets all requirements in part 460 if the entity seeks approval from CMS to become a PO. As set forth in our PACE manual, an application must also be submitted for a PO that seeks to expand its service area and/or add a new PACE center site (see PACE Manual, Ch. 17, Sections 20.4 through 20.7). There are three scenarios specified in the PACE manual under which a PO may expand operations: (1) It may expand its geographic service area without building additional sites; (2) it may open another physical site in the existing geographic service area; and (3) it may expand its geographic service area and open another physical site in the expanded area. Currently, POs are required to submit an application to CMS and the SAA to expand their geographic service area and/or add a new PACE center to their PO. In October 2004, we released the PACE expansion application, which was for existing POs that wish to expand their geographic service areas, and/or add a new PACE center to their PO.

As with initial applications, our guidance requires POs to submit an expansion application to CMS through the SAA. However, current regulations do not specify a process for POs to submit, and the SAA and CMS to approve, an expansion application. Therefore, we proposed to amend § 460.12(a) to specify that it also applies to expansion applications submitted by existing POs that seek to expand their service area and/or to add a PACE center site. Specifically, we proposed to add language in § 460.12(a) that an individual authorized to act for a PO that seeks to expand its service area and/or add a PACE center site must submit a complete application to CMS that describes how the PO meets all requirements in this part. We stated in the proposed rule that we believed including this requirement in § 460.12 will help ensure POs understand our current practice of requiring an expansion application for a PO that seeks to expand its service area and/or add a PACE center site.

We also proposed to add the phrase “in the form and manner specified by CMS” to § 460.12(a) when describing the submission to CMS of a complete application to become a PO or to expand a service area and/or add a PACE center, to allow for submission of applications and supporting information in formats other than paper, which was the required format at the time the proposed rule was issued. As we explained in the proposed rule, paper applications were often hundreds of pages long, expensive to reproduce and transmit, and administratively inefficient, as staff reviewing different parts of the application are located in different physical locations and must receive hard copies of the material. We noted that to adapt to the increased use of electronic communications, electronic health records, and electronic data storage and exchange, we must continuously update the form and manner by which we administer our programs. We stated that we had successfully transitioned the MA application and PDP application to a fully electronic submission process, enabling a more organized and streamlined review, and wanted to bring those same efficiencies to the PACE application process. We also noted that we will provide further guidance on this process through HPMS or similar electronic system that may replace HPMS. Effective March 31, 2017, the first quarterly application submission date, we required POs to submit all applications electronically via HPMS, including initial applications, and applications for existing POs to expand their service area and/or add a PACE center site. POs and applicants may also refer to the CMS online tools for application submission at

https://www.cms.gov/Medicare/Health-Plans/PACE/Overview.html.

Section 460.12(a)(2) provides that we would accept applications from entities that seek approval as POs beginning on February 22, 2000, except we would accept applications on earlier dates for certain entities that qualify for priority processing or special consideration. We established this provision and two other sections of the PACE regulations, previously found at § 460.14 and § 460.16, to implement section 4803(c) of the BBA of 1997. Section 4803(c) directed us to give priority in processing applications, during the 3-year period following enactment of the BBA of 1997, to PACE demonstration programs and then to entities that had applied to operate a PACE demonstration program as of May 1, 1997. In addition, section 4803(c) of the BBA of 1997 required that we give special consideration in the processing of applications during the 3 years following enactment to any entity that as of May 1, 1997, had indicated specific intent to become a PO through formal activities such as entering into contracts for feasibility studies. In the 2006 final rule (71 FR 71253), we deleted § 460.14 (Priority Consideration) and § 460.16 (Special Consideration) because the authority to provide these considerations expired on August 5, 2000. For the same reason, in the proposed rule, we proposed to delete paragraph (a)(2) of § 460.12, as it is no longer applicable.

Section 460.12(b) provides that an entity's application must be accompanied by an assurance from the SAA of the state in which the program is located indicating that the state (1) considers the entity to be qualified to be a PO and (2) is willing to enter into a PACE program agreement with the entity. However, we have received applications without the required SAA assurance. To help ensure that our current policy is clear, we proposed to revise the language to require that the entity's application to become a PO include an assurance from the SAA that the state considers the entity to be qualified to be a PO and the state is willing to enter into a PACE program agreement with the entity. We explained in the proposed rule that we want entities to understand we would not consider an application to become a PO to be complete without assurance from the SAA that the state both considers the entity to be qualified to be a PO and is willing to enter into a PACE program agreement with the entity. We noted that we would not review applications that do not include this assurance.

Similarly, we proposed to redesignate paragraphs (b)(1) and (2) as § 460.12(b)(1) and add a new paragraph (b)(2) to codify the current requirement in the PACE expansion application that a PO's application to expand its service area and/or add a new PACE center site must include an assurance from the SAA that the state is willing to amend the PACE program agreement to include the new PACE center sites and/or expand the PO's service area. We noted that we also expect, as we stated in the preamble to the 1999 IFC for initial applications (64 FR 66238), that the SAA will verify that an applying entity has qualified administrative and clinical

staff employed or under contract prior to furnishing services to participants in the expanded service area.

In addition, we proposed to move the language in § 460.22, which requires an entity to state in its application the service area it proposes for its program, and provides that CMS (in consultation with the SAA) may exclude an area already covered under another PACE program agreement, to proposed paragraph § 460.12(c) and remove § 460.22. As proposed, § 460.12(c)(1) would specify that both an entity submitting an application to become a PO and a PO submitting an application seeking to expand its service area must describe the proposed service area in their application. We also proposed to make a corresponding change to the Medicare Part D definition of “Service area” in § 423.4 for PACE plans offering qualified prescription drug coverage by removing the reference to “§ 460.22 of this chapter” and adding in its place “§ 460.12(c) of this chapter,” as our proposed changes would move the language currently in § 460.22 to § 460.12(c).

Finally, to codify CMS' current practice regarding the permissibility of POs to expand their service area and/or add a new PACE center site (see PACE Manual, Ch. 17, Section 20.4), we proposed to add § 460.12(d), which would provide that CMS and the SAA will only approve an expansion application after the PO has successfully completed its first trial period audit and, if applicable, has implemented an acceptable corrective action plan.

4

4

The PACE manual is available at

https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/internet-Only-Manuals-IOMs-Items/CMS019036.html.

We stated in the proposed rule that we believed all of these changes to § 460.12 would streamline the regulations and make the requirements clear and consistent with the PACE statutes. We noted that we will provide subregulatory guidance on application submission requirements after publication of the final rule.

A discussion of the comments we received on the proposed changes to the application requirements, and our responses to those comments, appears below.

Comment:

One commenter questioned how the state will ensure that the required state assurance that is to accompany an initial or expansion application is accurate without additional monitoring. The commenter also questioned if the state will be required to perform additional monitoring (with supporting documentation) to prove that an expanding PO is indeed qualified to expand its service area or add an additional PACE center.

Response:

The PACE regulations currently require that an entity's application to become a new PO be accompanied by an assurance from the SAA that the state considers the entity to be qualified to be a PO and is willing to enter into a PACE program agreement with the entity. In proposing to revise § 460.12(b), we sought to clarify in the regulations that, similar to the requirement for an initial application, the SAA must provide an assurance to us that the state is willing to expand the existing PACE program agreement to add to an existing service area and/or add a new PACE center. Given that we, in cooperation with the SAA, already conducts ongoing monitoring of a PO, we expect the state will determine what if any additional information is needed from a PO before providing the required assurance. As required by Chapter 17 of the PACE manual (Sections 10, 20.6, 20.7 and 30.2), if the PO is seeking to expand by adding a new PACE center, the SAA is responsible for conducting the state readiness review (SRR) of the PACE center to ensure that it meets the regulatory requirements for environment and staffing, and must provide the results to us before the expansion application can be approved.

Comment:

Some commenters expressed support for CMS' proposal to modernize the application process for entities that seek to become new POs or to expand existing service areas or add new PACE center sites, acknowledging that the electronic exchange of information will expedite the processing of applications and be less burdensome for both POs and CMS.

Response:

We thank the commenters for their support.

Comment:

A variety of commenters, including PACE associations, supported the proposed requirements related to the submission of initial applications by entities seeking to become POs, as well as applications submitted by POs to expand their geographic service areas. Commenters recommended that CMS not require a PO to submit a formal expansion application in order to add a new PACE center within an existing service area. Commenters suggested that instead of requiring an expansion application for a new PACE center, CMS only require a PO to provide advance notification (a minimum of 60 days in advance) at any time (not limited to the quarterly application submission cycle), and report specific information (for example, location of the new PACE center, SAA assurance of support, willingness to amend the PACE program agreement, attestation of financial solvency with supporting documentation as evidence of the program's financial capacity, etc.), along with a completed SRR prior to the opening of the new PACE center. Commenters suggested that subsequently, but still prior to the new PACE center's opening, the PO would submit any revised marketing materials to CMS for review. Some commenters also suggested that a similar process, with no expansion application requirement, would be sufficient for circumstances in which a PO is simply moving a PACE center to a new location and relocating the IDT. Other commenters noted that removing the current requirement to submit applications on a quarterly cycle would enable POs to open a new PACE center more quickly to build capacity in response to increasing enrollment.

Response:

We do not agree with the suggestion to remove the expansion application requirement for existing POs seeking to add a new PACE center within an existing service area for a number of reasons. First, the submission of an expansion application in which the PO seeks to add a new PACE center in an existing service area ensures that a structured, formalized process is employed consistently, regardless of expansion type, and ensures that the PO is providing proper assurances that PACE requirements are being met and that appropriate documentation is provided and included as part of the PACE program agreement. Furthermore, an expansion application requirement benefits both CMS and the PO, as both parties are held accountable and are required to adhere to established timeframes and deadlines. Perhaps most importantly, the submission of a formal expansion application, regardless of type, enables us to make a determination based on a standardized mechanism and affords the PO the opportunity to request reconsideration of denials by us. Regarding commenters' suggestion that a similar alternative process, with no expansion application requirement, could also be employed when a PO is simply moving a PACE center to a new location and relocating the IDT, we would point to our guidance that addresses expectations of POs under these circumstances. (See the October 21, 2016 HPMS memorandum, PACE Replacement Center Transition Guidance.) POs that seek to relocate an existing PACE center should follow this subregulatory guidance.

Comment:

A commenter suggested that the SRR be appropriately tailored to situations in which a PO is applying to

either expand its service area or add a new PACE center site, stating that the SRR in these instances should not be the equivalent to an SRR conducted for and included in an initial application.

Response:

We note that an SRR is not required for service area expansion (SAE) applications that do not include the addition of a new PACE center. We recognize that the SRR is typically the primary driver of delay in final approval when a PO applies for an expansion that includes the addition of a new PACE center site. However, the SRR is also a critical component of an expansion application that includes a new PACE center, as it assures that all state-based licensure requirements are met and building and safety codes are satisfied. The SRR primarily consists of reviewing requirements specific to the PACE center itself, such as construction, equipment and maintenance to assure physical safety of participants and personnel. While there are some SRR requirements that may remain the same as the existing PACE center(s), such as transportation, contracts and policies and procedures, that may not be the case if the new PACE center is geographically distant from the existing PACE center. For example, there may be a different transportation provider or other new contractors that are more accessible to the new PACE center location. Because of those variables, we believe it would be difficult to tailor the current SRR for an expansion application that includes addition of a new PACE center.

Comment:

Some commenters requested that CMS specify in § 460.12 that an expansion application will not have to include information previously submitted to CMS as part of the initial application. Another commenter noted that streamlining the administrative process removes a burden for both POs and CMS in processing these applications.

Response:

While SAE applicants were previously required to submit a smaller subset of documents than initial PACE applicants, in March 2018, as part of the first quarterly application submission cycle, CMS began requiring SAE applicants to respond to the same attestations and upload the same documentation as initial PACE applicants. The PACE program agreement is the binding document between the PO, CMS and the SAA. We have found that program agreements, particularly for POs that have been active for some time, may not fully represent current operational policies and procedures and other information that is required content of the program agreement under § 460.32. We understand commenters' concerns regarding the potential burden associated with SAE applicants having to upload documents previously submitted as part of an initial application. However, in addition to providing added assurance and evidence that an active PO is qualified to expand its PACE program, we believe the application process is an appropriate, efficient and effective vehicle for capturing documentation that is required as part of the PO's PACE program agreement, including changes to operational policies and procedures, and eliminates the need to require the PO to submit additional information separately. While not explicitly addressed in this rule, we note that comments received from the PACE industry in response to an information collection request (CMS-10631, OMB 0938-1326) regarding this approach for SAE applications have generally indicated support for requesting information as part of the SAE application itself in order to facilitate efforts to update the PACE program agreement. This information collection request is subject to renewal and expires on December 31, 2021.

We believe this approach results in a more streamlined process and reduced burden for all parties to the PACE program agreement.

Comment:

Commenters expressed support for the proposed provision in § 460.12(d), which would require a PO to have completed its first trial period audit and, if applicable, implemented an acceptable corrective action plan before CMS and the SAA will approve a service area expansion or PACE center expansion, with two specific modifications. Commenters requested an exception to this requirement when the PO is relocating its PACE center to a new location due to unforeseen circumstances or to assure adequate access if program growth exceeds enrollment projections. In addition, because the timing of the first trial period audit affects the ability of a PO to grow, commenters requested that CMS and the SAA commit to conducting trial period audits in a timely manner, with an expectation that the first year audit be completed no later than 15 months after the opening of the PACE program.

Response:

We appreciate the support for the proposed provision in § 460.12(d) and acknowledge that unforeseen or otherwise exceptional circumstances, such as storm damage from a hurricane, may require a PO to immediately relocate its PACE center prior to completion of the first trial period audit. In situations that constitute emergency events, we would expect the PO to implement its emergency preparedness plan under § 460.84, which should include established plans and procedures for continued care of all participants, including those who had previously required regular PACE center attendance, as well as those who predominantly or exclusively receive care at home or in alternative care settings, as applicable. In the event such emergency circumstances require the relocation of a PACE center, either on a temporary or permanent basis, we would work with the PO and the SAA to ensure that the PO's emergency preparedness plan is implemented effectively and in a manner that maintains the health and safety of participants and staff. Such circumstances vary widely and present unique challenges; and we will expect the PO, to the extent possible, to address the items identified in the transition plan included as part of the October 21, 2016 HPMS memorandum, PACE Replacement Center Transition Plan guidance, while recognizing that the guidance may need to be tailored in response to the emergency situation presented. The priority under such circumstances will be to ensure that participants continue to receive necessary medical care and IDT members are able to continue to function and serve the needs of participants in a safe environment, regardless of setting. We would not require submission of an expansion application in this type of emergency situation, and do not believe it is necessary to amend § 460.12(d) to address unforeseen or otherwise exceptional circumstances.

We also do not agree that an exception should be made to allow relocation of a PACE center prior to completion of the first trial period audit in order to assure adequate access if program growth exceeds enrollment projections. A PO that intends to relocate its PACE center in order to satisfy increased enrollment demands would be required to wait until the first trial period audit is successfully completed. We believe this is reasonable because it enables us to ensure the PO is satisfying all requirements of the PACE program within the initial enrollment capacity constraints prior to accommodating increased enrollment. We also appreciate the comment regarding the timing of the first review during the trial period. We are committed to conducting timely annual reviews during each contract year of the PO's trial period. We will continue to

schedule reviews as expeditiously as possible consistent with statutory and regulatory requirements for the PACE program.

After considering the comments, we are finalizing the changes to § 460.12 as proposed.

3. CMS Evaluation of Applications (§ 460.18)

Section 460.18 describes the information that CMS uses to evaluate an application under PACE; however, this does not take into account all the potential sources of information that may be a part of the evaluation process, including information used in the evaluation of applications submitted for a PO that seeks to expand its service area and/or add a new PACE center site. Currently, § 460.18(b) specifies that CMS will use information obtained through on-site visits conducted by CMS or the SAA. Section 460.18(c) provides that CMS will use information obtained by the SAA. As discussed earlier in this section, we proposed to revise our regulations to reflect that an application also must be submitted for a PO that seeks to expand its service area and/or add a new PACE center site. We explained in the proposed rule that in evaluating expansion applications, CMS may consider additional information beyond that contained in the application itself, information obtained through on-site visits, or information obtained through the SAA. For example, our review of a SAE application might include information obtained from financial reviews, as well as the results from ongoing monitoring visits. Therefore, we proposed to combine the language currently in § 460.18(b) and (c) in revised § 460.18(b) and delete § 460.18(c). The revised § 460.18(b) would state that CMS uses information obtained by CMS or the SAA through on-site visits or any other means. We noted that this change would take into account the additional information that we use to review any PACE application, including applications to expand a PO's service area or add a new PACE center site. We also proposed to make a conforming change to the introductory language in § 460.18 to reflect the review of expansion applications, by deleting “for approval as a PACE organization.”

A discussion of the comments we received on the proposed changes to the application evaluation requirements, and our responses to those comments, appears below.

Comment:

One commenter noted the proposed modification would enable CMS to use information obtained by CMS or the SAA through on-site visits or any other means in order to evaluate a PACE application, and requested clarification regarding what encompasses “any other means.”

Response:

As we stated in the proposed rule (81 FR 54671), it is our intent to capture all the potential sources of information that may be part of the application evaluation process. Information obtained by “any other means” may include, but is not limited to, information obtained through the SAA, from financial reviews, or from ongoing monitoring visits.

We are finalizing the modifications to § 460.18 as proposed.

4. Notice of CMS Determination (§ 460.20)

Section 460.20 describes requirements for CMS to notify PACE applicants of the status of PACE applications. Currently, § 460.20 only specifies the requirements for CMS determination of applications submitted by entities seeking to become POs. As previously discussed in this section, we proposed to amend the regulations in subpart B to include, in addition to requirements for applications from entities seeking to become POs, requirements for applications submitted by existing POs for service area and/or PACE center site expansions. In conjunction with that proposal, we proposed changes to § 460.20 to also include specific language regarding the notification requirements for CMS determination of applications to expand a PO's service area and/or to add a new PACE center.

As we explained in the proposed rule, the current requirements in § 460.20 implement sections 1894(e)(8) and 1934(e)(8) of the Act, which require that an application for PO status be deemed approved unless the Secretary, within 90 days after the date of the submission of the application to the Secretary, either denies such request in writing or informs the applicant in writing with respect to any additional information that is needed in order to make a final determination with respect to the application. The Act further states that, after the date of receipt of any additional requested information from the applicant, the application must be deemed approved unless the Secretary, within 90 days of such date, denies such request.

While the Act requires that CMS provide notice to entities seeking to become POs of its determination within 90 days, the Act does not set out requirements for applications submitted by existing POs to expand their service area and/or to add a new PACE center site. We have published expansion application requirements in Chapter 17 of the PACE manual, available at

http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Internet-Only-Manuals-IOMs-Items/CMS019036.html.

Under that guidance, a PO is required to submit an expansion application when the PO is seeking to (1) expand its geographic service area; (2) add a new PACE center; or (3) expand its geographic service area and add a new PACE center.

The guidance provides that, when a PO submits an expansion application to expand its geographical service area without building additional sites, CMS has 45 days to request additional information from the PO, approve the application, or deny the application. Similarly, when a PO submits an expansion application to add a new PACE center in the existing service area, CMS has 45 days to request additional information from the PO, approve the application, or deny the application. In these scenarios, if CMS requests additional information and the applicant provides the requested information, CMS has an additional 45 days to review and either approve or deny the expansion application. The second 45-day review period in this scenario only commences once CMS has received all of the additional requested material. If the applicant submits additional information per CMS' request, but CMS determines that there is still outstanding information requested from the applicant, CMS notifies the applicant and the additional 45-day review period does not begin until all requested information is received. Once we have received all of the requested information, CMS sends a letter to the applicant indicating that the second 45-day review period has commenced.

In the third scenario, when a PO submits an expansion application to expand its geographic service area and open a new PACE center site, CMS has 90 days to request additional information from the PO, approve the application, or deny the application. In this scenario, if CMS requests additional information and the PO provides the requested information, CMS has an additional 90 days to review and either approve or deny the expansion application. The second 90-day review period in this scenario only commences once CMS has received all of the additional requested material. If the applicant submits additional information per CMS' request, but CMS determines that there is still outstanding information requested from the applicant, CMS notifies the applicant and the additional 90-day review period does not begin until all requested

information is received. Once CMS has received all of the requested information, CMS sends a letter to the applicant indicating that the second 90-day review period has commenced.

We proposed to codify our current subregulatory requirements for notifying POs of CMS determinations regarding service area and PACE center site expansion applications so the regulations include all of the relevant application timing requirements. Specifically, we proposed to amend § 460.20(a) to make it clear that the notice of CMS determination applies to all three types of applications listed in proposed § 460.10(a), and that the 90-day time limit applies, except for applications to expand the service area or add a new PACE center site.

First, we proposed to delete § 460.20(a)(3) and revise § 460.20(b). Currently, § 460.20(a) states that CMS will approve or deny, or request additional information on, a “complete application” within 90 days after submission of the application. We explained in the proposed rule that we believe it is confusing to state that an application is complete if we are requesting additional information. Therefore, we proposed to delete § 460.20(a)(3), which is the provision that describes CMS requesting additional information needed to make a final determination, and we proposed to revise § 460.20(b) to state that an application is only considered complete when CMS receives all information necessary to make a determination regarding approval or denial. We noted that we would not consider the application complete without the required state assurance. We also proposed to revise § 460.20(a) to specify that the time limit for CMS notification of determination is 45 days for expansion applications where a PO seeks to expand its service area or add a new PACE center.

Next, we proposed that § 460.20(b) through (d) be redesignated as § 460.20(c) through (e) and revised as follows. We proposed to revise redesignated § 460.20(c) to describe the process if CMS determines that the application is not complete because it does not include sufficient information for CMS to make a determination. Specifically, CMS would inform the entity that the application is not complete and request the additional information, and within 90 days (or 45 days for a service area or new PACE center expansion application) of CMS receiving all requested information from the entity, CMS would approve the application or deny it and notify the entity in writing of the basis of the denial and the process for requesting reconsideration of the denial. We explained in the proposed rule that we proposed these changes because it is not possible for CMS to make an informed decision to approve or deny an application in situations where we do not have all of the pertinent information. We stated we would consider the SRR, which SAAs conduct to determine the PO's readiness to administer the PACE program and enroll participants, as information necessary to make our final determination and would request that the SRR be submitted in all applicable requests for additional information if we did not already have this information. We further noted that, if more than 6 months elapse between the date of submission of the application and the response to CMS' request for additional information, the entity is required to update the application to provide the most current information and materials related to the application; otherwise, we would consider the application incomplete. We proposed to revise § 460.20(c) accordingly.

Section 460.20(b), which we proposed to redesignate as § 460.20(c), currently outlines the requirements for POs when CMS requests from an entity additional information needed to make an application determination. As noted previously, we proposed to amend the language in this provision to address the different time limits for expansion applications. We also proposed to amend the language to specify that the time limits in § 460.20(a) do not begin until CMS receives all requested information and the application is complete. As we explained in the proposed rule, with the changes to § 460.20(a) and the addition of § 460.20(b), it would no longer be necessary to describe CMS' review process after all requested information has been received; thus, we proposed to remove § 460.20(b)(1) and (2).

Section 460.20(c), which we proposed to redesignate as § 460.20(d), currently implements sections 1894(e)(8) and 1934(e)(8) of the Act and provides that an application for PO status will be deemed approved if CMS fails to act on it within 90 days of the date the application is submitted or the date CMS receives all requested additional information. We proposed to amend this language to specify deemed approval will occur if CMS fails to act after the later of those dates, and that the provisions relating to deemed approval only apply to applications to become a PO, not expansion applications from existing POs. We stated in the proposed rule that this revision is necessary because, as described previously, we proposed to address expansion applications in the regulations, and we wanted to make it clear that only initial applications will be deemed approved if CMS fails to act on them within the required time period. As previously noted, the PACE statutes do not set out requirements for applications submitted by existing POs to expand their service area and/or to add a new PACE center site. We explained in the proposed rule that CMS does not currently employ “deemed approval” for expansion applications, and we noted we do not believe there is any reason to do so for these applications at this time. We further proposed to amend this language by specifying that the 90-day period commences after CMS has received a “complete” application, as this is consistent with the amendments to § 460.20(a) and § 460.20(b).

Finally, § 460.20(d) currently states that for purposes of the 90-day time limit described in this section, the date that an application is submitted to CMS is the date on which the application is delivered to the address designated by CMS. We proposed to redesignate § 460.20(d) as § 460.20(e), and revise this paragraph to refer to the time limits described in this section to include applications for service area expansions or new PACE center sites.

A discussion of the comments we received on the proposed changes to the CMS notice of determination requirements, and our responses to those comments, appears below.

Comment:

Commenters questioned the necessity of the proposed provision that would require PACE applicants to update their applications if more than 6 months elapse between the date of initial submission of the application and the entity's response to the CMS request for additional information. Commenters also questioned whether CMS was proposing to require the applicant to withdraw its application and resubmit an entirely new application, or if CMS would permit less burdensome and timelier ways to update the existing application through submission of additional information. Commenters recommended the latter approach, and suggested allowing 12 months, as opposed to 6 months, to elapse between the date of application submission and the entity's response to the request for additional information before the entity is required to update its application. Commenters also recommended that the submission of additional information not be subject to CMS' quarterly submission timeframes for applications.

Response:

After careful consideration of the comments, we have reconsidered

the timeframe that would require an update to the application. We agree with commenters that there may be valid reasons for delay in responding to our request for additional information (for example, unexpected delays in construction or licensing of the PACE center, or timing of the SRR); therefore, we accept the recommendation made by commenters and will specify that if more than 12 months, instead of 6 months, elapse between the date of initial submission of the application and the entity's response to our request for additional information, the entity must update the application with the most current information and materials related to the application. This means that, in addition to addressing the additional information requested by us, the applicant must submit all other application-specific documentation that may have changed during the interim 12-month period. We note that, depending on the nature of those changes and updates, there may be circumstances in which the applicant will be required to submit a completely new application; for example, if there is a change in the legal entity that is applying to become a PO.

With respect to commenters' recommendation that the submission of additional information not be subject to quarterly submission timeframes, we note that responses to a request for additional information are not limited to a quarterly submission cycle. While the application itself (initial or expansion) must be submitted on the established quarterly dates, information in response to a request for additional information may be submitted at any time.

Comment:

We received comments in response to the proposed provision regarding deemed approval of initial applications. One commenter did not believe that an application should be deemed approved due to CMS' inability to review and act on an application within the required timeframes. This commenter believed that all documentation submitted to fulfill an application as complete must be reviewed and approved by CMS without any deemed approval. Other commenters noted that CMS, in the preamble to the proposed rule, stated that it does not believe it is necessary to allow deemed approval for expansion applications, as it has not done so in the past. Commenters requested that CMS reconsider this position and allow deemed approval of applications from POs seeking to expand a service area, with or without adding a new PACE center. While recognizing that CMS has always acted on expansion applications within the timeframes required for initial applications, the commenters stated there is no reason to preclude deemed approval if CMS is unable to act on an expansion application in a timely manner for some reason.

One commenter stated that, in cases in which the deemed approval requirement is triggered, it is still necessary for CMS to issue confirmation that deemed approval took place in order to effectively track the status of the review process.

Response:

Sections 1894(e)(8) and 1934(e)(8) of the Act require an application for PO status to be deemed approved unless the Secretary, within 90 days after the date of the submission of the application to the Secretary, either denies the request in writing or informs the applicant in writing with respect to any additional information that is needed to make a final determination. The Act further states that, after the date of receipt of any additional requested information from the applicant, the application must be deemed approved unless the Secretary, within 90 days of such date, denies such request. As we noted in the proposed rule, the PACE statutes do not specifically address expansion applications. As such, we proposed to specify in redesignated § 460.20(d) that the deemed approval requirement only applies to entities that submit an initial application. As stated in the proposed rule, we do not currently employ deemed approval for expansion applications and we do not believe there is valid reason to employ deemed approval for expansion applications at this time. We appreciate the recognition from commenters that we have, to date, rendered decisions regarding expansion applications within the timeframes required for initial applications; however, we do not want to be in a position in which a deeming process supersedes our ability to make thoughtful, proactive decisions regarding these expansion applications. Therefore, we are finalizing our proposal that the deemed approval requirement will not apply to expansion applications.

Regarding the comment that we must issue confirmation that an application has been deemed approved, we note that the automated PACE application system sends communications to applicants regarding the status of their application, and applicants would receive formal notification of any deemed approval in the approval letter that accompanies the applicant's executed PACE program agreement. In light of these communications, we do not believe separate CMS confirmation of deemed approval is necessary. However, based on the input received, we will consider modifications to our auto-generated communications to include additional information regarding timeframes for review.

Comment:

One commenter explained the process one specific SAA must undergo in order to effectuate service area expansions and expansions involving new PACE centers, and suggested that CMS and the SAA consider ways to better coordinate and shorten the timeframes for approval of expansion applications. The commenter noted that CMS has 90 days after submission of the SRR to make a determination with regard to the application and questioned whether it would be possible to allow a PACE center to open immediately upon receipt of the completed SRR.

Response:

We note that our review timeframe may be 45 or 90 days depending on the type of expansion application. While we seek to review expansion applications as expeditiously as possible, adequate time must be afforded to us to review all aspects of an application, including responses to any requests for additional information, as well as the SRR. As a party to the PACE program agreement, we must carefully review all elements of the application, including the SRR, and therefore, would not consider allowing a PACE center to begin operations immediately upon our receipt of the SRR. We note that, even after we receive the SRR and any information submitted in response to a request for additional information and we determine the application is approvable, we require additional time to amend and execute the PACE program agreement and ensure that proper steps have been taken to accommodate enrollment of participants and payment to the PO. Within the past year, we have significantly expedited the effective date for approvals of expansion applications, often making them effective upon the date of approval of the expansion application.

After carefully considering all comments, we are finalizing § 460.20 as proposed, with one modification. Under § 460.20(c)(2), an entity will be required to update its application if more than 12 months, as opposed to 6 months, elapse between the date of initial application submission and the entity's response to the CMS request for additional information.

5. Service Area Designation (§ 460.22)

As discussed in section III.C.2. of this final rule, we proposed to move the content of § 460.22, in its entirety but with a few revisions, to § 460.12(c).

Therefore, we proposed to delete § 460.22.

A discussion of the comments we received on this proposed change, and our responses to those comments, appears below.

Comment:

One commenter questioned whether the proposed removal of § 460.22 means that zip code expansions will no longer be required, and if so, whether expansion information will be documented as part of PACE program agreement updates.

Response:

We assume the commenter is questioning whether expansion applications from POs that seek to expand their approved geographic service area will no longer be required. We address application requirements specific to service area expansions in section III.C.2. of this final rule. However, we wish to clarify that we proposed to move the current content of § 460.22 to § 460.12(c), which is why we proposed to delete § 460.22. We note that a description of the service area will still be required as part of the application, in accordance with existing requirements and documented as part of Appendix C of the PACE program agreement.

Comment:

A few commenters addressed the provision that states CMS, in consultation with the SAA, may exclude from designation an area that is already covered under another PACE program agreement to avoid unnecessary duplication of services and avoid impairing the financial and service viability of an existing program. One commenter expressed support for this provision. Another commenter expressed appreciation of CMS' goal and emphasized the word “may” in this provision, as some degree of competition between PACE programs in the same geographic area may be useful to ensure adherence to minimum quality standards and encourage the provision of quality services.

Response:

We note that this provision is based on sections 1894(e)(2)(B) and 1934(e)(2)(B) of the Act, and it is not a new provision or revision to an existing provision. Rather, we are simply moving the provision, in its current form, from § 460.22(b) to § 460.12(c)(2). As a result, we proposed to delete § 460.22(b). After considering the comments, we are finalizing this change as proposed.

Comment:

One commenter expressed support for current provisions that require clearly-defined geographic service areas for both initial and expansion applications. The commenter also expressed the need to ensure flexibility regarding the designation of service areas. The commenter noted that traditional reliance on boundaries defined by county lines or Core Based Statistical Areas (CBSA) may prove arbitrary in terms of reflecting the actual distribution of a population in need of services. The commenter also noted innovations such as telehealth are redefining traditional concepts of a service area, in both rural and urban settings. The commenter stated that flexibility in defining service areas enhances the ability to target PACE services to populations that could support and benefit from coverage by more than one PO; for example, there could be situations in which a new PO seeking to enter a market is willing to introduce innovation or serve a specialized population that an existing PO is unable or unwilling to match.

Response:

We note that § 460.32(a)(1) allows the service area of a PO to be identified by county, zip code and other means. Therefore, applicants are not necessarily bound by traditional geographic designations. With respect to the comment regarding innovative service delivery approaches that could be considered when defining service areas, we appreciate this input and may consider it as part of subregulatory guidance or rulemaking in the future.

Comment:

One commenter acknowledged that both the current and proposed regulations require an applicant entity to identify the service area the PACE program wishes to serve, noting, specifically, that CMS, in consultation with SAAs, may exclude an area that is already being served by another PACE program agreement. One commenter noted that Tribal Health Programs (THPs) have a unique relationship with the American Indian/Alaska Native (AI/AN) beneficiaries they are contracted to serve. Specifically, AI/AN beneficiaries have the ability under Medicaid to receive services from a THP, even when the AI/AN is enrolled in a managed care product, and the THP has the right to receive reimbursement for services provided. Therefore, the commenter requested that CMS specify an exception to the service area designation requirement to allow THPs to identify the Indian Health Service (IHS) Service Area in their application, even if a non-Indian PACE program already exists in all or part of that IHS Service Area.

Response:

We interpret the comment to be specific to a THP that may apply to offer a PACE program. We note that, under § 460.32(a)(1), a service area may be defined by county, zip code and certain other means including tribal jurisdictional area, as applicable, and this is explicitly stated in the PACE application. We further note that the regulatory language currently in § 460.22(b) states that CMS, in consultation with the SAA, may exclude from designation an area that is already covered under another PACE program agreement to avoid any unnecessary duplication of services and avoid impairing the financial and service viability of an existing program. Whether another PO is currently serving a designated service area is therefore a consideration in the potential exclusion of that area, not an absolute requirement for exclusion.

After considering the comments, we are finalizing the changes to § 460.22 as proposed.

6. Submission and Evaluation of Waiver Requests (§ 460.26)

Section 460.26 sets forth the process for submitting and evaluating waiver requests. We proposed to revise current § 460.26(a)(1) and (2) so that § 460.26(a)(1) would state that a PO, or an entity submitting an application to become a PO, must submit its waiver request through the SAA for initial review. Paragraph (a)(1) would also specify that the SAA forwards waiver requests to CMS along with any concerns or conditions regarding the waiver. We proposed that section 460.26(a)(2) would state that entities submitting an application to become a PO may submit a waiver request as a document separate from the application or in conjunction with and at the same time as the application. While we did not propose any policy changes in the proposed rule, we stated that we believed these changes would make the requirements for submission of the waiver request more concise and clear. We noted that we plan to provide additional detail on this part of the process in subregulatory guidance.

Section 460.26(b) states that CMS evaluates a waiver request from a PO on the basis of certain information. We proposed to add “or PACE applicant” after “PACE organization” because a waiver request can be submitted by an existing PO or a PACE applicant (an entity that has applied to be a PO but is not yet a PO, or a PO applying to expand its service area and/or add a new PACE center site).

A discussion of the comments we received on the proposed changes to the waiver process requirements, and our responses to those comments, appears below.

Comment:

We received many comments in support of the proposed changes to the waiver submission process language. Commenters also requested clarification on whether waiver requests can be submitted as part of an entity's initial application or

whether the waiver requests have to be submitted to CMS by the SAA.

Response:

Under our current process, entities submitting an application to become a PO may submit a waiver request either as a separate document or in conjunction with their initial application. We are adding language to § 460.26 to clarify that an applicant may submit a separate waiver request through the SAA or the applicant may submit a waiver request in conjunction with and at the same time as the initial application, now that the application submission process is automated. As previously required, a waiver request submitted with an initial application must include a letter from the SAA indicating the State's concurrence, concerns, or conditions related to the waiver request. We note that our review of any waiver requests submitted in conjunction with the initial application will be reviewed in accordance with the 90-day review period for waiver requests in § 460.28. We are making one additional change to § 460.26(a)(1) to refer to the SAA's concurrence, as well as any concerns or conditions, regarding the waiver, to align that provision with the proposed requirement in § 460.26(a)(2) for waiver requests submitted in conjunction with initial applications.

Comment:

One commenter expressed concern that we have not included provisions for broader waiver types that address a systematic issue and noted the example of hiring social workers with a bachelor's degree instead of a master's degree in areas where it is difficult to hire a Master's-level social worker. The commenter recommended that POs be afforded the ability to request a blanket waiver, meaning no limitation on the effective period of the waiver, to allow targeted flexibility for a specific, documented purpose, such as in the example cited. In the absence of additional flexibilities, the commenter stated that POs may have to submit multiple waiver requests over time to address the same type of flexibility, which is a time-consuming and costly process for POs.

Response:

With the exception of the requirements specified in § 460.26(c), POs have broad latitude to request waivers to address localized, systematic issues on a long-term basis, such as the example cited by the commenter, as long as all waiver requirements are met. In addition, we believe the revisions we are making to the regulations in this final rule will result in fewer waiver requests. Specifically, the additional flexibilities we are providing, such as the changes to the IDT requirements at § 460.102, will permit POs to operate their programs with these flexibilities and no longer require POs to request waivers of those requirements. For example, we are finalizing changes to allow community-based physicians to serve as the primary care provider on the IDT. Prior to these regulatory changes, POs would have had to request a waiver of this requirement in order for a community-based physician to function in the role of the primary care physician on the IDT.

Comment:

One commenter requested that when CMS is seeking to deny a waiver request that the SAA reviewed and supports, there should be provisions in place for consultation with the state before CMS makes a final determination. The commenter acknowledged this practice is already in place; however, the commenter would like it to be codified in the regulations to ensure consistency.

Response:

We consult with the SAA on all waiver requests and do not believe it is necessary to codify this practice in our regulations. We intend to clarify this practice in future guidance.

After considering the comments, we are finalizing the proposed changes to § 460.26 in part, with modifications to clarify that an applicant may submit a separate waiver request through the SAA, per the quarterly deadlines, or the applicant may submit a waiver request in conjunction with and at the same time as the initial application, and a change to § 460.26(a)(1) to refer to the SAA's concurrence, as well as any concerns or conditions, regarding the waiver.

7. Notice of CMS Determination on Waiver Requests (§ 460.28)

Section 460.28 discusses the timeframes for CMS determination and notification regarding approval or denial of waiver requests. As we explained in the proposed rule, we established this section to implement section 903 of BIPA, which provides in relevant part that the Secretary shall approve or deny a request for a modification or a waiver not later than 90 days after the date the Secretary receives the request. We proposed to retain most of the language in current § 460.28(a), but to specify that the 90-day time limit starts after CMS receives a complete waiver request. We discuss the need for a complete waiver request in subsequent paragraphs. In § 460.28(a), we proposed to revise the heading to “General,” delete the reference to a denial being “in writing,” and state that CMS will take action on the complete waiver request in the form and manner specified by CMS. We proposed these changes to reflect how we provide notification, whether electronically or in another format. We noted in the proposed rule that CMS would not only provide notification verbally. We proposed to redesignate § 460.28(a)(2) as new § 460.28(a)(3).

We proposed to add a new § 460.28(a)(2) to address conditional approval of a waiver request from a PACE applicant when the application is still pending. We explained in the proposed rule that under CMS' current process, a PACE applicant may request a waiver while its application is still pending and receive either a denial of the waiver request or a conditional approval of the waiver request. The approval of the waiver request is conditioned on the approval of the application. CMS will only issue conditional approvals to entities with pending applications. We noted that issuing a conditional approval enables CMS to adhere to the BIPA 90-day timeframe for making a determination with respect to a waiver request in situations where an application is still under review. Waiver requests that are not associated with a pending application either receive an approval or denial.

In addition, we proposed to remove the language in § 460.28(b) regarding the date of receipt of the waiver, because we believed the proposed changes to § 460.28(a) and (b) make it clear that the 90-day clock will start on the day CMS receives a complete waiver request. We also proposed to change current paragraph (c)(1) regarding deemed approval of a waiver request to refer to CMS failing to act within 90 days of receipt of a complete waiver request, and redesignate it as paragraph (c). We stated that CMS will notify POs to confirm receipt of “complete” waiver requests.

We proposed new language in § 460.28(b) regarding additional information requests for waivers. We explained in the proposed rule that unlike sections 1894(e)(8) and 1934(e)(8) of the Act, which give CMS 90 days to request additional information from entities applying to become POs, section 903 of BIPA does not explicitly impose a time limit for CMS to request additional information that is necessary to make a determination on a waiver request. In the 2006 final rule, we stated that there is “no statutory authority to stop the 90-day clock if additional information is necessary to make a determination on a waiver request.” (71 FR 71255). We noted in the proposed rule that although we cannot stop the clock, we believe the statute can be read to start the 90-day clock upon CMS' receipt of a complete waiver request. Therefore, we proposed

in new paragraph (b) that a waiver request is complete when CMS receives all information necessary for CMS to make a determination regarding approval or denial. We stated that if CMS determines the waiver request is not complete, CMS would request additional information needed to make a determination. The 90-day clock would start when CMS receives the complete waiver request. We noted that we proposed these changes because it is not possible to make an informed decision to approve or deny a request for a waiver in situations where we do not have all of the pertinent information. We further stated that we believed this change would reduce the administrative burden on CMS, as well as the POs because, currently, CMS denies incomplete waiver requests and POs must resubmit new waiver requests that include the missing information. Under the process we proposed, CMS and the PO would work together to ensure that the request includes all necessary information, which should alleviate the need to resubmit a waiver request.

We explained in the proposed rule that this is similar to the treatment of PACE applications, and we believed consistency in review procedures would be helpful to all parties involved. We also noted that approval of a waiver associated with a PACE application is contingent upon the approval of that PACE application because there is nothing to waive if there is no PACE program. Accordingly, waivers that are submitted for review in conjunction with a PACE application or while a PACE application is being reviewed would only be approved if that application is approved. As previously discussed, we proposed to add a new § 460.28(a)(2) that provides for conditional approval for entities with a pending application to become a PO.

Currently, § 460.28(c)(2) allows CMS to withdraw its approval of a waiver for good cause. We proposed to redesignate this provision as (d)(1) and amend it to provide that CMS “in consultation with the” SAA may withdraw approval of a waiver request for good cause. We proposed to add this language because any significant change to the PACE program agreement, which includes waivers, should be made in consultation with the SAA because the SAA also is a signatory of the agreement. We proposed in § 460.28(d)(2) that, if the waiver approval is withdrawn, CMS must notify the PO or PACE applicant and the SAA that approval of a waiver has been withdrawn and specify the reason for withdrawal and the effective date of the withdrawal in the notice. We noted that currently, while the regulation enables CMS to withdraw an approval of a waiver request, it does not require that we notify the PO or PACE applicant and the SAA of the withdrawal, the reason for withdrawal, or the date when the withdrawal would be effective. We stated that we believe this information is critical to the PO or PACE applicant and the SAA because it likely would require a change in operation of the PO or could change how an applicant would operate a PO if its application is approved.

A discussion of the comments we received on the waiver determination and notification process, and our responses to those comments, appears below.

Comment:

Some commenters requested that we implement a 30-day timeframe to determine if a waiver request is complete and then reduce the 90-day timeframe for review to 60 days. Commenters also expressed that as CMS adds additional flexibilities to the PACE regulations, there may be fewer waiver requests, and some of the commenters requested that CMS reduce the 90-day review period to 60 days.

Response:

We appreciate the commenters' suggestions. We note that if we consider the waiver request we receive to be complete, the 90-day review timeframe would have started upon receipt of that request. Consequently, it is in our interest, as well as the PO's interest, for us to make this completeness determination promptly, and we do not believe it is necessary to implement a shorter timeframe for making this determination. While we agree with commenters that we anticipate receiving fewer waiver requests in the future due to the additional flexibilities provided in this final rule, we note that the length of time we need to review a waiver request will not be affected by the number of requests received.

Comment:

One commenter described the process one specific SAA must undergo in order to effectuate service area expansions and expansions involving new PACE centers and suggested that CMS and the SAA consider ways to better coordinate and shorten the timeframes for approval of PO waivers. The commenter noted that CMS has 90 days after submission to complete the review.

Response:

Section 903 of BIPA provides that the Secretary must approve or deny a waiver request not later than 90 days after receiving the request, and that is the timeframe we established in § 460.28. At this time, we are not in a position to commit to a shorter review period than the established 90-day review period. While we seek to review waivers as expeditiously as possible, adequate time must be afforded to review all aspects of the waiver, including responses to any requests for additional information.

After careful consideration of the comments received, we are finalizing this proposal without modification.

D. Subpart C—PACE Program Agreement

1. Content and Terms of PACE Program Agreement (§ 460.32)

Section 460.32 specifies the required and optional content of a PACE program agreement. Under § 460.32(a)(12), a PACE program agreement must contain information about the Medicaid capitation rate and the methodology used to calculate the Medicare capitation rate. This requirement is based on sections 1934(d)(2) and 1894(d)(2) of the Act, which provide that the Medicaid capitation amount and the Medicare capitation amount, respectively, to be applied for a PO for a contract year must be an amount specified in the PACE program agreement for the year.

Section 460.32(a)(12) and § 460.180(b) require the PACE program agreement to specify the methodology used to calculate the Medicare capitation rate, as opposed to the actual rate. The PACE Medicare rate is based on Part A and B payment rates established for purposes of payments to Medicare Advantage organizations and is subject to certain other adjustments (see § 460.180). For the Medicaid capitation rate, however, our current regulations require the PACE program agreement to specify the actual amount negotiated between the POs and the SAA (see § 460.32(a)(12) and § 460.182(b)).

As states are moving toward more managed care delivery systems for the long term care population, some states are redesigning their methodologies for developing PACE Medicaid capitation rates to more closely align with these other managed care delivery systems. Some of the new methodologies result in Medicaid payment variations based on factors such as frailty adjustments and performance incentive payments. Additionally, because many states update their PACE Medicaid capitation rates annually based on the state fiscal year, there are operational challenges associated with updating the PACE program agreement appendices to reflect changes to the Medicaid rates because they are not necessarily updated consistent with a PACE program agreement's contract year. As a result, we stated in the proposed rule that we

believed it is not always practical to include the actual Medicaid capitation rates in the PACE program agreement. Therefore, we proposed to amend § 460.32(a)(12) to require that the program agreement include the Medicaid capitation rates or Medicaid payment rate methodology, as well as the methodology used to calculate the Medicare capitation rate. Medicaid capitation rates are developed and updated by the states (in negotiation with the POs) and approved by CMS. Operationally, states submit documentation to CMS to support their proposed PACE Medicaid capitation rates. CMS reviews the documentation to ensure the rates are in compliance with the requirements of § 460.182, and provides the state with written approval of the rates. The Medicaid capitation rates are then communicated to the POs by the state in writing.

We also solicited comments regarding other modifications we might make to the required content of the PACE program agreement, specifically, those cited at § 460.32(a) and § 460.182(d). We specifically requested comments regarding the need for capturing the level of detail currently required within the agreement itself, along with updated information as may be necessary throughout the contract period. Much of the required program agreement content relates to operational components of the PO's program. We explained that our expectation is that POs regularly review and update this information, particularly as it relates to policies and procedures, to ensure its business practices are current, compliant with regulation and guidance, and consistently employed. We solicited comments on whether specific policies and procedures, and other existing requirements, should continue to be part of the PACE program agreement.

A discussion of the comments we received on the PACE program agreement requirements, and our responses to those comments, appears below.

Comment:

A commenter requested that CMS modify the PACE regulations to allow a PO to enter into a two-way agreement with CMS to provide services to Medicare beneficiaries in states that do not establish PACE as a State option under Medicaid. In these situations, the commenter recommended that CMS require the potential PO to submit the application with a statement by the state regarding which, if any, of the state functions the state is willing to perform; for example, the SRR, nursing home level of care determination, etc.

Response:

We did not propose any changes to the current PACE program agreement between a PO, CMS and the SAA for the operation of a PACE program. Therefore, we consider this comment to be outside the scope of this rule. However, we note that in the 1999 IFC and the 2006 final rule, we articulated, in great detail, requirements an entity must meet in order to be approved as a PO and the basis for those requirements, including the requirement for a tripartite agreement and rationale for requiring that POs participate in both Medicare and Medicaid (64 FR 66237; 71 FR 71251). As we stated in those rules, the authorizing PACE statutes (sections 1894 and 1934 of the Act) envision active collaboration between federal and state governments in the administration of the PACE program. As described in the 1999 IFC and 2006 final rule, the SAA is responsible for a wide array of functions related to the operations of a PACE program, including: (1) The SRR conducted as part of activities to approve an entity as a PO; (2) assessment of potential participants to ensure nursing facility level of care requirements are satisfied; and (3) cooperation with CMS in the oversight of the PACE program (which includes authority to terminate a PACE program agreement for cause, as a party to the tripartite agreement), among other key activities. As we stated in those rules, it is our belief that a state which has not elected PACE as an optional service would likely be ill-prepared or even unable to perform these critical activities. We concluded in those rules that a Medicare-only program could not meet the fundamental concept of an all-inclusive, integrated, capitated, full-risk program. Our position today has not changed; we continue to believe that the rationale for structuring the PACE program as we have is valid and appropriate.

Comment:

A number of commenters expressed support for CMS' proposal to modify the current requirement in § 460.32(a)(12) that the Medicaid capitation rate be included in the PACE program agreement. Commenters noted that the proposed change would allow for either the Medicaid capitation rate(s) or the Medicaid payment rate methodology to be included in the PACE program agreement. These commenters stated that the proposed approach effectively streamlines updates to the PACE program agreements and provides states the flexibility to adapt to potential payment rate changes and variations.

Response:

We thank the commenters for their support.

Comment:

One commenter recommended that the final rule provide clarity on the level of detail expected in the PACE program agreement for states that opt to include the Medicaid rate methodology. The commenter noted that states already undergo a comprehensive review of their PACE Medicaid rate methodology by CMS annually. Therefore, commenters requested that CMS allow a more general methodology description to be allowed in the PACE program agreement to further the flexibility discussed in the proposed rule and recognize the extensive methodology review process already taking place. The commenter further noted this would avoid the burden of frequent updates to the PACE program agreement while leveraging, rather than duplicating, the comprehensive Medicaid rate review process that CMS already undertakes. The commenter also requested that CMS clarify the timeframe in which a state must update the actual Medicaid capitation rate in the PACE program agreement if the state elects to include the Medicaid rate instead of the methodology.

Another commenter noted that the PACE Medicaid capitation methodology is complex and often confusing and that this change removes any incentive for SAAs to timely “negotiate” the monthly capitation amount with POs and produce rate schedules. In addition, the commenter urged CMS to clarify the negotiation requirement to establish the monthly Medicaid capitation amounts. The commenter indicated that in one state, Medicaid rates are set using an actuarial formula, which takes into account regulatory requirements and the state's priorities, which effectively precludes POs from annually negotiating with the SAA. Instead of focusing on regulatory revisions to reflect the status quo, the commenter urged CMS to consider including language to affirmatively require timely Medicaid rate setting for the PACE program and buttress the ability of POs to negotiate rates.

Response:

We are not specifying the level of detail that the state must include in the PACE program agreement to describe the state's methodology for Medicaid capitation rates. The state must provide enough detail about the Medicaid payment rate methodology to ensure it is in compliance with requirements of § 460.182, but the state will have flexibility in the level of detail that is provided. In December 2015, we released guidance to states regarding the Medicaid rate setting process that outlines submission and timeframe expectations related to development and approval of Medicaid capitation rates under PACE. The PACE Medicaid

Capitation Rate Setting Guide was developed as a resource for states and it includes critical elements of rate setting that incorporate both the state development of the amount that would otherwise been paid if individuals were not enrolled in PACE, and development of the PACE rates. The guide can be found at

https://www.medicaid.gov/medicaid/ltss/downloads/integrating-care/pace-medicaid-capitation-rate-setting-guide.pdf.

We expect to update the guide in the future to provide more detail and clarification in certain areas as necessary.

Additionally, while we do review the state Medicaid rate documentation to ensure that the PACE rates meet all requirements under § 460.182, including that the monthly capitation amount is less than the amount that would otherwise have paid under the state plan if the participants were not enrolled under the PACE program, the state has flexibility in establishing the rate as long as it meets those requirements, which includes the flexibility of negotiating with POs. The process for negotiation of the monthly capitation payment amount between the PO and the SAA varies by state. We do not require a specific process for negotiation as long as the rates meet the requirements of § 460.182(b).

Comment:

One commenter encouraged CMS to engage with SAAs to determine which components of the PACE program agreement are necessary from the states' perspective. The commenter expressed support for efforts to remove detailed information that changes with some frequency, for example, administrative contacts that are available in CMS' HPMS. It is the commenter's expectation that the PACE program agreement would generally include high-level requirements as opposed to specific program policies and procedures.

Response:

We appreciate the thoughtful comments and suggestions and will consider the feedback provided as part of possible future rulemaking.

Comment:

One commenter noted that § 460.34 currently states: “An agreement is effective for a contract year, but may be extended for additional contract years in the absence of a notice by a party to terminate.” The commenter recommended this language be modified as follows: “An agreement is effective for a contract year, but

shall

be extended for additional contract years in the absence of a notice by a party to terminate.”

Response:

We did not propose any changes to the regulatory provision at § 460.34 regarding the duration of PACE program agreements. Therefore, we consider this recommendation to be beyond the scope of this regulation. However, we may consider this suggestion as part of possible future rulemaking. After considering the comments, we are finalizing the amendment to § 460.32(a)(12) as proposed.

E. Subpart D—Sanctions, Enforcement Actions, and Termination

1. Violations for Which CMS May Impose Sanctions (§ 460.40)

To support PACE program integrity and to protect PACE participants, we proposed to amend provisions related to enforcement actions we may take when POs fail to comply with the PACE program agreement and/or program requirements. Currently, § 460.50 identifies some causes for CMS or an SAA to terminate a PACE agreement. Provisions authorize terminating for cause in circumstances including, but not limited to, uncorrected failure to comply substantially with conditions of the PACE program or with the terms of the PACE agreement, and inability to ensure the health and safety of participants, such as the presence of deficiencies that CMS or the SAA determines cannot be corrected. As we explained in the proposed rule, while current regulations reflect CMS and the SAA's authority to terminate an organization in these circumstances, we believed that we needed to clarify our authority with respect to alternative enforcement actions in the form of sanctions or civil money penalties (CMPs).

We proposed adding a new provision to § 460.40, designated as paragraph (b), to allow CMS the discretion to take alternative actions in the form of sanctions or CMPs when we are authorized to terminate a PO's PACE program agreement. We noted in the proposed rule that, consistent with the authorities in sections 1894(e)(6)(B) and (f)(3) and sections 1934(e)(6)(B) and (f)(3) of the Act, this new provision would align the PACE enforcement structure with the enforcement structure that applies to the Medicare+Choice program, renamed, and hereinafter referred to, as the MA program. The MA program enforcement authorities in sections 1857(g)(3) and (4) of the Act allow CMS the discretion to take enforcement actions in the form of sanctions or CMPs when CMS is authorized to terminate the organization's contract. We proposed that this approach also be utilized in the PACE program, consistent with our statutory authority identified in sections 1894(e)(6)(B) and 1934(e)(6)(B) of the Act, and to promote consistency with the enforcement structure of the MA program. We stated that the change would give CMS the discretion to impose sanctions and CMPs on POs for continued noncompliance, in addition to our current authority to take the most extreme action of termination of the PACE program agreement. To add paragraph (b), we proposed to redesignate the introductory language in § 460.40 to paragraph (a) and redesignate paragraphs (a) through (i) to paragraphs (a)(1) through (a)(9).

2. Civil Money Penalties (§ 460.46)

Due to the redesignation of paragraphs in § 460.40, we also proposed to make technical, non-substantive changes to the citations in this section to reflect the substantive and technical changes discussed above. Specifically, we proposed to amend § 460.46(a)(1) by removing the reference “§ 460.40(c) or (d)” and adding in its place the reference “§ 460.40(a)(3) or (4)”. We proposed to amend § 460.46(a)(2) by removing the reference “§ 460.40(e)” and adding in its place the reference “§ 460.40(a)(5)”. We also proposed to amend § 460.46(a)(3) by removing the reference “§ 460.40(f)(1)” and adding in its place the reference “§ 460.40(a)(6)(i)”. These changes reflect the new numbering of § 460.40 that was discussed previously.

Additionally, we proposed to revise § 460.46(a), in accordance with the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act) (Sec. 701 of Pub. L. 114-74). The 2015 Act requires agencies to adjust the civil money penalties annually for inflation. The Department of Health and Human Services will publish all of the Department's adjusted CMP amounts at 45 CFR part 102. To ensure transparency, we proposed revising § 460.46(a) to state that the penalty amounts are adjusted for inflation and citing to 42 CFR 1003.102.

The following is a summary of the public comments we received on the proposed provisions regarding sanctions, enforcement actions, and termination, and our responses to comments.

Comment:

Commenters were supportive of our proposed revisions. A few commenters mentioned that allowing sanctions or CMPs to be taken prior to termination would help POs have time to correct identified issues of noncompliance. Other commenters, while supportive, cautioned CMS to consider the size and financial stability of POs prior to implementing a sanction or CMP, stating that a large CMP or enforcement action could effectively

drive a PO out of business. One commenter recommended that CMS perform a risk benefit analysis prior to implementing a sanction or CMP to ensure the benefit outweighed the potential risk.

Response:

We agree with these commenters that revising the regulations to enable us to take enforcement actions other than termination will be beneficial to POs by allowing them time to correct deficiencies. We appreciate commenters concerns regarding the potential adverse impact of CMPs and sanctions on POs. We intend to use the new range of penalties in a manner that appropriately accounts for the size and structure of the PO subject to the enforcement action.

Comment:

A few commenters referenced SAAs. One commenter requested clarification on how the SAA and CMS would work cooperatively on enforcement actions, and if the SAA would be informed prior to a sanction being placed on a PO. Another commenter requested that CMS modify the regulatory language in § 460.40(b) to say that either CMS or the SAA may take a sanction or CMP. The same commenter requested that any money collected from a CMP be split evenly between CMS and the state. Lastly, one commenter requested that we add a new paragraph (c) to the regulation that discusses a state's authority to take enforcement actions based on State laws and regulations.

Response:

We are committed to maintaining a close partnership with SAAs in overseeing POs. When taking enforcement actions, we will notify the SAA prior to taking the action, as appropriate. However, we are not modifying the regulatory language in the new § 460.40(b) to address SAAs' ability to take sanctions or CMPs. This regulatory language is aligned with sections 1894(e)(6)(B) and 1934(e)(6)(B) of the Act, which do not address the state's ability to take an enforcement action or require consultation with the SAA before imposing sanctions or CMPs, and we believe that we should keep the language similar in this regulation. We are also not accepting the suggestion to add a new paragraph into the regulation to address a state's ability to use state laws and regulations to take its own enforcement actions. We do not believe this level of detail is needed, as nothing in this regulation would prevent a state from using its own legal authority to impose a state enforcement action on a PO. However, we encourage states to coordinate with us prior to taking any enforcement actions against POs based on state authority. Also, while we appreciate the commenter's request that we split CMP money between the states and CMS, we are not authorized to dictate where that money goes, and cannot make that change.

Comment:

A few commenters, while supportive of the proposed modification to our enforcement provisions, stressed the importance of consistency in audits, especially if audit findings are used in enforcement actions against POs. One commenter questioned what the reference to “continued non-compliance” meant, and whether that could mean repeat audit findings.

Response:

In the proposed rule, we discussed the regulations regarding termination of a PACE program agreement, and that one of the reasons for termination was “continued non-compliance” which is discussed in 42 CFR 460.50(b). In the proposed rule, we noted that our proposed expansion to our enforcement authority would allow us to take other enforcement actions, outside of termination, for continued non-compliance. We define continued non-compliance as any instance in which a PO has been made aware it is not in compliance with a regulation or requirement, and the PO has failed to correct that issue within a reasonable period of time, or has repeated uncorrected deficiencies. What will constitute a reasonable period of time for correction may depend on the severity of non-compliance noted by CMS or the SAA. We want to clarify that while continued non-compliance may be identified through repeat audit findings, audits would not be the only source of information to inform an enforcement action. Although continued non-compliance could be revealed through audits, it could also be discovered through routine account management monitoring, quality reporting, or any other avenue in which CMS or the SAA discovers these issues. However, audits are one of the ways we would measure continued non-compliance and we agree that audit consistency is very important. We continue to make process improvements to PACE audits, including utilizing a revised audit protocol, continuing to refine and update internal auditor tools, utilizing a national audit consistency team, and implementing intensive auditor training specific to PACE.

After considering public comments, we are finalizing the changes to §§ 460.40 and 460.46 as originally proposed with the following technical changes. First, in § 460.46, we are making a technical change to the citation in the proposed note from 45 CFR 1003.102 to 45 CFR part 102, and including the language regarding inflation in the regulatory text and not as a note as originally proposed. Second, in § 460.40, we are redesignating paragraph (j) that was established in the November 15, 2016

Federal Register

(81 FR 80561) as part of the final rule entitled, “Medicare Program; Revisions to Payment Policies under the Physician Fee Schedule and Other Revisions to Part B for CY 2017; Medicare Advantage Bid Pricing Data Release; Medicare Advantage and Part D Medical Loss Ratio Data Release; Medicare Advantage Provider Network Requirements; Expansion of Medicare Diabetes Prevention Program Model; Medicare Shared Savings Program Requirements” and later modified in the April 16, 2018 final rule entitled “Medicare Program; Contract Year 2019 Policy and Technical Changes to the Medicare Advantage, Medicare Cost Plan, Medicare Fee for Service, the Medicare Prescription Drug Benefit Programs and the PACE Program” (83 FR 16756), as paragraph (a)(10). Finally, we note that the proposed regulation text for § 460.40(a)(3) included language concerning the criteria for sanctions even though our intention was solely to redesignate the paragraph. Therefore, we are modifying the final rule to remove the language regarding discrimination on the basis of an individual's functional, cognitive or psychosocial status, which was inadvertently included, redesignate the paragraph, and restore the language that refers to discrimination in enrollment or disenrollment among Medicare beneficiaries or Medicaid beneficiaries, or both, who are eligible to enroll in a PACE program, on the basis of an individual's health status or need for health care services.

F. Subpart E—PACE Administrative Requirements

1. PACE Organizational Structure (§ 460.60)

Sections 1894(a)(3)(A)(i) and 1934(a)(3)(A)(i) of the Act require a PO to be (or be a distinct part of) a public entity or a private, nonprofit entity organized for charitable purposes under section 501(c)(3) of the Internal Revenue Code of 1986. We implemented these provisions in § 460.60(a), which provides that a PO must be, or be a distinct part of, either (1) an entity of city, county, state, or Tribal government or (2) a private, not-for-profit entity organized for charitable purposes under section 501(c)(3) of the Internal Revenue Code of 1986, and it may be a corporation, a subsidiary of a larger corporation, or a department of a corporation. In this discussion, we will

refer to all entities that meet this standard as not-for-profit entities.

Sections 1894(h) and 1934(h) of the Act direct the Secretary to waive the requirement that a PO be a not-for-profit entity in order to demonstrate the operation of a PO by private, for-profit entities. Section 4804(b) of the BBA of 1997 requires the Secretary to provide a report to Congress on the impact of the demonstration on quality and cost of services, including certain findings regarding the frailty level, access to care, and the quality of care of PACE participants enrolled with for-profit POs, as compared to not-for-profit POs. Section 4804(b)(2) of the BBA of 1997 requires the report to Congress to include findings on whether any of the following four statements is true with respect to the for-profit PACE demonstration:

• The number of covered lives enrolled with entities operating under demonstration project waivers under sections 1894(h) and 1934(h) of the Act is fewer than 800 (or such lesser number as the Secretary may find statistically sufficient to make determinations respecting findings described in the succeeding subparagraphs).

• The population enrolled with such entities is less frail than the population enrolled with other POs.

• Access to or quality of care for individuals enrolled with such entities is lower than such access or quality for individuals enrolled with other POs.

• The application of such section has resulted in an increase in expenditures under the Medicare or Medicaid programs above the expenditures that would have been made if such section did not apply. (We refer to these statements collectively as the BBA statements.)

Under sections 1894(a)(3)(B)(ii) and 1934(a)(3)(B)(ii) of the Act, after the date the report is submitted to Congress, the requirement that a PO be a not-for-profit entity will not apply unless the Secretary determines that any of the BBA statements are true.

In 2008, Mathematica Policy Research completed a study of the permanent not-for-profit POs.

5

An interim report to Congress based on this study was submitted in January 2009. At the time of the 2008 Mathematica study, no for-profit entities had enrolled in the PACE demonstration. Therefore, neither report assessed a for-profit PACE population nor did the interim report address the BBA statements.

5

A copy of the 2008 Mathematica study results can be found here:

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/Downloads/Beauchamp_2008.pdf.

From 2012 to 2013, Mathematica, under contract with CMS, conducted a study to address quality of and access to care for participants of for-profit POs, specifically focusing on the third BBA statement. The 2013 Mathematica report also included information that provided insight into the first and second BBA statements.

6

Based on the two Mathematica studies, HHS prepared and submitted the report to the Congress on May 19, 2015. A copy of the report to Congress is available at

https://innovation.cms.gov/Files/reports/RTC_For-Profit_PACE_Report_to_Congress_051915_Clean.pdf.

6

A copy of the 2013 Mathematica study results can be found here:

https://innovation.cms.gov/Files/reports/pace-access-qualityreport.pdf.

As detailed in the report, HHS could not conclude that any of the four BBA statements were true. First, the number of covered lives enrolled with for-profit POs was not fewer than 800, and the sample size for the survey examining BBA statements two and three was large enough to make statistically significant determinations of differences. The report stated that HHS could not conclude that for-profit PACE participants are less frail than not-for-profit PACE participants. It also stated that HHS could not conclude that for-profit PACE participants experienced systematic adverse differences in quality of care or access to care as compared to not-for-profit PACE participants. Finally, expenditures were equal between for-profit and not-for-profit POs after controlling for beneficiary risk score, organization frailty score, and county rates, so there would not have been an increase in expenditures if participants in the for-profit POs had been enrolled with a not-for-profit PO.

Based on the findings in the report to Congress, we determined that under sections 1894(a)(3)(B) and 1934(a)(3)(B) of the Act, the requirement that a PO be a not-for profit entity would no longer apply after May 19, 2015 (the submission date of the report to Congress). Because the statutory not-for-profit restriction no longer applies, in the proposed rule, we proposed to remove the corresponding restriction in § 460.60(a) in its entirety. We also proposed to redesignate § 460.60(b), (c), and (d) as § 460.60(a), (b), and (c), respectively.

A discussion of the comments we received on the proposal to remove the not-for-profit restriction in § 460.60(a), and our responses to those comments, appears below.

Comment:

Commenters expressed concerns about CMS allowing for-profit entities to be POs. Many commenters believed that although the evaluation of the for-profit PACE demonstration found no significant reasons to restrict PACE to not-for-profit entities, CMS should continue its evaluation to identify and better understand any potential differences driven by ownership by a for-profit entity and to ensure that regulatory oversight is applied uniformly to all POs as it pertains to service utilization, participant frailty and outcomes and costs and experience. Other commenters recommended CMS consider requiring all for-profit POs to meet a ratio of services to revenues, similar to the medical loss ratio requirements set forth in the final rule published in the May 6, 2016

Federal Register

(81 FR 27498) entitled, “Medicaid and Children's Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, and Revisions Related to Third Party Liability.” One commenter recommended CMS consider continuing its evaluation for up to 3 years for the for-profit POs. Another commenter supported the change to allow for-profit entities to be POs.

Response:

As a result of the findings in the May 19, 2015 report to Congress, sections 1894(a)(3)(B) and 1934(a)(3)(B) of the Act state that the requirement that a PO be a not-for-profit entity will no longer apply. The findings of the report did not suggest that we establish different requirements for POs based on their profit status, and we see no basis for applying a different set of requirements, such as medical loss ratio requirements, to for-profit POs. Consequently, the PACE regulations and requirements apply equally to all POs whether they are not-for-profit or for-profit. We have no reason to believe that the results of the evaluation would change if we added additional years to the study. We note that the majority of active POs are not-for-profit entities and most new applicants represent not-for-profit entities.

As a result of the comments, we are making no changes to our proposal and finalizing this provision as proposed.

In addition, we proposed to revise current paragraph (d)(3) (redesignated paragraph (c)(3)) regarding changes in the organizational structure of a PO and add a new paragraph (d) to address PO change of ownership (CHOW). Section 460.60(d)(3) currently provides that a PO planning a change in organizational structure must notify CMS and the SAA, in writing, at least 14 days before the change takes effect. We have stated in

guidance that a change in organizational structure is one that may affect the philosophy, mission, and operations of the PO and affect care delivery to participants, and would include any CHOW (see PACE Manual, Ch. 2, § 20.3).

In the 1999 IFC (64 FR 66241), we required POs to notify both CMS and the SAA at least 60 days prior to any change in their organizational structure and obtain advance approval for any change that involved a CHOW. In the 2006 final rule (71 FR 71264), we discussed the comments we received on this provision and explained it was not our intent to require POs to notify CMS and the SAA in writing every time there was a change in personnel or a change in the line of reporting of direct participant care staff. Based on comments that the 60-day timeframe was unnecessary, we elected to change the requirement to the 14-day requirement that is currently in place. We also deleted the requirement that changes in organizational structure must be approved in advance by CMS and the SAA, agreeing with commenters that POs have the ability to make such business decisions based on their individual circumstances. As CMS and the SAA are responsible for the health care provided to participants, we retained the 14-day notification requirement in § 460.60(d)(3) to allow CMS and the SAA sufficient time to monitor whether the change is having a substantial impact on the participants or their care. However, we reiterated that in the event of a CHOW, we would apply the general provisions described in the Medicare Advantage regulations at § 422.550.

Based on our experiences with PO CHOW since we published the 2006 final rule, we stated in the proposed rule that we no longer believed 14 days gives us enough time to review and process a CHOW. A CHOW is significantly different from other organizational changes in that it results in the acquiring entity assuming the responsibilities under the PACE program agreement. We explained we need additional time to determine whether the acquiring entity meets statutory and regulatory requirements for entering into a PACE program agreement. We noted that our ultimate responsibility is to the PACE participants, and we need to ensure that an entity is able to assume and fulfill the responsibilities of a PO under the PACE program agreement.

Moreover, we noted that the process to effectuate a CHOW transaction in our systems requires more time than the 14-day timeframe in the current regulation. For example, a minimum of 6 weeks is needed to effectuate changes in our payment systems for the new owner. A 60-day advance notification requirement is more consistent with that timing. We also stated that we wanted our regulations to be clear that the requirements in 42 CFR part 422, subpart L (Effect of Change of Ownership or Leasing of Facilities During Term of Contract), which apply to MAOs under the Medicare Advantage program, apply to POs in a CHOW scenario. Therefore, we proposed to amend newly redesignated paragraph (c)(3) to indicate that the 14-day timeframe does not apply to a CHOW, and to add new paragraph (d), which would specify that a PO planning a CHOW must comply with all requirements in 42 CFR part 422, subpart L, and must notify CMS and the SAA, in writing, at least 60 days before the anticipated effective date of the change. We stated that we believed this proposed change would provide the time we need to determine if the entity acquiring the PO meets all PACE requirements and would be able to continue providing quality care to the participants of the PO, and to reflect the change in our systems. We also noted that we believed the amended language as proposed would provide greater clarity to POs as to the requirements that will apply in CHOW scenarios. We stated that we believed the Medicare Advantage requirements for a CHOW in 42 CFR part 422 subpart L, are appropriate for the PACE program, and we will only enter into a PACE program agreement with an entity that is determined to meet PACE program requirements.

For purposes of the proposed provision, any CHOW as defined in § 422.550(a), such as an asset transfer, a merger, or change in partnership, would require a novation agreement, where the contract is substituted for the former contract. We explained that POs will need to follow all CHOW requirements in 42 CFR part 422, subpart L, and must submit all of the necessary documents to CMS for review within the allotted timeframes. Upon CMS' determination that the conditions for CMS approval of a novation agreement are met, a new PACE program agreement will be executed with the acquiring entity.

A discussion of the comments we received on the CHOW proposal, and our responses to those comments, appears below.

Comment:

A few commenters stated the definition of a CHOW may encompass situations where the PO's parent entity or supporting entity undergoes a restructuring which has no impact on the PO itself. They also questioned if the 60-day notice and related requirements would apply in a restructuring of the PO's parent entity. The commenter suggested that, in these types of situations, the PO should not have to submit advance notice and comply with the requirements of 42 CFR part 422, subpart L.

Response:

POs may contact us if they have questions on the applicable requirements and whether a particular scenario is a CHOW or a different type of change in organizational structure. If a PO is planning a CHOW as described in § 460.60(d) then the PO must follow the regulations at § 460.60(d) and provide the required notification.

Comment:

A commenter requested that CMS clarify if the novation agreement is similar to the PACE program agreement.

Response:

The novation agreement and PACE program agreement are two separate and distinct documents. The novation agreement is an agreement between the current owner of the PO, the prospective new owner, and us under which we recognize the new owner as the successor in interest to the current owner's PACE program agreement. The PACE program agreement will be the successor's PACE program agreement with CMS and the SAA for the operation of a PACE program by the successor PO.

Comment:

Many commenters supported the proposal to expand the notification timeframe for a CHOW from 14 days to 60 days. One commenter requested that we consider the SAA's needs for advance notification for CHOW scenarios and add additional time to our requirement for notification.

Response:

We work closely with the SAA as the third party to the PACE program agreement. We expect that as POs are seeking to undergo CHOW transactions that they communicate with the SAA prior to or at the same time as they communicate with us. We will consider the recommendation to allow for additional time to notify the SAA as part of future rulemaking or guidance.

Comment:

A commenter requested that we limit the requirement for an entity to complete a PACE application for purposes of a CHOW as discussed in the HPMS PACE CHOW memo, Guidance on Notification Requirements for PACE Organization Change of Ownership, dated February 18, 2016, to apply only to those entities that have no experience with PACE program operations. Another commenter suggested that the successor in interest to the PACE CHOW should not have to go through the PACE application

process, but did not suggest an alternative for the qualification process.

Response:

We want to reiterate our policy that in order for an acquiring entity to become qualified as a PO, the entity must follow both the CMS and the specific state's PACE application submission process. The application process provides a level of assurance to us, as well as the SAA, that the successor in interest to the PO has the ability to assume the obligation to provide care to the vulnerable population in PACE.

Comment:

One commenter expressed concern that if a PO is seeking a CHOW due to a financial hardship or experiencing other difficulties, requiring the acquiring entity to become qualified through the PACE application process may make it impossible to prevent actions such as a PACE termination.

Response:

We appreciate the comment and will continue to work with POs that are in these types of hardship situations to help ensure that their participants continue to receive proper care. Even though we have designated timeframes to complete the application approval process, when we are made aware of these types of extenuating circumstances, we work closely with the PO and the SAA to process the application as quickly as possible and prevent negative impact to the participants.

We appreciate the commenters' recommendations and will consider them as we develop subregulatory guidance on PO CHOWs. We will continue to require all entities that are not currently approved POs, but would like to be the successor in interest to a PO, to become qualified as a PO through our PACE application process. The PACE application process is an administrative process with established requirements that all entities have to meet in order to qualify as a PO. This application process demonstrates to us and the SAA that the successor in interest to the PO is qualified to be a PO and will maintain arrangements to comply with the legal and regulatory requirements for PACE and other requirements imposed under the PACE program agreement. This allows us to maintain a consistent qualification process for all entities. We are finalizing the CHOW requirements as proposed.

2. Governing Body (§ 460.62)

Section 460.62 focuses on the ability of the PO's governing body to provide effective administration in an outcome-oriented environment. As we have previously explained in the 1999 IFC (64 FR 66241) and the 2006 final rule (71 FR 71264), the governing body guides operations and promotes and protects participant health and safety, and it is legally and fiscally responsible for the administration of the PO. Additionally, the governing body must create and foster an environment that provides quality care that is consistent with participant needs and the program mission. To that end, we proposed to revise the language in § 460.62(a)(7) and to add new paragraph (a)(8). Currently, § 460.62(a)(7) references a “quality assessment and performance improvement” program. In addition to replacing that term with “quality improvement,” as discussed in section II.A. of this final rule, we also proposed to add a reference to the quality improvement program requirements in § 460.130, to make it clear that the governing body is ultimately responsible for ensuring the PO meets those requirements.

As we did not receive any comments on these proposed changes, we are finalizing this provision as proposed.

In addition, as discussed later in this section, we proposed in a new § 460.63 to require that all POs adopt and implement effective compliance oversight. Because the governing body is both legally and fiscally responsible for administration of the PO, and is responsible for ensuring that the organization provides quality care (see § 460.62(a)), we stated that we believed adoption and implementation of compliance oversight requirements is the responsibility of the governing body. We noted that having legal responsibility over the governance of the organization requires ensuring that the organization complies with federal and state regulations, adheres to contract requirements, and minimizes waste and abuse. To that end, we proposed to add a new § 460.62(a)(8) that specifies the governing body of the PO must have full legal authority and responsibility for adopting and implementing effective compliance oversight as described in § 460.63.

As discussed in detail in the following section, we received several comments on our compliance oversight proposal and as a result of those comments, we have decided not to finalize certain aspects of that proposal at this time, in order to allow CMS additional time to evaluate the potential burden that implementing certain aspects of the compliance oversight provision might have on POs. Relatedly, based on these comments and to allow additional time to evaluate the potential burden, we are not finalizing the proposal to add a new § 460.62(a)(8) specifying that the governing body of the PO must have full legal authority and responsibility for adopting and implementing the compliance oversight program.

3. Compliance Oversight Requirements (§ 460.63)

In the proposed rule, we discussed the compliance programs required under the Medicare Advantage (MA) and Medicare Part D programs, and noted that those programs have long been recognized as key to protecting against fraud, waste, and abuse. The importance of these programs has been highlighted by several of our oversight bodies. As is authorized by sections 1934(f)(3) and 1894(f)(3) of the Act, we proposed to adopt compliance oversight requirements in the PACE regulations. Specifically, at new § 460.63, entitled “Compliance Oversight Requirements,” we proposed to require each PO to have a compliance oversight program that is responsible for monitoring and auditing their organization for compliance with our regulations. Additionally, we proposed to require POs to have measures that prevent, detect and correct non-compliance with CMS' program requirements, as well as measures that prevent, detect, and correct fraud, waste, and abuse.

In determining what compliance oversight CMS should require of all POs, we considered as potential models the compliance program requirements for Medicare Part C organizations at § 422.503(b)(4)(vi) and the compliance program requirements for Part D sponsors at § 423.504(b)(4)(vi). POs offering qualified prescription drug coverage under Part D are already required to have a compliance program as a part of their Part D benefit, however, specific requirements of the Part D compliance program were waived for all POs. The Part D application took into account PACE as a direct care provider, as well as a payer, and it weighed the importance of maintaining compliance with CMS regulations with the need for flexibility as a direct care provider. All Part D compliance program elements were waived except the two elements that we proposed.

In § 460.63, we proposed to establish that the two elements of a Part D compliance program required of POs participating in Part D will become compliance oversight requirements for the PO as a whole. Specifically, we proposed to require each PO to adopt and implement effective compliance oversight, which includes measures that prevent, detect and correct non-compliance with CMS' program requirements, as well as measures that prevent, detect and correct fraud, waste and abuse that would include, at a

minimum: (1) The establishment and implementation of an effective system for routine monitoring and identification of compliance risks, which should include internal monitoring and audits and, as appropriate, external audits, to evaluate the PO, including contractors, compliance with CMS requirements and the overall effectiveness of the compliance oversight program; and (2) the establishment and implementation of procedures and a system for promptly responding to compliance issues as they are raised, investigating potential compliance problems as 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. As part of the system for promptly responding to compliance issues, we also proposed the requirements that a PO: (1) Conduct a timely, reasonable inquiry if it discovers evidence of misconduct related to payment or delivery of items or services, (2) conduct appropriate corrective actions in response to the potential violation (for example, repayment of overpayments or disciplinary actions against responsible employees), and (3) have procedures to voluntarily self-report potential fraud or misconduct to CMS and the SAA. We noted that the PO should already have these elements implemented for their Part D benefit to comply with the Part D regulations, but they would need to expand these efforts to cover all of the services provided by the PO.

As we explained in the proposed rule, POs are not currently required to conduct internal organization wide monitoring or auditing efforts. Through our experiences with MA and Part D organizations, we stated that we believed conducting monitoring and auditing is key to identifying and correcting issues of non-compliance with CMS requirements. We noted that we believed that by adding these two compliance oversight provisions we are balancing the duty of a PO to ensure compliance with CMS requirements with the need for flexibility as a provider of service. We stated that POs will also benefit from improving their ability to identify and correct compliance risks within their own organization.

Additionally, we proposed to require the PO to implement appropriate corrective action in response to any identified issues of non-compliance that POs may discover. We noted that, if finalized, we intended to verify compliance with this new requirement through monitoring or auditing of the PO.

We received public comments from POs, states and advocacy groups which were supportive of the effort to ensure appropriate protections are in place, but cautioned CMS about the potential burden associated with implementing these provisions. We analyzed our proposal and believe that the majority of the burden on POs associated with the proposed compliance oversight requirements is due to the first proposed element, the requirement that a PO develop and implement a system for monitoring and auditing their PACE operations. While we consider it a best practice for a PO to adopt a compliance program that includes conducting internal monitoring and auditing, we are not finalizing our proposal to require the PO to adopt a system for routine monitoring and auditing of the PO and its contractors at this time in order to further evaluate the potential burden of this proposal on smaller organizations. As Part D plan sponsors, POs must still conduct monitoring and auditing of their Part D benefit as required under 42 CFR 423.504(b)(4)(vi)(F). The second proposed element of the compliance oversight requirements, which requires promptly responding to non-compliance and voluntary reporting of identified issues, does not pose a significant burden on a PO. Therefore, we are finalizing the second element of this provision which would require POs to correct identified non-compliance and voluntarily report fraud and/or potential misconduct to CMS and the SAA. In large part, POs may utilize their already established Part D system to comply with these new requirements for responding to, correcting and reporting non-compliance and potential fraud, and because we are not increasing the scope of a PO's monitoring responsibilities, we anticipate only a minimal burden on the organization by implementing this modified provision.

The following is a summary of the public comments we received on the proposed compliance oversight requirements in new § 460.63 and our responses to comments. As a result of these comments, we are finalizing this provision in part.

Comment:

A majority of commenters were supportive of our proposal to require POs to adopt a compliance oversight program. Commenters noted that adding compliance oversight requirements is an important step to ensuring POs are able to stop non-compliance and take appropriate corrective action. These commenters noted that this proposal would help ensure the safety of participants, and protect against fraud, waste and abuse.

Response:

We appreciate commenters' support and agree that implementing a compliance oversight program is a best practice for all organizations, big or small, in order to ensure compliance with federal and state regulations. We hope that POs will consider increasing the scope of their monitoring and auditing efforts as part of their effort to ensure they are compliant with our requirements. We are not, however, finalizing the first element of our proposal which would have required POs to expand the scope of their monitoring efforts. Instead, we are only finalizing the second element, which requires POs to respond, investigate and correct non-compliance as it is identified. While we further evaluate the implications of a required compliance oversight program on the unique PACE model of care, we will continue to assess potential risk to participant safety through auditing and account management oversight, and address any identified fraud, waste and abuse issues as needed.

Comment:

Multiple commenters raised concerns over the potential burden that implementing this provision would cause POs. Commenters stated that there are significant differences between MA/Part D organizations and POs; including the fact that MA/Part D organizations tend to have larger staffs and greater resources, as well as different program structures, which would make implementing this proposal more challenging for POs. Other commenters suggested that the burden on smaller organizations and rural organizations would be especially significant. Most commenters also requested that, if CMS finalizes this provision, that the implementation date be no earlier than 12 months following the regulation becoming final in order to allow organizations the appropriate time to determine how to appropriately implement a compliance oversight program and allocate resources. Several commenters suggested that CMS had underestimated the cost of implementing a compliance oversight program in PACE. One commenter requested that CMS work closely with stakeholders to determine technical assistance needs and practical implementation schedules before enacting this proposal.

Response:

We appreciate commenters' concerns regarding the potential burden this provision may cause for POs. We have a significant policy interest in further assessing how to integrate an effective compliance oversight program,

as well as the potential burden and benefits related to expanding this provision across the PACE program. In order to minimize the potential burden associated with this provision, we re-analyzed the burden estimates and believe that the majority of costs are associated with the first element of our proposal, the element that would require POs to expand their auditing and monitoring efforts to cover their entire operation. While we consider it a best practice to conduct internal auditing and monitoring to identify non-compliance with PACE requirements, we are not finalizing that element of this provision at this time while we further evaluate the implications of this proposal on the unique PACE model of care. We are, however, finalizing the second element which would largely allow organizations to use their already established system to respond to and correct any non-compliance discovered in the POs. We anticipate only a minimal burden in finalizing this element and believe such efforts can be implemented in the 60 days following publication of the final rule.

Comment:

Several commenters posed questions regarding the structure or administration of a compliance oversight program in PACE. Two commenters questioned if POs would be required to submit their compliance oversight program to CMS for approval. The same two commenters questioned if CMS would require the POs to implement specific structures, policies or procedures for the compliance oversight program. Another commenter questioned if CMS would offer technical assistance to POs.

Response:

We appreciate the opportunity to provide clarification on this proposal. We understand that POs are both payers, as well as direct care providers. We also understand that POs vary greatly in size, structure and resources. As such, we believe that a PO should continue to be free to develop a compliance oversight program that works best for their specific organization. POs are already required to have systems in place to correct identified non-compliance and voluntarily report fraud or potential misconduct to us for their Part D benefit, and we do not anticipate that substantial changes would need to be made to the structure of such systems based on this provision as finalized. Additionally, while we would be willing to provide technical guidance to POs, we do not expect to collect documentation regarding the structure of a PO's compliance oversight program or provide an approval process. Instead, POs will have flexibility in designing their own compliance oversight programs so long as they ensure they are satisfying the requirements in the new § 460.63.

Comment:

A few commenters questioned how CMS would monitor these compliance oversight programs in PACE. One commenter suggested CMS conduct rigorous monitoring of the compliance oversight programs. Another commenter questioned if CMS would validate the monitoring that POs did under their compliance oversight programs. One commenter requested that CMS ensure that any monitoring of the compliance oversight program is done consistently across regions.

Response:

We may begin monitoring compliance with the requirements in § 460.63 as finalized during audits or other communications with POs. We agree that CMS monitoring should be done consistently and we intend to develop specific guidance for auditors or other personnel in CMS.

Comment:

Several commenters expressed their support for our proposal to reduce the frequency of CMS audits and characterized it as being in exchange for requiring POs to develop their own compliance oversight requirements.

Response:

We thank the commenters for their support. While we proposed both to decrease the frequency of our audits and to increase POs' self-monitoring, these policies were each intended to stand on its own and were not intended to be an exchange. While we are not finalizing the element of the proposed compliance oversight requirements that would have required POs to monitor and audit all operations, we believe that this is a best practice and would encourage organizations to expand the scope of their current monitoring and auditing efforts. We are finalizing the second element within this provision in order to ensure POs are promptly responding to, investigating and correcting potential compliance problems as they are identified. Separately, we are also finalizing our proposal to reduce the frequency of reviews by us in cooperation with the SAA under § 460.192, as discussed in the final rule below in Subpart K—Federal/State Monitoring.

Comment:

One commenter recommended that the compliance oversight requirements for POs include all seven elements of the MA and Part D compliance programs, rather than just the two we proposed.

Response:

We thank this commenter for the suggestion. While we believe that compliance programs are beneficial to all organizations, regardless of size, we decided at this time not to require POs to implement the seven compliance program elements required under MA and Part D. Under the Part D regulations, POs are required to have two of the seven elements of a compliance program implemented for their Part D benefit, but the other five elements are waived for POs. While we will continue to engage POs in discussions regarding the benefits of robust compliance programs, at this time we do not believe it is appropriate to require POs to implement the seven elements of the MA/Part D compliance program.

Comment:

Several commenters suggested modifications to our compliance oversight proposal. A few commenters expressed concern with the potential burden of a compliance oversight program in PACE, and recommended we consider modifying the PACE compliance oversight program to account for the small size of some POs. These commenters recommended we refer to the OIG guidance on compliance programs for individual and small physician practices (see 65 FR 59434 through 59452).

Response:

We appreciate these concerns and consistent with the OIG guidance cited by commenters, we took the size and structure of POs into account when proposing compliance requirements for PACE. As we mentioned in the proposed rule (81 FR 54677), we balanced the need for POs to maintain compliance with program requirements with the fact that they need flexibility as direct care providers. We initially proposed that of the seven compliance program elements in the MA and Part D programs, only two of these elements should be regulatory requirements for all POs. However, after reviewing the comments received, and because we have a significant policy interest in preventing undue burden, we are only finalizing one of the two proposed required elements. We believe there is a need for organizations to be able to identify non-compliance and fraud, waste and abuse, and to take corrective action when an issue is discovered. We also believe that since all POs already have a system in place to respond to identified compliance issues related to the Part D benefit, that finalizing this element will only create a minimal burden on POs.

Comment:

Two commenters requested clarification on whether the PO must operate the compliance oversight program, or whether a parent organization of the PO could comply with the compliance oversight requirements on behalf of the PO.

Response:

The regulation as finalized imposes compliance oversight

requirements on the PO, but we intended for these requirements to provide flexibilities for POs. Each PO must have procedures and an effective system for promptly responding to compliance issues and correcting problems, but we will not dictate what that system should look like or how it should be structured. Since POs are already required to have a system for responding to compliance concerns in their roles as Part D sponsors, we expect that many organizations will adapt their existing system to meet the PACE program requirements. However, the individual organization has discretion to choose to develop its compliance oversight program, including whether or not the compliance oversight program is run through the PO or another entity (such as a parent organization).

As discussed previously, a majority of commenters were supportive of our proposal to implement a compliance oversight program in PACE, while some commenters raised concerns regarding implementation and the associated burden of a compliance oversight program on small, direct care organizations. We agree with these commenters that further evalua

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