Medicare Program; Post-Contract Protections and Other Coordinated Care Issues

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 417

[OCC-011-P]

RIN 0938-AE63

Medicare Program; Post-Contract Protections and Other Coordinated

Care Issues

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend HCFA regulations to provide

that--

A health maintenance organization (HMO) or a competitive

medical plan (CMP) that has a Medicare risk or cost contract with HCFA

and that ceases to furnish services, for any reason, must provide, for

enrollees who return to the fee-for-service payment system, protection

against loss of coverage because of a preexisting condition exclusion

clause in the enrollee's replacement Medicare supplement insurance

policy.

If the Medicare risk contract of an HMO or CMP is

terminated, not renewed, or renewed with a reduced service area, all

other Medicare risk-contracting organizations operating in any part of

the service area must provide a 30-day special open enrollment period

for the benefit of the affected enrollees.

All contracting HMOs and CMPs, and all health care

prepayment plans (HCPPs), must furnish to Medicare beneficiaries at the

time of application a signed copy of the enrollment application form.

An HCPP must also meet all the other requirements that

contracting HMOs and CMPs must meet in handling applications.

These amendments would provide post-contract protections

for Medicare enrollees of HMOs and CMPs that cease to provide services

under a Medicare contract and would also strengthen the application

procedures for HMOs, CMPs, and HCPPs. The first two amendments

implement, respectively, section 4011 of the Omnibus Budget

Reconciliation Act of 1987 and section 6206 of the Omnibus Budget

Reconciliation Act of 1989.

In addition, this proposed rule would provide that all

HMOs and CMPs with risk contracts must submit their Adjusted Community

Rate (ACR) proposals to HCFA not later than 60 days (rather than 45)

days before the beginning of a contract period. The earlier submission

date for the ACR proposals is necessary to provide more time for HCFA

to review and evaluate the material.

DATES: Written comments will be considered if we receive them at the

appropriate address, as provided below, no later than 5 p.m on May 9,

1994.

ADDRESSES: Mail comments (original and three copies) to the following

address: Health Care Financing Administration, Department of Health and

Human Services, Attention: OCC-011-P, P.O. Box 26688, Baltimore, MD

21207.

If you prefer, you may deliver your written comments (original and

three copies) to one of the following addresses: Room 309-G, Hubert H.

Humphrey Building, 200 Independence Ave., SW., Washington, DC 20201, or

room 132, East High Rise Building, 6325 Security Boulevard, Baltimore,

MD 21207.

If comments concern information collection or recordkeeping

requirements, please address a copy of comments to: Office of

Management and Budget, Office of Information and Regulatory Affairs,

room 3001, New Executive Office Building, Washington, DC 20503,

Attention: Allison Herron Eydt.

Due to staffing and resource limitations, we cannot accept comments

by facsimile (FAX) transmission.

In commenting, please refer to file code OCC-011-P. Comments

received timely will be available for public inspection as they are

received, beginning approximately three weeks after publication of this

document, in Room 309-G of the Department's offices at 200 Independence

Avenue, SW., Washington, DC, on Monday through Friday of each week from

8:30 a.m. to 5 p.m., (202) 690-7890.

FOR FURTHER INFORMATION CONTACT: Tracy Jensen, (202) 619-2158.

SUPPLEMENTARY INFORMATION:

I. Background

A. Health Maintenance Organizations and Competitive Medical Plans

Health maintenance organizations (HMOs) and competitive medical

plans (CMPs) are entities that provide specified health care services,

in a defined geographic area, to persons who are enrolled in the

entities, in exchange for a predetermined, fixed, periodic premium

payment. When these entities meet the requirements of section 1876(b)

of the Social Security Act (the Act), they become eligible to contract

with HCFA to provide and be paid for services furnished to Medicare

enrollees. These entities may contract either on a ``risk'' basis or a

``cost'' basis.

When HMOs or CMPs contract with HCFA on a risk basis, HCFA makes

advance monthly payments for each enrolled Medicare beneficiary, and

there is no adjustment at the end of the contract year. The per capita

rate of payment for each class of enrollees under a risk contract is

equal to 95 percent of the Adjusted Average Per Capita Cost (AAPCC).

The AAPCC is the actuarial estimate made by HCFA, before an

organization's contract period, of what the average per capita cost to

the Medicare program would be for each class of Medicare enrollees if

they received covered services other than through the organization or

another organization in the same geographic area. A class of Medicare

enrollees is a grouping of an organization's Medicare enrollees that

HCFA constructs on the basis of actuarial factors such as age, sex,

Medicaid status, institutional status, and other relevant factors that

have a significant effect on the use and costs of health care services.

HMOs or CMPs that contract to be paid on a cost basis also receive

monthly advance payments. However, these payments are based on a

general overall budget submitted by the HMO or CMP and are subject to

an annual reconciliation so that payments cover the reasonable costs of

the specific services that they actually provide to Medicare enrollees.

An HMO or CMP that contracts to be paid on a risk basis must

provide to enrollees all Medicare Part A and Part B services (except

hospice services) that are available to beneficiaries who reside in the

geographic area served by the HMO or CMP. A Medicare beneficiary who

enrolls in a risk HMO or CMP must obtain all services directly from or

under arrangements made by the HMO or CMP. The HMO or CMP is

financially responsible for emergency services and urgently needed

services obtained from other sources while the beneficiary is traveling

or temporarily outside the service area of that HMO or CMP.

An HMO or CMP that contracts with HCFA on a cost basis must offer

the same Medicare services as a risk HMO or CMP. However, the cost plan

enrollee may obtain any Medicare covered services outside the HMO or

CMP and have those services paid for by Medicare intermediaries or

carriers, subject to Medicare deductibles and coinsurance.

Initial contracts between HCFA and an HMO or CMP must be for at

least 1 year, but not more than 23 months, and any contract renewal

must be for a period of 1 year. A contract is renewed automatically

unless HCFA or the HMO or CMP decides not to renew. If the HMO or CMP

decides not to renew its contract, it must give written notice to HCFA

at least 90 days before the end of the current contract period and

notify each Medicare enrollee by mail at least 60 days before the end

of the contract period. It must also provide 30 days notice to the

general public by publishing an announcement in a local newspaper. If

HCFA decides not to renew, it must provide like notice to the Medicare

enrollees, the HMO or CMP, and the general public.

A contract can be terminated before its expiration by mutual

consent or unilaterally by either party if certain conditions are

present, generally if the other party fails to perform its obligations.

The terminating party is responsible for making the necessary

notifications.

Each Medicare beneficiary who wishes to enroll in an HMO or CMP is

required to complete an enrollment application form. 42 CFR 417.430

controls the format and content of the enrollment application form and

prescribes procedures for handling applications. However, it does not

require the HMO or CMP to furnish the beneficiary with a copy of the

executed application at the time of enrollment.

B. Health Care Prepayment Plans

A health care prepayment plan (HCPP) is a prepaid group medical

plan that elects to receive Medicare payment from HCFA for Part B

services on a reasonable cost basis under section 1833(a)(1)(A) of the

Act. The regulations concerning Medicare payment to HCPPs are located

at 42 CFR part 417. Under Sec. 417.800(b)(1), an organization wishing

to participate in Medicare as an HCPP is required to enter into a

written agreement with HCFA to furnish physicians' services, through

employee physicians or contracting physicians, and to furnish other

covered Part B services through Medicare qualified providers and

suppliers. HCFA pays an HCPP directly for physician's services

furnished to its Medicare enrollees through plan employees or

contracting physicians, and for other Part B services furnished under

arrangements with Medicare certified suppliers. Payment for Part B

services furnished to an HCPP enrollee by a provider of services such

as a hospital, as well as payment for any Part A services, is made

directly to the provider.

Section 417.801 sets forth the requirements for written agreements

between HCFA and an HCPP, but it contains no specific procedures

concerning application by Medicare beneficiaries for enrollment in an

HCPP.

II. Supplemental Exclusion Coverage Upon Termination of Contract

A. Current Policy

Under the Medicare fee-for-service payment system, beneficiaries

are liable for deductible and coinsurance amounts associated with

certain Medicare covered services. Beneficiaries may insure for some or

all of these out-of-pocket expenses by purchasing a Medicare supplement

policy, generally referred to as a Medigap policy, from a private

insurance company. Medigap policies supplement Medicare coverage by

reimbursing the beneficiary for some or all coinsurance expenses and

may also reimburse for deductible expenses as well, depending on the

terms of the policy. The Medigap policy may also pay for certain

additional services or costs that are not covered by Medicare.

Medigap policies sometimes contain a preexisting condition

exclusion clause, that is, a provision that the policy will not cover

its share of expenses related to a preexisting condition, until a

specified waiting period has elapsed. The waiting period for coverage

of a preexisting condition may not exceed 6 months. The Medigap policy

may not define a preexisting condition more restrictively than a

condition for which medical advice was given or treatment was

recommended by or received from a physician within 6 months before the

effective date of coverage.

In the HMO or CMP setting, HCFA makes a monthly payment directly to

the HMO or CMP to cover all mandated Medicare benefits, less deductible

and coinsurance amounts. The HMO or CMP is permitted to charge the

beneficiary a premium or other amounts such as copayments in place of

the regular Medicare deductible and coinsurance amounts. When Medicare

beneficiaries enroll in an HMO or CMP, they are advised to cancel their

Medigap insurance policy because the HMO or CMP supplemental coverage

is similar to the coverage afforded by Medigap policies. In addition,

if the enrollee did not cancel the Medigap policy, the HMO or CMP could

be considered in violation of section 1882(d)(3)(A) of the Act, which

makes it unlawful for a person to sell or issue a health insurance

policy to any individual entitled to benefits under Part A or under

Part B of Medicare with knowledge that the policy duplicates health

benefits to which the individual is otherwise entitled.

If the HMO's or CMP's Medicare risk contract is terminated, not

renewed, or renewed with a reduced service area, the affected Medicare

enrollees would be transferred into the fee-for-service payment system

unless they enroll in another HMO or CMP that is having an open

enrollment. Beneficiaries who return to the fee-for-service system and

apply for a Medigap policy could be subject to a waiting period of up

to 6 months before preexisting conditions are covered. During the

exclusion period, beneficiaries would have no coverage for payment of

the coinsurance expenses, and possibly deductible expenses if the

policy covered them, which are incurred as a result of preexisting

conditions. The beneficiaries' only other alternative would be to

purchase a policy with no waiting periods, if it were available, at a

higher premium rate.

Prior to the enactment of the Omnibus Budget Reconciliation Act of

1987 (OBRA '87), Public Law 100-203, there was no statutory requirement

that HMOs or CMPs terminating their contract with HCFA provide or

arrange for terminated enrollees to obtain Medicare supplemental

coverage without exclusion periods related to preexisting conditions.

However, HCFA routinely requested that HMOs or CMPs arrange for such

coverage, and all the HMOs or CMPs that terminated their contracts

complied on a voluntary basis.

B. Legislation and Provisions of the Proposed Regulations

In order to protect Medicare enrollees from loss of supplemental

coverage for illness resulting from conditions existing prior to the

termination of their HMO or CMP coverage, section 4011 of OBRA '87

added section 1876(c)(3)(F) of the Act. Section 1876(c)(3)(F) states

that each eligible organization that provides Medicare services under a

contract must provide assurances to the Secretary that, in the event it

ceases to provide such services, it will provide or arrange for

supplemental coverage of Medicare benefits related to a preexisting

condition with respect to any exclusion period, to all individuals

enrolled with the entity who receive Medicare benefits for the lesser

of 6 months or the duration of such period.

We propose to follow the standards for preexisting condition

exclusion clauses developed by the National Association of Insurance

Commissioners (NAIC), and contained in the ``Model Regulation to

Implement the NAIC Medicare Supplement Insurance Minimum Standards

Model Act'' (the NAIC model). All States regulate Medicare supplement

insurance (Medigap) policy packages according to the NAIC model (57 FR

37487, August 21, 1992) standards which stipulate that preexisting

condition exclusion clauses may be applied for a maximum of 6 months.

This standard is consistent with the statutory requirement that the HMO

or CMP provide supplemental exclusion coverage for a 6-month period,

since the terminated enrollee may be precluded from obtaining such

coverage when purchasing a Medigap policy on his or her own.

The NAIC model currently describes ten standard Medigap policies,

all of which include the following core benefits: Part A coinsurance,

Part B coinsurance, 100 percent of Medicare Part A eligible

hospitalization expenses for 365 hospital days in addition to Medicare

standard and lifetime reserve days, and the cost of the first 3 pints

of blood each year. The ten policies range in price and benefits from

A, which includes just the core benefits, to plan J, which contains the

most comprehensive package of benefits. At this time, only three of the

NAIC standard policies--Plans C, F, and J--contain the benefits that

are determined to meet our definition of supplemental exclusion

coverage, a definition which is derived from the beneficiary cost-

sharing requirements for Part A and Part B as required under title

XVIII. We define supplemental exclusion coverage to include the

following benefits: The NAIC model core benefits as described above,

Part A deductible, Part B deductible, and skilled nursing facility

coinsurance.

In order to implement section 1876(c)(3)(F) of the Act, we propose

(Sec. 417.440(f)) to require that Medicare cost or risk-contracting

HMOs or CMPs that cease to provide services are responsible for

arranging supplemental coverage for a period of 6 months. This

requirement would not apply when an HMO or CMP ceases to supply

services to enrolled beneficiaries as a result of the beneficiaries'

disenrollment under Secs. 417.460 (a) or (b). As described below and

under proposed Sec. 417.440(f)(4), we propose to require the HMO or CMP

to comply with one of the following supplemental coverage options:

(1) Make available to eligible beneficiaries one or more Medigap

policies without a preexisting condition waiting period; or at the

State-approved rate for the same policy with a preexisting condition

waiting period; or

(2) Allow an eligible beneficiary to purchase a policy of his or

her choice and--

--Reimburse the beneficiary for all expenses related to a

preexisting condition; or

--Arrange for provision of services related to a preexisting

condition without beneficiary cost-sharing.

To exercise option one, we have determined that the most equitable

standard for compliance with section 1876(c)(3)(F) is to require HMOs

and CMPs with a Medicare contract that is terminated, not renewed, or

renewed with a reduced service area, to offer former enrollees the

least expensive NAIC model plan with benefits that meet the definition

of supplemental exclusion coverage (plan C in most cases). Section

1876(c)(3)(F) of the Act requires coverage for ``all individuals

enrolled with the entity.'' Based on this language, we believe that

Medicare enrollees who are under age 65 (that is, those eligible for

Medicare because of disability or end stage renal disease) are intended

to be covered by this regulation to the extent that a Medigap policy is

available to them in the insurance marketplace. If a Medigap policy is

not available, the proposed regulation would not apply, just as it

would not apply to a Medicare enrollee over age 65 who chooses not to

purchase a Medigap policy.

We do not believe that the statute requires supplemental exclusion

coverage to include all benefits that might have been provided by the

HMO or CMP in excess of those benefits mandated and covered by

Medicare. Examples of benefits that need not be included as

supplemental exclusion coverage under this proposed rule would be

``additional benefits'' or benefits not covered by Medicare but

provided by the HMO or CMP for an additional payment by the enrollee,

such as copayments for eyeglasses or hearing aids.

``Additional benefits'' are benefits that are provided by a risk

HMO or CMP to its Medicare enrollees in accordance with Sec. 417.592

which stipulates that, if an eligible organization's Adjusted Community

Rate (ACR) for services to enrolled beneficiaries is less than the

average per capita rate of payment it receives from Medicare, the

entire difference must be accounted for. This must be accomplished

either through HCFA's reducing the payments to the HMO or CMP, or by

the HMO's or CMP's provision of additional benefits not covered by

Medicare to all beneficiaries enrolled under the risk contract, at no

additional charge. These ``additional benefits'' are calculated

separately for those enrolled in both Part A and Part B, and for those

enrolled in Part B only.

Supplemental exclusion coverage would not apply to those

beneficiaries who choose to enroll in another Medicare-contracting HMO

or CMP because these organizations are not permitted to exclude

preexisting conditions.

Since section 1876(c)(3)(F) of the Act states that an HMO or CMP

may either ``provide or arrange for'' supplemental coverage, we propose

to permit an eligible organization to make available to terminated

enrollees the following options to comply with this statute: (1) It may

arrange with a Medigap insurer to make available for purchase by each

eligible beneficiary the least expensive State-approved Medigap policy

that includes the benefits defined as supplemental exclusion coverage.

The policy must waive any preexisting condition exclusion clause, and

must be made available to the beneficiary at a premium rate approved by

the State insurance commissioner for the same policy with a preexisting

condition exclusion. This does not impose a requirement on the Medigap

insurer to discount a premium. However, an HMO or CMP that chooses this

option must guarantee that the Medigap policy offered to the former

enrollees covers any preexisting condition related services at the same

premium as a comparable package of benefits with a preexisting

condition exclusion clause. This provision is consistent with what we

believe to be Congressional intent to provide certain former enrollees

of Medicare risk HMOs and CMPs with access to Medigap policies that do

not discriminate on the basis of benefit or price.

(2) It may allow the former enrollee to purchase his or her own

Medigap policy and--

Reimburse the beneficiary for all of the Medicare

deductible or coinsurance expenses for services that would have been

covered by the Medigap policy but are not payable because of the

existence of a preexisting condition exclusion clause; or

Arrange for a physician or provider to furnish the actual

services required as a result of the preexisting condition, with the

HMO or CMP reimbursing the deductible and coinsurance amounts to the

cooperating physician or provider on behalf of the former enrollee.

Section 1876(c)(3)(F) of the Act does not specifically refer to

reductions in service area. However, that section requires supplemental

exclusion coverage ``in the event the organization ceases to provide *

* * items and services'' under a Medicare contract. HCFA interprets

this phrase to apply to beneficiaries who are disenrolled due to a

contract termination or a reduction in the service area. The phrase

does not apply to reduction in benefits as provided in Sec. 417.440 or

to disenrollments under Secs. 417.460 (a) or (b).

We considered permitting the HMO or CMP to satisfy this requirement

by making available any State-approved Medigap policy, regardless of

the benefit level. This option would give the HMO or CMP more

flexibility in making arrangements for supplemental exclusion coverage

and it would still provide the beneficiary with access to the Medigap

market. However, since the NAIC model describes policies with several

different levels of coverage, some conforming policies would not

provide enrollees with coverage comparable to what they had with the

HMO or CMP. We have decided to require the HMO or CMP to offer the

least expensive policy that will comply with the supplemental exclusion

coverage required under section 1876(c)(3)(F) of the Act. Additional

policies may also be offered at a higher premium rate, as long as the

policy includes the defined supplemental exclusion coverage benefits,

at the State-approved premium rate for the same policy with a

preexisting condition exclusion clause.

In summary, we propose to amend Sec. 417.440(e) to require a risk

or cost HMO or CMP whose contract with HCFA is terminated, not renewed,

or renewed with a reduced service area, to offer affected Medicare

enrollees who do not enroll in another Medicare contracting HMO or CMP,

protection against out-of-pocket expenses because of a Medigap

preexisting condition exclusion clause, in accordance with the

requirements in proposed Sec. 417.440(f). Under proposed

Sec. 417.440(f), we would require that the HMO or CMP provide at least

one of the following options to former enrollees for the lesser of 6

months after termination of enrollment or the duration of a Medigap

insurance policy exclusion period:

Make available for purchase by each former enrollee one or

more State-approved Medicare supplement policies that waive the

preexisting condition exclusion clause, at the premium rate approved by

the State insurance commissioner for the same policy with such a

clause. At least one of the policies must cover all of the expenses

specified as supplemental exclusion coverage benefits at the lowest

premium available in the area.

Allow the former enrollee to obtain his or her own Medigap

policy. If the policy imposes a preexisting condition exclusion clause,

the HMO or CMP would be required to--

--Reimburse the former enrollee for any benefits defined as

supplemental exclusion coverage for services that would have been

covered by the Medigap policy but for a preexisting condition exclusion

clause; or

--Arrange for a physician or provider to furnish the actual

services related to the preexisting condition, with the HMO or CMP

reimbursing the deductible and insurance amounts to the cooperating

physician or provider on behalf of the former enrollee.

We propose to add a new Sec. 417.541 to clarify that an HMO or CMP

with a cost contract may not claim reimbursement for costs related to

furnishing of the supplemental exclusion coverage required by the

proposed Sec. 417.440(f).

We also propose to revise Secs. 417.492 and 417.494 to require that

an HMO or CMP whose contract with HCFA is terminated, not renewed, or

modified with a reduced service area comply with Sec. 417.440(e)

regarding the provision of supplemental exclusion coverage for their

affected Medicare enrollees and Sec. 417.488 regarding the delivery of

the appropriate notices to affected enrollees by risk HMOs or CMPs. In

addition, we propose to revise Sec. 417.440(e) in order to clarify that

inpatient hospital services would no longer be the only covered

services that must be provided beyond the date of disenrollment. This

rule would require that, under certain circumstances, supplemental

exclusion coverage must be provided after the date of disenrollment. In

addition, all covered hospital and medical expenses incurred before the

date of termination must be paid by the HMO or CMP.

III. Immediate Open Enrollment for Risk HMOs or CMPs

A. Current Policy

Before passage of the Omnibus Budget Reconciliation Act of 1989

(OBRA '89), Public Law 101-239, there was no specific statutory

requirement that a risk HMO or CMP that continued to operate in an area

in which the contract of another risk HMO or CMP had been terminated,

not renewed, or renewed with a reduced service area, enroll those

Medicare beneficiaries who lost their prepaid health care coverage

under the terminated contract. However, HCFA did require at

Sec. 417.488 that the notice sent to enrollees advising them of their

pending disenrollment, include a listing of other risk HMOs or CMPs

operating in the service area. Also, there was no requirement that an

HMO or CMP that continued to contract with HCFA hold an open enrollment

at any time other than the annual 30-day period mandated by section

1876(c)(A)(i) of the Act. Thus, Medicare beneficiaries who had been

enrolled in the discontinued HMO or CMP had no alternative but to

return to the fee-for-service payment system if no other HMO or CMP in

the area was permitting new enrollment at the time of their

termination.

B. Legislation

Section 6206(b)(1)(B) of OBRA '89 amended section 1876(c)(3)(A)(ii)

of the Act to require that if a risk contract is not renewed, is

otherwise terminated, or is renewed with a reduced service area, a

special open enrollment period for the terminated enrollees must be

held by all other risk HMOs or CMPs operating in the same service area.

This special open enrollment period must be for 30 days and must begin

30 days after the date on which HCFA mails notice to the affected risk

HMOs or CMPs informing them of their responsibility under section

1876(c)(3)(A)(ii) of the Act. This period is only required to be open

to those individuals enrolled under the terminated contract as of the

date of termination.

If the special open enrollment period coincides with the annual

open enrollment period, the applications of all Medicare beneficiaries

will be accepted in the order of application. We have considered giving

precedence to the enrollees affected by the termination over new

Medicare beneficiary applicants in cases where the enrollment periods

do coincide. However, section 1876(c)(3)(A)(i) of the Act prohibits the

HMO or CMP from restricting eligible beneficiaries' enrollment during

open enrollment periods and we do not believe that section

1876(c)(3)(A)(ii) allows us to waive this requirement. The special open

enrollment period must be conducted in accordance with all of the

requirements of Sec. 417.426, applicable to annual open enrollments.

Enrollment becomes effective 30 days after the end of the special open

enrollment period, or if HCFA determines that such a date is not

feasible, such other date as HCFA specifies.

C. Provisions of This Proposed Rule

Based on the provisions of section 1876(c)(3)(A)(ii) of the Act, as

amended by section 6206 of OBRA '89, we are proposing to add a new

Sec. 417.426(d) to provide that:

HMOs or CMPs with risk contracts that serve a part of the

same service area as an HMO or CMP whose risk contract is terminated,

not renewed, or renewed with a reduced service area, for any reason,

must provide a special open enrollment period for individuals enrolled

under the terminated or revised contract.

The special open enrollment period would be 30 days in

duration and would begin 30 days after the date on which HCFA mails

notice to the affected HMOs or CMPs informing them of their

responsibility to hold a special open enrollment period.

Coverage would become effective 30 days after the end of

the special open enrollment period unless HCFA specifies a different

effective date.

This special open enrollment period may be in addition to,

or coincide with, any annual open enrollment which the HMO or CMP is

required to hold under Sec. 417.426.

The special open enrollment period must comply with the

requirements of Sec. 417.426.

We are also proposing to amend Sec. 417.488 to require that, upon

termination, nonrenewal, or reduction in the service area of a risk

contract with HCFA, the HMO or CMP must provide to all of its former

Medicare enrollees a list of the other risk HMOs and CMPs that are

still operating in the service area, and a description of the special

open enrollment period.

IV. Documentation of Enrollment for Medicare Enrollees of HMOs,

CMPs, and HCPPs

A. Current Policy

Section 1876(c)(3)(C) of the Act provides that the Secretary may

prescribe the procedures and conditions under which an HMO or CMP may

inform eligible Medicare beneficiaries about the organization, or may

enroll those beneficiaries. Under Sec. 417.422(a)(4), each Medicare

beneficiary requesting enrollment is required to complete an enrollment

application form. Under Sec. 417.430(a)(1), this form must contain the

beneficiary's signature, an authorization for disclosure and exchange

of information between HCFA and the HMO or CMP and must comply with

HCFA instructions regarding format and content. For risk HMOs and CMPs,

the application form must include a notice explaining that the

applicant may only obtain services from within the health care delivery

system of the organization, except for emergency care or urgent care

out of the service area. This notice must contain a statement detailing

the enrollee's liability for non-covered services and for out-of-plan

services when not authorized by a physician or official of the risk HMO

or CMP.

Current regulations at Sec. 417.430 prescribe the application

processing requirements, including a requirement at Sec. 417.430(b)(3)

that the HMO or CMP promptly notify an applicant of acceptance or

denial of an application. However, there is no requirement that an HMO

or CMP furnish to the applicant a copy of the enrollment application

form, signed by the beneficiary and a representative of the HMO or CMP,

at the time that the application is taken. Because there is generally a

30-day lag time between the date on which the beneficiary files an

application and the date that the HMO or CMP sends the notification of

enrollment (which contains the rules that enrollees must follow), many

Medicare enrollees are not fully informed of the requirements of the

plan, especially the limitations on out of plan services. Moreover, our

experience in the administration of the prepaid health care programs

has demonstrated that a certain number of Medicare beneficiaries do not

fully understand the restrictions that apply to enrollment in an HMO or

CMP. As a result, they may continue to obtain services after the

effective date of their enrollment from sources outside the HMO or CMP

and then find that they are liable for payment for these services.

Therefore, we believe that reinforcement of the rules and obligations

inherent in an HMO or CMP enrollment is appropriate.

It has been our policy to recommend that an HMO or CMP give a

signed copy of the enrollment application to Medicare beneficiaries who

apply for enrollment. However, this has been merely a recommendation

and voluntary compliance has been sporadic. Because some Medicare

beneficiaries may have difficulty fully understanding the HMO's or the

CMP's rules and procedures, we believe that the enrollment application

form should be presented to the enrollee on a mandatory basis,

immediately after the actual signing. We believe that this additional

step would strengthen our current enrollment procedures and

significantly lower the number of disenrollments resulting from

misunderstandings by enrollees. In addition, the presentation of the

signed application form would also provide the prospective enrollee

with in-hand documentation of intent to enroll in the HMO or CMP.

There are no current regulations governing application procedures

for enrollment in an HCPP. Thus, a Medicare beneficiary's application

for membership might not be accepted in the order of application, or

the beneficiary may never be notified in writing of the acceptance or

denial of the application. In order to prevent potential problems, we

are proposing to require HCPPs to utilize the same enrollment

application procedures that HMOs and CMPs utilize.

Since HCPPs are similar in organization to HMOs and the payment

basis specified in the Act for HCPPs and cost-based HMOs is similar, we

believe it would be appropriate to apply to HCPPs the same application

procedures required for enrollment in cost-based HMOs. This proposed

change would increase the uniformity of the application format and

procedures for HCPPs and ensure that HCPPs have an effective system for

receiving and processing applications from Medicare beneficiaries.

B. Provisions of This Proposed Rule

We propose to amend Sec. 417.430 by adding a provision that would

require each HMO or CMP to provide Medicare enrollees with a copy of

the application form signed by the applicant and a representative of

the HMO or CMP at the time the form is taken. In cases where the

applicant submits the application by mail, the plan must furnish a copy

to the applicant within 5 working days of receipt. In addition, we

propose to amend Sec. 417.801 to require that HCPPs comply with the

requirements of Sec. 417.430, that is, meet the same enrollment

application procedures as contracting HMOs and CMPs. These procedures--

Specify that a contracting HMO or CMP must comply with

HCFA instructions concerning content of application forms;

Require that a contracting HMO or CMP have an effective

system for receiving, controlling and processing applications from

Medicare beneficiaries; and

Prescribe the details of an effective system for handling

applications.

V. Adjusted Community Rate Proposal

A. Current Policy

Section 1876(a)(1)(A) of the Act requires that HCFA provide risk

HMOs or CMPs with the per capita rates of payment for each class of

Medicare enrollees no later than September 7 before the calendar year

in which the rates take effect. Regulations at Secs. 417.590 through

417.598 specify how eligible organizations use the HCFA payment rates

in determining their new premium rates and benefits for the coming

year. Section 417.592(d)(1) requires that an HMO or CMP provide HCFA

with this rate and benefit information not later than 45 days before

the beginning of its contract period. The package of materials that an

organization submits is called the Adjusted Community Rate Proposal.

HMOs or CMPs generally wait until November 15 (the current deadline) to

submit their adjusted community rates (ACRs) after receiving the per

capita rates from HCFA. This effectively leaves 45 days for HCFA to

review and approve, or disapprove, the ACRs from all risk HMOs or CMPs

that contract with the agency. In November and December of 1986, 1987,

1988, and 1989, HCFA accountants reviewed 139, 133, 135, and 107 ACRs,

respectively, within the 45-day period.

The review process involves the actuarial examination of proposed

payment rates, which is a complex, time consuming operation. Over time,

HCFA has found the 45-day period to be insufficient for allowing agency

personnel to perform a thorough and adequate review of ACRs and to

carry out necessary followup activities. For example, most ACRs contain

errors. HCFA staff must detect these errors and contact the HMO or CMP

to resolve the errors. Often HCFA requests that the HMO or CMP submit

additional materials for review. In addition, program growth (in total

number of Medicare beneficiaries served), and maturation of the

coordinated care industry has led to the development of more

sophisticated ACRs, resulting in the need to devote additional time to

the review of plan materials.

Following the review and approval by HCFA of an organization's ACR,

the HMO or CMP must inform current enrollees of the new benefit package

and rate changes for the coming contract year. This enrollee

notification must occur 30 days before the effective date of the

change. If the ACR has not been approved 30 days before the effective

date, HCFA may allow the HMO or CMP to advertise the new benefit

package. However, the advertisement must indicate that the announced

rates are subject to approval by HCFA.

B. Provision of This Proposed Rule

We propose to revise Sec. 417.592(d)(1) to require that each risk

HMO or CMP submit its proposed ACR at least 60 days prior to the

beginning of a contract period. This change would provide HCFA with an

additional 15 days to review and approve or disapprove the proposed

ACRs.

A change in the deadline for submission of proposed ACRs from 45 to

60 days before the beginning of a contract period would allow HCFA

additional time to evaluate the ACRs, particularly in cases in which

HCFA requests that the HMO or CMP provide supplemental documentation.

The additional time also would permit a more thorough review of the

proposals, reducing the potential for review errors. Making the

deadline for submission of ACR proposals earlier would also help to

ensure that enrollees have adequate notification of any contract

changes in a timely manner.

VI. Response to Public Comments

Because of the large number of items of correspondence we normally

receive on a proposed rule, we are not able to acknowledge or respond

to them individually. However, we will consider all comments that we

receive by the date and time specified in the Dates section of this

preamble, and we will respond to the comments in the preamble of the

final rule that is issued.

VII. Regulatory Impact Statement

We generally prepare a regulatory flexibility analysis that is

consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612) unless the Secretary certifies that a proposed rule would

not have a significant economic impact on a substantial number of small

entities.

The RFA defines ``small entity'' as a small business, a nonprofit

enterprise, or a governmental jurisdiction (such as a county, city, or

township) with a population of less than 50,000. We consider all HMOs,

CMPs, and HCPPs to be small entities.

Also, section 1102(b) of the Act requires the Secretary to prepare

a regulatory impact analysis if a proposed rule may have a significant

impact on the operations of a substantial number of small rural

hospitals. Such an analysis must conform to the provisions of section

604 of the RFA. For purposes of section 1102(b) of the Act, we define a

small rural hospital as a hospital that is located outside of a

Metropolitan Statistical Area and has fewer than 50 beds.

There are currently 98 HMOs and CMPs that contract with HCFA to

provide services on a risk basis to Medicare beneficiaries. Only 3

percent of all Medicare beneficiaries are enrolled under these risk

contracting plans. During the last fiscal year, eight risk-contracting

HMOs and/or CMPs ceased providing services to beneficiaries on a risk

basis. According to these data, the number of impacted small entities

is very low.

We have determined and the Secretary certifies that this proposed

rule will not have a significant effect on a substantial number of

small entities. Therefore, a regulatory flexibility analysis under the

RFA and a rural impact analysis under section 1102(b) of the Act are

not required.

In accordance with the provisions of Executive Order 12866, this

proposed rule was not reviewed by the Office of Management and Budget.

VIII. Information Collection Requirements

Section 417.430 of this proposed rule contains information

collection requirements that are subject to review by the Office of

Management and Budget (OMB) under the Paperwork Reduction Act of 1980

(44 U.S.C. 3501 et seq.).

We have submitted this rule to the OMB for review. The information

collection requirements concern personal information supplied by

Medicare beneficiaries who are applying for membership in HCPPs. Public

reporting burden for this collection of information is estimated to be

\1/2\ hour per application. A notice will be published in the Federal

Register when approval is obtained.

List of Subjects in 42 CFR Part 417

Administrative practice and procedures, Health maintenance

organizations (HMO), Medicare, Reporting and recordkeeping

requirements.

42 CFR part 417 would be amended as set forth below:

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL

PLANS, AND HEALTH CARE PREPAYMENT PLANS

1. The authority citation for part 417 continues to read as

follows:

Authority: Secs. 1102, 1833(a)(1)(A), 1861(s)(2)(H), 1866(a),

1871, 1874, and 1876 of the Social Security Act (42 U.S.C. 1302,

13951(a)(1)(A), 1395x(s)(2)(H), 1395cc(a), 1395hh, 1395kk, and

1395mm); sec. 114(c) of Pub. L. 972-248 (42 U.S.C. 1395mm note); 31

U.S.C. 9701 and secs. 215 and 1301 through 1318 of the Public Health

Service Act (42 U.S.C. 216 and 300e through 300e-17), unless

otherwise noted.

2. Section 417.426 is amended by adding a new paragraph (d) to read

as follows:

Sec. 417.426 Open enrollment requirements.

* * * * *

(d) Special open enrollment. (1) If an HMO's or a CMP's risk

contract is terminated, not renewed, or renewed with a reduced service

area, all other HMOs or CMPs with risk contracts operating in the same

service area must hold a special open enrollment period for the benefit

of those Medicare enrollees whose enrollment in the HMO or CMP ends

when the contract is terminated or modified.

(2) The special open enrollment period must be 30 days in duration

and begin 30 days after the date on which HCFA mails notice to the

affected HMOs or CMPs, informing them of their responsibility under

this section.

(3) Enrollment is effective 30 days after the end of the special

enrollment period or, if HCFA determines that date is not feasible,

some other date that HCFA specifies.

(4) The special open enrollment period is in addition to, unless it

coincides with, the annual open enrollment period required under

paragraph (a) of this section.

(5) The special open enrollment period must be held in accordance

with all of the requirements applicable to annual open enrollments

under paragraphs (a) through (c) of this section.

3. In Sec. 417.430, the introductory text of paragraph (b), and

paragraph (b)(3) are revised to read as follows:

Sec. 417.430 Application procedures.

* * * * *

(b) Handling of applications. An HMO or CMP must have an effective

system for receiving, controlling, and processing applications from

Medicare beneficiaries. The system must meet the following conditions

and requirements:

* * * * *

(3) The HMO or CMP--

(i) Provides the applicant with a copy of the enrollment

application form signed by the applicant and a representative of the

HMO or CMP either when the application is taken, or, if the application

is submitted by mail, within 5 working days of receipt; and

(ii) Gives the beneficiary prompt written notice of acceptance or

denial of the application.

* * * * *

4. In Sec. 417.440, the section heading and paragraph (e) are

revised, and a new paragraph (f) is added to read as follows:

Sec. 417.440 Entitlement to health care services from an HMO or CMP.

* * * * *

(e) Financial responsibilities of an HMO or CMP after the effective

date of disenrollment of a Medicare enrollee--(1) Inpatient hospital

care. If a Medicare beneficiary's effective date of disenrollment

occurs during an inpatient stay in a hospital paid under part 412 of

this chapter and the HMO or CMP is financially responsible for the

hospitalization, either because it arranged for the stay or, as

provided under paragraph (a)(2) of this section, the financial

responsibility for inpatient services continues through the date the

beneficiary is discharged from the inpatient stay

(2) Payment of outstanding bills. The HMO or CMP must pay for

services furnished before the effective date of the contract

termination or modification if the HMO or CMP would have been

financially responsible for those services under the Medicare contract.

(3) Protection against preexisting condition exclusions in Medicare

supplement policies. For beneficiaries who are disenrolled because the

Medicare contract is terminated or renewed with a reduced service area,

the HMO or CMP must comply with the requirements of paragraph (f) of

this section.

(f) Supplemental exclusion coverage--(1) Definition. For the

purposes of this section, supplemental exclusion coverage means payment

for certain expenses incurred by a beneficiary for health care services

related to a condition that exists at the time the beneficiary is

disenrolled from a Medicare-contracting HMO or CMP according to

paragraphs (f)(2) and (f)(3) of this section. Expenses included in

supplemental exclusion coverage are Part A and Part B deductibles and

coinsurance, SNF coinsurance, 100 percent of Medicare eligible Part A

hospitalization expenses for 365 lifetime days after all Medicare

hospital days (including lifetime reserve days) have been exhausted,

and the annual cost of three pints of blood.

(2) Basic rule. An HMO or CMP that ceases to provide health care

services under a Medicare contract, or reduces its service area, must

provide or arrange for supplemental exclusion coverage for any Medicare

enrollee who--

(i) Is disenrolled as a result of the cessation of services;

(ii) Does not enroll in another Medicare-contracting HMO or CMP;

and

(iii) Would become liable for Medicare deductibles and coinsurance

because he or she is unable to purchase a Medicare supplement policy

without a waiting period for preexisting conditions.

(3) Duration of coverage. Supplemental exclusion coverage must

extend for 6 months after the termination or modification of the

contract, or for the duration of any preexisting condition exclusion

period imposed by the Medicare supplement policy, whichever is less.

(4) Methods of providing supplemental exclusion coverage. To

fulfill the supplemental exclusion coverage required under paragraph

(f)(2) of this section, an HMO or CMP must select at least one of the

following options: (i) Make available for purchase by each of its

terminated Medicare enrollees, one or more State-approved Medicare

supplement insurance policies that waive the preexisting condition

exclusion clause, at the premium rate approved by the State Insurance

Commissioner for the same policy with a preexisting condition exclusion

clause. At least one of these policies must cover all of the expenses

specified in Sec. 417.440(f)(1) of this section, at the lowest premium

available in the area.

(ii) Allow each former Medicare enrollee to purchase the Medicare

supplement policy of his or her choice and, if that policy includes a

preexisting condition exclusion clause, provide protection through

either of the following:

(A) Reimburse the former enrollee for all Medicare deductible and

coinsurance expenses that are required to be paid under supplemental

exclusion coverage as specified in paragraph (f)(1) of this section

that are not payable by the Medicare supplement policy because of a

preexisting condition exclusion clause.

(B) Arrange for a physician or provider to furnish the services

required as a result of the preexisting condition. The HMO or CMP must

reimburse all deductible and coinsurance expenses identified as

supplemental exclusion coverage and incurred for services provided in

accordance with Sec. 417.440(e)(3) to the cooperating physician or

provider on behalf of the former enrollee.

5. In Sec. 417.488, the introductory text is revised; and new

paragraphs (c) and (d) are added to read as follows:

Sec. 417.488 Written notice of termination.

A risk contract must provide that if, for any reason, the contract

is terminated, not renewed, or renewed with a reduced service area, the

HMO or CMP agrees to provide to its affected Medicare enrollees, and to

be responsible for the cost of, the following notices:

* * * * *

(c) A list of all HMOs or CMPs with risk contracts that operate in

the same service area and that must hold a special open enrollment for

the affected Medicare enrollees, as required by Sec. 417.426(d).

(d) A description of the special open enrollment process.

6. In Sec. 417.492, a new paragraph (c) is added to read as

follows:

Sec. 417.492 Nonrenewal of contract.

* * * * *

(c) Supplemental exclusion coverage after nonrenewal by either HCFA

or the HMO or CMP. If either HCFA or an HMO or CMP decides, for any

reason, not to renew the contract, the HMO or CMP must provide

supplemental exclusion coverage, as required under Sec. 417.440(f) for

each Medicare enrollee whose coverage with the HMO or CMP will

terminate. In addition, each HMO or CMP with a risk contract must

provide the written notices required under Sec. 417.488.

7. In Sec. 417.494, a new paragraph (d) is added to read as

follows:

Sec. 417.494 Modification or termination of contract.

* * * * *

(d) Supplemental exclusion coverage after modification or

termination by either HCFA or the HMO or CMP. If either HCFA or an HMO

or CMP, for any reason, terminates the contract or modifies it in such

a manner that the service area is reduced, the HMO or CMP must provide

supplemental exclusion coverage as required under Sec. 417.440(f) for

each Medicare enrollee whose coverage with the HMO or CMP will

terminate. In addition, each HMO or CMP with a risk contract must

provide the written notices required under Sec. 417.488.

8. A new Sec. 417.541 is added to read as follows:

Sec. 417.541 Supplemental exclusion coverage costs.

Costs incurred by an organization for furnishing the supplemental

exclusion coverage as required by Sec. 417.440(f) are not allowable.

9. In Sec. 417.592, paragraph (d)(1) is revised to read as follows:

Sec. 417.592 Determination of required additional benefits.

* * * * *

(d) Notification to HCFA. (1) The HMO or CMP must notify HCFA, not

later than 60 days before the beginning of the contract period, of its

ACR and its weighted average of its per capita rates of payment (as

computed under Sec. 417.590) for the contract period.

* * * * *

10. In Sec. 417.801, the introductory text of paragraph (b) is

republished; paragraph (b)(6) is redesignated as paragraph (b)(7); and

a new paragraph (b)(6) is added to read as follows:

Sec. 417.801 Agreements between HCFA and health care prepayment plans.

* * * * *

(b) Terms. The agreement must provide that the HCPP agrees to--

* * * * *

(6) Comply with the application procedures set forth in

Sec. 417.430.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; Program No. 93.774, Medicare--

Supplementary Medical Insurance Program)

Dated: June 2, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: November 9, 1993.

Donna E. Shalala,

Secretary.

[FR Doc. 94-5327 Filed 3-9-94; 8:45 am]

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