Medicare Program; Establishment of the Medicare+Choice Program

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 400, 403, 410, 411, 417, and 422

[HCFA-1030-IFC]

RIN 0938-AI29

Medicare Program; Establishment of the Medicare+Choice Program

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

ACTION: Interim final rule with comment period.

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SUMMARY: The Balanced Budget Act of 1997 (BBA) establishes a new

Medicare+Choice (M+C) program that significantly expands the health

care options available to Medicare beneficiaries. Under this program,

eligible individuals may elect to receive Medicare benefits through

enrollment in one of an array of private health plan choices beyond the

original Medicare program or the plans now available through managed

care organizations under section 1876 of the Social Security Act. Among

the alternatives that will be available to Medicare beneficiaries are

M+C coordinated care plans (including plans offered by health

maintenance organizations, preferred provider organizations, and

provider-sponsored organizations), M+C ``MSA'' plans, that is, a

combination of a high deductible M+C health insurance plan and a

contribution to an M+C medical savings account (MSA), and M+C private

fee-for-service plans.

The introduction of the M+C program will have a profound effect on

Medicare beneficiaries and on the health plans and providers that

furnish care. The new provisions of the Medicare statute, set forth as

Part C of title XVIII of the Social Security Act, address a wide range

of areas, including eligibility and enrollment, benefits and

beneficiary protections, quality assurance, participating providers,

payments to M+C organizations, premiums, appeals and grievances, and

contracting rules. This interim final rule explains and implements

these provisions.

In addition, we are soliciting letters of intent from organizations

that intend to offer M+C MSA plans to Medicare beneficiaries and/or to

serve as M+C MSA trustees.

DATES: Effective date: This interim final rule is effective July 27,

1998.

Comment period: Comments will be considered if received at the

appropriate address, as provided below, no later than September 24,

1998.

ADDRESSES: Mail written comments (1 original and 3 copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-1030-IFC, P.O. Box 26688,

Baltimore, MD 21207.

If you prefer, you may deliver your written comments (1 original

and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201, or

Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting, please refer

to file code HCFA-1027-IFC Comments received timely will be available

for public inspection as they are received, generally beginning

approximately 3 weeks after publication of a 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.

(phone: (202) 690-7890).

FOR FURTHER INFORMATION CONTACT:

Provider Sponsored Organizations, Aaron Brown, 410-786-1033.

M+C Private Fee-For Service Plans, Anita Heygster, 410-786-4486.

M+C MSA Plans, Cindy Mason, 410-786-6680.

Applications, Robert King, 410-786-7623.

Quality Assurance, Brian Agnew, 410-786-5964.

Payment/ACRs, Al D'Alberto, 410-786-1100.

Encounter Data, Cynthia Tudor, 410-786-6499.

Federal/State, Rebecca Cardozo, 410-786-0300.

Beneficiary Appeals, Valerie Hart, 410-786-6690.

Enrollment, Debe McKeldin, 410-786-9159.

Information Campaign, Jan Drass, 410-786-1354.

Contracts, Chris Eisenberg, 410-786-5509.

General Issues, Tony Hausner, 410-786-8290.

General Issues, Dorothea Musgrave, 410-786-8290.

SUPPLEMENTARY INFORMATION:

I. Background

A. Balanced Budget Act of 1997

Health care benefits covered under the Medicare program are divided

into two parts: hospital insurance, also known as ``Part A,'' and

supplementary medical insurance, also known as ``Part B.'' Health care

services covered under Part A include: inpatient hospital care, skilled

nursing facility care, home health agency care, and hospice care. Part

B coverage is optional and requires payment of a monthly premium. Part

B covers physician services (in both hospital and nonhospital settings)

and services furnished by certain nonphysician practitioners. It also

covers certain other services, including: clinical laboratory tests,

durable medical equipment, medical supplies, diagnostic tests,

ambulance services, prescription drugs that cannot be self-

administered, certain self-administered anti-cancer drugs, some other

therapy services, certain other health services, and blood not covered

under Part A.

Section 4001 of the Balanced Budget Act of 1997 (BBA) (Public Law

105-33), enacted August 5, 1997, added sections 1851 through 1859 to

the Social Security Act (the Act) to establish a new Part C of the

Medicare program, known as the ``Medicare+Choice Program.'' Note that

hereinafter, unless otherwise indicated references to the statute are

references to the Act. (The existing Part C of the statute, which

included provisions in section 1876 governing existing Medicare health

maintenance organization (HMO) contracts, has been redesignated as Part

D.) Under section 1851(a)(1), every individual entitled to Medicare

Part A and enrolled under Part B, except for individuals with end-stage

renal disease, may elect to receive benefits through either the

existing Medicare fee-for-service program or a Part C M+C plan.

The introduction of the M+C program represents what is arguably the

most significant change in the Medicare program since its inception in

1965. As its name implies, the primary goal of the M+C program is to

provide Medicare beneficiaries with a wider range of health plan

choices to complement the Original Medicare option. Alternatives

available to beneficiaries under the M+C program include both the

traditional managed care plans (such as HMOs) that have participated in

Medicare on a capitated payment basis under section 1876 , as well as a

broader range of plans comparable to those now available through

private insurance. Specifically, effective January 1, 1999, section

1851(a)(2) provides for three types of M+C plans:

M+C coordinated care plans, including HMO plans (with or

without point of service options), provider-sponsored organization

(PSO) plans, and preferred provider organization (PPO) plans.

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M+C medical savings account (MSA) plans (that is,

combinations of a high deductible M+C health insurance plan and a

contribution to an M+C MSA).

M+C private fee-for-service plans.

In addition to expanding the types of available health plans, the

M+C program introduces several other fundamental changes to the private

health plan sector of the Medicare program. These changes include:

Establishment of an expanded array of quality assurance

standards and other consumer protection requirements.

Introduction of an annual coordinated election period.

This election period, to be conducted in November for a January

effective date, will feature a phased in lock-in of enrollees to the

plan they have elected during this coordinated election period. In

addition, the annual coordinated election period will include the

distribution by HCFA of uniform, comprehensive information about

participating plans that is needed to promote informed choices by

beneficiaries.

Revisions in the way we calculate payment rates to the

plans that will narrow the amount of payment variation across the

country and increase incentives for plans to operate in diverse

geographic areas.

Establishment of requirements concerning participation

procedures for physicians and other health care professionals in M+C

plans, including prohibitions on interference with advice to enrollees.

These requirements will bring about changes for beneficiaries, for

physicians and other health care providers, for managed care

organizations that now contract with Medicare as well as those that

will be able to contract with Medicare for the first time, and for HCFA

and the States. The specific areas addressed by the different sections

of the statute are as follows:

Section 1851--Eligibility, election and enrollment

Section 1852--Benefits and beneficiary protections

Section 1853--Payments to M+C organizations

Section 1854--Premiums

Section 1855--Organizational and financial requirements

for M+C organizations

Section 1856--Establishment of standards

Section 1857--Contracts with M+C organizations

Section 1859--Definitions and miscellaneous provisions

As provided for in section 1856(b)(1), this interim final rule (1)

incorporates the new M+C provisions into the Medicare regulations, (2)

interprets the new statutory provisions in Part C, and (3) establishes

by regulation new standards under the M+C program. Other provisions of

the BBA addressed in this interim final rule include:

Section 4002--Transitional rules for current HMO Medicare

program.

Section 4003--Conforming changes in the Medigap program.

Section 4006--M+C MSAs.

We note that in February, 1998, the President issued an Executive

Order directing the Secretary to comply to the extent possible through

administrative activities with the standards contained in the Consumer

Bill of Rights and Responsibilities. Therefore, as discussed in several

sections of this preamble, we have taken these standards into

consideration in developing the regulations contained in this interim

final rule. We have also incorporated conforming provisions consistent

with other parts of the Medicare statute, such as exempting services

under M+C coordinated care plans from the anti-referral provisions in

section 1877.

In several places in this preamble, we indicate that HCFA intends

to develop additional policy guidance or instructions. In doing so, we

will use a formal rulemaking process and allow for review by the Office

of Management and Budget pursuant to the requirements of the Paperwork

Reduction Act of 1995, wherever it is appropriate to do so.

B. Codification of Regulations

The regulations text set forth in this interim final rule is

codified in 42 CFR Part 422--Medicare+Choice Program. (Note that new

part 422 was established in our April 14, 1998 interim final rule on

PSOs (63 FR 18124).) The current Medicare regulations for managed care

organizations that contract with HCFA under section 1876, or for health

care prepayment plans (HCPPs) that are paid under section

1833(a)(1)(A), will continue to be located in 42 CFR part 417, Health

Maintenance Organizations, Competitive Medical Plans, and Health Care

Prepayment Plans. Although the part 422 provisions will eventually

supersede the regulations in part 417 for contracts with risk-bearing

HMOs and competitive medical plans (CMPs), there are some purposes for

which the part 417 provisions will continue in effect for a

transitional period. Also, various provisions of section 4002 of the

BBA provide for the continuation of cost-based contracts under section

1876 and of agreements with HCPPs under section 1833(a). Thus, the part

422 regulations cannot entirely replace the part 417 regulations at

this time. (Both transitional provisions and those relating to cost-

based contracts and HMOs are discussed in detail below in the

appropriate sections of this interim final rule.)

For the convenience of organizations that contract with HCFA only

under the M+C program, we are including in part 422 both new

requirements that implement newly enacted provisions in Part C and

existing requirements from part 417 that also will be imposed under

Part C. For transitional requirements, which could logically appear in

both parts, we are setting forth the full requirements in part 422 and

referencing them in part 417. Requirements that apply to organizations

that contract with HCFA, or are paid by HCFA, only under section 1876

or 1833(a) will remain in part 417. Regulations implementing the

provisions of section 1310 of the Public Health Service Act concerning

Federally-qualified HMOs also remain in part 417.

C. Organizational Overview of Part 422

The major subjects covered in each subpart of part 422 are as

follows:

Subpart A--Definitions, including definition of types of

plans, application process, and user fees.

Subpart B--Requirements concerning beneficiary

eligibility, election, enrollment and disenrollment procedures, and

plan information and marketing materials.

Subpart C--Requirements concerning benefits, point of

service options, disclosure of information, access to services,

confidentiality of enrollee records, advance directives, and

beneficiary protection against liability.

Subpart D--Quality assurance standards, external review,

and deeming of accredited organizations.

Subpart E--Organizational relationships with participating

entities including the prohibition against interference with health

care professionals' advice to enrollees, physician incentive

requirements, and special rules for M+C private fee-for-service plans

and private contracts with health care professionals.

Subpart F--Payment methodology for M+C organizations,

coverage that begins or ends during inpatient hospital stays, hospice

care, and encounter data requirements.

Subpart G--Requirements concerning terms and conditions

for receiving capitated payments, limits on premiums and cost sharing,

determination of adjusted community rate, and prohibition of State-

imposed premium taxes.

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Subpart H--Requirements concerning provider-sponsored

organizations (PSOs).

Subpart I--Organization compliance with State law and

preemption by Federal law.

Subpart K--General contract and enrollment requirements,

administration and management, and procedures for nonrenewal or

termination of contracts.

Subpart L--Effect of change of ownership or leasing of

facilities during term of contract.

Subpart M--Requirements concerning beneficiary grievances

and organization determinations and appeals.

Subpart N--Requirements and procedures for contractor

appeals of nonrenewals or terminations of contracts.

Subpart O--Procedures for imposing intermediate sanctions.

Each of these subparts is discussed below in section II of this

preamble. Sections III and IV consist of separate discussions of

provisions of the part 422 regulations that specifically concern M+C

MSA plans and M+C private fee-for-service plans, respectively.

II. Provisions of the Interim Final Rule

A. General Provisions--Subpart A

1. Overview

Subpart A begins with a brief section (Sec. 422.1) that specifies

the general statutory authority for the ensuing regulations and

indicates that the scope of part 422 is to establish standards

applicable to the M+C program. Under Sec. 422.2, we then set forth

definitions for terms used in part 422 that we believe need

clarification. These definitions provide the generally applied meaning

for terms that are used throughout part 422. Where necessary, we have

included in specific subparts of part 422 definitions for terms used

primarily in those subparts. In Sec. 422.4, we define the three

different types of M+C plans, consistent with section 1851(a)(2)--M+C

coordinated care plans, M+C MSA plans and M+C private fee-for-service

plans.

Sections 422.6 and 422.8 then detail the application process for an

entity seeking an M+C contract and HCFA's application evaluation

procedures.

Section 422.10 adopts, for purposes of the M+C program, the user

fee provisions now set forth at Sec. 417.472(h).

2. Definitions (Sec. 422.2)

For the most part, the definitions presented here are taken

directly from the statute or are essentially self-explanatory. Below,

we discuss some notable exceptions to this, including cases where we

have clarified the exact meaning and context of certain terms. Please

keep in mind that the definitions set forth in subpart A reflect

general meanings for the terms as they are used in part 422 unless

otherwise indicated; the definitions apply strictly for purposes of

part 422. For example, the term ``provider'' has a more inclusive

meaning under part 422 than it does for other Medicare purposes, as

discussed below. Similarly, when we define a term anywhere in part 422

other than in subpart A, it can be assumed that the definition of the

term is limited to a specified purpose in the relevant subpart or

section. Thus, as specified in the relevant sections of the

regulations, the term ``substantial financial risk'' has a different

meaning for purposes of the physician incentive provisions under

Sec. 422.208 than it does in the PSO provisions under Sec. 422.356.

Benefits and Benefit Categories

In Sec. 422.2, we have defined both the term ``benefits'' as well

the different categories under which benefits are provided: basic

benefits, additional benefits, mandatory supplemental benefits, and

optional supplemental benefits. ``Benefits'' consist of the health care

services delivered or covered by an M+C organization. (Note that

``services,'' under the long-standing Medicare definition at

Sec. 400.202, encompass medical care, services, and items.) The

definition of benefits is relevant both for purposes of the process of

determining adjusted community rates (ACRs) for M+C plans and for

purposes of a new provision in Part C that ``pre-empts'' State laws

relating to ``benefits.''

When we refer to one of the categories under which benefits are

provided, however, we generally are referring not only to the actual

health services that a beneficiary receives or is eligible to receive,

but also to the pricing structure applied to these benefits. For

example, the definition of ``additional benefits'' includes both the

health care services covered under a plan that are in addition to

regularly covered Medicare services, as well as any reductions in

premiums or cost-sharing for Medicare covered services. Thus, the

amount of deductibles or copayments that an M+C plan enrollee must

expend to receive services would fall within the scope of the term

``additional benefits.''

We wish to note that we have defined ``basic benefits'' in this

regulation to include both the Medicare-covered benefits required under

section 1852(a)(1)(A) and required ``additional benefits'' under

section 1852(a)(1)(B). Both Medicare benefits and required additional

benefits are: (1) Coupled together in section 1852(a)(1), in the first

paragraph under subsection (a), titled ``Basic Benefits''; (2) benefits

that an M+C has an obligation to provide (in contrast to supplemental

benefits, which may be provided totally at the M+C organization's

discretion); (3) benefits paid for with Medicare trust fund money; and

(4) benefits that are covered by the basic premium, if any, that counts

towards the limit based on the actuarial value of original Medicare

coinsurance and deductible amounts.

For all of these reasons, we have decided to divide benefits into

the two categories of the ``basic benefits'' including all required

benefits, and ``supplemental benefits,'' including both mandatory and

optional supplemental benefits provided at the discretion of the M+C

organization. We note that while Congress did not include a

``definition'' of ``basic benefits'' in Part C, it appears to use the

term ``basic'' to refer only to the Medicare-covered service package.

(See, for example, section 1851(b)(1)(B) or section 1854(e)(1).)

Although Congress did not actually include additional benefits in the

term ``basic benefits,'' in almost all cases, it coupled these benefits

together, and treated them the same. (See sections 1852(a)(1), and

1854(a)(2)(A), (3)(A), (4)(A), and (e)(1).) We accordingly believe that

it is appropriate in this regulation to include these two categories

together in the definition of ``basic benefits'' that applies for

purposes of part 422. We note, however, that where a statutory

provision refers only to the Medicare benefit component of our part 422

definition of ``basic benefits,'' we will similarly limit the

regulation implementing that provision.

M+C Organization and M+C Plan

The definitions of ``M+C organization'' and ``M+C plan'' set forth

in Sec. 422.2 are based on the BBA's use of these terms, which is not

always compatible with the way the terms ``organization'' and ``plan''

have been used in the past. In previous HCFA documents, the term

``managed care organization'' frequently has been used interchangeably

with the term ``managed care plan'' or ``health plan.'' Section 422.2

addresses this area of potential confusion by clarifying the

distinction between an M+C organization and an M+C plan. Succinctly

stated, an M+C ``organization'' is an entity that contracts with HCFA

to offer an M+C plan; the ``plan'' consists of the specific health

benefits, terms of coverage, and pricing structure.

[[Page 34971]]

Section 1857(a) specifically states that HCFA contracts with an M+C

organization. Thus, for requirements that we would normally think of as

contractual requirements, we use the term ``M+C organization.'' In

Sec. 422.2 then, an M+C organization is defined as a public or private

entity organized and licensed under State law as a risk-bearing entity

(with the exceptions of PSOs receiving waivers) that is certified by

HCFA as meeting the M+C contract requirements. Under various BBA

provisions, the requirements M+C organizations are responsible for

meeting include: processing the enrollment and disenrollment of

beneficiaries within a plan; transmitting information such as

enrollment information and encounter data to HCFA; submitting marketing

materials; providing all Medicare-covered benefits and other benefits

covered under the contract in a manner consistent with specified access

standards; performing quality assurance; creating and carrying out all

plan procedures for grievances, organization determinations, and

appeals; maintaining necessary records; providing advance directives;

establishing procedures related to provider participation; setting

medical policies; notifying beneficiaries of any ``Conscience

Protection'' exceptions; disclosing physician incentive plans;

receiving payment; reporting financial information; paying user fees;

making prompt payments to providers; receiving any sanctions invoked by

HCFA on any of the organization's plans; and fulfilling other contract

requirements as specified in regulation.

Again, in contrast, an M+C plan is merely the health benefits

coverage and pricing structure that the organization offers to

beneficiaries. An M+C plan may include the basic benefits only (basic

benefits include Medicare-covered benefits and additional benefits) or

basic benefits combined with mandatory and/or optional supplemental

benefits.

An M+C organization may select which providers furnish services

under the plan, as long as the benefit package meets all the

requirements for access within the area, and outside of the area for

specific services. As discussed in detail below, service areas and

benefit packages generally are associated with individual plans;

uniform premium requirements and the need for an ACR proposal also

apply at the plan level.

Service Area

The service area designation of an M+C plan is an important element

of the structure and design of a particular plan. A plan's service

area--

Determines the payment rate to the organization for

enrollees of the plan, based on the counties included in the service

area;

Affects what benefits will be provided, since benefits and

premiums must be uniform under an M+C plan, throughout that plan's

defined service area;

Determines which beneficiaries are able to elect the plan,

because organizations are obligated to enroll any eligible resident of

the service area who elects the plan; and

For network plans, is the area in which the plan is

required to make covered services available and accessible; and

determines the boundaries beyond which the plan assumes liability for

urgently needed care and may offer enrollment continuation options.

As explained below, we will exercise discretion in reviewing and

approving service areas requested by M+C plans. For network plans, we

will use our knowledge of how service areas have been designated in the

past in the Medicare managed care program and in the Federally-

qualified HMO program, which we have administered since 1986, to ensure

availability and accessibility of services. We will attempt to ensure

that service areas of M+C network plans are consistent with community

patterns of care and/or rating practices--that is, service area

designations are not artificially delineated in such a way that usual

sources of care, in terms of geographic location, are not available to

beneficiaries; or in such a way that the service area designation

allows ``gaming'' of the community rate that forms the basis of M+C

premiums and benefits, to the disadvantage of Medicare beneficiaries. A

nondiscrimination standard will also apply to both network and non-

network plans. To the extent possible, we will attempt to ensure a

``level playing field'' among plans operating in the same geographic

area (for example, if one plan in an area is subject to the county

integrity rule discussed below, a new plan may also be subject to the

same standard in determining a new service area). These standards will

also be applied in evaluating requests for M+C service area expansions

and service area reductions. Consistent with the goals of the new M+C

program, we will attempt to maximize the number of choices available to

Medicare beneficiaries and maximize the availability of low-cost plans

offering additional benefits.

The regulations at Sec. 422.2 provide that an M+C organization may

propose a specified service area for each M+C plan, and HCFA will

determine whether the proposed area can be approved. The regulatory

definition of service area is slightly different from the current

service area definition at Sec. 417.401. The latter regulation defines

the term geographic area (which we used interchangeably with service

area with respect to section 1876 contracts) as ``the area found by the

Secretary to be the area in which an HMO is able to deliver the full

range of services,'' a definition that was essentially common to both

the Medicare program and the Federally qualified HMO program

(Sec. 417.1, ``service area''). The earlier definition emphasizes the

role of the Secretary (HCFA) in the designation of service areas, and

incorporates one of the standards applicable to network plans (which

continue to apply to such plans in these regulations). Statutory

references to a service area or geographic area under Medicare,

including references in the BBA, do not offer a definition of the term

or an indication of how the area is to be determined.

We have modified the wording of the earlier regulatory definition

of ``service area'' to recognize that organizations will propose

specific areas for M+C plans. Pursuant to section 1856(b)(1), which

provides for establishing M+C standards by regulation, and section

1856(b)(2), which provides for basing the standards on standards under

section 1876, we have retained our authority to approve or deny service

area configurations that organizations propose. This reflects what has

been the actual past practice of the agency in administering the

Medicare HMO/CMP program and the Federally-qualified HMO program. The

new definition also recognizes that service areas designated by

organizations for non-network plans are designated for the purpose of

determining who is eligible to enroll in the plan.

Consistent with current and past regulatory and statutory

standards, we will evaluate proposed service areas of network plans to

determine whether covered services are available and accessible, under

the standards of Sec. 422.112, to any resident of the area eligible to

elect enrollment in the plan. We will also examine the proposed service

area of any plan, including non-network plans, to ensure that the

delineation of the area does not result in discrimination against

beneficiaries through ``gerrymandering'' or ``red-lining'' to

deliberately avoid particular areas (e.g., to prevent the enrollment of

poorer Medicare beneficiaries, or those known to be in poorer health).

An example of such a practice would be an

[[Page 34972]]

urban area network plan's exclusion of poorer inner-city areas, leaving

obvious ``holes'' in the service area where residents would not have

any problem gaining access to care through the plan's providers had the

area been included in the proposed service area. Although we would not

ordinarily dictate the inclusion of particular areas in the service

area of a plan--for example, a multi-county commercial plan could

include only some of its counties in a Medicare contract--we would seek

to prevent clear cases of discrimination against, or disadvantaging of,

particular groups or populations.

Prior to the BBA, contracting HMOs and CMPs (virtually without

exception) all had existing, defined service areas prior to entering

into a Medicare contract. These were areas in which the entities

offered comprehensive health care services to non-Medicare enrollees of

the specified geographic area. As noted above, Medicare's statutory

language did not clearly define the terms service area or geographic

area, but it was assumed that each organization would have a specific

service area in which it operated and provided coverage to any enrollee

from the community (including any Medicare enrollee). The Medicare

premiums and benefits are a function of the community rate of the plan,

the rate applicable to any covered group within the community covered

by the plan. Hence, until the mid-1980s, we required that the service

area for Medicare be the same as the service area for the non-Medicare

population. Subsequently, we changed our policy to permit HMOs and CMPs

to limit the Medicare service area to a subset of the non-Medicare

(commercial) area, breaking the link between commercial service areas

and Medicare service areas (though the Medicare premiums and benefits

continue to be based on the community rate for the entire non-Medicare

community). We applied a ``county integrity'' standard in determining

how HMOs could reduce their service areas for Medicare; whole counties

could be excluded, but partial counties could only be excluded if the

organization operated (for commercial purposes) only in a portion of

the county.

Because the BBA provisions on waiver of minimum enrollment and

composition of enrollment requirements permit organizations to have M+C

plans with no prior enrollment, there will be plans that do not have

designated service areas and do not have a commercial service area that

can be used as a reference point for the designation of a Medicare

service area. In the case of network plans, we would work with such

organizations to determine an appropriate service area for the plan's

provider network, taking into consideration the patterns of medical

care in the community (e.g., where people obtain care, the types of

providers available in the community, reasonable travel times to obtain

care). We would also use our knowledge of how plan service areas

generally have been determined and approved in the past, as well as how

other organizations in the same area, or a similar area, have

established their service areas. There could be concerns both with a

proposed area that is too wide, offering limited availability of

services for outlying areas, and with a proposed area that is too

small, which would limit choices available to beneficiaries or might

raise the concerns discussed above regarding discrimination.

We believe that basing our decisions on community patterns of care

and the practices of other organizations in the same area, or in

similar areas, is consistent with our past approach to the issue of

service area designations, and consistent with the BBA. The BBA

requires a similar approach in developing elements of the adjusted

community rate for new plans (e.g., 1854(f)(4), referring to

``enrollment experience of other contracts entered into under this part

and * * * data in the general commercial marketplace'').

With respect to another issue related to service areas, our policy

that permitted HMOs and CMPs under 1876 to vary premium and benefit

offerings by county within a service area (the ``flexible benefits''

policy) will no longer apply under M+C. The flexible benefits policy

permitted organizations to use non-Medicare revenue to offer extra

benefits or reduced premiums (``free benefits'') to residents of a

particular county or counties rather than in the entire service area,

as long as all Medicare beneficiaries in the entire service received at

least the level of benefits required under the statute as determined

through the adjusted community rate process. With the requirement that

premiums and benefits be uniform throughout an M+C service area, it is

not possible to continue the flexible benefits policy. However, an

organization may be able to offer multiple plans and propose different

service areas for the plans in order to achieve a similar result as the

flexible benefits policy. This presents us with an issue of how to deal

with the proposals for service areas, or the carving up of existing

non-Medicare service areas, when it is done in order to have different

premiums and benefits in different counties. In the case of network

plans, a carving up of an existing service area, and the offering of

multiple plans across what may be a single service area for the non-

Medicare population, is only possible if each of the plans with

different service areas is able to ``stand alone'' in terms of meeting

all the requirements applicable to plans. The designation of multiple

service areas in such cases should also be consistent with community

practices in patterns of care, and/or consistent with rating practices,

and service are designations, for other purchasers.

Except in the case of non-network MSA plans, as discussed below,

the fact that Medicare pays different capitation rates by county is not

a sufficient reason to establish service areas consisting of individual

counties. For example, a staff-model HMO operating in a multi-county

area, that has a service delivery network consisting of only one

hospital and a group of physicians employed by the organization, cannot

designate each county as a separate service area. Although services are

accessible and available in each county, we do not believe there is a

valid reason to charge different premiums by county, for example, when

all Medicare beneficiaries enrolled in the organization will be using

the same providers.

On the other hand, some organizations that operate with very large

service areas may be justified in breaking up larger service areas for

Medicare contracting purposes. This would be similar to what Federally-

qualified HMOs do in designating distinct service areas as ``regional

components,'' which are sub-areas with an autonomous provider network

and with different community rating for the regional component. Some

HMOs, although they do not identify distinct service areas, require

enrollees to obtain services from a particular subset of providers

within the broader network (as Federally-qualified HMOs are permitted

to do (see 45 FR 28655 (April 29, 1980)). Some HMOs offer large

employers a statewide service area consisting of different provider

networks in geographically distinct areas in which there is no crossing

of boundaries, or very little crossing of boundaries, to receive

services. The large employer may be offered one rate for all areas, but

the same HMO may have smaller designated service areas for smaller

regional employers, in which different rates apply.

In evaluating proposals requesting approval of multiple service

areas in a contiguous geographic area, we would consider the patterns

of care in the community; and the rating and service

[[Page 34973]]

area practices of the individual organization, of other organizations

in the area, and of other organizations in similar areas. The

commercial service area will continue to be a reference point in that

we would be likely to approve a proposal if what is proposed for

Medicare contracting is similar to what is done in the commercial

marketplace. Similarly, we would take into consideration any

determination, or approval, of service areas by State regulatory

bodies.

At a minimum, each proposed M+C service area must be an area in

which the full range of covered services are available and accessible

to all Medicare enrollees primarily through providers located in the

service area. We would also evaluate proposals on the basis of the

criteria we discuss above relating to discrimination against, or

disadvantaging of, particular beneficiaries in the community. These

criteria would also be used in evaluating the proposed service areas of

non-network plans. Using the inner-city example, an entity could

request an area consisting only of the poorer inner-city area, where

residents would be required to pay a relatively high premium, while

other areas were charged a much lower premium. We would view this

practice as discouraging enrollment within a particular area. Although

the statute does not expressly provide for evaluation of service area

designations to determine whether they are discriminatory, we believe

that it is consistent with statutory requirements relating to

discrimination and discouraging enrollment (at 1852(a)(3), with respect

to the pricing of mandatory supplemental premiums, and 1852(b), with

respect to limiting enrollment based on a health status factor,

including claims experience or insurability). We have included the

above criteria for service area approval in the definition of ``service

area'' in Sec. 422.2.

As noted above, we are providing for a special exception for

service areas for non-network MSA plans. In the case of M+C MSA plans,

differences in payment rates for a given county affect not just the

amount the M+C organization offering the MSA plan is paid, but the

amount that is deposited in MSA accounts. (See section III of this

preamble.) We have decided that in the case of M+C non-network MSA

plans, under which enrollees are not limited to receiving services in a

defined area, we will permit M+C organizations to offer a different M+C

plan in each county in which they wish to enroll beneficiaries. This

would mean that a uniform amount would be deposited in the M+C MSA

account of every enrollee in the M+C MSA plan, and the M+C organization

could file a separate premium amount for each county to ensure that the

proper amount is deposited in accounts in that county.

Emergency and Urgently Needed Services

The definitions of emergency services and urgently needed services

in Sec. 422.2 are based on section 1852(d) and thus differ from those

in existing Sec. 417.401. In accordance with section 1852(d)(3) of the

statute, we are codifying the concept that an ``emergency medical

condition'' exists if a ``prudent layperson'' could reasonably expect

the absence of immediate medical attention to result in serious

jeopardy or harm to the individual. In addition, the new definition of

``emergency services'' includes emergency services provided both within

and outside of the plan, while the definition of ``urgently needed

services'' continues to encompass only services provided outside of the

plan's service area (or continuation area, if applicable), except in

extraordinary circumstances such as those discussed below.

Under section 1852(d)(1)(C)(i), M+C organizations are required to

pay for nonemergency services provided other than through the

organization where the services are immediately required because of

unforseen illness, injury or condition, and it is not reasonable given

the circumstances to obtain the services through the organization. We

believe that except in the rarest and most extraordinary of

circumstances, the only situation in which it would not be reasonable

to receive nonemergency services through the organization would be when

the enrollee is absent from the service area of the M+C plan in which

he or she is enrolled. It is possible, however, albeit extremely

unlikely, that there might be other situations in which this standard

would be met by an enrollee who is in the plan service area.

For example, there could be some temporary disruption of access to

the M+C plan's provider network, such as a strike, or possibly some

temporary physical impediment to traveling to M+C plan providers that

are otherwise readily accessible. Under such circumstances, an

individual might not need emergency services, but still may warrant

immediate attention. Because we do not believe that we can say that the

statutory standard could never be met by an individual who is in the

plan service area, we believe it is appropriate to provide for an

exception in the definition of urgently needed services to the rule

that the enrollee be out of area. We are thus providing for such an

exception in extraordinary cases in which the network is unavailable or

inaccessible due to an unusual event.

Other Definitions

In our April 14, 1998 interim final rule setting forth the

definition of a PSO and related requirements, we established under

Sec. 422.350(b) a definition for ``health care provider'' that is based

on the PSO requirements in section 1855(d)(5). In this interim final

rule, we are adopting the identical definition for general purposes of

the M+C program. Under this definition, as discussed in greater detail

in our April 14 interim final rule (63 FR 18126), the term ``provider''

applies both to individuals licensed or certified by a State to engage

in the delivery health care services (such as physicians, nurse

practitioners, clinical social workers), as well as to entities engaged

in the delivery of health care services (such as hospitals, nursing

homes, home health agencies).

Another clarification contained in this subpart involves the

definition of ``copayment.'' We have defined copayment as a fixed

amount that can be charged for a service. This is to distinguish

copayment from ``coinsurance,'' which is a fixed percentage of the

total cost of a service that can be charged. Copayments, coinsurance,

and deductibles represent the three forms of cost-sharing under a plan.

Finally, we have included a general definition of the term

``balance billing,'' indicating that balance billing refers to an

amount billed by a provider that represents the difference between the

amount the provider charges an individual for a service and the sum of

the amount the individual's health insurer (for example, the original

Medicare program) will pay for the service plus any cost sharing by the

individual. We note that there is significant variation within both

original Medicare and the M+C program regarding the extent to which

balance billing is permissible. For example, under original Medicare,

no balance billing is permitted for providers of services (such as

hospitals and home health agencies), while for nonparticipating

physicians, balance billing is permissible only up to the difference

between the Medicare allowed amount and the Medicare limiting charge.

Different rules apply under original Medicare for other

nonparticipating suppliers (such as ambulance or durable medical

equipment suppliers, for which there are currently no limits on balance

[[Page 34974]]

billing). Similarly, under the M+C program, different balance billing

restrictions apply depending on the type of M+C plan and the

contracting status of the provider. These restrictions are discussed in

detail in the appropriate sections of this preamble, particularly in

section IV regarding M+C private fee-for-service plans.

3. Types of M+C Plans (Sec. 422.4)

The creation of the M+C program allows beneficiaries access to a

much wider array of private health plan choices than the existing

alternatives to the original Medicare program. Moreover, this new

program will enable Medicare to use innovations from the commercial

sector that have helped the private market contain costs and expand

health care delivery options.

The BBA provides for several different types of M+C plans to be

available for beneficiaries. As noted above, these various M+C plans

can be classified into three general categories: M+C coordinated care

plans, M+C MSA plans (that is, a combination of a high deductible M+C

health insurance plan and a contribution to an M+C MSA), and M+C

private fee-for-service plans. Within each of these three categories,

M+C organizations may offer a variety of plans to Medicare

beneficiaries.

Since these are the only legally significant categories of plans

under the M+C program, we do not believe it is necessary to define all

of the different entities that accept prepaid, capitated payment for

delivering health services. Thus, examples of these entities, such as

PPOs, HMOs, or health insurance organizations, are not defined for

purposes of this regulation. Essentially, all entities that apply to

offer an M+C plan must conform to the requirements for either an M+C

coordinated care plan, an M+C MSA plan, or an M+C private fee-for-

service plan.

M+C Coordinated Care Plans (Sec. 422.4(a)(1))

Under the M+C program, beneficiaries may choose from among a

variety of coordinated care plans. Coordinated care plans include, but

are not limited to, HMO plans (with or without point of service

options) (HMOs), plans offered by PSOs (as defined in section 1855(d)

and in our April 14, 1998 interim final rule), and PPO plans. In

addition, certain beneficiaries may be able to choose another type of

coordinated care plan, the Religious Fraternal Benefit Society plan,

which is defined in section 1859(e).

Except in the case of a PSO granted a waiver under subpart H of

part 422, all organizations offering M+C coordinated care plans must

meet the State licensure requirements in section 1855 (and

Sec. 422.400). Thus, an M+C coordinated care plan must be offered by an

entity that is (1) appropriately licensed by the State to bear risk and

(2) eligible to offer health insurance or health benefits coverage in

each State in which it offers an M+C plan.

In addition, an M+C coordinated care plan must meet the definition

of a coordinated care plan set forth in Sec. 422.4. That is, an M+C

coordinated care plan is a type of plan offered by an M+C organization

that includes a network of providers that are under contract or

arrangement with the organization to deliver the benefit package

approved by HCFA. The network must be approved by HCFA to ensure that

all applicable requirements are met including access and availability

standards, service area requirements, and quality standards. A

coordinated care plan may include mechanisms to control utilization,

such as referrals from a gatekeeper to receive services within the

plan, and financial arrangements that offer incentives to providers to

furnish high quality and cost-effective care.

Except for PSOs that have obtained a waiver of the State licensure

requirement, and thus are subject to the additional requirements set

forth in subpart H of part 422, distinctions among HMOs, PSOs, PPOs,

and other coordinated care plans are not relevant for the purpose of

applying to offer an M+C plan. The distinctions among the various types

of coordinated care plans may be relevant for purposes of State

licensure. However, for the purpose of an M+C application, we are not

concerned with what type of coordinated care plan an applicant intends

to offer. In fact, an entity may offer an M+C coordinated care plan

even though it is not specifically licensed as an HMO, PSO, or PPO. As

long as the entity is licensed as a risk-bearing entity in accordance

with section 1855 of the statute and the plan being offered meets the

definition of a coordinated care plan under Sec. 422.4, the entity does

not need to be licensed specifically as an HMO, PSO, or PPO to offer an

M+C coordinated care plan.

For example, like an HMO or a PSO, a PPO may offer an M+C plan. Any

organization that is licensed as a risk-bearing entity in a State may

offer an M+C plan that is structured in the form of a PPO. We are not

requiring that an organization applying to offer an M+C PPO plan be

operating as a PPO in the non-Medicare marketplace. In that sense, the

BBA imposes a distinct change from prior law, because it does not

require that organizations with Medicare prepaid health plan contracts

meet certain conditions imposed on their structure and their commercial

business. Under section 1876, a PPO generally could not obtain a

Medicare risk contract because most PPOs have members that are

enrollees of an indemnity insurance product, and would not meet the

requirements under section 1876 to be an ``eligible organization''

entitled to contract under that section. The BBA only requires that an

organization be providing health benefits and insurance to enrollees

(regardless of whether on an indemnity or prepaid, capitated status)

and that it be licensed by the State as a risk-bearing entity.

The majority of the PPOs that are currently operating are plans

being offered by State-licensed indemnity carriers or State-licensed

HMOs. However, where the State does license the PPO as a risk-bearing

entity, the PPO may be eligible to become an M+C organization in and of

itself. Conversely, where the State does not allow the PPO to bear

risk, the PPOs in those States would not be eligible to become an M+C

organization on their own. These PPOs that are not allowed to bear risk

may partner with a licensed risk-bearing entity or contract with a

licensed risk-bearing entity to ``rent out'' their PPO network of

providers. Consistent with our policy of deferring to the State as to

which entities constitute licensed risk-bearing entities eligible for

the M+C program, HCFA will defer to the State in terms of whether the

PPOs can accept partial capitation from the licensed indemnity carrier

or licensed HMO.

An entity offering a PPO plan must still comply with the

requirements in 1854(e), which limit enrollee financial liability under

a PPO plan in the same manner that liability is limited under an HMO

plan or any other type of M+C coordinated care plan. That is, the sum

of the premium for basic benefits and the actuarial value of all out-

of-pocket expenses for such benefits (including the actuarial value of

all cost-sharing for non-participating providers in a PPO) cannot

exceed the actuarial value of the deductibles and coinsurance in

original fee-for-service Medicare. Therefore, if a PPO expects a high

level of utilization of non-participating providers, it must have a

very low premium or it must have a significantly reduced level of cost-

sharing for such services.

Religious Fraternal Benefit Society Plans

One specific type of coordinated care plan authorized by the BBA is

a religious fraternal benefit society plan

[[Page 34975]]

(RFB plan), which is defined in section 1859(e). An RFB plan is an

entirely new type of plan that may be offered under the M+C program.

As with the other types of coordinated care plans, an entity

offering an RFB plan must be organized and licensed under State law as

a risk-bearing entity eligible to offer health insurance or health

benefits coverage in each State in which it offers an M+C plan.

Essentially, an RFB society must meet the state licensing requirements

outlined in section 1855. As discussed above, the States define the

criteria for licensure, including any fiscal solvency standards that

apply.

Also, an organization offering an RFB plan under the M+C program

must do more than merely pay health care claims on behalf of their

beneficiaries. Rather, RFB plans that constitute M+C coordinated care

plans must meet the definition of a coordinated care plan included in

this regulation. That is, they must have a network of health

professionals and meet the applicable access, availability, service

area, and quality assurance requirements.

Section 1859(e) defines and describes the requirements for RFB

plans. Section 1859(e)(2) describes an M+C RFB plan as a coordinated

care plan that: (A) Is offered by a religious fraternal benefit society

only to members of the church, convention, or affiliated group; and (B)

permits all members to enroll without regard to health status-related

factors. Section 1859(e)(3) states that the RFB plan must be offered by

a religious fraternal benefit society that: (A) is described under

section 501(c)(8) of the Internal Revenue Code and is exempt from

taxation under section 501(a) of that Act; (B) is affiliated with,

carries out the tenets of, and shares a religious bond with, a church

or convention or association of churches or an affiliated group of

churches; (C) offers, in addition to an M+C religious fraternal benefit

society plan, at least the same level of health coverage to individuals

not entitled to Medicare benefits who are members of such church,

convention, or group; and (D) does not impose any limitation on

membership in the society based on any health status-related factor.

Section 501(c) of the Internal Revenue Code generally describes the

rules applicable to those organizations which are not subject to

Federal income tax under section 501(a) of the code. Section 501(c)(8)

describes one type-- fraternal beneficiary societies, orders or

associations that (a) operate under the lodge system for the exclusive

benefit of a Fraternity itself operating under the lodge system; (b)

provide for the payment of life, sick or accident or other benefits for

the members of such society or association or their dependents.

RFB Plans have two distinguishing factors from other types of M+C

coordinated care plans. The first is that RFB plans are allowed to

limit their enrollment to members of the church. Section 1859(e)(1)

indicates that a religious fraternal benefit society offering an M+C

plan may restrict the enrollment of individuals in the plan to

individuals who are members of the church, convention, or group with

which the society is affiliated.

In addition to this ability to limit enrollment strictly to members

of the church, RFB plans are distinct from other M+C coordinated care

plans in that RFB plans may be subject to possible payment adjustments

to ensure an ``appropriate payment level.'' Specifically, section

1859(e)(4) indicates that the Secretary shall provide for such

adjustment to the payment amounts otherwise established under section

1854 as may be appropriate to assure an appropriate payment level,

taking into account the actuarial characteristics and experience of

such individuals.

M+C MSA Plans (Sec. 422.4(a)(2))

The definition of an M+C MSA plan, as well as other requirements

that apply solely or in a different manner to M+C MSA plans, are

discussed in full in section III. of this preamble. Note that in

section III.K. of this preamble, we solicit letters of intent from

organizations that intend to offer M+C MSA plans to Medicare

beneficiaries and/or to serve as M+C MSA trustees.

M+C Private Fee-For-Service Plans (Sec. 422.4(a)(3))

The definition of an M+C private fee-for-service plan, as well as

other requirements that apply solely or in a different manner to M+C

private fee-for-service plans, are discussed in full in section IV of

this preamble.

Multiple Plans (Sec. 422.4(b))

Section 422.4(b) establishes that an M+C organization may offer

multiple plans, including plans of different types, under a single

contract with HCFA, provided that the organization is licensed or

approved under State law to offer the applicable types of plans. We

believe that this policy should prove to be less administratively

burdensome for both prospective M+C organizations and for HCFA than

other alternatives, such as requiring separate contracts between HCFA

and an M+C organization for each plan, or type of plan, being offered

by the organization. We also specify under this section that if an M+C

organization has received a waiver of the licensing requirement to

offer a PSO plan, the waiver does not apply to the licensing

requirement for other types of plans. Other issues associated with the

ability of an M+C organization to offer multiple plans under a single

contract with HCFA are discussed below, in the section of the preamble

that deals with the contract requirements contained in subpart K of

part 422.

4. Applications (Secs. 422.6 and 422.8)

Sections 422.6 and 422.8 set forth the application requirements for

entities seeking to contract with HCFA to offer M+C plans, as well as

HCFA's application evaluation procedures. For the most part we have

retained the contracting requirements from Secs. 417.143 and 417.144 as

authorized by section 1856(b)(2). This section of the law allows HCFA

to use past contracting standards applied to contracts under section

1876 or to create new standards as needed to implement the M+C program.

The application requirements and evaluation procedures are almost

identical to the current application procedures.

The primary change to our previous process is the additional

requirement that organizations wishing to contract with HCFA must

submit documentation of their appropriate State licensure, or submit

documentation of State certification that the entity is, in fact, able

to offer health insurance or health benefits coverage meeting State

fiscal solvency standards and authorized to accept prepaid capitation

for providing, arranging, or paying for comprehensive health care

services. (Entities meeting the definition of a PSO can be exempted

from this requirement if they meet conditions for a waiver, which can

be granted by HCFA--see subpart H of part 422.) This requirement is

necessitated by the fact that HCFA will no longer have primary

responsibility for determining the fiscal solvency of new contractors.

We intend to rely for the most part on State certification to insure

that the entities that we contract with are indeed fiscally solvent and

have the ability to handle and afford risk payments for health care

coverage, although we will if necessary ``look behind'' State

certifications for validation purposes.

In one addition to existing rules, Sec. 422.8(b) specifies that

HCFA may deny an entity's application to offer an M+C plan if the

entity has failed to complete a corrective action plan during the term

of its previous contract with HCFA, regardless of whether the contract

was under the section 1833, 1876, or the new Part C provisions of the

law. We

[[Page 34976]]

believe that this provision explicitly ensures that the proven

performance problems of entities that apply to contract with HCFA under

the M+C program are taken into consideration in the application

evaluation process.

5. User Fees (Sec. 422.10)

The last section of subpart A contains regulations implementing the

user fees provided for in section 1857(e)(2). Section 1857(e)(2)

directs the Secretary to collect user fees from M+C organizations, with

each paying its pro rata share, for the purpose of paying for costs

associated with enrollment and information activities under section

1851 and subpart B, and counseling and assistance programs under

section 4360 of the Omnibus Budget Reconciliation Act of 1990 (Public

Law 103-66).

Under section 1876(k)(4)(D), the user fees provided for in section

1857(e)(2) apply in 1998 to HMOs and CMPs with risk contracts under

section 1876. On December 2, 1997, we published regulations in

Sec. 417.472(h) implementing the user fee authority in section

1857(e)(2), and setting forth a methodology for determining an

organization's ``pro rata share'' of these fees. (62 FR 63669).

In this interim final rule, we are simply adopting at Sec. 422.10,

for purposes of the M+C program, the user fee provisions now set forth

at Sec. 417.472(h). Our reasons for adopting the methodology reflected

in these regulations are set forth in the preamble to the December 2,

1997 rule. We intend to respond to comments received on the December 2

interim final rule, as well as comments on this rule, in a future

rulemaking document.

B. Eligibility, Election, and Enrollment

1. Eligibility to Elect an M+C Plan (Sec. 422.50)

Section 1876 background: The provisions that have in the past

applied to managed care entities (and continue to apply until these

entities become M+C organizations) are in section 1876 and part 417 of

this chapter. Section 1876(d) provides that Medicare beneficiaries who

are entitled to benefits under Part A and enrolled in Part B, or

enrolled under Part B only, except those with ESRD, residing in the

service area of the plan are eligible to receive all their Medicare

benefits through an HMO or CMP that has a contract with HCFA.

Regulations at Sec. 417.423(b) excluded beneficiaries who elect hospice

care from enrolling in an HMOs or CMPs as long as the hospice election

remains in effect. Existing regulations at Sec. 417.460(f) require that

HMO or CMP disenroll individuals who move out of their geographic

areas, except that Sec. 417.460(f)(2) allows enrollees to remain

enrolled in an HMO or CMP under the following circumstances: (1) During

a temporary move from the service area for up to 90 days, or (2) during

a move to a new area for as long as 1 year if the HMO or CMP has

elected to offer this option under Sec. 417.460(f)(2).

a. Eligibility. The BBA established a new section 1851(a) that

includes the eligibility criteria an individual must meet in order to

enroll in an M+C plan, as defined in Sec. 422.4. Accordingly, except as

discussed below at section B.1.b. regarding the transition of Part B

only individuals, Sec. 422.50 states that individuals who are entitled

to Part A and enrolled in Part B are eligible to enroll in an M+C plan.

These individuals are referred to as ``M+C eligible individuals.''

Individuals with end stage renal disease (ESRD) are not permitted

to be new enrollees of an M+C organization offering an M+C plan.

Section 1851(a)(3)(B) excludes individuals with ESRD from enrolling in

an M+C plan generally, but provides that an individual who develops

ESRD while an enrollee in an M+C plan may ``continue to be enrolled''

in that plan. For purposes of this provision only we are considering

individuals who are enrolled in a private health plan offered by the

M+C organization to have been enrollees of the M+C plan when they

developed ESRD. In section 422.50(a)(2), therefore, we provide that an

individual who develops end-stage renal disease while enrolled in an

M+C plan, or in a private health plan offered by the M+C organization

offering an M+C plan, may continue to be enrolled in the M+C

organization as an M+C plan enrollee.

We take this position because we believe that Congress intended in

section 1851(a)(3)(B) to permit individuals with ESRD who are enrolled

with an M+C organization to remain enrolled with that organization. If

an individual develops ESRD as an enrollee of the organization after

becoming Medicare eligible, he or she clearly would be permitted under

section 1851(a)(3)(B) to remain enrolled with the organization. We do

not believe that enrollees of an M+C organization should be penalized

because they develop ESRD prior to becoming Medicare eligible rather

than after. This position is consistent with our existing policy

implementing a similar ESRD exclusion under section 1876, and therefore

is supported by section 1856(b)(2), which provides for the retention of

``standards established under section 1876 to carry out analogous

provisions of such section.''

We are not continuing the Sec. 417.423(b) exclusion policy on

hospice; individuals who elect hospice coverage may elect an M+C plan.

Unlike ESRD patients, individuals who elect hospice care are not

specifically excluded from participating in the M+C program. In fact,

section 1853(h) contains special rules for M+C organizations that

enroll hospice patients.

Section 1851(b) states that, except as the Secretary may otherwise

provide, individuals must live in the geographic area served by the M+C

plan in order to enroll in that plan. We have exercised the discretion

provided in this provision to provide that those individuals converting

from health plans in which they were enrolled prior to Medicare

entitlement who reside out of the plan's service area may also continue

enrollment in the M+C organization if they reside in the continuation

area of the plan.

An M+C organization must disenroll beneficiaries who permanently

move from the service area, unless the plan has chosen to provide a

continuation of enrollment option in the area to which the enrollee

moved, as allowed in section 1851(b)(1)(B) and the enrollee chooses to

remain with the plan. We discuss continuation of enrollment in detail

in section b.2., ``Continuation of Enrollment.'' Section 4002

enrollment transition for 1876 risk contracts.

Section 1876 risk contracts cannot be renewed for a contract year

beginning on or after January 1, 1999. Current risk contractors that

remain in compliance with current standards and that demonstrate

compliance with new requirements established by this regulation will be

able to transition into the M+C program by entering into an M+C

contract, as an M+C organization, with a contract effective date of

January 1, 1999.

Section 4002(c) of the BBA provided for a seamless transition of

enrolled membership. An individual who is enrolled on December 31, 1998

with an eligible organization under section 1876 shall be considered to

be enrolled with that organization on January 1, 1999 under the M+C

program if that organization has a contract under Part C of title XVIII

for providing services on January 1, 1999, unless the individual has

disenrolled effective on that date.

In addition, section 4002(b) provides that an individual who is

enrolled in Part B only and is enrolled in an eligible organization

with a risk-sharing contract under section 1876 on December 31, 1998,

may continue to be enrolled in the

[[Page 34977]]

organization in accordance with our regulations. This means that on

January 1 there will be a small population of ``grandfathered Part B

only'' enrollees retained in organizations formerly with risk contracts

that now hold contracts under the M+C program. However, this is a one

time opportunity, and an individual who is enrolled in Part B and not

entitled to Part A and who disenrolls from the M+C organization is not

eligible to elect a plan offered by another M+C organization.

In summary, we are interpreting the statute to allow an individual

to transition enrollment from the 1876 program without regard to

location of residence or whether the individual has end-stage renal

disease and to choose to enroll in any plan offered by the M+C

organization into which they are transitioning.

2. Continuation of Enrollment (Sec. 422.54)

As stated previously, section 1851(b)(1)(B) allows M+C

organizations to offer enrollees the option of continued enrollment in

the M+C plan when enrollees leave the plan's service area to reside

elsewhere, we have to interpieted this to mean on a permanent basis.

M+C organizations that choose the continuation of enrollment option

must explain it in marketing materials and make it available to all

enrollees in the service area. Enrollees may choose to exercise this

option when they move or they may choose to disenroll.

Before an M+C organization may offer a continuation of enrollment

option to Medicare beneficiaries, the organization must obtain HCFA

approval of the continuation area, its marketing materials, and the

organization's assurances that it will meet access requirements. Under

section 1851(b)(1)(B), the organization must provide enrollees with

reasonable access within the continuation area to the Medicare covered

benefits described in section 1852(a)(1)(A).

The payment rate at which the M+C organization will receive payment

from HCFA will be based on the rate and adjustment factors that

correspond to the beneficiary's permanent residence. The M+C

organization must, at a minimum, provide or arrange for the provision

of Medicare covered benefits in the continuation area as described in

the first sentence of Sec. 422.100(b)(1), and the plan must meet access

and cost-sharing requirements for all basic benefits.

Because the rate that we pay to M+C organizations includes amounts

that ordinarily must be used to provide additional benefits (see

preamble for subpart G), we believe that M+C organizations should be

required to provide additional benefits in the continuation area. As

noted above, however, section 1851(b)(1)(B) requires only that Medicare

benefits be provided to continuation enrollees. We accordingly are

considering a legislative proosial to require M+C organizations to

provide all services in section 1852(a)(1), including required

additional benefits under section 1852(a)(1)(B).

Section 1851(b)(1)(B) requires that ``reasonable access'' be

provided in the continuation area, and that enrollees be subject to

``reasonable cost-sharing.'' We are requiring that M+C organizations

satisfy the access requirements in Sec. 422.112, and provide services

either through written agreements with providers or by making payments

that satisfy the requirements in Sec. 422.100(b)(2).

We are defining ``reasonable cost-sharing'' in the continuation

area to be limited to (1) the cost-sharing amounts required in the M+C

plan's service area (in which the enrollee no longer resides) if

provided by contract providers; (2) the cost-sharing amounts required

by the continuation area plan if provided through agreements with

another M+C plan; or (3) the amount for which a beneficiary would be

liable under original Medicare if noncontracting providers furnish the

services.

We have included two items in these regulations that reflect our

prior experience with similar situations. They are: (1) that plans may

require prior notification from members of their intention to use the

continuation of enrollment option, but this requirement must be in

their marketing materials, and (2) appeals and grievances in the

continuation area must be handled in the same timely fashion as in the

service area, but the ultimate responsibility for the appropriate

handling of appeals and grievances is with the organization that is

receiving payment from HCFA.

3. Limitations on Enrollment in an M+C MSA Plan (Sec. 422.56)

While most M+C eligible individuals can choose to receive benefits

through one of the M+C plans defined in Sec. 422.4, the statute places

limitations on eligibility to enroll in M+C MSA plans.

Sections 1851(b)(2) and (b)(3) specifically exclude certain

individuals from enrolling in M+C MSA plans. We have specified at

Sec. 422.56(b) of this section, that individuals who are enrolled in a

Federal Employees Health Benefit program (FEHB) plan, or who are

eligible for health care benefits through the Veterans Administration

(VA) or the Department of Defense (DoD) may not enroll in an M+C MSA

plan. The statute provides that the restrictions on FEHB enrollment may

be eliminated if the Director of the Office of Management and Budget

certifies to the Secretary that the Office of Personnel Management has

adopted polices that will ensure that the enrollment of FEHB

participants in M+C MSA plans will not result in increased expenditures

for the Federal government. The Office of Personnel Management has

indicated to HCFA that they would not be able to certify that FEHB

costs would not increase at this time. Under our authority in section

1851(b)(2)(B), we intend to apply the same rules for enrollment

restriction to individuals who are eligible for health benefits through

the VA and DoD. Additionally, in Sec. 422.56(c) we have incorporated

the statutory requirement under section 1851(b)(3) that individuals who

are entitled to Medicare cost-sharing under a State plan under title

XIX are not eligible to enroll in M+C MSA plans. In addition, an

individual who receives health benefits that cover all or part of the

annual deductible under an M+C MSA plan may not enroll in an M+C MSA

plan.

Note that M+C MSA plans are described in detail in Section III of

this preamble.

4. Limited Enrollment Under M+C RFB Plans (Sec. 422.57)

Section 1859(e)(1) states that Religious Fraternal Benefit Society

(RFB) plans may limit the enrollment of individuals to those who are

members of the church, convention or group with which the society is

affiliated. We have included the restrictions on enrollment in RFB

plans at Sec. 422.57.

5. Election Process (Sec. 422.60)

Under section 1851(c)(1) the Secretary is required to establish a

process through which elections in M+C plans are made and changed,

including the form and manner in which they are done. In Sec. 422.60,

we describe the election process for enrollment with the M+C

organization. Where applicable we have included existing rules from 42

CFR Sec. 417.430 with conforming changes.

As stated at Sec. 422.66(a), M+C eligible individuals who wish to

elect an M+C plan may do so by filing the appropriate election form

with the M+C organization. At Sec. 422.60(a), we specify that M+C

organizations must accept without restriction, except as specified in

Sec. 422.57 for RFB plans, individuals who enroll in an M+C plan during

the

[[Page 34978]]

election periods described in section 1851(e)(6) and set forth at

Sec. 422.62 of the regulation.

As provided by section 1851(e)(6), and stated at Sec. 422.60(a),

and displayed in the following chart, M+C organizations are required to

accept enrollments during the initial coverage election period, the

annual election period, and special election periods, but M+C

organizations are not required to be open for enrollment during open

enrollment periods.

When Elections May Be Made or Changed*

----------------------------------------------------------------------------------------------------------------

M+C Plans Required to

Coverage Election Periods When: Sec. 422.62 Accept Enrollments: Effective Date of

Sec. 422.60 Coverage: Sec. 422.68

----------------------------------------------------------------------------------------------------------------

Initial Coverage Election Period..... 3 months before Yes.................... 1st day of month of

entitlement to Part A entitlement to Part A

and Part B. and Part B.

Annual Election Period............... Annually in November... Yes.................... January 1.

Special Election Period.............. Starting 2002, if Yes.................... To Be Determined--

beneficiary moves, depends on situation.

plan terminates, etc.

Special Election Period at Age 65.... Starting 2002, in first No--Election is 1st day of the month

12 months after original Medicare. after month of

initial election of election.

M+C plan.

Open Enrollment Periods.............. Anytime 1998-2001 Jan- No--Plans have option 1st day of the month

Jun 2002 Jan-Mar 2003+. of accepting after month of

enrollments. election.

----------------------------------------------------------------------------------------------------------------

*Refer to referenced regulation text for detail.

Note that different rules apply to M+C MSA plans.

As provided at Sec. 422.306(a)(2) to reflect the requirements in

section 1854(a)(1)(B), M+C organizations must submit by May 1 of each

year the enrollment capacity of each plan they offer. Section 422.60(b)

then provides that if HCFA determines that the M+C plan has a capacity

limit, the plan may limit the enrollment of M+C eligible individuals if

the plan accepts first those individuals who elected the plan prior to

the HCFA determination and then accepts others in a manner that does

not discriminate on the basis of health status.

We note that we have not included regulation text to address the

last sentence of section 1851(g)(2) regarding ``nonrepresentative''

enrollment. As written, the sentence disallows a capacity limit if

enrollment would become substantially nonrepresentative of the Medicare

population in the plan's service area, as determined in accordance with

regulations of the Secretary. We cannot envision circumstances under

which the imposition of a capacity limit on enrollment would by itself

lead to an enrollment ``substantially non-representative'' of the

Medicare population in an M+C plan's service area. We particularly

cannot envision circumstances under which the non-representativeness of

enrollment would be so ``substantial'' as to justify possible risks to

patient access and quality of services as the result of overloaded

capacity. We accordingly are not promulgating regulations at this time

implementing the authority in the last sentence in section 1851(g)(2).

We invite comments on this provision, and would consider including

guidance on this matter in a final regulation based upon comments

received.

At Sec. 422.60(c) we indicate requirements for the election form.

The form must comply with HCFA instructions regarding content and

format, must be completed and signed by the beneficiary (or the

individual who will soon be entitled to Medicare benefits), and must

include authorization for disclosure and exchange of necessary

information between HCFA and the M+C organization. Persons who assist

beneficiaries in completing forms must sign the form and indicate their

relationship to the beneficiary. The forms must also be filed and

retained by the M+C organization.

In general, and as indicated by our requirement that the

beneficiary complete and sign the form, we believe that an M+C eligible

individual should personally complete and sign any election form or

disenrollment request (referenced at Sec. 422.66(b)) whenever possible.

If for some reason a beneficiary is unable to sign for himself or

herself, we recognize and defer to state laws on who may sign for other

persons, which is also the policy in the Section 1876 program.

In Sec. 422.60(d), we specify that an election is considered to

have been made on the date it is received by the M+C organization. We

believe it is necessary that we define ``when an election is made''

because it is a determining factor in establishing the effective date

of M+C plan coverage. Note that HCFA's liability for payment is not as

of the election date, but rather, is as of the effective date of

coverage. Effective dates of coverage are specified at Sec. 422.68.

We have also set forth at Sec. 422.60(e) a process for handling of

forms, including for providing written notification of acceptance or

denial in the M+C plan.

6. Election of Coverage Under an M+C Plan (Sec. 422.62)

Section 1876 background: Section 1876(c)(3)(A)(i) requires that

HMOs and CMPs hold an open enrollment period for Medicare beneficiaries

of at least 30 consecutive days during each contract year to qualify

for a Medicare contract. For Medicare beneficiaries who enroll during

the open enrollment period, Sec. 417.450(a)(2) states that the

effective date of coverage cannot be earlier than the first month, nor

later than the third month, after the month in which HCFA received the

information necessary to include the beneficiary in its records. In

Sec. 417.450(b), HCFA reserves the option to approve a later month if

requested by the organization and the beneficiary. HMOs and CMPs can

also offer continuous open enrollment outside of the 30-day period.

In the M+C program under section 1851(a)(1), M+C eligible

individuals may elect to receive Medicare benefits under original

Medicare or through election of an M+C plan. Section 1851(e) describes

the various election periods available to M+C eligible individuals.

Many of these provisions allow the individual to ``change the election

under subsection (a)(1)'' during these periods. If section 1851(a)(1)

were read narrowly, it arguably would only allow an eligible individual

to change between original Medicare or the M+C program under Part C. We

have taken a broader approach in interpreting section (a)(1) to allow

eligible individuals to not only make a change between the original

Medicare program and an M+C plan, but also among M+C plans. Therefore,

an M+C eligible individual

[[Page 34979]]

who changes his or her election may change from an M+C plan to original

Medicare, from an M+C plan to another M+C plan or from original

Medicare to an M+C plan.

The BBA establishes specific parameters in which elections can be

made and/or changed. Individuals who wish to elect an M+C plan or

subsequently change their election, must do so during the periods

established under section 1851(e). That section requires that elections

or changes in election be made during the following periods: The

initial coverage election period, continuous open enrollment periods,

an annual coordinated election period or special election periods. Note

that the Medigap implications of a change of election to original

Medicare are discussed at section II.B.12 (Extended Period of

Guaranteed Access to Medigap Plans) of this preamble.

a. Initial Coverage Election Period. Section 1851(e)(1) requires

that the Secretary specify an initial coverage election period during

which an individual who is initially entitled to Part A and enrolled in

Part B may elect an M+C plan. The statute further stipulates that if an

individual elects an M+C plan during that period, coverage under the

plan will become effective as of the first day on which the individual

may receive that coverage. We believe that Congress intended that we

give a newly eligible individual the opportunity to be enrolled in an

M+C plan as soon as he or she would be entitled to actually receive

both Medicare Part A and Part B coverage.

In other contexts, we have interpreted the concept of ``entitled''

to mean that an individual has met all of the necessary requirements

for a benefit (that is, is eligible for the benefit), and has actually

applied for and been granted coverage. An individual is considered to

be ``enrolled'' under section 1837, on the other hand, when he or she

has applied for Part B coverage (or is deemed to have applied). Under

some situations, an individual may apply for or be deemed to have

applied for Part B before he or she is actually entitled to receive

coverage. For example, if an individual applies for Part B coverage and

becomes ``enrolled'' after he or she reaches age 65, the individual may

not actually be entitled to Part B coverage under section 1838 until

one or several months after the month of application and enrollment. If

we were to interpret section 1851(e)(1) to give effect to an M+C plan

election when an individual has only enrolled in Part B, he or she

could be entitled to the benefits of the M+C plan before actually being

entitled to Medicare Part B coverage. In order to avoid such a result,

we have interpreted ``enrolled'' in Part B as ``entitled'' to Part B.

We believe our interpretation is consistent with section

1851(e)(1), which requires the Secretary to specify an initial coverage

election period that would result in coverage under the plan becoming

effective as of the first day on which the individual may receive that

coverage.

In establishing the initial coverage election period we considered

the statutory process of entitlement to Part A and enrollment in Part

B. Section 226 of the Act provides that individuals who are age 65 and

entitled to retirement benefits under title II or the Railroad

Retirement Board Act and those who are under age 65 and have been

entitled (or deemed entitled) to disability benefits under title II or

the Railroad Retirement Board Act for 24 months shall be entitled to

Part A under the Medicare program and eligible to enroll in Part B.

Part A coverage is effective the month an individual attains age 65, or

the 25th month he or she is entitled to disability benefits. If an

individual is entitled to disability or retirement benefits at least 3

months before reaching age 65 or, in the case of a disabled individual,

three months before the 25th month in which he or she is entitled to

disability benefits, the individual is deemed enrolled in Part B at

that time. Under section 1838, Part B is effective with the month an

individual reaches age 65 or in the 25th month he or she is entitled to

disability benefits.

In order for an individual to have coverage under an M+C plan

effective as of the first day on which the individual may receive such

coverage, the individual must elect an M+C plan before he or she is

actually entitled to Part A and Part B coverage. We have therefore

defined the initial coverage election period as the 3-month period that

begins 3 months prior to the month the individual is first entitled to

both Part A and Part B and ends the last day of the month preceding the

month of entitlement.

This approach also permits individuals who do not enroll in Part B

at initial eligibility (i.e. at age 65 or in the 25th month of

disability entitlement) to elect an M+C plan at the time of subsequent

enrollment in Part B. Section 1837(i) provides for a special enrollment

period for individuals who defer enrollment in Part B because they are

covered under a group health plan based on their own employment or that

of a spouse (in the case of the disabled, the employment may be that of

any family member). Enrollment in Part B may occur during any month the

individual is covered under the group health plan based on current

employment or during the 8-month period that begins the first full

month the individual is no longer covered under the group health plan

based on current employment. Under section 1838(e), Part B coverage is

effective the first day of the month the application is filed or, at

the individual's option, the first day of any of the following three

months when enrollment occurs while the individual is covered under the

group health plan based on current employment or during the first full

month when not so covered. Therefore, an individual may file an

application for Part B up to three months in advance of entitlement.

Consequently, individuals who enroll in Part B during the special

enrollment period may elect an M+C plan during the 3-month period prior

to entitlement to Part B.

Additionally, section 1837(e) allows individuals who fail to enroll

for Part B during their initial enrollment period (3 months before they

are entitled to Part A or within 3 months after the month they are

entitled to Part A) to enroll for Part B during a general enrollment

period, which runs from January through March of every year, with

coverage effective July 1 of the year of enrollment. In this case, the

Part B application may be filed up to 6 months in advance of the month

of entitlement. (Individuals who enroll in a general enrollment period

are subject to an increased premium under section 1839(b), measured by

the length of the delay in enrollment.)

In order to be consistent with the 3 month periods that can occur

between timely enrollment for Part B and actual entitlement in existing

sections of the Medicare statute, we have limited the period during

which an individual may elect an M+C plan to the 3-month period prior

to actual entitlement to Part B. We believe that this correlation with

the 3-month period will be administratively more efficient than a

shorter or longer time period.

b. Annual Coordinated Election Period. Section 1851(e)(6)

establishes that organizations offering M+C plans in January, 1999 must

open enrollment to Medicare beneficiaries in November, 1998. In

addition, section 1851(e)(3) establishes the month of November of each

year beginning in 1999 as the annual coordinated election period.

During the month of November, an M+C eligible individual may elect

an M+C plan or change his or her election. Thus, the section 1876

requirement that plans be open any 30-day period is replaced by a

requirement that plans

[[Page 34980]]

have to be open for enrollment during the month of November.

c. Open Enrollment Periods. Section 1851(e)(2) establishes open

enrollment periods during which M+C eligible individuals may elect an

M+C plan, if it is open to new enrollees, or change their elections.

M+C individuals may not, however, as provided in section 1851(e)(5),

elect an M+C MSA plan during open enrollment periods.

Note that as provided by section 1851(e)(6) and stated at

Sec. 422.60(a)(2), M+C organizations may, but are not required, to

offer continuous open enrollment during open enrollment periods. This

is similar to the section 1876 policy which also allowed, but did not

require, continuous open enrollment outside of a 30-day period.

Section 1851(e)(2)(A) establishes that at any time during calendar

years 1998 through 2001, there will be no limit on the number of

elections or changes that an M+C eligible individual can make.

Section (e)(2)(B) establishes the first six months of 2002,

(January through June) as the open enrollment period for that year. An

M+C eligible individual may elect an M+C plan or change his or her

election, but only once during the first six months of the calendar

year.

Section (e)(2)(C) establishes the first three months of each year

(January through March) beginning 2003, as the open enrollment period.

An M+C eligible individual may elect an M+C plan or change his or her

election, but only once during the first three months of the calendar

year.

Section 1851(e)(2)(B)(i) allows that an individual who becomes an

M+C eligible individual in 2002 and elects an M+C plan or original

Medicare, to change that election once during the first 6 months of M+C

eligibility in 2002. Beginning in the year 2003 and thereafter, a newly

eligible individual who has made an election may change that election

once during the first 3 months of M+C eligibility in that year.

Consequently, those who become M+C eligible individuals late during the

year may not have a full 6-month or 3-month open enrollment period. For

example, an individual who becomes eligible in August 2002 has an open

enrollment period of 5 months, August through December. The sixth

month, January, does not occur during 2002 and cannot qualify as part

of the open enrollment period.

The limit to one change during the open enrollment periods in the

first six months of 2002 and the first three months of subsequent years

does not apply to changes in elections that an individual makes during

an annual coordinated election period or during a special election

period.

In Sec. 422.62, paragraphs (a)(4)(ii) and (5)(ii), we have

interpreted the 6 and 3 month periods ``in which the individual is an

M+C eligible individual'' in section 1851, paragraphs (e)(2)(B)(i) and

(e)(2)(C)(i), as the periods that begin with the month the individual

is first ``entitled to both Part A and Part B.'' The statute defines

``eligible for Medicare+Choice'' as eligible for Part A and enrolled in

Part B, a definition that we have reflected in Sec. 422.50(a)(1);

however, this definition could cause problems for newly eligible

individuals during the open enrollment period.

For example, individuals who are newly eligible for M+C in the year

2002 under section 1851(e)(2)(B) will have 6 months, beginning with

their eligibility for M+C, to change their election. If we start

counting this period from the time individuals enroll in Part B, some

will have little or no opportunity to change. Some of these individuals

may not actually be entitled to receive benefits for a delayed period,

which can be up to 6 months after they have enrolled if they have

enrolled during a general election period. Hence, the opportunity to

change could have no meaning, with the open enrollment period expiring

before the individuals have actually received any M+C coverage.

d. Special Election Periods. Section 1851(e)(4) establishes special

election periods beginning in 2002, during which M+C eligible

individuals may disenroll from an M+C plan or elect another M+C plan.

Special election periods are available if: (1) The service area or

continuation area is reduced or the plan terminates or is terminated in

the area in which the individual resides; (2) the individual moves out

of the plan's service area and the plan does not offer, or the

individual does not elect, the continuation of enrollment feature, or

there is some other change of circumstances specified by HCFA; (3) the

individual demonstrates to HCFA, in accordance with guidelines

established by HCFA, that the M+C organization offering the plan

substantially violated a material provision of its contract with regard

to the individual or the organization, its agent, representative, or

plan provider materially misrepresented the plan's provisions in

marketing the plan to the individual; or (4) the individual meets such

other exceptional conditions specified by HCFA.

The last paragraph in section 1851(e)(4) provides that, effective

January 1, 2002, an individual who, upon first becoming eligible for

benefits under Part A at age 65, enrolls in an M+C plan (other than an

M+C MSA plan), may discontinue the election and elect original Medicare

at any time during the 12 month period beginning on the effective date

of the M+C election. We have interpreted this provision to apply to

individuals who elect an M+C plan (other than an M+C MSA plan) during

the initial enrollment period, as defined under section 1837(d), that

surrounds their 65th birthday. This period begins 3 months before and

ends 3 months after the month of an individual's 65th birthday. We

believe that this interpretation fulfills the intention of the statute,

which is to provide this special election period to individuals who,

upon turning 65 and first becoming entitled to Medicare, elect an M+C

plan. Our interpretation takes into account the fact that many, if not

most, individuals will be making an election during an initial

enrollment period, rather than during the month that they turn 65.

e. Special Enrollment and Disenrollment Rules for M+C MSA Plans.

Section 1851(e)(5) establishes special rules for individuals enrolling

in M+C MSAs. M+C eligible individuals may elect the M+C MSA option only

during an initial coverage election period or during November of any

year, beginning in 1998. M+C MSA enrollees may discontinue their

election only during November of 1998, during annual coordinated

election periods in November of each subsequent year, and during

special election periods described in the first sentence of section

1851(e)(4). Individuals who elect an M+C MSA for the first time during

the annual coordinated election periods that begin in November of 1999

may revoke their election if they do so before December 15 of the year

in which they make the election, i.e., before the M+C MSA coverage

begins. M+C MSA plans are described in detail at the end of this

preamble.

7. Information about the M+C Program (Sec. 422.64)

Once these regulations are effective and M+C plans are approved by

HCFA, eligible Medicare beneficiaries will be able to choose to receive

their Medicare benefits from a new array of health care options. New

options will include coordinated care plans such as Health Maintenance

Organizations, Preferred Provider Organizations, Provider Sponsored

Organizations, as well as Private Fee for Service Plans and Medical

Savings Accounts. Medicare beneficiaries will still be able to choose

to remain in original Medicare. These choices are designed to offer

Medicare beneficiaries a marketplace of options

[[Page 34981]]

similar to those available to the non-Medicare population.

Under section 1851(d)(2), the Secretary is obligated to mail an

``open season notification'' at least 15 days before the beginning of

each annual coordinated election period to each M+C eligible individual

residing in an area and, to the extent practicable, to a newly eligible

individual not later than 30 days before the individual's initial

coverage election period. The notice must include certain general

information listed in section 1851(d)(3) and a list of plans and

certain plan comparisons as described in section 1851(d)(4). Section

1851(d)(1) requires that HCFA provide for activities to broadly

disseminate information to beneficiaries and prospective beneficiaries

on their coverage options under M+C, and section 1851(d)(5) requires

HCFA to maintain a toll-free line for M+C inquiries and an Internet

site through which individuals can obtain electronic information.

To promote informed choice, HCFA will provide access, via the

Internet and through distribution of print materials, to information

about original Medicare and M+C options. In accordance with section

1851(d)(3) and reflected in Sec. 422.64(c), HCFA will provide general

information to M+C eligible individuals with respect to benefits

available under Part A and Part B of original Medicare, including

covered services, beneficiary cost-sharing, such as deductibles,

coinsurance, and copayment amounts, including any beneficiary liability

for balanced billing. Such general information will also include

instructions on how to exercise election options under M+C; procedural

rights including the grievance and appeals procedures for original

Medicare and M+C and the individual's right to be protected against

discrimination based on health status related factors under section

1852(b), including the fact that an M+C organization may terminate its

contract, refuse to renew its contract, or reduce the service area

included in its contract and the effect this may have on the

individuals enrolled in the M+C plan. Finally, a general description of

the benefits, enrollment rights, and other requirements applicable to

Medicare supplemental policies under section 1882, including Medicare

Select, will be included.

Under section 1851(d)(4) and reflected in Sec. 422.64(c)(6), HCFA

will also provide information to M+C eligible individuals comparing M+C

plan options, including the benefits covered under the M+C plan;

covered services beyond those provided under original Medicare; and

beneficiary cost-sharing including maximum limitations on out-of-pocket

expenses and, in the case of an MSA plan or M+C private fee-for-service

plan, differences in cost-sharing, premiums, and balance billing as

compared to other M+C plans and whether the organization offering the

plan includes mandatory supplemental benefits in addition to its base

benefit package or offers optional supplemental benefits and the

premiums and other terms and conditions for such coverage. The M+C

monthly basic beneficiary premium and M+C monthly supplemental

beneficiary premium, if any for the plan or, in the case of an MSA

plan, the M+C monthly MSA premium, will also be included. M+C eligible

individuals will also be informed about the extent to which they may

obtain benefits through out-of-network health care providers; the

extent to which they may select among health care providers and the

types of providers participating in the plan's network. M+C eligible

individuals will be informed of the M+C organization's coverage of

emergency and urgently needed care, service area of the plan, and, to

the extent available, M+C plan quality and performance indicators.

The information comparing plan options is crucial to empowering

beneficiaries with the knowledge that will help them evaluate M+C

options and make informed decisions based on their individual needs. We

wish to make clear that our provision of comparative data is intended

neither to encourage or discourage beneficiaries from choosing one

health care plan over another nor to favor a choice of an M+C plan over

original Medicare.

We invite the public to comment or to provide specific guidance on

the types of information that should be made available to

beneficiaries. Once we have worked out what specific information we

will require within the above categories, we will post these at our

Internet site.

The Internet site, www.Medicare.gov, is a Medicare beneficiary-

centered consumer website designed to provide a broad array of

information on program benefits, health system performance, health care

choices, healthy behaviors and health promotion. This site will be

continuously improved to meet the mandate in section 1851(d)(2)(C) that

we provide information in a style and format that is easy to

understand. If necessary, we will publish regulations and allow for OMB

review, pursuant to the requirements of the Paperwork Reduction Act of

1995.

HCFA's ``Medicare Compare,'' the Managed Care Plans Comparison

Database, will be available on the Internet for public use. ``Medicare

Compare'' provides a wealth of information on health care plans,

allowing users to ``comparison shop'' for plans. Users can look up

information in different areas, by state, county or zip code. They can

also compare costs for premiums and types of services offered. The

information in the database will be updated quarterly. Plan specific

quality performance measures from the HEDIS information set and the

Consumer Assessment of Health Plans Survey (CAHPS) will be incorporated

into information provided to beneficiaries once the data and results

have been validated and determined to be accurate and reliable. HCFA is

committed to using a public process to determine information and data

specifications, including the details of what information will need to

be collected and the methods of collection to determine the remaining

unspecified data elements that organizations are required to submit.

HCFA will work collaboratively with organizations involved with quality

and performance standards and measurements, including performance

measurement experts, public and private purchasers, and beneficiary

representatives in this process. In addition, HCFA will hold public

meetings to invite interested parties to comment and provide input in

the process of determining the data specifications for additional

performance information, e.g., data about appeals or health outcome

measures. Finally, HCFA will publish a notice regarding plan data

elements to be collected and a summary of public processes used to

determine the data elements in question and this document would be

available at the discretion of the requestor. Educational information

will be made available on the Internet site to prepare consumers on how

to use this information when comparing plans and in making decisions

about their health care.

In support of efforts to promote informed choice, HCFA will also

maintain a toll-free line for M+C information.

Under section 1851(e)(3)(D), we are required to provide in the fall

of 1998 for a ``Special Information Campaign'' in the form of an

educational and publicity campaign that informs M+C eligible

individuals about the availability of M+C plans offered in different

areas, and about the election process. Section 1851(e)(3)(C) requires

that we provide for a nationally coordinated educational and publicity

campaign about M+C plans and the election process in November of each

year, beginning in 1999. We may conduct these campaigns

[[Page 34982]]

using health fairs, as well as other methods for distributing

information.

8. Coordination of Enrollment and Disenrollment Through M+C

Organizations (Sec. 422.66)

a. Enrollment. Section 1851 (c)(1) and (c)(2) provide that

individuals who wish to elect an M+C plan may do so through filing an

appropriate election form with the organization during an election

period specified in section 1851(e), and reflected in Sec. 422.62.

Section 1851(c)(1) requires that the Secretary establish a process

through which elections in M+C plans are made. Therefore, we reserve

the right to develop and provide additional mechanisms for electing an

M+C plan. We have provided instructions on how M+C organizations must

process elections at Sec. 422.60(e). If necessary, we will publish

regulations and allow for OMB review, pursuant to the requirements of

the Paperwork Reduction Act of 1995.

b. Disenrollment. Section 1876 background: Under section

1876(c)(3)(B), which covers disenrollment from HMOs and CMPs, a

Medicare beneficiary can disenroll from an HMO or CMP at any time.

Under the HMO and CMP regulations in Sec. 417.461(a), an enrollee who

wishes to disenroll may, at any time, give the organization a signed,

dated request in the form and manner we specify. The beneficiary can

request a certain disenrollment date, but it can be no earlier than the

first day of the month following the month in which the organization

receives the disenrollment request. Under section 9312(h) of the

Omnibus Budget Reconciliation Act of 1986, Medicare beneficiaries are

also permitted to disenroll from an eligible organization under Section

1876 at a local Social Security office.

Section 417.461(b) describes the responsibility of the HMO or CMP

to promptly submit a disenrollment notice to HCFA and provide the

enrollee with a copy of the request for disenrollment and, in the case

of a risk HMO or CMP, an explanation of the date of disenrollment.

Section 417.461(c) provides that HMOs and CMPs must reimburse HCFA in

cases where a disenrollment notice is not submitted timely to HCFA.

Currently, when an individual enrolls in one HMO or CMP while still

enrolled in another, we regard this action as a disenrollment from the

first HMO or CMP, and automatically amend our enrollment records to

reflect the disenrollment. We do this so that the beneficiary does not

have to both submit a disenrollment request to the first HMO or CMP,

and an enrollment request to the new HMO or CMP.

To reflect these current policies, Sec. 422.66(b)(1) provides that

an individual who wishes to disenroll may change his or her election in

the following manner: (i) Elect a different M+C plan during an election

period specified in Sec. 422.62 or (ii) submit a signed and dated

request for disenrollment to the M+C organization during an election

period specified in Sec. 422.62. HCFA also reserves the right to

develop and provide additional mechanisms for disenrollments in

accordance with section 1851(c). Note that the Medigap implications of

a change of election to original Medicare are discussed at section

II.B.12 (Extended Period of Guaranteed Access to Medigap Plans) of this

preamble.

At Sec. 422.66(b)(2) we specify that a disenrollment request is

considered to have been made on the date it is received by the M+C

organization. Note that HCFA's liability for payment ends not on the

date the disenrollment request is received by the M+C organization, but

rather, as of the date of disenrollment. The date of disenrollment is

determined at Sec. 422.68 for changes made by enrollees during coverage

election periods and at Sec. 422.74 for disenrollments made by M+C

organizations.

At Sec. 422.66(b)(3) and (4) we are continuing the Sec. 417.461(b)

and (c) requirements for M+C organizations to provide timely notice of

disenrollment to HCFA and to provide the enrollee with a copy of the

disenrollment request with information on the date of disenrollment and

any lock-in requirements of the plan that apply until the effective

date of disenrollment. We also state that disenrollment requests must

be filed and retained as specified in HCFA instructions.

The regulation also provides that if the M+C organization fails to

submit a correct and complete disenrollment notice to us promptly, the

M+C organization must reimburse us for any capitation payments it has

received after the month in which we would have stopped payment, had

the M+C organization met the requirement.

c. Retroactive Disenrollment. Section 1876 background: In the case

of section 1876 contractors, HCFA has permitted beneficiaries to be

retroactively disenrolled from an HMO or CMP if it determines that

there never was a legally valid enrollment, or a valid request for

disenrollment was properly made but not processed or acted upon.

In the M+C program, HCFA will continue to consider retroactive

disenrollments in cases in which we determine that there never was a

legally valid enrollment, or a valid request for disenrollment was made

but not processed or acted upon. We have reflected this provision in

Sec. 422.66(b)(5).

d. Fee-for-Service Election by Default. Section 1851(c)(3)(A)(i)

establishes that newly eligible enrollees who do not choose an M+C plan

during the initial coverage election period are deemed to have chosen

original Medicare. We have reflected this provision in Sec. 422.66(c).

e. Seamless Continuation of Coverage (Conversions). Section 1876

background: In regulations at Sec. 417.432, an HMO/CMP is required to

accept any individual who was already enrolled in the HMO/CMP for the

month immediately prior to the month in which he or she was entitled to

both Part A and Part B, or entitled to Part B only. HCFA refers to such

enrollments as ``conversions'' or ``age-ins.'' The individual's

effective month of enrollment in the HMO or CMP as a Medicare enrollee

is effective the month in which he or she is entitled to both Medicare

Parts A and B, or Part B only.

With the enactment of BBA, a new section 1851(c)(3)(A)(ii) is added

to the statute that gives the Secretary discretion to establish

procedures under which individuals who are enrolled in a health plan

offered by an M+C organization at the time of their initial coverage

election periods will ``default'' to or be deemed to have elected an

M+C plan offered by the M+C organization, unless these individuals

elect a different option. We have chosen not to have individuals

default to the M+C plan offered by the organization. At this time we do

not have a mechanism in place to capture the information we would need

to implement such a process. A default process would require that M+C

eligible individuals as well as their relevant health plan information

be identified and captured prior to the individual's initial coverage

election period. At present, we do not have access to information on

which health plans individuals are enrolled in because such plans are

private health plans. In addition, we are not given any information if

individuals have not previously filed for title II (Social Security)

and/or title XVIII (Medicare) benefits.

One option that we may consider would be to specify that M+C

organizations which have individuals enrolled in private health plans

must notify such individuals 4 months preceding the month in which the

individual becomes an M+C eligible individual of their opportunity to

``age-in'' to the M+C plan or to select another option. This would give

the individual

[[Page 34983]]

the opportunity to select from a range of health care options in a

manner that would facilitate seamless continuation of coverage. M+C

organizations would be required to transmit to us the necessary plan

information for those individuals who are interested in exercising

their opportunity to ``age-in''. HCFA would then have the information

necessary to ``deem'' or ``default'' M+C eligible individuals into the

appropriate M+C plan. We request public comments on this issue and will

issue further clarification in the final rule. In the interim, we have

retained the conversion of enrollment process described in Sec. 417.432

with conforming changes.

In Sec. 422.66(d) we specify that M+C plans must accept any

individual who is enrolled in a health plan (other than an M+C plan)

offered by the same M+C organization, during the month immediately

preceding the month in which the individual is entitled to both Part A

and Part B. Conversion may occur if the individual resides in the

service area or continuation area of the plan and regardless of whether

an individual has ESRD. We limit conversions to individual in a service

area and continuation area in order to ensure that enrollees have

access to the full range of services offered by the plan. This policy

is also reflected in the section describing eligibility to elect a plan

(Sec. 422.50(a)(2) and (a)(3)). Therefore, an M+C organization's

obligation to accept current enrollees extends to enrollees in a

service area or a continuation area, or who developed ESRD while

enrolled with the organization under a private health plan. Converted

beneficiaries who reside out of the plan's service area or who have

ESRD cannot, however, later elect to enroll in a plan offered by

another M+C organization unless they meet the statutory requirements at

sections 1851(b)(1)(A) and 1851(a)(e)(B).

In addition, we allow M+C organizations to reserve vacancies for

their plans to accommodate conversions in recognition that M+C

organizations must accept conversions. We require the individual who is

converting to file an election form in accordance with

Sec. 422.60(c)(1). We also stipulate that the M+C organization may not

disenroll the individual except under the conditions described in

Sec. 422.74.

f. Maintenance of Enrollment. The statute provides at section

1851(c)(3)(B) that an individual who has made an election or is deemed

to have made an election is considered to have continued to make that

election until the individual changes it or the M+C plan is

discontinued or no longer serves the area in which the individual

resides. We have stated this rule at Sec. 422.66(e).

9. Effective Dates of Coverage and Change of Coverage (Sec. 422.68)

Section 1851(f) establishes the effective dates for elections and

changes to elections made during the various enrollment periods. Note

that the Medigap implications of a change of election to original

Medicare are discussed at section II.B.12 (Extended Period of

Guaranteed Access to Medigap Plans) of this preamble.

Section 1851(f)(1) states that an election made during the initial

coverage election period will take effect on the date the individual

becomes entitled to Part A and enrolled under Part B, but gives the

Secretary discretion to interpret this provision in a manner,

consistent with section 1838, that prevents retroactive coverage. We

are interpreting ``enrolled in Part B'' as ``entitled to Part B'' in

order to avoid retroactive coverage in an M+C plan that an individual

might receive after enrolling in Part B but prior to the time the

individual is actually entitled to Part B benefits. Therefore, we have

established that an election made during the initial coverage election

period is effective the first day of the month of entitlement to both

Part A and Part B.

Under section 1851(f)(3), an election or change of election made

during an annual coordinated election period is effective the first day

of the following calendar year. We have reflected this provision in

Sec. 422.68(b).

Under section 1851(f)(2), an election or change of election made

during an open enrollment period is effective the first day of the

first calendar month following the month in which the election is made.

We have reflected this provision in Sec. 422.68(c).

Under section 1851(f)(4), an election that occurs as the result of

a special election period is effective, to the extent practicable, in a

manner determined by HCFA to promote continuity of coverage. We have

reflected this provision in Sec. 422.68(d).

At Sec. 422.68(e) we are stating that an election of original

Medicare made during a special election period by an individual age 65

as provided at Sec. 422.62(c) is effective the first day of the first

calendar month following the month in which the election is made.

10. Disenrollment by the M+C Organization (Sec. 422.74)

Section 1851(g)(3) specifies that M+C organizations may only

disenroll individuals from an M+C plan for the following reasons: the

individual fails to pay any basic and supplemental premiums on a timely

basis; the individual engages in disruptive behavior; or the M+C

organization terminates its coverage of all M+C eligible individuals in

the area in which the individual resides.

In Sec. 422.74, we have set forth the conditions under which M+C

organizations can disenroll individuals. Section 1851(g)(3)(A) provides

that, except as provided in section 1851(g)(3)(B), ``a Medicare+Choice

organization may not for any reason terminate'' an individual's

enrollment in ``a Medicare+Choice plan it offers.'' [Emphasis added.]

We have included the three grounds for termination set forth in section

1851(g)(3)(B) in Sec. 422.74. With respect to the ground in section

1851(g)(3)(B)(ii), under which an enrollee can be disenrolled for

``disruptive behavior'' as specified in standards established in

regulations, we have implemented this ground for termination in two

separate provisions. First, under Sec. 422.74(b)(1)(ii), we refer to an

individual who meets general standards for disruptiveness set forth in

Sec. 422.74(d)(2). Section 422.74(d)(2) refers to behavior of an

individual that is ``disruptive, unruly, abusive, or uncooperative to

the extent that his or her continued enrollment * * * seriously impairs

the M+C organization's ability to furnish services. * * *'' We also

separately refer to a different kind of ``disruption'' or failure to

``cooperate''; namely, fraud or abuse of the enrollee's enrollment

card. This ground for termination is also based on section

1851(g)(3)(B)(ii), and standards for disenrollment on this basis are

also included in Sec. 422.74(d), in a separate paragraph (3).

In addition to implementing the grounds in section 1851(g)(3)(B),

we also provide in Sec. 422.74 for the termination of individuals who

are no longer eligible for enrollment in the M+C plan, because they

have left the area, lost entitlement to Medicare, or died. We believe

that the prohibition in section 1851(g)(3)(A) on terminating an

enrollee on grounds other than those set forth in paragraph (B) applies

only to individuals who are otherwise eligible for enrollment in the

plan. Clearly, if an individual does not meet the threshold

requirements for eligibility, disenrollment is not only permissible but

required.

We have established specific guidelines in Sec. 422.74(d)(1) that

the M+C organization must follow when disenrollment is based on failure

to pay basic and supplemental premiums, including the requirement to

send a notice of nonpayment within 20 days after the date that

delinquent charges

[[Page 34984]]

are due. The notice must alert the individual that he or she is

delinquent on a premium payment, provide the individual with an

explanation of the disenrollment procedures and any lock-in provisions

of the plan, and advise the individual that failure to pay the premiums

within the 90-day grace period will result in termination of M+C

coverage.

Note that in the section 1876 program, disenrollment for non-

payment of premiums is treated differently. At Sec. 417.460(c)(2), if a

beneficiary pays the basic premium and other charges, but fails to pay

the premium for optional supplemental benefits, the organization can

discontinue the optional benefits, but cannot disenroll the

beneficiary. However, under section 1851(g)(3)(B)(i), an M+C

organization may terminate an election of a plan if any M+C monthly

basic and supplemental beneficiary premiums are not paid on a timely

basis.

We have retained the current processes described in Sec. 417.460

for disenrollment for disruptive behavior and fraud and abuse. In the

case of disenrollment for disruptive behavior, the M+C organization

must ascertain that the individual's behavior is not related to the use

of medical services or to diminished mental capacity. If an individual

is disenrolled for disruptive behavior, HCFA will review the

documentation submitted by the M+C organization and the beneficiary to

determine whether the disenrollment requirements have been met.

We have included a qualifier for disenrollment when the individual

no longer resides in the M+C plan's service area to conform to section

1851(b)(1)(B), which permits plans to offer a continuation of

enrollment feature if the individual moves out of the service area. We

have modified the existing regulatory text at Sec. 417.460(h) which

requires disenrollment when the individual loses entitlement to Part B

benefits, to require disenrollment when an individual loses entitlement

to Part A or Part B benefits. We have also addressed the process for

disenrollment for plan termination or area reduction.

For all disenrollment situations, except those due to the death of

the individual or loss of Part A or Part B benefits, we require M+C

organizations to provide the individual with a written notice of the

disenrollment that includes an explanation of why the M+C organization

is planning to disenroll the individual and a description of the

individual's right to a hearing under the M+C organization's grievance

procedures.

The statute provides at section 1851(g)(3)(C) that individuals who

are disenrolled from an M+C plan due to disruptive behavior or failure

to pay basic or supplementary premiums will be deemed to have elected

original Medicare. We have treated fraud and abuse by the enrollee in

the same manner as other forms of disruptive behavior, with the

individual being disenrolled into the original Medicare program. We

believe that the result should be comparable because, in both cases,

the individual's disruptive behavior has given the organization cause

for the disenrollment. Individuals who lose entitlement to Part A or

Part B benefits default to original Medicare because they no longer

meet the requirements to receive Medicare benefits through an M+C plan,

which requires entitlement to Part A and enrollment in Part B.

As previously discussed, special election periods are available to

individuals who are disenrolled (or who disenroll) because of plan

termination or service area or continuation area reduction or because

they no longer reside in the M+C plan's service area or continuation

area. Section 1851(g)(3)(C)(ii), however, stipulates that individuals

who are disenrolled and who do not make an election during the special

election period are deemed to have elected original Medicare.

11. Approval of Marketing Materials and Application Forms (Sec. 422.80)

Section 1851(h) contains requirements related to marketing by M+C

organizations. These provisions are implemented in Sec. 422.80. Section

422.80(a) implements the requirement in section 1851(h)(1) that all

marketing material and application forms be submitted to HCFA for

approval 45 days before distribution, and that such materials may only

be used if HCFA does not disapprove such use by the end of this 45 day

period. In section 422.80(b), we define ``marketing materials'' which

must be submitted for approval under Sec. 422.80(a).

Section 1851(h)(2) requires that M+C standards under section 1856

include guidelines for review of marketing materials under section

1851(h)(1) and Sec. 422.80(a). Section 422.80(c) contains guidelines

for HCFA's review of marketing materials under Sec. 422.80(a). As

provided for in section 1852(b)(2), these guidelines include existing

marketing guidelines for HMOs and CMPs in Sec. 417.428, which have been

in effect since the inception of the existing Medicare risk contracting

program.

Section 1851(h)(3) provides that, if HCFA has not disapproved the

distribution of marketing materials or forms with respect to an M+C

plan in an area, HCFA is deemed not to have disapproved the

distribution in all other areas covered by the M+C plan and

organization except with regard to any portion of the material or form

that is specific to the particular area. This ``deemed approval,'' or

``1 stop-shopping,'' provision is included in the statute to address

the needs of M+C organizations that operate in multiple states and

within multiple HCFA Regional Office (RO) regulatory districts. Under

the section 1876 program, a marketing piece submitted for HCFA review

in multiple ROs was often susceptible to different regulatory

interpretations by different RO staff; this occurrence could result in

approval by one RO and a request for revisions by another RO. This

phenomenon was primarily the result of RO staffs working within the

environment of either an ``emerging'' market area or a ``mature'' area.

The speed of review and approval of marketing materials should be

enhanced by implementation of this statutory requirement.

Section 1851(h)(4) provides that M+C organizations shall conform to

``fair marketing standards'' included in the ``standards under section

1856,'' and requires that these standards prohibit an organization from

providing cash or other monetery inducements for enrollment. Standards

under section 1854(h)(4) are set forth in Sec. 422.80(e). Again, as

provided in section 1856(b)(2), these standards include existing

section 1876 standards.

Section 1851(h)(4)(B) indicates that the fair marketing standards

``may include a prohibition against an M+C organization (or agent of

such an organization) completing any portion of any election form used

to carry out elections under this section on behalf of any

individual.'' However, we have decided at this time not to prohibit an

M+C organization (or agent of such an organization) from assisting

beneficiaries in completing the election form. We recognize and

understand that we must provide accommodations for persons with

disabilities and for situations in which such a prohibition could

represent a potential physical burden to beneficiaries. However, in

general, we believe that it is good practice that the M+C eligible

individual should complete and sign the election form. Currently, we

have no way to check for any plan impropriety, especially in situations

where beneficiaries require help in completing the enrollment form,

except beneficiary allegations and requests for disenrollment. While we

cannot

[[Page 34985]]

quantify the amount of inappropriate behavior, we know that some plans

have completed election forms for beneficiaries fraudulently or have

convinced beneficiaries to sign forms without explaining to them the

contents and telling them the form is for enrollment (U.S. General

Accounting Office report: ``HCFA Should Release Data To Aid Consumers,

Prompt Better HMO Performance'', HS-97-23, October 1996.) Therefore, we

request public comment on this issue and will provide further guidance

in the final rule.

In the interim, we are providing at Sec. 422.60(c) that persons who

assist beneficiaries in completing forms should sign the form and

indicate their relationship to the beneficiary. In addition, we

encourage M+C organizations to use neutral parties such as family

members, ombudsmen or counseling programs for those individuals who

require assistance in completing forms.

Finally, in Sec. 422.80(f), we specify that HCFA may permit M+C

organizations to develop marketing materials designed for members of an

employer group who are eligible for employer-sponsored benefits through

the M+C organization, and to furnish these materials only to such group

members. While such materials must be submitted for approval under

paragraph (a), HCFA will only review portions of these materials that

relate to M+C plan benefits.

12. Medigap

Prior to the enactment of the BBA, Federal law provided only one

opportunity for a Medicare beneficiary to purchase a Medicare

supplement (Medigap) policy on a ``guaranteed issue'' basis. (Generally

this means that the insurance company cannot deny the application, or

charge extra, based on the individual's health experience.) This

opportunity was during the 6-month period beginning with the date a

beneficiary is both age 65 or over, and enrolled in Medicare Part B.

Amendments made by the BBA now specify additional situations in which

beneficiaries will, after July 1, 1998, be guaranteed access to certain

types of Medigap policies on a guaranteed issue basis if they apply

within 63 days after losing other coverage, and submit evidence of the

date the prior coverage terminated. The law also requires the entity

that provided the prior coverage to notify beneficiaries of these

rights.

Therefore, while this regulation does not implement the Medigap

provisions of the BBA, it is important to be aware of the implications

for M+C organizations, since some of the situations covered by the

Medigap provisions involve beneficiaries who leave M+C plans and return

to original Medicare. The situations that will give rise to the

obligation to notify the beneficiary will include, for example,

termination of coverage by an M+C plan, or loss of coverage under an

M+C plan due to a change in the individual's place of residence. The

beneficiary also will have the right to guaranteed issue of a Medigap

policy if he or she either enrolls in an M+C plan upon first becoming

eligible for Medicare at age 65, or enrolls after previously being

covered under a Medigap policy, and later disenrolls from the M+C plan

within 12 months of the effective date of the M+C enrollment.

Because the Medigap provisions establish specific time deadlines

for beneficiaries who wish to take advantage of these new rights,

prompt action by M+C organizations to notify beneficiaries of their

rights, and by HCFA to provide accurate evidence of recently terminated

coverage, will be essential. CFA is committed to providing

beneficiaries whose M+C coverage terminates under the specified

circumstances with timely and accurate evidence of the recently

terminated coverage. There are a number of ways in which we are

considering providing the necessary evidence, including enabling

Medigap insurers to query HCFA systems, if privacy and security issues

can be resolved. HCFA is seeking comments on the most effective way to

coordinate with Medigap insurers in order to protect beneficiaries'

rights under the statute, and promote continuity of care.

We also urge M+C organizations to keep in mind that they will be

obligated to notify beneficiaries whose coverage terminates of their

rights under the Medigap provisions. Those provisions are complex--only

certain beneficiaries will be entitled to guaranteed issue of Medigap

policies, and their choice of policies will depend on the precise

reason for termination of their coverage under the M+C plan. Further

guidance is available from the National Association of Insurance

Commissioners (NAIC), which on April 29, 1998 issued a revised Model

regulation that incorporated the Medigap changes made by the BBA.

C. Benefits and Beneficiary Protections

1. General Requirements (Sec. 422.100)

Subpart C of these regulations details the scope of benefits a

Medicare beneficiary is entitled to receive when electing coverage

through an M+C plan. The statutory authority for most of the provisions

of subpart C is found in section 1852, which outlines benefit

requirements and provides authority for beneficiary protections under

Medicare Part C. Many of the statutory provisions are the same as, or

similar to, benefit provisions of section 1876. Therefore, much of the

regulatory language of part 417 is retained for purposes of

establishing M+C standards, as provided for in section 1856(b)(2)

(which directs that the M+C standards be based on the analogous

standards established under section 1876).

A principal difference between section 1876 provisions and the

newly enacted law is that the new law permits a wider range of types of

entities to assume risk for the coverage of benefits for Medicare

enrollees. Section 1876 limited the Medicare contract option to

organizations that operated as entities accepting full-risk, prepaid

capitation for the provision of a comprehensive range of services and

defined ``eligible organizations'' as a Federally qualified HMO (under

title XIII of the Public Health Service Act) or a competitive medical

plan (CMP). Except in a very few instances where waivers were granted

during years when such waivers were authorized, the organizations had

to offer such a product in the commercial marketplace in order to have

a Medicare contract. From the point of view of benefit requirements

imposed on plans, the new types of network plans are subject to the

same benefit requirements applicable to organizations that would have

met the definition of ``eligible organization'' under section 1876

(HMOs and CMPs). The requirements under the new law for network plans

are in many cases identical to the requirements under section 1876.

While adding PPOs, indemnity insurers, and provider-sponsored

organizations to the range of entities eligible for Medicare contracts,

the BBA also permits non-network plans, such as private fee-for-service

plans and M+C non-network MSA plans, to assume prepaid, capitated risk

for services used by enrollees of these organizations. Medicare

beneficiaries who elect these plans are not subject to the same

constraints in use of providers that exist in network plans. Therefore,

the benefit requirements applicable to these plans, and cost-sharing

requirements, may be very different from those that apply to network

plans. This section of the preamble mainly discusses the requirements

for network plans. Sections III and IV of the preamble provide more

extensive information about benefit requirements applicable to non-

network M+C MSA plans and to

[[Page 34986]]

private fee-for-service plans, respectively.

All M+C organizations are required to cover the full range of

Medicare benefits that enrollees would otherwise have been able to

receive under original Medicare, subject to certain rules regarding

available networks of providers. M+C organizations are further required

to cover Medicare preventive benefits with the same frequency that they

are covered under original Medicare (e.g., annual screening mammography

examinations). Beneficiaries may be required to contribute to the cost

of covered services in the form of cost-sharing provided for under the

M+C plan. Beneficiaries may have to cover all costs until a deductible

is met (including the high deductible provided for under an MSA plan

(see section III of this preamble)), a percentage of costs in the form

of coinsurance, or a fixed amount for services, in the form of a

copayment. As discussed in subpart G below, there are limits that apply

to the cost-sharing that can be imposed on beneficiaries under M+C

plans. For benefits that are covered under original Medicare, the

benefits must be obtained through providers meeting the conditions of

participation of the Medicare program.

Organizations with network plans, which include coordinated care

plans and network M+C MSA plans, are required to provide these services

directly or through arrangements (i.e., written agreements with

providers) in order to meet the availability and accessibility

requirements of section 1852(d)(1) and Sec. 422.112, discussed below.

In some situations, an M+C organization, for its network plan or

plans, may be required to assume liability for services provided to

Medicare enrollees through noncontracting providers. Under

Sec. 422.100(b), the organization is required to assume financial

responsibility for the following items and services obtained from a

provider that does not contract with the M+C organization:

Emergency services as defined in Sec. 422.2;

Urgently needed services as defined in Sec. 422.2;

Renal dialysis services provided while the enrollee was

temporarily outside the M+C plan's service area;

Post-stabilization care as described in

Sec. 422.100(b)(iv); and

For both network and non-network plans, services denied by

the M+C organization and found upon appeal (under subpart M of this

part) to be services the enrollee was entitled to have furnished or

paid for by the M+C organization.

The requirements that the M+C organization assume financial

liability for renal dialysis services, and post-stabilization care are

new requirements introduced by the BBA that were not included in

section 1876 requirements. The BBA also revised the definition of

emergency services, as discussed elsewhere in the preamble.

``Post-stabilization care'' (also referred to in the Act as

``maintenance care'') means medically necessary, non-emergency services

needed to ensure that the enrollee remains stabilized from the time

that the treating hospital requests authorization from the M+C

organization until--

The enrollee is discharged;

A plan physician arrives and assumes responsibility for

the enrollee's care; or

The treating physician and plan agree to another

arrangement.

Section 422.100(b)(1)(iv) provides that an M+C organization is

responsible for the cost of post-stabilization care provided outside

the plan if they were pre-approved, if they were not pre-approved

because the organization did not respond to the request by the provider

of post-stabilization care services for pre-approval within 1 hour

after the organization was asked to approve post-stabilization care, or

if the M+C organization could not be contacted for pre-approval. M+C

organization liability will extend until the organization has contacted

the hospital to arrange for discharge or transfer. These requirements

reflect comments we received on post-stabilization care in response to

the Federal Register notice of January 20, 1998. The majority of

commenters advocated that we establish a timeframe for an M+C

organization's response to a request for approval. Because we agree

that an untimely response to a request for approval would unduly delay

the delivery of the post-stabilization care services, thereby

compromising their effectiveness, we have established a 1-hour

timeframe in the regulation as an enrollee protection. Because a

completely accurate assessment of an enrollee's need for post-

stabilization care services cannot be made until the enrollee is

stabilized, we expect that the provider of the post-stabilization care

services will not request the M+C organization's approval of the

services until after the enrollee is stabilized, at which time enough

details about the enrollee's condition should be known to allow the

organization to make an informed decision on whether to approve the

care almost immediately. We welcome comments on this issue.

In the case of payments to noncontracting providers for covered

items and services, the M+C organization's obligation is met when it

provides for payment in an amount the provider would have received

under original Medicare (including payment from the organization and

beneficiary cost-sharing under the plan).

The benefits offered by an M+C plan may be divided into two major

components, ``basic benefits'' and ``supplemental benefits.'' Basic

benefits in an M+C plan include all Medicare-covered services (except

hospice) and additional benefits. Basic benefits are discussed below,

and special rules for M+C enrollees electing hospice are set forth in

Sec. 422.266 and discussed in section II.F.9. of this preamble.

Supplemental benefits include both mandatory and optional supplements,

which we also discuss below.

Section 1852(a)(1) stipulates that M+C organizations offering an

M+C plan (or plans) must offer it to all Medicare beneficiaries

eligible to elect the plan who reside in the service area of the M+C

plan at a uniform premium with uniform cost sharing. An organization

may offer more than one plan in the same service area. The premium and

cost-sharing may vary among plans within the same organization. We will

review each M+C plan offered by the same organization to ensure that it

is not designed to promote discrimination, discourage enrollment, steer

specific subsets of Medicare beneficiaries to particular M+C plans, or

inhibit access to services.

2. Requirements Relating to Basic Benefits (Sec. 422.101)

With the exception of special rules concerning hospice care and M+C

coverage that begins during an inpatient hospital stay (described in

Secs. 422.266 and 422.264, respectively), a Medicare enrollee is

entitled to have the M+C organization provide all Medicare-covered

services that are available in the geographic area in which services

are covered under the plan.

M+C organizations are required to provide their enrollees with

services covered under original Medicare and available to beneficiaries

residing in the geographic area in which services are covered under the

plan, as we provide at Sec. 422.101(a). Organizations must also abide

by our national coverage decisions, as well as specific written

policies of the Medicare carrier or intermediary with jurisdiction for

claims (if the encounter had occurred under original Medicare) in the

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geographic area served by the plan. (These policies are sometimes

called ``local medical review determinations.'') In cases where

services are covered under the plan in an area that includes

jurisdictions of more than one contractor for original Medicare, and

the contractors have different medical review policies, the plan must

apply the medical review policies of the contractor in the area where

the beneficiary lives.

In addition, the organization is required to provide ``additional

benefits,'' which include health care services not covered by Medicare,

as well as reductions in premiums or cost sharing for covered services.

As discussed in section II.A of this preamble, we use the term ``basic

benefits'' to encompass all Medicare-covered benefits (except hospice

services) and additional benefits. These benefits are determined by our

approval of an M+C organization's Adjusted Community Rate (ACR)

proposal for a given M+C plan and must be provided uniformly to all

Medicare enrollees electing that plan. Additional benefits are

generated when the average payment rate for a plan exceeds the adjusted

community rate, thereby producing a surplus known as the ``excess

amount.'' (See section II.F of this preamble for a more thorough

discussion of the requirements that apply to additional benefits, which

are set forth under Sec. 422.312.)

In the case of an M+C private fee-for-service plan or a non-network

M+C MSA plan, the obligation to cover Medicare services is not limited

to services available in the plan's approved service area. Rather, in

this context, we interpret ``geographic area served by the plan'' in

section section 1852(a)(1)(A) to mean the area within which the M+C

private fee-for-service or non-network M+C MSA plan enrollee has the

right to receive covered services under the plan.

Under our authority in section 1856(b)(1) to establish standards

under the M+C program, Sec. 422.100(h) establishes special rules for

influenza vaccine, pneumococcal vaccine, and screening mammography.

Section 422.100(h)(2) prohibits enrollee cost-sharing for influenza

vaccine and pneumococcal vaccine. Under original Medicare, there is no

cost-sharing imposed on these items, and we believe congressional

intent is for Medicare beneficiaries to have maximum possible access to

both vaccines. We note that original Medicare provides for beneficiary

payment of coinsurance for mammography screening; therefore, a plan may

also impose copayment or coinsurance for this service.

Also note that beneficiaries under original Medicare may ``self-

refer'' and directly access screening mammography and influenza

vaccine. We have established a similar standard in Sec. 422.100(h)(1)

for M+C enrollees.

3. Supplemental Benefits (Sec. 422.102)

Section 1852(a)(3) provides for supplemental benefits. These

benefits are health care items and services beyond the basic benefits

described above and are categorized as either mandatory or optional.

Mandatory supplemental benefits are benefits not included in basic

benefits which must be purchased by all beneficiaries who enroll in the

M+C plan under which they are included. Mandatory supplemental benefits

may be offered under coordinated care plans and fee-for-service plans

only, and must be approved by HCFA. HCFA will approve such benefits

unless we determine that they would substantially discourage enrollment

in the plan. Specifically, we will determine whether the inclusion of

the mandatory supplemental benefits would discourage particular

subcategories of Medicare beneficiaries from enrolling (e.g., those

residing in certain parts of a plan service area). These benefits are

addressed in Sec. 422.102(a).

Section 1852(a)(3)(C) provides that nothing in paragraph (3) of

section 1852(a), addressing supplemental benefits, shall be construed

to prevent a fee-for-service plan from offering supplemental benefits

covering the balance billing permitted under section 1852(k)(2)(A)(i)

and Sec. 422.216(b)(1) and additional services. See discussion of M+C

private fee-for-service plans in section IV of this preamble. The only

provision in section 1852(a)(3) that could possibly be construed to

prevent a private fee-for-service plan from offering such benefits

would be the right of the Secretary, and of HCFA under these

regulations, to disapprove mandatory supplemental benefits. We

accordingly wish to make it clear that HCFA will not disapprove such

benefits in the case of a private fee-for-service plan. (As discussed

below in subpart G, HCFA does not have the right to review or approve

the amount that a private fee-for-service plan charges for supplemental

benefits.) We believe that the foregoing statement is sufficient to

give effect to section 1852(a)(3)(C).

Optional supplemental benefits are benefits beyond basic benefits

that may be purchased by an M+C plan enrollee at his or her option. If

a plan offer optional supplemental benefits, it must offer those

benefits to all enrollees in the M+C plan. While optional supplemental

benefits may be offered under all types of plans, in the case of MSA

plans, there are limits, discussed in section III of the preamble, on

the nature of optional supplemental benefits that can be offered.

Under mandatory supplemental benefits for coordinated care plans,

an M+C organization may require an enrollee who elects an M+C plan to

accept and pay for items and services beyond basic benefits if he or

she wants to enroll in a particular M+C plan. If an organization

requires supplemental benefits, it must do so uniformly for all

Medicare beneficiaries enrolled in that plan. As provided for at

section 1852(a)(3)(A), we will approve such offerings unless we

determine that would substantially discourage enrollment in the plan.

We will determine whether the mandatory supplemental benefits would

discourage subcategories of Medicare beneficiaries from enrolling

(e.g., those residing in certain parts of a plan's service area).

An organization may also offer optional supplemental benefits

within an M+C plan. In this case, the beneficiary is free to choose to

accept or decline the supplement. In the case of both mandatory and

optional supplemental benefits, the benefits are paid for by (or on

behalf of) the individual electing the M+C plan.

Sections 422.103 and 422.104, addressing benefits under MSA plans

generally, and optional supplemental benefits under an MSA plan, are

discussed in section III. below.

4. Special Rules for Point-of-Service (POS) Option (Sec. 422.105)

This section of the rule codifies our existing policy for point-of-

service plans. Because these policies have not previously appeared in

regulations, we welcome comments.

A POS benefit is an option that an M+C organization may offer

through an M+C coordinated care plan or network M+C MSA plan to provide

Medicare enrollees with additional choice in obtaining specified health

care items and services from entities that do not have a contract with

the M+C organization. A coordinated care plan may offer a POS option as

an additional benefit, a mandatory supplemental benefit, or an optional

supplemental benefit. A network MSA plan may only offer a POS option as

a supplemental benefit.

Under POS, the health plan generally provides partial reimbursement

to enrollees for items and services obtained from non-network

providers. The enrollee may be required to pay a premium for the

benefit unless the

[[Page 34988]]

benefit is offered as an additional benefit. The Act contains two

mentions of the term ``point of service'' as it relates to M+C plans.

Section 1851(a)(1)(A) states that an HMO may include a POS option, and

section 1852(c)(1)(C), requires disclosure to enrollees of ``any point-

of-service option (including the supplemental premium for such

option).'' Therefore, the Act indicates that HMOs could offer POS

products, and that there could be a supplemental enrollee premium for

such a product.

We currently permit HMOs and CMPs to offer POS products. There is

no specific statutory reference to such a product in section 1876; the

statutory basis for allowing Medicare HMOs to provide POS products lies

in the additional and supplemental benefit offerings an HMO may have

under section 1876. We believe that under the structure of the M+C

program, any coordinated care plan or network M+C MSA plan may offer a

POS product.

The regulations at Sec. 422.105 governing the POS benefit are

largely a restatement of our previously issued guidelines. In issuing

the guidelines, we were particularly concerned with assuring the

continued accessibility and availability of medically necessary care

within the Medicare plan's approved network. We also emphasized that

organizations are responsible for: members' continuity of care;

ensuring beneficiaries are fully informed about how the POS benefit

would be implemented; and the potential financial liability of the

individual. We also required organizations to provide data to us about

the POS benefit, including expenditures and levels of POS utilization,

and the effect on the financial status of the organization. Moreover,

the guidelines required the plans to maintain a record-keeping system

to make information on utilization of the POS benefit available to plan

providers. These previous operational policy requirements are carried

over into Sec. 422.105.

There are some changes in Sec. 422.105 to the guidelines we issued

under section 1876, however. One has to do with POS coverage available

for in-network items and services. Under the guidelines, we permitted

HMOs and CMPs to include network providers who could be paid through

the POS option. These regulations eliminate that option. Additionally,

under Sec. 422.105, we will now require plans to place a cap on a

beneficiary's total annual financial liability under a POS benefit. In

another change, we are eliminating separate solvency standards for POS

products. Each of these changes is discussed below.

Although HCFA guidelines did permit a Medicare beneficiary to use a

POS option to seek, for example, ``direct access'' to a specialist

within the plan's network, and thereby avoid any prior authorization

requirement or other plan rules relating to access to particular

providers, we believe such a feature of a POS option is inconsistent

with the concept of a network plan and not a desirable feature of a POS

option. The basic access and availability requirements both of sections

1876 and 1852(d) require that benefits be made available, through

providers selected by the M+C organization, in a manner that ensures

availability, accessibility and continuity of care. If the care an

individual seeks from a network provider is necessary care, the

individual should be able to obtain that care through the network,

following network rules. Although the enrollee might not receive

treatment from the particular provider he or she prefers, the

organization and its contractors are obligated to make covered services

available to all enrollees through network providers. We do not believe

it is appropriate to use the POS benefit to circumvent network rules.

In Sec. 422.105 we also specify that an M+C organization offering a

POS benefit establish an annual limit on a beneficiary's maximum

financial liability when using a POS benefit. We require a financial

limit to alert beneficiaries to their maximum potential financial

liability in using their POS benefit. We consider it a critical part of

beneficiary information that enrollees are clearly informed about all

of their potential costs when enrolling in an M+C plan.

Another change from existing policy in Sec. 422.105 is the

elimination of the additional solvency requirements that have been

imposed under the POS guidelines (though reporting requirements

relating to solvency remain). The Act gives the States primary

responsibility for setting and enforcing solvency standards for M+C

plans (other than a provider-sponsored organization with a waiver of

the State licensure requirement), and our imposition of additional

solvency requirements on POS products is inconsistent with the States'

responsibility. (In fact, because of solvency concerns, many States

require licensure as an indemnity insurer if an HMO wishes to offer a

POS product.) We will continue to require M+C organizations to comply

with this reporting requirement, as was the case with Medicare

contractors under section 1876. This reporting requirement is not

superseded by the Act's preemption provision relating to benefits in

section 1856(b)(3)(B).

5. Special Arrangements With Employer Groups (Sec. 422.106)

An M+C organization may negotiate with an employer group to provide

benefits to Medicare members of the employer group who are enrolled in

an M+C plan offered by the organization and these benefits must be

provided uniformly to members of the group. While these negotiated

employer group benefits may be designed to complement benefits

available to Medicare beneficiaries enrolled in the plan, they are

offered by the employer group independently as the product of private

negotiation. These benefits may include contributions on the employee

group member's behalf toward M+C plan premiums or cost-sharing for

which the Medicare eligible group member is responsible, or benefits

not covered by the M+C plan, for which premiums and cost-sharing may be

charged. We do not review such employer group benefits, premiums, or

cost-sharing amounts.

6. Medicare Secondary Payer (MSP) Procedures (Sec. 422.108)

As specified in section 1852(a)(4), if a Medicare enrollee receives

covered items and services from an M+C organization for which the

enrollee is entitled to benefits under a State or Federal workers'

compensation law or plan, any no-fault insurance, or any liability

insurance policy or plan (including a self-insured plan), the M+C

organization may charge the insurance carrier, employer or other entity

that is responsible to pay for the provision of those items and

services. The M+C organization may also charge the Medicare enrollee to

the extent that the enrollee has been paid by the carrier, employer, or

other entity for those items and services. In addition, an M+C

organization may charge a group health plan or large group health plan

for items and services for which Medicare is a secondary payor.

In this area, pursuant to section 1856(b) (1) and (2), we are

retaining for M+C organizations the requirements that applied to HMOs

and CMPs under part 417.

7. Effect of National Coverage Determinations (NCDs) (Sec. 422.109)

This provision implements section 1852(a)(5). Under this rule, M+C

organizations are not required to assume risk for the costs of certain

``significant cost'' NCDs until an adjustment has

[[Page 34989]]

been made in the per capita rate to reflect the NCD. A national

coverage determination is a national policy statement regarding the

coverage status of a specified service that HCFA makes as a program

memorandum or manual instruction. The term does not include coverage

changes mandated by statute. Past NCDs have included items such as

heart transplants.

On February 22, 1994 HCFA published a notice of proposed rule

making (NPRM) to define ``significant cost'' and other requirements for

NCDs as they applied to section 1876 risk contracting plans. With one

exception discussed below, we are including in this rule the policies

included in the February 22, 1994 proposed rule. For example, we have

maintained the definition of ``significant cost'' as $100,000 for a

single NCD service for calendar years 1998 and 1999. We are providing

for an automatic adjustment of a single service threshold amount to

reflect rising costs, and will adjust the dollar threshold by the

national per capita growth percentage used to calculate the annual

capitation rates to pay M+C organizations. We are also providing an

alternative definition for lower cost services that will affect a large

number of beneficiaries. For the cost of all of the services furnished

nationwide as a result of a particular NCD, we have redefined

significant cost as 0.1 percent of the national standardized annual

capitation rate (which is used in calculating the annual capitation

rates used to pay M+C organizations) multiplied by the total number of

Medicare beneficiaries nationwide for the applicable calendar year.

This rule also describes how the NCD will be provided to M+C plan

enrollees during the period the M+C organization is not at risk for the

new or expanded benefit established by the NCD, including procedures to

pay M+C organizations and the policies affecting beneficiary liability.

It is in this area that this rule differs from the February 22, 1994

proposed rule. That proposed rule reflected the NCD provision that

applied to HMOs with risk contracts under section 1876. There is one

key difference between the NCD provision in section 1876 and the NCD

provision under the new M+C. Like the new NCD provision in section

1852(a)(5), section 1876(c)(2)(B) provided that services required under

certain mid-year NCDs were excluded from risk contracts until the first

year in which payment for the services is reflected in capitation

payments. However, under Section 1876(a)(6), original Medicare coverage

of such NCD services was identified as an exception to the rule that

only the risk-contracting HMO could receive Medicare payment on behalf

of one of its enrollees. Therefore, an HMO enrollee was not required to

receive NCD services excluded from the HMO's contract through the HMO,

and could receive the services either from the HMO or from any other

Medicare provider, and Medicare would pay. This was reflected in the

February 2, 1994 proposed rule.

Under the M+C program, however, there is no similar exception for

excluded NCD services providing that only an M+C organization may be

paid by Medicare on behalf of an enrollee in an M+C pla

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