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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3AE9-24756

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** October 22, 2009
- **Citation:** 74 FR 54634

## Text

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 417, 422, 423, and 480
[CMS-4085-P]
RIN 0938-AP77
Medicare Program; Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

We are proposing revisions to the Medicare Advantage (MA) program (Part C) and prescription drug benefit program (Part D) based on our continued experience in the administration of the Part C and D programs. The proposed revisions clarify various program participation requirements; specify changes to strengthen beneficiary protections; ensure that plan offerings to beneficiaries include meaningful differences; improve plan payment rules and processes; and implement new policy such as a Part D formulary policy.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. Eastern Standard Time (EST) on December 8, 2009.

ADDRESSES:

In commenting, please refer to file code CMS-4085-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1.
Electronically.
You may submit electronic comments on this regulation to
http://www.regulations.gov.
Follow the instructions under the “More Search Options” tab.

2.
By regular mail.
You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services,
Attention:
CMS-4085-P, P.O. Box 8013, Baltimore, MD 21244-8013.

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

3.
By express or overnight mail.
You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services,
Attention:
CMS-4085-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.
By hand or courier.
If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201.

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

b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

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

Submission of comments on paperwork requirements.
You may submit comments on this document's paperwork requirements by following the instructions at the end of the “Collection of Information Requirements” section in this document.

For information on viewing public comments,
see
the beginning of the
SUPPLEMENTARY INFORMATION
section.

FOR FURTHER INFORMATION CONTACT:

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

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

Chris Eisenberg, (410) 786-5509, Risk adjustment data validation issues.

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

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

Christine Reinhard, (410) 786-2987, Part C and D compliance and sanction issues.

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

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:
All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:
http://www.regulations.gov.
Follow the search instructions on that Web site to view public comments.

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

Table of Contents

I. Background

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

B. History and Overview

II. Provisions of the Proposed Regulation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B. Changes To Strengthen Beneficiary Protections

1. Broker and Agent Requirements Under Parts C and D

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

C. Changes To Provide Plan Offerings With Meaningful Differences

1. Bid Submissions—Ensuring Significant Differences (§ 422.254 and § 423.265)

2. Bid Review Process (§ 422.256 and § 423.272)

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

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

D. Changes To Improve Payment Rules and Processes

1. Risk Adjustment Data Validation Appeals (§ 422.310)

a. Background

b. Risk Adjustment Data Validation Initiatives

c. RADV Error Rate Calculation Disputes and Reconsiderations

d. Proposed Addition of Medicare Advantage Organization Risk Adjustment Data Validation-Dispute and Appeals Procedures

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

3. Determination of Acceptable Administrative Cost by Cost Contract and Health Care Prepayment Plans (§ 417.564)

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

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

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

a. Quality Improvement Programs

b. New Quality Measures

c. Use of Quality Improvement Organization Review Information

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

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

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

F. Changes To Implement New Policy

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

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

G. Changes To Clarify Various Program Participation Requirements

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

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

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

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

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

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

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

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

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

10. Expediting Certain Coverage Determinations (§ 423.570)

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

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

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

14. Appeals Processes for Contract Determinations, Intermediate Sanctions, and Civil Money Penalties

a. Contract Determinations (§ 417.492 and 417.494)

b. Civil Money Penalties (§ 417.500)

c. Intermediate Sanctions (§ 417.500)

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

a. Definitions Concerning Marketing Materials (§ 422.2260)

b. Review and Distribution of Marketing Materials (§ 422.2262)

c. Guidelines for CMS Review (§ 422.2264)

d. Deemed Approval (§ 422.2266)

e. Standards for MA Organization Marketing (§ 422.2268)

f. Licensing of Marketing Representatives and Confirmation of Marketing Resources (§ 422.2272)

g. Broker and Agent Requirements (§ 422.2274)

H. Changes To Implement Corrections and Other Technical Changes

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

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

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

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

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

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

III. Collection of Information Requirements

A. ICRs Regarding Basic Contract Requirements (§ 417.472)

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

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

D. ICRs Regarding Disclosure Requirements (§ 422.111)

E. ICRs Regarding Quality Improvement Program (§ 422.152)

F. ICRs Regarding RADV Audit Dispute and Appeal Processes (§ 422.311)

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

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

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

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

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

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

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

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

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

P. ICRs Regarding Consumer Satisfaction Surveys (§ 423.156)

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

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

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

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

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

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

W. Annual Information Collection Burden

IV. Response to Public Comments

V. Regulatory Impact Analysis

A. Overall Impact

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

C. Expected Benefits

D. Analysis by Provision

E. Anticipated Effects

1. Effects of Cap on Out-of-Pocket Costs and Cost Sharing Amounts

2. Alternatives Considered

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

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

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

d. Right for CMS To Require an Independent Audit of Sponsoring Organizations Under Intermediate Sanction

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

f. Section 176 of MIPPA—Formulary and Protected Classes Requirements (Part D)

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

h. Validation of Part C and Part D Reporting Requirements

F. Accounting Statement

G. Conclusion

Regulations Text

Acronyms

AO Accrediting Organization

ADS Automatic Dispensing System

AEP Annual Enrollment Period

AHFS-DI American Hospital Formulary Service

AHFS-DI American Hospital Formulary Service-Drug Information

AHRQ Agency for Health Care Research and Quality

ALJ Administrative Law Judge

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

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

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

CAHPS Consumer Assessment Health Providers Survey

CAP Corrective Action Plan

CCIP Chronic Care Improvement Program

CMR Comprehensive Medical Review

CMP Civil Money Penalties

CMR Comprehensive Medical Review

CMS Centers for Medicare & Medicaid Services

CMS-HCC CMS Hierarchal Condition Category

CTM Complaints Tracking Module

COB Coordination of Benefits

CORF Comprehensive Outpatient Rehabilitation Facility

CY Calendar year

DOL U.S. Department of Labor

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

EGWP Employer Group/Union-Sponsored Waiver Plan

EOB Explanation of Benefits

ESRD End-stage renal disease

FACA Federal Advisory Committee Act

FDA Food and Drug Administration (HHS)

FEHBP Federal Employees Health Benefits Plan

FFS Fee-For-Service

FY Fiscal year

GAO Government Accountability Office

HCPP Health Care Prepayment Plans

HEDIS HealthCare Effectiveness Data and Information Set

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

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

HMO Health Maintenance Organization

HOS Health Outcome Survey

HPMS Health Plan Management System

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

ICEP Initial Coverage Enrollment Period

ICL Initial Coverage Limit

ICR Information Collection Requirement

LEP Late Enrollment Penalty

LIS Low Income Subsidy

LTC Long Term Care

LTCF Long Term Care Facility

MA Medicare Advantage

MAAA American Academy of Actuaries

MAO Medicare Advantage Operations

MA-PD Medicare Advantage-Prescription Drug Plans

M+C Medicare+Choice program

MPDPF Medicare Prescription Drug Plan Finder

MIPPA Medicare Improvements for Patients and Providers Act of 2008

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

MSA Metropolitan Statistical Area

MSAs Medical Savings Accounts

MSP Medicare Secondary Payer

MTM Medication Therapy Management

MTMP Medication Therapy Management Programs

NAIC National Association Insurance Commissioners

NCPDP National Council for Prescription Drug Programs

NGC National Guideline Clearinghouse

NIH National Institutes of Health

NOMNC Notice of Medicare Non-coverage

OEP Open Enrollment Period

OIG Office of Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management

OTC Over the Counter

PART C Medicare Advantage

PART D Medicare Prescription Drug Benefit Programs

PBM Pharmacy Benefit Manager

PDE Prescription Drug Event

PDP Prescription drug plan

PFFS Private Fee For Service Plan

POS Point of Service

PPO Preferred Provider Organization

PPS Prospective Payment System

P&T Pharmacy & Therapeutics

QIO Quality Improvement Organization

QRS Quality Review Study

PACE Programs of All Inclusive Care for the Elderly

RAPS Risk Adjustment Payment System

RADV Risk Adjustment Data Validation

SCHIP State Children's Health Insurance Programs

SEP Special Enrollment Periods

SHIP State Health Insurance Assistance Programs

SNF Skilled Nursing Facility

SNP Special Needs Plan

SPAP State Pharmaceutical Assistance Programs

SSI Supplemental Security Income

TrOOP True Out Of Pocket

U&C Usual and Customary

USP U.S. Pharmacopoeia

I. Background

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

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

The MMA also directed implementation of the prescription drug benefit and revised MA program provisions effective January 1, 2006. The final rules for the MA and Part D prescription drug programs appeared in the
Federal Register
on January 28, 2005 (70 FR 4588-4741 and 70 FR 4194-4585, respectively). Many of the provisions relating to applications, marketing, contracts, and the new bidding process for the MA program became effective on March 22, 2005, 60 days after publication of the rule, so that the requirements for both programs could be implemented by January 1, 2006. All of the provisions regarding the new Part D prescription drug program became effective on March 22, 2005.

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

Under this proposed rule, we have identified additional programmatic and operational changes (outlined below) that we believe are needed in order to further improve our oversight and management of the Part C and D programs and to further improve beneficiary experience under MA or Part D plans.

B. History and Overview

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

As noted previously, the MMA was enacted on December 8, 2003. Title I of the MMA added a new “Part D” to the Medicare statute (sections 1860D-1 through 42 of the Act) creating the Medicare Prescription Drug Benefit Program, one of the most significant changes to the Medicare program since its inception in 1965. Sections 201 through 241 of Title II of the MMA made significant changes to the M+C program. Title II of the MMA renamed the M+C program as the MA program and included new payment and bidding provisions, new regional MA plans and special needs plans, reestablished authority for medical savings account (MSA) plans that had been provided in the BBA on a temporary basis, addressed private fee-for-service plans, and made other changes. Title I of the MMA created prescription drug benefits under Medicare Part D, and a new retiree drug subsidy program.

Both the MA and prescription drug benefit regulations were published separately, as proposed and final rules, though their development and publication were closely coordinated. On August 3, 2004, we published in the
Federal Register
proposed rules for the MA program (69 FR 46866 through 46977) and the prescription drug benefit program (69 FR 46632 through 46863). In response to public comments on the proposed rules, we made several revisions to the proposed policies for both programs. For further discussion of these revisions, see the respective final rules (70 FR 4588 through 4741) and (70 FR 4194 through 4585).

Also as noted above, MIPPA was enacted on July 15, 2008, which addressed a number of provisions impacting the Part C and D programs, including provisions impacting marketing under both programs. In the September 18, 2008
Federal Register
(73 FR 54208), we published a final rule that finalized certain marketing provisions, effective October 1, 2008, that paralleled provisions in MIPPA. In the same issue of the
Federal Register
(73 FR 54226), we published a separate interim final rule that addressed the other provisions of MIPPA affecting the MA and Part D programs. We also clarified the MIPPA marketing provisions in a November 2008 interim final rule (73 FR 67407 and issued a separate interim final rule in January 2009 to address MIPPA provisions related to Part D plan formularies (74 FR 2881).

Now, with almost four years' experience behind us, we are proposing further revisions to these programs affecting both beneficiaries and sponsoring organizations.

When the MMA required that the Part D benefit afford each enrollee a minimum of two choices in each plan region, few if any envisioned the overwhelming response from the healthcare industry would result in most beneficiaries choosing among dozens of plans with various benefit packages. In the first few years of the Part D benefit, we believed this was on the whole a great success. More plans means more variation, competition and lower prices for Medicare beneficiaries choosing to enroll in a stand-alone prescription drug plan (PDP), or Medicare Advantage prescription drug plan (MA-PD). However, with so many plans to choose from many beneficiaries reportedly find the annual task of selecting one plan from so many overwhelming, and confusing. Moreover, we have found that, as

overseers of the Part C and D programs, organizations submitting bids to offer multiple plans have not consistently submitted plan benefit designs that were significantly different from each other, which can add to beneficiary confusion.

Since its inception in 2006, the Medicare Part D program has improved access to drug coverage for elderly and offered beneficiaries a wide range of plans from which to choose. At the same time, some have suggested that significant numbers of beneficiaries are confused by the array of choices and find it difficult to make enrollment decisions that are best for them. Many do not enroll in necessarily the lowest cost plan and many eligible individuals are not enrolled in the low-income subsidy program. Finally, once beneficiaries have chosen a plan and enrolled in it, they tend to remain in those plans, despite changes in medication use or premium increases.

We remain committed to considering changes in the way we administer the Part C and D programs to enable Medicare beneficiaries to choose the plan that best suits their needs. Among other proposals, we making following three specific proposals to simplify the program for beneficiaries:

• First, we propose to require sponsors to ensure that when they provide multiple plan offerings, those offerings sufficiently differ and thereby provide beneficiaries meaningful options (
see
section II. of this proposed rule);

• Second, we propose to eliminate plans with persistently low enrollments, since these can add complexity to choices without adding value (
see
section II.D. of this proposed rule);

• Third, we propose to require sponsors to use standardized “templates” in their beneficiary communication materials (for example, the Annual Notice of Changes (ANOC) and the Evidence of Coverage (EOC) notices), so that seniors can better understand how their current benefits and cost-sharing requirements will be changing and more easily compare their current plan with other plan options (
see
section II.B.3 of this proposed rule).

We believe that more can be done to structure choices for seniors to aid them in making better plan choices.
1 2

For example, studies

have suggested that providing personalized drug utilization and cost information to beneficiaries can encourage seniors to switch to plans that better meet their medication needs while reducing their overall costs.
3

Some have urged that the agency can do more to provide improved individual drug utilization and cost information to beneficiaries to encourage seniors to switch to lower-cost plans. Other studies have found that some beneficiaries are not fully aware of the financial implications of deferring enrollment in drug plans,
4

a finding that suggests that we could do more to make those implications more salient to beneficiaries. We invite comments on these possibilities and other improvements the agency can make, to help beneficiaries choose the plans that best suit their needs. We also invite comment on the type of research that might be undertaken to help inform future regulatory and programmatic improvements and how we can best support our partners, such as states, to assist them in helping beneficiaries enroll in the best possible plans. For example, we are interested in assessing the impacts of random auto-assignments on low-income beneficiaries. To the extent that States are interested in exploring non-random assignment methods, we invite comment on what type of information States would find most beneficial, including the types of data analyses we could potentially undertake with the data we already have from States who utilize non-random assignment methods.

1
McFadden D (2006). Free Markets and Fettered Consumers. The American Economic Review 96(1), 5-29

2
Hanock Y, Rice T, Cummings J, Wood S (2009). How Much Choice is Too Much? The Case of the Medicare Prescription Drug Benefit. Health Services Research 44:4; 1157-1168.

3
See, for example, Wrobel MV, Kling J, Mullainathan S, Shafir E, Vermeulen L (2009). A Shot in the Arm for Medicare Part D: Four Ways for the Government to Boost its Customer Communications.
http://www.brookings.edu/papers/2008//media/Files/rc/papers/2008/1120_medicare_kling/1120_medicare_kling.pdf.

4
Hargrave E, Piya B, Hoadley J, Summer L, Thompson J (2008). Experiences Obtaining Drugs under Part D: Focus Groups with Beneficiaries, Physicians, and Pharmacists. Final Report Submitted to the Medicare Payment Advisory Commission. National Opinion Research Center.

We also have found that in certain cases, we have been limited by existing program rules and regulations to implement actions that would improve sponsoring organization performance. Toward this end, we propose provisions that would limit the number of plan offerings by eliminating duplicative bids, and strengthen our program participation requirements.

We are proposing a number of additional provisions aimed at strengthening existing beneficiary protections. For example, we propose to strengthen plan transition process requirements to ensure maximum transparency regarding our expectations of Part D plans with respect to enrollees transitioning to the plan from other drug coverage and to ensure that current subregulatory practices are codified in regulation.

We are also proposing another set of provisions that are aimed at improving payment rules and processes, and improving data collection for oversight and quality assessment. For example, we are proposing to expand the collection of prescription drug event data that we currently collect for research and other non-payment related purposes. Collecting these additional data, which are currently collected for payment purposes, would provide us additional information to conduct analyses that may be used to improve policies and assist in monitoring of Part D plan sponsors.

In addition, we are proposing significant new Part D policy in this rule. For example, in the area of Part D formulary policy, we propose a regulatory interpretation of MIPPA protected drug categories and classes provision in section 176 of MIPPA (Pub. L. 110-275) that we previously addressed in a January 19, 2009 interim final rule with comment period (IFC). Based on comments received in response to that IFC, we believe that interpretation of statutory terms is needed. In addition, we believe that additional clarification is needed relative to the process that we intend to utilize to identify the protected categories and classes of drugs that must be listed on all Part D plan formularies.

Finally, we propose other provisions that are aimed at further clarifying existing policy and we make technical corrections where needed. For example, in some cases, we are addressing topic areas that were included in our 2010 call letter to Part C and D plans, the document that outlines policy clarifications and reminders for plans bidding on plan offerings in the coming contract cycle. In the spirit of transparency, we have outlined some of these clarifications within this rule so to ensure the public has a full opportunity to comment on our policies.

II. Provisions of the Proposed Regulations

In the sections that follow, we discuss the proposed changes to the regulations in 42 CFR parts 417, 422, 423, and 480 governing the MA and prescription drug benefit programs. To better frame the discussion of the specific regulatory provisions we are proposing, we have structured the preamble narrative by topic area rather than by subpart order. Accordingly, our proposals address the following eight specific goals as foreshadowed in the preceding introduction:

• Strengthening our ability to distinguish for approval strong applicants for MMA participation and remove consistently poor performers.

• Strengthening beneficiary protections.

• Providing plan offerings with sufficient enrollment and meaningful differences.

• Improving payment rules and processes.

• Improving data collection for oversight and quality assessment.

• Implementing other new policies.

• Clarifying various sponsor program participation requirements.

• Implementing corrections and other technical changes.

Several of the proposed revisions and clarifications affect both programs. Within each section, we have provided a chart listing all subject areas that contain provisions affecting the Part C and D programs and the associated regulatory citations that would be revised. Please note that in our discussion of these provisions, we often refer to “sponsoring organizations” to refer to both Medicare Advantage organizations (MAOs) and Part D sponsors.

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

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

As our understanding of Part C and D program operations has deepened over the past 4 years, our use of our authority to determine which organizations are qualified to offer MA and PDP sponsor contracts, evaluate their compliance with Part C and D requirements, and make determinations concerning intermediate sanctions, contract nonrenewals and contract terminations has evolved as well. As set forth below, we are proposing changes and clarifications to our regulations to make certain that all current and potential MAOs and PDP sponsors clearly understand and can reasonably anticipate how we measure sponsor performance, determine when there is noncompliance, and when enforcement actions are warranted. While we are pleased that so many organizations have elected to participate in the Part C and D programs, we have an obligation to ensure that only appropriate organizations are given the responsibility for providing quality medical care and drug coverage to Medicare beneficiaries.

Each year, since contract year 2006, we have solicited applications from organizations seeking to become qualified to enter into Part C or D sponsor contracts. We received hundreds of applications in each of those years. To properly manage a workload of that size, and to ensure that we conduct a fair review of every application, we have adopted an increasingly standardized, computer-based application submission process. At the same time, we have also become increasingly strict in the application of our regulatory authority to limit the number and timing of opportunities for applicants to resubmit materials to cure applications that do not initially demonstrate that the applicant meets Part C or D requirements.

Until 2 years ago, applicants may have found that we would accept as many corrected submissions as the applicants needed to make their materials (usually documents concerning provider/pharmacy networks, subcontracting arrangements, or risk-bearing licenses) consistent with Part C or D requirements. We recognized that this was an inefficient process that afforded some applicants the opportunity to make more re-submissions than others and arguably enabled less well-prepared and qualified applicants to enter the program. To improve the fairness of the application process, and to reduce the burden it imposes on applicants and CMS alike, we have, through our application instructions issued over the last 3 years, clarified to all applicants that we will only provide three opportunities to submit an approvable contract qualification application to CMS: The initial solicitation response, one courtesy opportunity to correct any identified deficiencies, and a final opportunity during the 10-day cure period provided for specifically in the regulations.

Some organizations have expressed surprise during the last 2 years at our use of our authority to impose strict deadlines and standards of review on applications for qualification as an MAO or PDP sponsor. To reduce the opportunity for confusion about the application process, we are proposing some regulatory clarifications in furtherance of our goal of using a fair and efficient process for ensuring that only truly qualified organizations are offered Part C or D organization contracts. These provisions, described in greater detail below, include requiring applicants to demonstrate that they meet all (not a substantial number) of the Part C and D program requirements, prohibiting applicants from submitting additional curing materials after the expiration of the ten-day period following their receipt of a notice of intent to deny their application, and requiring applicants to submit a nonbinding notice of intent to apply for a Part C or D contract.

Organizations should be aware that we will continue to exercise our authority to consider an organization's past Part C or D contract performance in evaluating whether it should be afforded the opportunity to obtain additional contracts or to serve a larger portion of the Medicare beneficiary population. Additionally, sponsoring organizations should be aware that we rely on data to evaluate compliance with program requirements in a number of ways. For example, we use data to evaluate adherence to requirements in the MMA statute or the Part C and D regulations (for example, retail pharmacy access). We also use data to evaluate adherence to the requirements outlined in our manual chapters and other guidance (for example, customer and provider call center performance standards). Finally, we conduct outlier analysis by comparing the performance across all organizations on a particular Part C or D requirement to identify organizations that appear to be poor performers. The most notable example of this kind of analysis is reflected in our performance metrics (that is, the Medicare Part D Plan Ratings). These ratings represent an effort to make additional information available to the public regarding the price and quality of services for which Medicare makes payments. The Plan

Ratings are located on the Medicare Prescription Drug Plan Finder (MPDPF) Tool at (
http://www.Medicare.gov
) and are designed to provide a clear differentiation of the various Plan offerings to beneficiaries. Organizations receiving less than “good” ratings in any category should anticipate communication from us. Another example is our review of data in the Complaints Tracking Module (CTM), which can be a particularly strong indicator of a sponsor's inability to perform a required Part C or D function. An abnormally high complaint rate for a particular sponsor will likely prompt us to investigate other sources of information to determine whether the organization is complying with specific Part C or D requirements.

Our efforts are aimed at making certain that we have well-functioning MAOs and PDP sponsors administering Part C and D benefits on our behalf. Just as we have become more sophisticated in our analysis of sponsor applications and compliance, we also continue to review our sanction and contract termination authority to ensure that we pursue actions when there is sufficient basis to support them. For example, we have developed an annual process for analyzing sponsor performance during the preceding contract year. We review each sponsor's compliance history, including CMS-issued compliance notices, audit results, and performance ratings (for example, star ratings) to develop a full picture of that sponsor's ability to deliver Part C and D services to its members. If that picture indicates that a particular sponsor has a significant pattern of poor performance or even isolated incidences of noncompliance with crucial operational requirements (for example, enrollment processing), we will consider termination or nonrenewal of the contract of that sponsor.

With the clarifications we are proposing to the Part C and D regulations through this proposed rule and the background provided in this preamble section, MAOs and PDP sponsors should now be fully aware that we will continue to apply stricter scrutiny to sponsor qualifications and contract performance as our analytical capabilities and understanding of industry best practices improves. As the Part C and D programs have now reached a certain level of maturity and organizations' strong interest in participating in the programs has been established, it is appropriate for us to use the authority and evidence at our disposal to make certain that beneficiary plan choices are characterized more by their quality than their quantity. These provisions are described in detail in Table 1.

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

Provision
Part 422
Subpart
Section
Part 423
Subpart
Section

Notice of Intent to Apply
Subpart K
§ 422.501
Subpart K
§ 423.502.

Application Standards
Subpart K
§ 422.502
Subpart K
§ 423.503.

Compliance Measures/Analysis
Subpart K
§ 422.502
Subpart K
§ 423.503.

Compliance Programs
Subpart K
§ 422.503(b)(4)(vi)
Subpart K
§ 423.504(b)(4)(vi).

Network Adequacy of Coordinated Care and Network-Based Private-Fee-For-Service plans under Part C
Subpart C
§ 422.112
N/A
N/A.

Clarify programmatic elements that are “deemable”
Subpart D
§ 422.156(b)(7), § 422.156(f)
Subpart D
§ 423.165(b), § 423.165(f).

Procedures for termination and Nonrenewals: Part C and D
Subpart K
§ 422.510(c)(1), § 422.506(b)(3)
Subpart K
§ 423.509(c)(1), § 423.507(b)(3).

Intermediate Sanctions: Procedures for imposing civil and money penalties
Subpart O
§ 422.756
Subpart O
§ 423.756.

Contract Termination
Subpart K
§ 422.510(a)
Subpart K
§ 423.509(a).

Proper request for hearings
Subpart N
§ 422.662
Subpart N
§ 423.651.

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

Postponement of effective date of determination when a request is being filed
Subpart N
§ 422.664
Subpart N
§ 423.652.

Extending timeframe for contract determination hearings
Subpart N
§ 422.670
Subpart N
§ 423.655.

Appeal times: Require each party provide witness list and documents 5 calendar days before hearing
Subpart N
§ 422.682
Subpart N
§ 423.661.

Appeal times: Require request for a review by the administrator must be received with 15 days after receipt of hearing decision
Subpart N
§ 422.692(a)
Subpart N
§ 423.666(a).

Contract redeterminations and reopening
Subpart N
§ 422.696
Subpart N
§ 423.668.

Mutual termination of contract
Subpart K
§ 422.503(b)(6)
Subpart K
§ 423.504(b)(5).

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

Subpart K of part 422 and subpart K of part 423 set forth the requirements for contracts with MA Organizations and Part D sponsors including application procedures. Section 1871(a)(1) of the Act authorizes us to prescribe such regulations as may be necessary to carry out the administration of the Medicare program. We propose using that authority to establish an administrative requirement for both the Part C and D programs related to the submission to us of applications to qualify as MA and PDP sponsor contractors.

Beginning with the applications for the 2009 contract year, the Medicare Advantage, Part D Prescription Drug benefit, and Employer/Union-Only Group Waiver Plan (Direct Contract or “800 Series”) sponsor applications are

submitted via a paperless process. Each application is completed through the CMS Health Plan Management System (HPMS). As a result of the fully electronic submission process and restrictions on access to HPMS, every applicant must complete a Notice of Intent to Apply as described in the HPMS memo dated October 10, 2008. This includes current contractors seeking to expand their organization's service area, and current contractors adding a Special Needs Plan (SNP) or an Employer Group/Union-Sponsored Waiver Plan (EGWP) to their existing contract.

The Notice of Intent to Apply provides us with critical information for generating a pending contract number and providing User ID connectivity. Submitting a Notice of Intent to Apply does not bind that organization to submit an application for the following year. However, without a pending contract number and completed CMS User ID connectivity, an organization will not be able to access the appropriate modules in HPMS to complete the application materials. We propose codifying in § 422.501 and § 423.502 our existing guidance that initial applicants and existing contractors seeking to expand complete a nonbinding Notice of Intent to Apply.

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

Subpart K of Part 422 and subpart K of Part 423 set forth the requirements for contracts with MA organizations and Part D sponsors, respectively, including application procedures. Section 1860D-12(b)(3) of the Act states that we must apply certain specified provisions of section 1857 of the Act including the procedures for termination in section 1857(h) of the Act in the same manner as they apply to contracts under section 1857(a) of the Act. Therefore, we are making a single proposal that applies to both MA organizations and Part D sponsors related to our application evaluation procedures and appeals of our determinations regarding applications.

During the first four years of the Medicare Advantage and Part D programs, several unsuccessful applicants contested our denial of their applications for MA organization or Part D sponsor contracts. At hearings, some of those applicants were successful in arguing that the regulations were not clear in stating that an applicant needed to demonstrate that it met all program requirements to qualify for a contract. Accordingly, we are proposing to revise § 422.502 and § 423.503 to make it explicit that we will approve only those applications that demonstrate that they meet all (not substantially all) Part C and D program requirements.

The application requirements and evaluation and determination procedures for MA organizations and Part D sponsors are set forth in subpart K of Parts 422 and 423, respectively. The application process in each instance requires an applicant to submit for CMS review a combination of attestations that it will comply with stated program requirements, as well as contracts with organizations the applicant has contracted with to perform key Part C or D functions, evidence of the applicant's risk-bearing licenses, and data documenting that the applicant can provide its members access to Part C and D services consistent with the programs' requirements. As we have proposed to clarify at § 422.501(c)(1) and (2), § 422.502(a)(2), § 423.502(c)(1) and (2), and § 423.503(a)(2), we require that applicants demonstrate that they meet all requirements outlined in the MA organization and Part D sponsor applications.

Under the current regulations at § 422.502(a)(1) and § 423.503 (a)(1), we evaluate an entity's application on the basis of information contained in the application itself and any additional information that we obtain through onsite visits, publicly available information, and any other appropriate procedures. We propose to simplify and clarify the process by modifying § 422.502(a)(1) and § 423.503(a)(1) and limiting the evaluation of an entity's application to information contained in the application and any additional information that we obtain through onsite visits. Limiting our review to this information ensures that we will afford all applicants (numbering in the hundreds each of the last four years) a fair and consistent review of their qualifications. Organizations can be assured that we will not consider additional sources of information regarding one applicant's qualifications that we do not consider for others.

We are also proposing a clarification of our authority to decline to consider application materials submitted after the expiration of the 10-day period following our issuance of a notice of intent to deny an organization's contract qualification application. Under § 422.502(c) and § 423.503(c), we notify applicants of our determination on the application and the basis for the determination. If the applicant does not appear qualified to contract as an MA organization or Part D sponsor and has not provided enough information to permit us to evaluate the application, the applicant receives a notice of intent to deny the application and a summary for the basis for the finding. As provided in § 422.502(c)(2) and § 423.503(c)(2), within 10 days from the date of the notice, the applicant can respond in writing to the issues or other matters that were the basis for our findings and revise its application to correct any deficiencies.

The purpose of the proposed regulatory change is to clarify that information submitted after 10 days from the notice will under no circumstances be reviewed for the purpose of approving an application. Further, consistent with the proposed revisions to § 422.650(b)(2) and § 423.660(b)(2), which are discussed elsewhere in this proposed rule, the applicant would not be permitted to submit additional revised application material to the Hearing Officer for review should the applicant elect to appeal the denial of its application. To allow for the submission and review of such information as part of the hearing would, in effect, extend the deadline for submitting an approvable application. Moreover, the proposed change would further clarify the standard for the disposition of applications for which either revisions are not provided within the 10 days or are inadequate.

Specifically, we propose to clarify § 422.502(c)(2) and § 423.503(c)(2) by adding a new paragraph (iii) to establish that if we do not receive a revised application within 10 days from the date of the intent to deny notice, or if after timely submission of a revised application the applicant still appears unqualified to contract as an MA organization or Part D sponsor and/or has not provided enough information to allow us to evaluate the application, we will deny the application.

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

As described in § 422.502(b) and § 423.503(b), we may deny an application based on the applicant's failure to comply with the terms of a prior contract with CMS even if the applicant currently meets all of the application requirements. However, we propose to modify § 422.502(b) and § 423.503(b) to state that we will review past performance across all of the contracts held by the applicant. The provision as currently drafted mentions a “prior contract” with CMS. Today,

contracts are “evergreen” and some organizations hold multiple MA and/or PDP sponsor contracts; therefore the concept of “prior contract” is outdated, as the prior performance issues could have occurred in any other contract currently or formerly held by an applicant. Therefore, we propose to revise the language in § 423.503(b) and § 422.502(b) to refer to “any current or prior contract” held by the organization, instead of the current language referring to a “previous year's contract.” We also propose to clarify that the period that will be examined for past performance problems be limited to those identified by us during the 14 months prior to the date by which organizations must submit contract qualification applications to CMS. Fourteen months covers the time period from the start of the previous contract year through the time that applications are received for the next contract year.

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

Additionally, as indicated by the changes to § 422.503(b), § 422.508(c), § 423.504(b), and § 423.508(e), we consider withdrawal of Part C or D operations from some or all of an organization's newly contracted service area prior to the start of a benefit year (through mutual termination or otherwise) an indication of poor performance. Such a situation can arise when, for example, an organization, after it has signed its Medicare contract for the upcoming program year, loses a contract with a significant number or type of providers, jeopardizing its ability to provide its members adequate access to services. Also, an organization may suddenly face financial difficulties that threaten its ability to offer the benefit packages approved by CMS throughout the upcoming contract year. In such instances, we could simply leave the contract in place and take enforcement actions against the organization. Under such an approach, we would knowingly be permitting beneficiaries to remain enrolled with an organization that cannot effectively deliver the benefit. Instead, we act(s) in the best interests of the beneficiaries by agreeing with the organization to terminate its contract and work(s) with the organization to make certain that beneficiaries receive uninterrupted access to Medicare services through another MA organization, PDP sponsor, or original Medicare. But for our acting to protect beneficiaries by agreeing to the contact termination, the organization would have faced significant compliance and enforcement actions once its failure to comply with program requirements became apparent. Also, the organization's failure to conduct the proper due diligence on its contracted provider network or its finances represents itself a significant failure to have in place the administrative capability to operate a Medicare benefit plan worthy of compliance and enforcement actions. Accordingly, we believe(s) it is appropriate to consider an organization's withdrawal from its contract prior to the start of the benefit year to be a strong indication of poor performance worthy of our consideration under § 422.750 and § 423.750.

We will review performance in accordance with these examples and other evidence of noncompliance, and will deny applications for initial contracts and service area expansions on the basis of noncompliant past performance. By specifically providing these examples and clarifying that we intend to exercise this authority, we believe that organizations will be motivated to enhance their compliance operations in order to avoid being out of compliance with program requirements, and this will significantly deter noncompliance leading to improved overall performance of organizations in the Part C and D programs.

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

Sections 1857(e)(1) and 1860D-12(b)(3)(D) of the Act provide broad authority for the Secretary to add terms to the contracts with MA and Part D sponsors including terms that require the sponsor to provide the Secretary “with such information * * * as the Secretary may find necessary and appropriate.” Under that authority, we established § 422.516 and § 423.514, Reporting Requirements. Consistent with sections 1857(a) and 1860D-12(b)(1) of the Act, we established that we will oversee an MA organization's and Part D sponsor's continued compliance with Part C and Part D requirements under § 422.502(d)(1) and § 423.503(d)(1).

Some of the data acquired through § 422.516 and § 423.514 are used for the purpose of monitoring an organization's or sponsor's continued compliance with MA and/or Part D requirements. For example, under § 423.514(a)(5), Part D sponsors must have an effective procedure to develop, compile, evaluate, and report to CMS particular matters, such as low income subsidy (LIS) contract data, that we require. At the contract level, the sponsor's LIS data is compared to our LIS data and a match rate is calculated. Under our guidance, the match rate between our data and the sponsor's should exceed 95 percent. Sponsors who fail to exceed the 95 percent match rate are notified of their noncompliance and are expected to come into compliance with Part D instructions. In some instances, we may use an outlier analysis to determine a MA organization's or Part D sponsor's performance relative to industry standards established by the performance of all the other organizations and sponsors as described earlier in the preamble in our discussion of the development of our policies concerning the awarding, monitoring, and enforcement of Medicare contracts. For example, Part D plans report grievance data to CMS. We conduct outlier analysis to identify plans with the highest numbers of reported grievances for the purpose of identifying plans needing some type of compliance action. To conduct these types of outlier analysis, we usually perform the following steps:

• Develop a data distribution—data values ordered from low to high.

• Determine the maximum and minimum data values.

• Determine the range (maximum-minimum).

• Determine the outlier threshold—When conducting an outlier analysis, we typically identify sponsors typically in the highest (or lowest) 5 percent of comparable sponsors (for example, compare PDPs to PDPs).

We also use the Performance Metrics (Plan Star Ratings), some of which are determined by relative ranking, for oversight and monitoring purposes to ensure plan quality. As stated in the 2009 Call Letter, organizations and sponsors with less than “good” ratings should expect to be the subject of our monitoring and compliance actions. Likewise, if after an analysis of data submitted under § 422.516 or § 423.514 an organization's or sponsor's performance is found to be an outlier based on relative ranking, the organization or sponsor may be considered out of compliance with MA and Part D requirements.

We propose to add paragraphs § 422.504(m)(1) and (2) and § 423.505(n)(1) and (2) to make explicit our existing authority to find organizations or sponsors out of compliance with MA and/or Part D requirements when the organization's or sponsor's performance fails to meet performance standards articulated in statutes, regulations, and guidance or when an organization's or sponsor's performance represents an outlier relative to the performance of other organizations or sponsors.

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

Section 1857(a) of the Act provides the Secretary with the authority to enter into contracts with MA organizations and section 1860D-12(b)(1) of the Act provides the Secretary with the authority to enter into contracts with PDP sponsors. The current regulatory provisions provide that any entity seeking to contract as an MA organization or PDPsponsor must have administrative and management arrangements satisfactory to us as demonstrated by (among other requirements) having a compliance plan that consists of seven basic elements. These seven elements of the compliance plan outline fundamental requirements such as written policies and procedures, a compliance officer and committee that is accountable to senior management, effective compliance training and communication, enforcement of disciplinary standards, and procedures for internal monitoring and auditing and ensuring prompt responses to detected offenses. In addition, a compliance plan must include measures to detect, correct, and prevent fraud, waste, and abuse.

Compliance programs have long been recognized as key to achieving adherence with contract requirements and to protecting against fraud, waste, and abuse. The recent focus on the importance of these programs has been heightened not only by CMS through our ongoing audit and oversight efforts but also by several of our oversight bodies. For example, over the last several years, the U.S. Department of Health and Human Services Office of Inspector General (OIG) and the Government Accountability Office (GAO) have each focused specific oversight efforts on MA organizations' and PDP sponsors' compliance programs and have requested that we take actions to evaluate and oversee these programs to ensure entities have effective programs in place. Similarly, like the Medicare Part C and D programs, other state programs, including the State of New York Medicaid program, now require effective compliance programs as a condition of participation.

Our recent experience is that some sponsoring organizations have instituted a compliance plan that appears to meet the minimum requirements of our regulations, but may not have an effective compliance program. Other sponsoring organizations seem to legitimately grapple with how best to implement the regulatory requirements within their organization and which particular actions on their part will meet our requirements.

We propose to stress the importance of sponsoring organization's implementing and maintaining robust compliance programs by modifying the language at § 422.503(b)(4)(vi) and § 423.504(b)(4)(vi) to explicitly provide clarification as to what will constitute an “effective” compliance program prior to contracting with CMS. We are also proposing to further clarify existing policy by modifying current language and/or adding language in support of each of the elements of an effective compliance plan in order to assist sponsoring organizations with implementing more effective compliance programs.

In the first element concerning the overall requirement to have written policies and procedures, we are proposing to further clarify existing policy by adding language at § 422.503(b)(4)(vi)(A) and § 423.504(b)(4)(vi)(A) that these policies must describe compliance expectations as embodied in the standards of conduct, implement the operations of the compliance program, provide guidance to others, identify how to communicate compliance issues to compliance personnel, describe how compliance issues are investigated and resolved and include a policy of non-intimidation and non-retaliation.

In the second element concerning the requirement to have a compliance officer and committee accountable to senior management, we are proposing to further clarify existing policy by adding language at § 422.503(b)(4)(vi)(B) and § 423.504(b)(4)(vi)(B) that the compliance officer and committee must periodically report directly to the governing body (for example, Board of Directors) and that body must be knowledgeable about the compliance program and exercise reasonable oversight over the implementation and effectiveness of the program. The governing body's direct involvement with and oversight of the compliance program is instrumental in fulfilling this requirement and achieving an effective compliance program. Our recent experience with some sponsoring organizations has indicated that Boards of Directors may not be sufficiently aware or may have limited information about their organization's compliance programs or compliance issues. In deciding how often the compliance officer and committee must directly report to the Board of Directors, sponsoring organizations must consider many factors, including but not limited to: the size of the organization, the number of compliance problems, whether there is an emergency that calls for the Board's attention, and whether the sponsoring organization is under an intermediate sanction. Our proposed language further clarifies existing policy related to this requirement for senior management to be sufficiently engaged, informed, and to exercise appropriate governance over the organization's compliance program.

In the third element concerning the requirement to have effective training and education, we are proposing to further clarify existing policy by adding language at § 422.503(b)(4)(vi)(C) and § 423.504(b)(4)(vi)(C) that includes several key groups and individuals (the chief executive or other senior administrator, managers, and governing body members) among the sponsoring organization's employees that are required to have compliance training and education. Because these employees have specific governing and oversight responsibilities, we believe it is important to clarify these requirements. We are proposing to further clarify existing policy by adding language that also clarifies that this training must occur at a minimum annually and must be made a part of the orientation for a new employee, new first tier, downstream and related entities, and new appointment to a chief executive, manager or governing body member.

In the December 5, 2007
Federal Register
, we published the “Medicare Program; Revisions to the Medicare Advantage and Part D Prescription Drug Contract Determinations, Appeals and Intermediate Sanctions Process” final rule (72 FR 68700). In the December 5, 2007 final rule, we established that compliance plans for sponsoring organizations must include training and education and effective lines of communication between the compliance officer and the sponsoring organization's employees, managers, and directors as well as their first tier, downstream, and related entities.

Since publication of the December 5, 2007 final rule, it has become apparent that application of training about fraud,

waste, and abuse to the MA organizations' first tier, downstream, and related entities may be redundant of the certification made when these entities submit enrollment applications to become Medicare physician and non-physician practitioners, institutional providers, and suppliers. Medicare practitioner enrollment applications require that applicants certify to having read and understood the Penalties for Falsifying Information contained in the application and that the applicant will not present or cause to present a false claim to Medicare. Section 422.204(b)(3) requires that basic benefits offered by MA organizations be offered through providers and suppliers who meet applicable requirements of Title XVIII and Part A of Title XI of the Act. Providers of services must have a provider agreement with us that permits them to provide services under original Medicare. Requiring an additional fraud, waste, and abuse certification as was clarified in the response to comments in the December 5, 2007 final rule imposes an additional unnecessary burden on these Medicare providers. Therefore, we are proposing to modify this paragraph to state that providers who have met this requirement through enrollment into the Medicare program are deemed to have met this training and education requirement. More specifically, we are proposing to clarify existing policy by adding language at § 422.503(b)(4)(vi)(C) specifying that MA organizations whose first tier, downstream, and related entities have met the fraud, waste and abuse certification requirements are deemed to have met the training and educational requirements for fraud, waste, and abuse. We are not proposing similar deeming language at § 423.504(b)(4)(vi)(C) because these certification requirements do not currently apply to Part D first tier, downstream, or related entities.

The current requirement for training in fraud, waste, and abuse of first tier, downstream, and related entities creates another potential problem. A particular pharmacy or other provider may contract with dozens of MA or PDP plans, each of which is required by the existing language, read literally, to provide the required training to the pharmacy, or other provider, and its staff. Clearly, we do not intend to require duplicative training. We therefore seek comment on whether or how best to rephrase the existing language to clarify this point, while still ensuring that our requirement is met with respect to each first tier, downstream, and related entity. One option might be that the plan sponsor “assures” or “obtain an assurance” that the first tier, downstream, and related entity has received such training, but this leaves open the issue of who would then actually provide the needed training. We understand that some plans are arranging fraud, waste, and abuse collaborative training efforts and we welcome this. Another option might be to leave existing language unchanged, but issue interpretive guidance on this point. We request workable suggestions to assure that our objective is met, while eliminating unnecessary duplication.

In the fourth element concerning the requirement to have effective lines of communication, we are proposing to further clarify existing policy by adding language at § 422.503(b)(4)(vi)(D) and § 423.504(b)(4)(vi)(D) that requires that these lines of communication are confidential and accessible to all and allow for compliance issues to be reported anonymously and in good faith as issues are identified.

In the fifth element concerning the requirement to have enforcement of standards through well-publicized disciplinary guidelines, we are proposing to further clarify existing policy by adding language at § 422.503(b)(4)(vi)(E) and § 423.504(b)(4)(vi)(E) that more specifically describes that these guidelines must be implemented to include policies that articulate expectations for reporting issues and their resolution, identify noncompliance or unethical behavior, and provide for timely, consistent and effective enforcement of the standards when noncompliance or unethical behavior is detected.

In the sixth element concerning the requirement to have procedures for internal monitoring and auditing, we are proposing to further clarify existing policy by modifying the current language at § 422.503(b)(4)(vi)(F) and § 423.504(b)(4)(vi)(F) to more specifically describe that an effective system for routine monitoring and identification of compliance risks includes internal monitoring and audits and, as appropriate, external audits, in order to evaluate the organization's compliance with our requirements and overall effectiveness of the compliance program. These audits should include the sponsoring organization's first tier entities.

In the seventh element concerning the requirement to have procedures for ensuring prompt response to detected offenses and development of CAPs, we are proposing to further clarify existing policy by modifying the current language at § 422.503(b)(4)(vi)(G) and § 423.504(b)(4)(vi)(G) to more specifically describe the implementation of a system for promptly responding to compliance issues as they are raised, investigating potential compliance problems identified in the course of self-evaluations and audits, correcting such problems promptly and thoroughly to reduce the potential for recurrence and ensuring ongoing compliance with our requirements.

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

Section 1852(d)(1)(A) of the Act establishes that an organization offering an MA plan may select the providers from whom the benefits under the plan are provided so long as the organization makes such benefits available and accessible to each individual electing the plan within the plan service area with reasonable promptness and in a manner which ensures continuity in the provision of benefits. The requirements of section 1852(d)(1)(A) of the Act are implemented at § 422.112(a)(1), which provides that a coordinated care plan must maintain a network of appropriate providers that is sufficient to provide adequate access to covered services to meet the needs of the population served.

To determine if a proposed health care delivery network of an MA plan adequately makes health care services available and accessible, it has been our practice when initially approving and when reviewing to compare the proposed network with the prevailing community patterns of health care delivery in the service area of the plan. We have also used as a rough benchmark a maximum access to providers of 30 minutes/30 miles. We would be interested in comments regarding our proposed criteria for developing standards for the network adequacy of MA plans. We are in the process of developing an automated system for reviewing network adequacy on a continuing basis based on the elements that we determine define community patterns of health care delivery. In this system, MAOs offering MA plans would submit data to us through the HPMS system specifying the access and availability of its proposed provider networks. This information would be analyzed and compared through electronic mapping software against our access standards for a given geographical area to confirm whether the proposed provider network meets our access and availability standards.

Given that we are developing this automated system, we believe it is

appropriate to more explicitly define how we determine network adequacy. To that end, we propose using our authority under section 1852(d)(1)(A) of the Act to include more specific criteria that we will apply in defining community patterns of care in order to determine if a network offered by an MA plan meets Medicare access and availability requirements. We also propose applying these more specific criteria to the proposed provider networks of both coordinated care and PFFS plans that are intending to meet Medicare access to services requirements, in whole or in part, through a network of direct contracting providers.

Our operational experience has demonstrated that the concept of community patterns of health care delivery provides a useful industry standard benchmark for measuring a proposed provider network because it allows for varying geographical and regional conditions to be taken into consideration. For example, plans operating in rural rather than urban counties will necessarily face different market conditions in terms of the number and specialties of providers available and their willingness to contract with the plan.

However, given the lack of specificity regarding how we determine if a given provider network meets Medicare access and availability requirements in § 422.112(a)(1) as currently drafted, we believe it is important to amend that section of our regulations to describe how we will include the elements of the prevailing community patterns of health care delivery in its evaluations of provider networks. We believe the proposed changes will make the standards of community patterns of care more transparent and consistent across the country. The proposed changes are consistent with the elements that will be used by the automated system we are developing to assess network adequacy.

Specifically, we propose to add paragraph (a)(10) to amend § 422.112 to specify the factors comprising community patterns of health care delivery that we will use as a benchmark in evaluating a proposed MA plan health care delivery network. Under proposed § 422.112(a)(10), these factors would include, but not be limited to—

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

• The prevailing market conditions in the service area of the MA plan. Specifically, the number and distribution of health care providers contracting with other health care plans (both commercial and Medicare) operating in the service area of the plan;

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

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

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

We plan to further define through subregulatory guidance (for example the Call Letter) how we will operationalize these provisions. For example, as previously noted, we have in the past used as a rough benchmark a maximum access to provider ratio of 30 minutes/30 miles to determine “network adequacy.” We solicit comment on whether these regulatory provisions are sufficiently clear, and whether clarification should be provided through regulation or subregulatory guidance, such as the annual Call Letter.

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

We are proposing to clarify which regulatory requirements are “deemable” for MA organizations that offer prescription drug benefit programs. Sections 1852(e)(4) and 1860D-4(j) of the Act provide that we can authorize approved accrediting organizations (AOs) to accredit MA organizations and Part D sponsors, and deem such entities to have met our program requirements, as long as the standards the AO uses to evaluate the performance of the organizations and plan sponsors meet or exceed our own performance assessment standards. The statute also dictates which performance standards we can allow an AO to evaluate in the place of CMS. Those standards that we permit AOs to survey for, rather than CMS, are referred to as “deemable” program requirements.

The current regulations state that the Part D prescription drug benefit program is a deemable requirement for MA organizations that offer prescription drug benefits. We believe that this language does not precisely reflect the requirements that are listed as deemable in the statute. Therefore, we are proposing to modify § 422.156(b)(7) to refer to the list of deemable requirements for Part D sponsors set out at § 423.165(b)(1) through (b)(3), as we believe this cross reference is a more accurate reflection of the specific program requirements that are deemable per section 1860D-4(j) of the Act for MA organizations that offer prescription drug benefits.

In § 422.156(f) and § 423.165(f), we are proposing to clarify the extent of our authority under the deeming program. The regulation currently states that we retain our authority to initiate enforcement actions against MA organizations or Part D sponsors that we determine, on the basis of its own survey, or the survey of an accrediting organization, no longer meet the Medicare requirements for which deemed status was granted. We believe that this language is unduly limiting and does not comport with the statute. Section 1852(e)(4)(D) of the Act states nothing in section 1852(e)(4) of the Act shall be construed to limit our authority under section 1857 of the Act, which encompasses much more than enforcement actions. Therefore, we are proposing to revise the language in § 422.156(f) and § 423.165(f) to more closely match the authority granted by the statute, which is to state that we retain authority to impose intermediate sanctions and civil money penalties (CMPs), initiate contract terminations, and perform evaluations and audits of an organization's records, facilities and operations, notwithstanding the deeming provisions.

We plan to further define through subregulatory guidance how we will operationalize these provisions. We solicit comment on whether these regulatory provisions provide sufficient clarity. If not, we solicit comment on whether clarification should be provided through regulation or subregulatory guidance, such as the annual Call Letter.

In § 423.165(b), we are proposing to delete paragraph (b)(4) from the items listed as deemable program requirements. The regulation currently states that a program to protect against fraud, waste, and abuse is a deemable program requirement. We believe that including this in the list of deemable requirements was an error, as the statute does not list a program to protect against fraud, waste, and abuse as one of the programmatic areas that is deemable. Therefore, we are proposing to remove programs to protect against fraud, waste, and abuse from the list of deemable programmatic requirements.

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

Sections 1857(h) and 1860D-12(b)(3)(F) of the Act provide that the Secretary may terminate a contract with an MA organization or PDP sponsor in accordance with formal investigation and compliance procedures established by the Secretary under which the sponsoring organizations are to be provided with reasonable notice and opportunity for hearing and reasonable opportunity to develop and implement a CAP to correct the deficiencies that were the initial basis for termination prior to terminating the contract. These statutory provisions further provide, under sections 1857(h)(2) and 1860D-12(b)(3)(F) of the Act, that these procedures shall not apply if the Secretary determines that a delay in termination, resulting from compliance with these procedures prior to termination, would pose an imminent and serious risk to the health of individuals enrolled with the sponsoring organization.

Under this statutory authority, we issued the December 5, 2007 final rule that detailed timeframes for the development and implementation of CAPs prior to an issuance of a notice of intent to terminate or nonrenew a CMS contract. These regulations, codified at § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1), currently require us to provide sponsoring organizations with 45 calendar days from the date of our request, to develop and submit a CAP prior to CMS issuing a notice of intent to terminate or nonrenew a contract to the sponsoring organization. In addition, the current regulations provide that if, after our review, this first CAP submission is determined unacceptable, the sponsoring organization will be provided an additional 30 calendar days to submit a revised CAP to CMS for review. Under these current provisions, once we determine the CAP acceptable, we are then required to notify the sponsoring organization of the deadline by which the CAP must be fully implemented. We must then assess whether successful implementation occurred. It is only after exercising these protracted procedures that we may issue a notice of intent to terminate or nonrenew a contract to the sponsoring organization in instances when we determine that successful implementation of the CAP has not occurred and/or the deficiencies have not been fully corrected.

Since the implementation of the December 5, 2007 final rule, we have determined that some modification is required of our overall approach to our compliance procedures, particularly in situations when serious and/or repeated compliance deficiencies are identified. More specifically, we have concluded that the compliance procedures and timeframes set forth in § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1) related to notice and opportunity to develop and implement corrective actions could be improved to more effectively assist us and sponsoring organizations in achieving timely, efficient, and effective correction of identified underlying contract compliance deficiencies. These current compliance procedures require us to focus our internal oversight resources and expertise on reviewing and approving “how” sponsoring organizations will correct their deficiencies rather than utilizing our resources and expertise more effectively and efficiently to review information submitted by sponsoring organizations to determine if the underlying deficiencies have actually been corrected. For example, if the deficiency cited was for misclassification of appeals versus grievances, current practice requires a sponsoring organization to develop a written plan on how it will fix the misclassification problem. Then the sponsoring organization must submit the plan to us for review and approval before it would be allowed to implement the plan. Rather than focusing on the plan or process that the sponsoring organization developed, we instead, should focus on reviewing data to determine if the sponsoring organization has actually fixed the problem and is classifying appeals and grievances appropriately.

Similarly, under the current compliance procedures, sponsoring organizations potentially expend significant resources and expertise responding to requests from us for plans about how they will correct deficiencies as opposed to expending efforts on correcting the deficiencies identified by us and providing sufficient evidence that the identified deficiencies have been corrected. Given that sponsoring organizations have varying business models, levels of resources, and expertise, it is particularly challenging for us to be the decision-maker as to whether one operational plan of correction under a particular operational business model versus another will most effectively correct identified deficiencies and achieve particular compliance outcomes.

Therefore, we believe our compliance procedures need to shift from focusing on the submission of plans for our review and approval that merely outline a process for how deficiencies will be corrected to a focus on requiring plans to demonstrate that particular outcomes have been achieved, for example, that deficiencies have actually been corrected. We are proposing to eliminate the existing language contained in regulations at § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1) that requires CAPs to be submitted for our approval prior to us issuing a notice of intent to terminate or nonrenew a contract.

We are proposing instead to add new provisions at § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1) that captures the outcome-oriented approach which is currently incorporated in our day-to-day ongoing contract compliance and oversight activities. Under this approach, we are proposing to add new provisions which state that before providing a notice of intent to terminate or nonrenew a contract, we will provide the sponsoring organization with a notice of its deficiencies and afford it the opportunity to develop and implement a CAP to correct these deficiencies. We are also proposing that the sponsoring organization is solely responsible for the identification, development, and implementation of its CAP and for demonstrating to us that the underlying deficiencies have been corrected within the time period afforded under the notice and opportunity for corrective action.

All sponsoring organizations are assigned a CMS account manager whose primary responsibility consists of day-to-day monitoring and oversight of that organization. In addition to these account management monitoring and oversight activities, we conduct other oversight activities based on data and information collected from sponsoring organizations and from other relevant sources. As a part of these ongoing overall monitoring and oversight activities, sponsoring organizations routinely receive written notification of their compliance deficiencies, including but not limited to, notices of noncompliance, warning notices, and requests for corrective actions. These ongoing contract monitoring and oversight processes are designed to proactively prevent, detect, and respond to compliance deficiencies at the lowest level of occurrence by providing sponsoring organizations with ongoing notification and information from CMS

about the current status of any identified compliance deficiencies that come to our attention and an opportunity to correct where appropriate. As a result, in many instances sponsoring organizations will receive written notification of noncompliance and opportunities to correct any deficiencies arising from the above-described day-to-day monitoring and oversight procedures. Therefore, in most cases the sponsoring organization will have been made fully aware of its deficiencies before CMS provides it with the notice and opportunity to implement a CAP that must be afforded prior to CMS issuing a notice of intent to terminate or nonrenew a contract under sections 1857(h) and 1860D-12(b)(3)(F) of the Act.

In addition to these proposals, we are proposing to amend the existing language at § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1) that sets forth the specific timeframes afforded sponsoring organizations for the development and implementation of a CAP prior to CMS issuing a notice of intent to terminate or nonrenew.

Based on our experience under our ongoing contract compliance and oversight processes and our new outcome-oriented approaches to contract oversight and compliance, we have concluded that affording sponsoring organizations at least 30 calendar days to develop and implement a CAP prior to issuing the notice of intent to terminate or nonrenew is a sufficiently reasonable opportunity under the statutory authority afforded. We will consider the nature and extent of the particular compliance deficiencies and other relevant factors such as whether or not the deficiencies are isolated or repeated and longstanding, and whether or not the entity has been afforded a prior notice and opportunity to correct in reaching a decision whether it may be appropriate for the MAO or Part D Sponsor to be afforded more than 30 days to correct the identified deficiencies.

Thus, we are proposing to amend § 422.506(b)(3), § 422.510(c)(1), § 423.507(b)(3), and § 423.509(c)(1) to afford sponsoring organizations at least 30 calendar days to fully implement a CAP and to demonstrate to CMS that the underlying deficiencies have been corrected.

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

Sections 1857(g) and 1860D-12(b)(3)(E) of the Act provide the Secretary the ability to impose intermediate sanctions on sponsoring organizations. Intermediate sanctions under these statutory provisions consist of suspension of enrollment, suspension of payment and CMPs. Sections 1857(g)(2)(B) and 1860D-12(b)(3)(E) of the Act that specifically govern enrollment suspensions require the intermediate sanctions to remain in place until the Secretary is satisfied that the basis for the sanction determination has been corrected and is not likely to recur. Additionally, under sections 1857(e)(1) and 1860D-12(b)(3)(D) of the Act, sponsoring organizations are required to provide the Secretary with such information as the Secretary may find necessary and appropriate. Current regulations governing intermediate sanctions are contained in Subpart O of parts 422 and 423. Sections 422.756 and 423.756 provide specific procedures for imposing intermediate sanctions and CMPs, and include provisions outlining the duration of the sanction.

Existing regulations at § 422.756(d)(3) and § 423.756(d)(3) incorporate the statutory standard by providing that the sanction remains in effect until we notify the sponsoring organization that we are satisfied that the basis for imposing the sanction has been corrected and is not likely to recur. Based on recent experience, it has been difficult at times for us to make the determination to lift a sanction. For example, when we impose an enrollment sanction on a sponsoring organization because it has failed to comply with enrollment and disenrollment requirements, it is very difficult for us to conclude that the sponsoring organization's enrollment deficiencies have been corrected and are not likely to recur when the organization is not permitted to enroll members. Difficulties also arise when the sponsoring organization attempts to fix deficiencies with highly technical internal business processes. In order to assist us in making the determination that the deficiencies have been corrected and are not likely to recur, we need to have greater flexibilities at our disposal.

We are proposing two changes to the regulation that provide additional flexibilities to assist us in making the determination to lift a sanction. First, we are proposing that we may require the sponsoring organization to hire an independent auditor to provide us with additional information to determine if the deficiencies upon which the sanction was based have actually been corrected and are not likely to recur. The independent auditor would be hired by the sponsoring organization and work in accordance with our specifications in order to provide accurate and reliable information to CMS.

In making a determination to lift sanctions, we often must rely on either self-disclosed information from the sanctioned sponsoring organization, CMS data, some of which is also self-disclosed, or we must attempt to engage in a process to independently verify that the underlying deficiencies have been corrected and are not likely to recur. Given our experience with the nature and extent of some compliance deficiencies (for example, those caused by information technology system deficiencies or lack of adequate internal controls) and the need to obtain the level of skill and experience necessary to conduct an exhaustive audit and verification of the correction of these deficiencies, we have concluded that an independent auditor hired by the sponsoring organization would be beneficial for both the sponsoring organization and CMS. This proposal is consistent with our statutory authority which requires sponsoring organizations to provide information to us when we deem it is necessary and appropriate. An independent auditor, who is familiar with the processes of the sanctioned sponsoring organization, may be able to provide CMS with important information that we may use to help us make a more timely decision as to when to lift a sanction.

A similar approach is used by the HHS Office of Inspector General (OIG) in their Corporate Integrity Agreements and/or Self-Disclosure Protocol processes. The OIG often negotiates compliance obligations with health care providers and other entities as part of the settlement of Federal health care program investigations. A provider or entity consents to these obligations as part of the civil settlement and in exchange for the OIG's agreement not to seek an exclusion of that health care provider or entity from participation in Medicare, Medicaid, and other Federal health care programs. The typical terms of a comprehensive OIG corporate integrity agreement include the requirement for the provider to retain an independent review organization to provide independent validation and verification of adherence to Medicare requirements in relevant areas where

the provider has been found to be noncompliant.

We do not intend to require all sponsoring organizations that are under intermediate sanctions to hire an independent auditor because not all determinations will require the expertise of an independent auditor. However, there are situations when the expertise of an independent auditor will be helpful and in those cases, we are proposing we be afforded the discretion to require that an auditor be hired by the sponsoring organization. For example, an independent auditor who specializes in complex information technology systems and who has knowledge of how the systems interact with each other to be compliant with our requirements may be helpful in those instances where an organization with enrollment and disenrollment processing systems has been sanctioned. This is an example of a situation where we would require the sponsoring organization to hire an independent auditor in order to assist in making the determination that the deficiencies that formed the basis of the sanction have been corrected and are not likely to recur.

We are also considering an alternative proposal whereby instead of providing us with the authority to require sponsoring organizations to engage an independent auditor, we would grant sponsoring organizations the discretion to hire an independent auditor to evaluate the organization's compliance with our requirements. We would afford the results of the independent auditor's review some weight in our determination of whether the bases for the sanction have been corrected and are not likely to recur. We invite comments from sponsors and the industry about this alternative proposal and suggestions on other options we could implement to accomplish the desired outcome.

At this time we are proposing to add language to § 422.756 and § 423.756 that would allow us to require that a sponsoring organization hire an independent auditor to provide us with additional information to determine if the deficiencies that are the basis for a sanction have been corrected and are not likely to recur. Under either this proposal or our alternative proposal, the independent auditor would work in accordance with our specifications and must be willing to attest that a complete and full independent review has been performed.

Next, we are proposing that in instances where an enrollment and/or marketing suspension has been imposed, we may determine that it is appropriate to subject the sponsoring organization to a “test period” whereby the organization or sponsor will, for a limited time, engage in marketing activities and/or accept enrollments in order to assist us in making a determination as to whether the bases for the sanctions have been corrected and are not likely to recur. The basis for this proposal is that we have found that there is often not a satisfactory way to determine if marketing and/or enrollment problems have been corrected while a sanction is in place and no such activities are permitted. Similarly, sponsoring organizations also have experienced challenges in demonstrating to us that these kinds of deficiencies have been corrected and are not likely to recur while they are under marketing and/or enrollment sanctions. In order to lift intermediate sanctions as expeditiously as possible when the sponsoring organization has corrected the deficiencies and to protect beneficiaries if the deficiencies have not been fully corrected, this proposed provision will permit us to assess whether the deficiencies upon which the sanction was made have been corrected and are not likely to recur by conducting a test of the organizations or sponsor's processes. The specific requirements for the marketing and/or enrollment “test period” will be determined by considering numerous factors, including but not limited to: the size of the organization, the specific deficiencies, and the timeframe in which the “test period” is conducted.

This provision will benefit sponsoring organizations, beneficiaries, and CMS. Sponsoring organizations will have an effective way to demonstrate that a sanction should be lifted. Beneficiaries will be protected because we will have sufficient evidence that deficiencies have been corrected prior to lifting sanctions and we will be assured that the bases for the sanctions have been corrected and are not likely to recur.

Therefore, we are proposing to add language to § 422.756 and § 423.756 that in instances where marketing or enrollment or both intermediate sanctions have been imposed, we may determine, in our sole discretion, that it is appropriate to require the sponsoring organization to market and/or to accept enrollments for a limited time in order to assist us in making a determination as to whether the deficiencies that are the bases for the intermediate sanctions have been corrected and are not likely to recur. Following this time period, if we determine the deficiencies have not been corrected or are likely to recur, the intermediate sanction will remain in effect until such time that we are assured the deficiencies have been corrected and are not likely to recur. The sponsoring organization would have not had a right to a hearing to challenge our determination to keep the sanction in effect.

In addition to the above proposed changes to § 422.756 and § 423.756, we are proposing to delete the existing provisions at § 422.756(c) and § 423.756(c) which currently detail the three types of intermediate sanctions that may be imposed pursuant to our authority under sections 1857(g)(2)(B) through (C) and 1860D-12(b)(3)(E) of the Act. These provisions are duplicative of the list of sanctions at § 422.750(a) and § 423.750(a) and are unnecessary. Due to this deletion, we are proposing to redesignate paragraphs (d) through (f) in § 422.756 and § 423.756 as paragraphs (c) through (e), respectively.

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

Sections 1857(c)(2) and 1860D-12(b)(3)(B) of the Act permit CMS to terminate a sponsoring organization's contract if the sponsoring organization—

• Has failed substantially to carry out the contract;

• Is carrying out the contract in a manner inconsistent with the efficient and effective administration of this part; or

• No longer substantially meets the applicable conditions of this part.

Existing regulations at § 422.510(a)(6) through (12) and § 423.509(a)(6) through (11) provide a number of bases (in addition to the statutory bases) upon which a contract may be terminated. This list does not include every reason for which we have the authority to terminate a contract. For example, the list does not explicitly include a provision that provides that a failure by the sponsoring organization to comply with enrollment and disenrollment regulations may be a basis for CMS termination. However, sponsoring organizations must follow enrollment and disenrollment regulations and a failure to comply with these regulations may be a basis for terminating the sponsoring organization's contract because it would have failed substantially to carry out the terms of its contract as required by the Act. We are concerned that by not specifically including each and every requirement on this enumerated list, organizations may be under the mistaken impression that we cannot take an action to terminate (or non-renew) a contract, or sanction an organization, for a failure to comply with a requirement(s) that is not

enumerated. Therefore, we are proposing to delete the enumerated bases for termination contained at § 422.510(a)(6) through (12) and § 423.509(a)(6) through (11). In addition, we are proposing to revise § 422.510(a) and § 423.509(a) to separate the language into two paragraphs. The first paragraph, (a)(1), will list the statutory bases for termination under sections 1857(c)(2) and 1860D-12(b)(3)(B) of the Act which state that we may at any time terminate a contract if we determine that the sponsoring organization has: (i) Failed substantially to carry out the contract; (ii) is carrying out the contract in a manner inconsistent with the efficient and effective administration of this part; or (iii) no longer substantially meets the applicable conditions of this part. The second paragraph, (a)(2), will clarify—(i) that a sponsoring organization's failure to comply with our regulations, (ii) failure to meet performance standards; and/or (iii) participation in false, fraudulent, or abusive activities, may constitute a basis for CMS to determine that the sponsoring organization meets the requirements for contract termination in accordance with paragraph (a)(1).

More specifically, we are proposing to add new language to § 422.510(a)(2)(i) and § 423.509(a)(2)(i) that failure to comply with any of the regulatory requirements contained in Parts 422 or 423 may constitute a basis for CMS to determine that the sponsoring organization meets the requirements for contract termination in accordance with paragraph (a)(1). This new provision is intended to clarify that compliance with all regulations is necessary to remain a contracting organization with CMS and if the sponsoring organization's failure to comply with the regulations supports one or more of the bases for termination in paragraph (a)(1), then we may terminate the contract.

We are also proposing to add new language to § 422.510(a)(2)(ii) and § 423.509(a)(2)(ii) that failure to meet our performance expectations in carrying out the Part C and Part D regulatory requirements may constitute a basis for us to determine that the sponsoring organization meets the requirements for contract termination in accordance with proposed paragraph (a)(1). This includes when we determine that a sponsoring organization is out of compliance with a Medicare requirement because our analysis of data related to that sponsoring organization's performance indicates it is an outlier relative to that of other organizations.

In some instances, we may use an outlier analysis to determine a sponsor's performance relative to industry standards that were established by looking at the performance of all sponsors across the program, as described earlier in the preamble in our discussion of the development of our policies concerning the awarding, monitoring, and enforcement of Medicare contracts. This strategy is part of a larger strategy to oversee the program using a data driven, risk-based, transparent approach. This information is used to monitor plan sponsor compliance and make plan-specific and programmatic decisions. As reflected in the proposed regulations, in addition to using these data for program-wide evaluations and assessments, these performance standards will continue to be used to make assessments concerning compliance with our requirements and, when deemed appropriate, to take CMS contract actions, including contract termination and nonrenewal.

Finally, in our proposed language we are retaining the authority to terminate a sponsoring organization that has committed or participated in false, fraudulent, or abusive activities as currently stated in § 422.510(a)(4) and § 423.509(a)(4). However, we are proposing to redesignate current § 422.510(a)(4) and § 423.509(a)(4) as § 422.510(a)(2)(iii) and § 423.509(a)(2)(iii), respectively, as such failures may also constitute a basis for us to determine that the sponsoring organization meets the requirements for contract termination in accordance with the proposed revisions to paragraph (a)(1).

In addition, we are proposing additional amended language to this regulation. The existing regulations permit us to terminate a contract only when we determine that a sponsoring organization's fraudulent activities concern the Medicare program. We believe that we should not be contracting with MA organizations and Part D sponsors who commit or participate in fraudulent activities related to any governmental health care programs. Therefore, we are proposing to amend this regulation to include false, fraudulent, or abusive activities affecting Medicaid, or other State or Federal health care programs.

In addition, existing regulations that govern termination at § 422.510(a)(5) and § 423.509(a)(5) provide that we may terminate a contract if the sponsoring organization experiences financial difficulties so severe that its ability to make necessary health services available is impaired to the point of posing an imminent and serious risk to the health of its enrollees, or otherwise fails to make services available to the extent that such a risk to health exists. This language incorporates the Secretary's authority under sections 1857(h)(2) and 1860D-12(b)(3)(F) of the Act to take an immediate termination if it is determined that a delay in termination, in order to comply with the CAP and appeal termination procedures, would pose an imminent and serious risk to the health of the individuals enrolled. We are proposing changes elsewhere in these regulations to our provisions governing expedited terminations. Therefore, we are proposing to delete the regulatory text contained at § 422.510(a)(5) and § 423.509(a)(5). Recognizing that it is not possible to enumerate every reason for which we have the authority to terminate a contract, we believe we have reached a good balance between providing sufficient regulatory detail and preserving administrative flexibility. When regulatory provisions require further clarification, we plan to further define through subregulatory guidance how we would operationalize these provisions. We have historically used our manual chapters, reporting requirements, and marketing guidelines to indicate how we measure compliance with our performance requirements and what we consider acceptable practice. We solicit comment on whether these regulatory provisions provide sufficient clarity. If not, we solicit comment on whether clarification should be provided through regulation or subregulatory guidance, such as the annual Call Letter or our Manual.

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

Sections 1857(c) and 1860D-12 of the Act permit us to terminate contracts with sponsoring organizations. Current regulations at § 422.662(a) and § 423.651(a) governing the hearing procedures require sponsoring organizations to file a request for a hearing on contract determinations with the Hearing Officer and to also file it with “any CMS office.” This procedure is ineffective and inefficient because it is likely to result in a request for hearing not being received by the appropriate officials within CMS. Consequently, we are proposing a modification in the language contained at § 422.662(a) and § 423.651(a) to state that the sponsoring organization must file the request for a hearing in accordance with the requirements specified in the notice of the contract determination or intermediate sanction, thus ensuring that the proper officials within CMS receive the request and can act upon the request in a timely manner.

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

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

Under the existing regulations at § 422.660(b), and § 423.650(b), when appealing a contract determination or an intermediate sanction, the sponsoring organization bears the burden of proof to demonstrate that it was in “substantial compliance” with our requirements on the “earliest of” following three dates:

• The date of the notice of contract determination or intermediate sanction.

• The date of the most recent onsite audit.

• The date of the alleged breach of the current contract or past substantial noncompliance as determined by CMS.

In practice, these existing standards of review (“substantial compliance” and “earliest of test”) have led to confusion among parties to the hearing and have been difficult for the Hearing Officer to apply. We have come to realize that the existing “substantial compliance” standard of review articulated at § 422.660(b), and § 423.650(b) does not reflect the nuances of the different legal standards provided in the Act for making contract determinations and imposing intermediate sanctions. For example, sections 1857(c)(2)(B) and 1860D-12(b)(3)(F) of the Act provide that the Secretary may terminate a contract if the Secretary finds that the sponsoring organization “has failed substantially to carry out the contract, is carrying out the contract in a manner inconsistent with the efficient and effective administration of this part, or no longer substantially meets the applicable conditions of this part.” Similarly, there is no reference to a substantial compliance standard in the bases available to CMS for imposing intermediate sanctions. Based on these nuances, we have determined that the application of the substantial compliance standard of review to all appeals is unnecessarily confusing and may have led to unintended consequences in that it may have distorted review of the applicable statutory and regulatory requirements. Accordingly, we are proposing to delete “substantial compliance” as a standard of review.

In addition to the preceding, the “earliest of” test does not accurately reflect how and when we make our determinations for different contract actions or intermediate sanctions. For example, when making a determination as to whether or not we should enter into a contract with an applicant, we review all of the information that the applicant provides and decides whether it meets our standards according to § 422.501 and § 422.502 or § 423.502 and § 423.503. If the applicant does not meet those standards, then we will deny the application. During a hearing, it would be inappropriate for the applicant to insist that its application should be approved because it corrected its deficiencies after we issued a denial of the application. The “earliest of” test may create this mistaken impression because it provides that during a hearing the applicant must demonstrate that it was in “substantial compliance” with our requirements on the “earliest of” one of three dates. This creates confusion and imposes an unworkable time period for the applicant or sponsoring organization to demonstrate that it has met CMS standards. Therefore, we are also proposing to delete the existing regulations which provide for an “earliest of” test.

Finally, though the existing regulations explicitly state that the sponsoring organization bears the burden of proof, it does not provide the standard of proof that is to be applied by the hearing officer. We believe that the sponsoring organization bearing the burden of proof is appropriate since the purpose of the hearing is to provide the sponsoring organization an opportunity to appeal and dispute our contract determination or imposition of intermediate sanction. Therefore, we believe that no change is necessary concerning the burden of proof. In order, however, to more clearly articulate the standard of proof and standards of review we are proposing the following changes to our regulations.

First, we are clarifying the standard of proof that we believe applies to these appeals proceedings. It has been our experience that the hearing officer does appropriately use the preponderance of evidence standard when weighing the evidence at a hearing for an appeal of a CMS contract determination or imposition of intermediate sanction. We believe, however, that it is important to explicitly state the standard of proof so as to provide as much clarity and consistency as possible for the Hearing Officers and the parties to a hearing. In addition, the preponderance of the evidence standard is consistent with t

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3AE9-24756. Public record. Not legal advice.