Medicare Program; Revisions to the Medicare Advantage and Part D Prescription Drug Contract Determinations, Appeals, and Intermediate Sanctions Processes

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 422 and 423

Medicare Program; Revisions to the Medicare Advantage and Part D

Prescription Drug Contract Determinations, Appeals, and Intermediate

Sanctions Processes; Proposed Rules

Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4124-P]

RIN 0938-AO78

Medicare Program; Revisions to the Medicare Advantage and Part D

Prescription Drug Contract Determinations, Appeals, and Intermediate

Sanctions Processes

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would clarify the Medicare program

provisions relating to contract determinations involving Medicare

Advantage (MA) organizations and Medicare Part D prescription drug plan

sponsors, including eliminating the reconsideration process for review

of contract determinations; revising the provisions related to appeals

of contract determinations and clarifying the process for MA

organizations and Part D plan sponsors to complete corrective action

plans. This proposed rule would also clarify the intermediate sanction

and civil money penalty (CMP) provisions that apply to MA organizations

and Medicare Part D prescription drug plan sponsors, modify elements of

their compliance plans, and revise provisions to ensure HHS has access

to the books and records of MA organizations and Part D plan sponsors'

first tier, downstream, and related entities.

DATES: To be assured consideration, comments must be received at one of

the addresses provided below, no later than 5 p.m. on July 24, 2007.

edicare Part D prescription drug plan sponsors, modify elements of

their compliance plans, and revise provisions to ensure HHS has access

to the books and records of MA organizations and Part D plan sponsors'

first tier, downstream, and related entities.

DATES: To be assured consideration, comments must be received at one of

the addresses provided below, no later than 5 p.m. on July 24, 2007.

ADDRESSES: In commenting, please refer to file code CMS-4124-P. Because

of staff and resource limitations, we cannot accept comments by

facsimile (FAX) transmission.

You may submit comments in one of four ways (no duplicates,

please):

1. Electronically. You may submit electronic comments on specific

issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click

on the link ``Submit electronic comments on CMS regulations with an

open comment period.'' (Attachments should be in Microsoft Word,

WordPerfect, or Excel; however, we prefer Microsoft Word.)

2. By regular mail. You may mail written comments (one original and

two copies) to the following address ONLY: Centers for Medicare &

Medicaid Services, Department of Health and Human Services, Attention:

CMS-4124-P, P.O. Box 8012, Baltimore, MD 21244-8012.

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 (one

original and two copies) to the following address ONLY: Centers for

Medicare & Medicaid Services, Department of Health and Human Services,

Attention: CMS-4124-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 (one original and two copies) before the

close of the comment period to one of the following addresses. If you

intend to deliver your comments to the Baltimore address, please call

telephone number (410) 786-9994 in advance to schedule your arrival

with one of our staff members

re, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or

courier) your written comments (one original and two copies) before the

close of the comment period to one of the following addresses. If you

intend to deliver your comments to the Baltimore address, please call

telephone number (410) 786-9994 in advance to schedule your arrival

with one of our staff members. Room 445-G, Hubert H. Humphrey Building,

200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security

Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the HHH 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.)

Comments mailed to the addresses indicated as appropriate for hand

or courier delivery may be delayed and received after the comment

period.

For information on viewing public comments, see the beginning of

the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Christine Perenich, (410) 786-2987.

Kevin Stansbury, (410) 786-2570.

Stephanie Kaisler, (410) 786-0957, for issues regarding access to

records and compliance.

Rita Wurm, (410) 786-1139, for issues regarding access to records

and compliance.

ment

period.

For information on viewing public comments, see the beginning of

the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Christine Perenich, (410) 786-2987.

Kevin Stansbury, (410) 786-2570.

Stephanie Kaisler, (410) 786-0957, for issues regarding access to

records and compliance.

Rita Wurm, (410) 786-1139, for issues regarding access to records

and compliance.

SUPPLEMENTARY INFORMATION:

Submitting Comments: We welcome comments from the public on all

issues set forth in this rule to assist us in fully considering issues

and developing policies. You can assist us by referencing the file code

CMS-4124-P and the specific ``issue identifier'' that precedes the

section on which you choose to comment.

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.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on

CMS Regulations'' 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.

Abbreviations

Because of the many terms to which we refer by abbreviation in this

proposed rule, we are listing these abbreviations and their

corresponding terms in alphabetical order below:

icaid 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.

Abbreviations

Because of the many terms to which we refer by abbreviation in this

proposed rule, we are listing these abbreviations and their

corresponding terms in alphabetical order below:

ALJ Administrative Law Judge

BBA Balanced Budget Act of 1997

BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of

1999

CAP Corrective Action Plan

CMP Civil Money Penalty

CMS Centers for Medicare & Medicaid Services

DAB Departmental Appeals Board

ESRD End-Stage Renal Disease

FWA Fraud, Waste, and Abuse

HHS Department of Health and Human Services

MA Medicare Advantage

MMA Medicare Prescription Drug, Improvement, and Modernization Act of

2003

M+C Medicare + Choice

OIG Office of the Inspector General

PBM Pharmaceutical Benefit Manager

PDE Prescription Drug Event

PPO Preferred Provider Organization

I. Background

[If you choose to comment on issues in this section, please include

the caption ``BACKGROUND'' at the beginning of your comments.]

A. Overview of the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 (MMA)

The President signed the Medicare Prescription Drug, Improvement,

and Modernization Act of 2003 (MMA) (Pub. L. 108-173) into law on

December 8, 2003. The MMA established the Medicare prescription drug

benefit program and renamed the Medicare+Choice program the Medicare

Advantage (MA) program. In accordance with the MMA, we revised the

existing Medicare regulations applicable to the MA program at 42 CFR

part 422 and published regulations governing the prescription drug

benefit program at 42 CFR part 423

8-173) into law on

December 8, 2003. The MMA established the Medicare prescription drug

benefit program and renamed the Medicare+Choice program the Medicare

Advantage (MA) program. In accordance with the MMA, we revised the

existing Medicare regulations applicable to the MA program at 42 CFR

part 422 and published regulations governing the prescription drug

benefit program at 42 CFR part 423.

As we have gained more experience with MA organizations and Part D

prescription drug plan sponsors, we are proposing clarifications to the

Medicare program provisions relating to contract determinations

involving Medicare Advantage organizations and Medicare Part D

prescription drug plan sponsors, including eliminating the

reconsideration process for review of contract determinations; revising

the provisions related to appeals of contract determinations and

clarifying the process for MA organizations and Part D plan sponsors to

complete corrective action plans. This proposed rule would clarify the

intermediate sanction and civil money penalty (CMP) provisions that

apply to MA organizations and Medicare Part D prescription drug plan

sponsors. We have also proposed changes to clarify the compliance plan

requirements and our access to the books and records of an MA

organization or Part D sponsor's first tier, downstream, and related

entities.

B. Relevant Legislative History and Overview

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

the Medicare+Choice (M+C) program. Under section 1851(a)(1) of the Act,

every individual with Medicare Parts A and B, except for 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 the beneficiary lived. The primary goal of the M+C

program was to provide Medicare beneficiaries with a wider range of

health plan choices.

The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of

1999 (BBRA) (Pub. L

ndividuals

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 the beneficiary lived. The primary goal of the M+C

program was to provide Medicare beneficiaries with a wider range of

health plan choices.

The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of

1999 (BBRA) (Pub. L. 106-113), amended the M+C provisions of the BBA.

Further amendments were made to the M+C program by the Medicare,

Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000

(BIPA) (Pub. L. 106-554), enacted December 21, 2000.

The President signed the MMA into law on December 8, 2003. Title I

of the MMA added new sections 1860D-1 through 1860D-42 to the Act

creating the Medicare Prescription Drug Benefit program, a landmark

change 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. As directed by Title II of the MMA, we

renamed the M+C program the MA program. We also revised our regulations

to include new payment and bidding provisions based largely on risk, to

recognize the addition of regional Preferred Provider Organization

(PPO) plans, to address the provision of prescription drug benefits

under the Medicare Part D regulations, and to make other changes.

The MMA, at section 1860D-12(b)(3) of the Act, directed that

specific aspects of the MA contracting requirements apply to the

prescription drug plan benefit program. Consequently, the processes for

contract determinations and the administrative appeal rights in the two

programs are virtually identical.

We published the regulations implementing the MA and prescription

drug benefit regulations separately, though their development and

publication were closely coordinated. On August 3, 2004, we published

proposed rules for the MA program (69 FR 46866) and prescription drug

benefit program (69 FR 46632)

rminations and the administrative appeal rights in the two

programs are virtually identical.

We published the regulations implementing the MA and prescription

drug benefit regulations separately, though their development and

publication were closely coordinated. On August 3, 2004, we published

proposed rules for the MA program (69 FR 46866) and prescription drug

benefit program (69 FR 46632). The final regulations implementing both

the MA and prescription drug programs were published on January 28,

2005 (70 FR 4588 and 70 FR 4194, respectively). We revised some of our

proposed provisions in the final rules in response to public comments.

For further discussion of the revisions we made to our proposed rules,

see the final rules cited above. CMS has not issued previous guidance,

other than regulatory requirements regarding contract determinations,

corrective action plans, contract determination appeals, intermediate

sanctions or civil money penalties. However, CMS has published guidance

on how to develop an effective fraud, waste and abuse (FWA) prevention

program. This guidance is found in Chapter 9 of the Prescription Drug

Benefit Manual entitled ``Part D Program to Control Fraud, Waste and

Abuse.'' This rule proposes further revisions to the MA and

prescription drug regulations and we welcome your comments on our

proposed regulations.

II. Provisions of the Proposed Regulations

[If you choose to comment on issues in this section, please include

the caption ``PROVISIONS OF THE PROPOSED REGULATIONS'' at the beginning

of your comments.]

A. Overview of Proposed Changes to the Medicare Advantage Program and

the Prescription Drug Benefit Program

ription drug regulations and we welcome your comments on our

proposed regulations.

II. Provisions of the Proposed Regulations

[If you choose to comment on issues in this section, please include

the caption ``PROVISIONS OF THE PROPOSED REGULATIONS'' at the beginning

of your comments.]

A. Overview of Proposed Changes to the Medicare Advantage Program and

the Prescription Drug Benefit Program

Our experience involving contract determinations, appeals,

intermediate sanctions, and CMPs since the enactment of the Balanced

Budget Act of 1997 have led us to propose changes to our regulations.

In this rule, we propose to simplify the procedures for contract

determinations; to clarify the procedures regarding submission and

review of corrective action plans; to clarify the procedures for

imposition of intermediate sanctions and CMPs; and to clarify the

procedures to appeal CMPs imposed under the MA and Part D programs.

In addition, we propose revisions to the appeal procedures for all

types of contract determinations, which would make these procedures

identical for decisions not to contract, for nonrenewals, and for

terminations. We propose to provide for enhanced beneficiary

protections when we decide to terminate a plan on an expedited basis.

In this rule, we are also proposing changes and making

clarifications to Subpart K, contract requirements under the MA and

Part D programs. We have proposed changes to clarify HHS' access to the

books and records of a MA organization or Part D sponsor's first tier,

downstream, and related entities, including records relating to Part D

rebates and price concessions and any underlying PDE records. We have

also proposed changes to clarify that certain elements of the

compliance plan apply to first tier, downstream, and related entities.

The proposed changes would ensure that both the MA and Medicare

Part D prescription drug benefit programs may operate as efficiently as

possible within the guidelines of the statute

to Part D

rebates and price concessions and any underlying PDE records. We have

also proposed changes to clarify that certain elements of the

compliance plan apply to first tier, downstream, and related entities.

The proposed changes would ensure that both the MA and Medicare

Part D prescription drug benefit programs may operate as efficiently as

possible within the guidelines of the statute.

Below, we set forth the proposed regulation changes and

corresponding proposed implementation dates:

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Proposed

Proposed regulation change implementation

date

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Incorporation of Fraud, Waste, and Abuse Prevention 1/1/2009

Measures into Compliance Plan........................

Requirement to apply Compliance Plan's training and 1/1/2009

communication requirements to first tier, downstream,

and related entities.................................

Mandatory procedures for self-reporting potential 1/1/2009

fraud and misconduct.................................

Requirement to obtain access to Part D sponsor's first 1/1/2009

tier, downstream, and related entity's books and

records through contractual arrangements.............

Elimination of CMS' requirement to inform organization 1/1/2008

of renewal...........................................

Change date of CMS' notification of non-renewal from 1/1/2008

May 1 to September 1.................................

Provide for same administrative appeal rights 1/1/2008

(including CAP) for all contract determinations (non-

renewal, expedited termination, termination).........

Change regarding CAP process may be provided prior to 1/1/2008

notification of termination, and the imposition of

time limits on Corrective Action Plans...............

Change immediate termination to expedited termination 1/1/2008

with CMS setting the effective date of termination..

008

(including CAP) for all contract determinations (non-

renewal, expedited termination, termination).........

Change regarding CAP process may be provided prior to 1/1/2008

notification of termination, and the imposition of

time limits on Corrective Action Plans...............

Change immediate termination to expedited termination 1/1/2008

with CMS setting the effective date of termination...

Elimination of Reconsideration Step for contract 1/1/2008

determination appeals................................

Implementation of Burden of Proof for contract 1/1/2008

determinations.......................................

Ability for a hearing officer to issue summary 1/1/2008

judgment.............................................

Request for Administrator review, submission of 1/1/2008

information, and timeframe associated with

Administrator review.................................

Settlement of Civil Money Penalties................... 1/1/2008

Appeal procedures for Civil Money Penalties........... 1/1/2008

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B. Distribution Table

The following crosswalk table references the changes we propose to

make to the prescription drug and the MA programs. We propose to make

the same changes to 42 CFR Parts 422 and 423 with minimum differences.

The crosswalk lists the section headings, for parts 422 and 423, and

indicates if the section is being deleted.

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B. Distribution Table

The following crosswalk table references the changes we propose to

make to the prescription drug and the MA programs. We propose to make

the same changes to 42 CFR Parts 422 and 423 with minimum differences.

The crosswalk lists the section headings, for parts 422 and 423, and

indicates if the section is being deleted.

Table 1.--Crosswalk of Part 422 and Part 423 CFR Sections

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Section heading Section references in part 422 Section references in part 423

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Definitions............................... 422.2.......................... 423.4.

Compliance Plan........................... 422.503(b)(4)(vi).............. 423.504(b)(4)(vi).

Access to Facilities and Records.......... 422.504(e) and 423.505(e).

422.503(d)(2)(iii).

Contract Provisions....................... 422.504(i)..................... 423.505(i).

Effective Date and Term of Contract....... 422.505........................ 423.506.

Non-renewal of contract................... 422.506........................ 423.507.

Termination of contract by CMS............ 422.510........................ 423.509.

Notice of contract determination.......... 422.644........................ 423.642.

Effect of contract determination.......... 422.646........................ 423.643.

Reconsideration: applicability............ 422.648 (delete)............... 423.644 (delete).

Request for reconsideration............... 422.650 (delete)............... 423.645 (delete).

Opportunity to submit evidence............ 422.652 (delete)............... 423.646 (delete).

Reconsidered determination................ 422.654 (delete)............... 423.647 (delete).

Notice of reconsidered determination...... 422.656 (delete)............... 423.648 (delete).

Effect of reconsidered determination.....

econsideration............... 422.650 (delete)............... 423.645 (delete).

Opportunity to submit evidence............ 422.652 (delete)............... 423.646 (delete).

Reconsidered determination................ 422.654 (delete)............... 423.647 (delete).

Notice of reconsidered determination...... 422.656 (delete)............... 423.648 (delete).

Effect of reconsidered determination...... 422.658 (delete)............... 423.649 (delete).

Right to a hearing and burden of proof.... 422.660........................ 423.650.

Request for hearing....................... 422.662........................ 423.651.

Postponement of effective date of a 422.664........................ 423.652.

contract determination when a request for

a hearing with respect to a contract

determination is filed timely.

Time and Place of Hearing................. 422.670........................ 423.655.

Discovery................................. 422.682........................ 423.661.

Prehearing and Summary Judgment........... 422.684........................ 423.662.

Review by the Administrator............... 422.692........................ 423.666.

Reopening of initial contract 422.696........................ 423.668.

determination or intermediate sanction or

decision of a hearing officer or the

Administrator.

Effect of revised determination........... 422.698 (delete)............... 423.669 (delete).

Types of intermediate sanctions and civil 422.750........................ 423.750.

money penalties.

Basis for imposing intermediate sanctions 422.752........................ 423.752.

and civil money penalties.

Procedures for imposing intermediate 422.756........................ 423.756.

sanctions and civil money penalties.

Collection of civil money penalty imposed 422.758........................ 423.758.

by CMS.

Determinations regarding the amount of 422.760........................ 423.760.

civil money penalties and assessment

imposed by CMS.

Settlement of penalties................... 422.762........................ 423.762

ntermediate 422.756........................ 423.756.

sanctions and civil money penalties.

Collection of civil money penalty imposed 422.758........................ 423.758.

by CMS.

Determinations regarding the amount of 422.760........................ 423.760.

civil money penalties and assessment

imposed by CMS.

Settlement of penalties................... 422.762........................ 423.762.

Other applicable provisions............... 422.764........................ 423.764.

Basis and scope........................... 422.1000....................... 423.1000.

Definitions............................... 422.1002....................... 423.1002.

Scope and applicability................... 422.1004....................... 423.1004.

Appeal rights............................. 422.1006....................... 423.1006.

Appointment of representatives............ 422.1008....................... 423.1008.

Authority of representatives.............. 422.1010....................... 423.1010.

Fees for services of representatives...... 422.1012....................... 423.1012.

Charge for transcripts.................... 422.1014....................... 423.1014.

Filing of briefs with the Administrative 422.1016....................... 423.1016.

Law Judge or Departmental Appeals Board,

and opportunity for rebuttal.

Notice and effect of initial 422.1018....................... 423.1018.

determinations.

Request for hearing....................... 422.1020....................... 423.1020.

Parties to the hearing.................... 422.1022....................... 423.1022.

Designation of hearing official........... 422.1024....................... 423.1024.

Disqualification of Administrative Law 422.1026....................... 423.1026.

Judge.

Prehearing conference..................... 422.1028....................... 423.1028.

Notice of prehearing conference........... 422.1030....................... 423.1030.

Conduct of prehearing conference.......... 422.1032....................... 423.1032

cial........... 422.1024....................... 423.1024.

Disqualification of Administrative Law 422.1026....................... 423.1026.

Judge.

Prehearing conference..................... 422.1028....................... 423.1028.

Notice of prehearing conference........... 422.1030....................... 423.1030.

Conduct of prehearing conference.......... 422.1032....................... 423.1032.

Record, order, and effect of prehearing 422.1034....................... 423.1034.

conference.

Time and place of hearing................. 422.1036....................... 423.1036.

Change in time and place of hearing....... 422.1038....................... 423.1038.

Joint hearing............................. 422.1040....................... 423.1040.

Hearing on new issues..................... 422.1042....................... 423.1042.

Subpoenas................................. 422.1044....................... 423.1044.

Conduct of hearing........................ 422.1046....................... 423.1046.

Evidence.................................. 422.1048....................... 423.1048.

Witnesses................................. 422.1050....................... 423.1050.

Oral and written summation................ 422.1052....................... 423.1052.

Record of hearing......................... 422.1054....................... 423.1054.

Waiver of right to appear and present 422.1056....................... 423.1056.

evidence.

Dismissal of request for hearing.......... 422.1058....................... 423.1058.

Dismissal for abandonment................. 422.1060....................... 423.1060.

Dismissal for cause....................... 422.1062....................... 423.1062.

Notice and effect of dismissal and right 422.1064....................... 423.1064.

to request review.

Vacating a dismissal of request for 422.1066....................... 423.1066.

hearing.

Administrative Law Judge's decision....... 422.1068....................... 423.1068.

Removal of hearing to Departmental Appeals 422.1070......................

........ 422.1062....................... 423.1062.

Notice and effect of dismissal and right 422.1064....................... 423.1064.

to request review.

Vacating a dismissal of request for 422.1066....................... 423.1066.

hearing.

Administrative Law Judge's decision....... 422.1068....................... 423.1068.

Removal of hearing to Departmental Appeals 422.1070....................... 423.1070.

Board.

Remand by the Administrative Law Judge.... 422.1072....................... 423.1072.

Right to request Departmental Appeals 422.1074....................... 423.1074.

Board review of Administrative Law

Judge's decision or dismissal.

Request for Departmental Appeals Board 422.1076....................... 423.1076.

review.

Departmental Appeals Board action on 422.1078....................... 423.1078.

request for review.

Procedures before Departmental Appeals 422.1080....................... 423.1080.

Board on review.

Evidence admissible on review............. 422.1082....................... 423.1082.

Decision or remand by the Departmental 422.1084....................... 423.1084.

Appeals Board.

Effect of Departmental Appeals Board 422.1086....................... 423.1086.

decision.

Extension of time for seeking judicial 422.1088....................... 423.1088.

review.

Basis, timing, and authority for reopening 422.1090....................... 423.1090.

an Administrative Law Judge or Board

decision.

Revision of reopened decision............. 422.1092....................... 423.1092.

Notice and effect of revised decision..... 422.1094....................... 423.1094.

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

C. Proposed Changes to Part 422--Medicare Advantage Program and Part

423--Medicare Prescription Drug Benefit Program

evision of reopened decision............. 422.1092....................... 423.1092.

Notice and effect of revised decision..... 422.1094....................... 423.1094.

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C. Proposed Changes to Part 422--Medicare Advantage Program and Part

423--Medicare Prescription Drug Benefit Program

Sections 422.2 and 423.4--Definitions

We are proposing to correct a technical oversight in both

regulations by including the definitions of ``downstream entity,''

``first tier entity,'' and ``related entity,'' in the overall

definitions sections of both the MA and Part D regulations at Sec.

422.2 and Sec. 423.4 to ensure that these terms are used consistently

throughout both programs. Since these three terms are only defined in

Subpart K of Parts 422 and 423, we are proposing to add them to Subpart

A, General Provisions at Sec. 422.4 and Sec. 423.4. The definitions

are as follows:

First tier entity means any party that enters into a written

arrangement, acceptable to CMS, with a Part D sponsor or an MA

organization or applicant to provide administrative services or health

care services for a Medicare eligible individual under the Part D or MA

program.

Downstream entity means any party that enters into a written

arrangement, acceptable to CMS, below the level of the arrangement

between a Part D sponsor or an MA organization (or applicant) and a

first tier entity. These written arrangements continue down to the

level of the ultimate provider of both health and administrative

services

care eligible individual under the Part D or MA

program.

Downstream entity means any party that enters into a written

arrangement, acceptable to CMS, below the level of the arrangement

between a Part D sponsor or an MA organization (or applicant) and a

first tier entity. These written arrangements continue down to the

level of the ultimate provider of both health and administrative

services.

Related entity means any entity that is related to the Part D

sponsor or MA organization by common ownership or control and (1)

Performs some of the Part D sponsor or MA organization's management

functions under contract or delegation; (2) Furnishes services to

Medicare enrollees under an oral or written agreement; or (3) Leases

real property or sells materials to the Part D sponsor or MA

organization at a cost of more than $2,500 during a contract period.

Below is a flow chart that provides examples of, and describes the

relationships between, Part D sponsors, and first tier, downstream, and

related entities. In accordance with the proposed changes above, we are

removing the term ``subcontractor'' from this previously published

flowchart. The original flowchart was published in the final version of

Chapter 9 of the Part

D Manual last year. We will make conforming changes to the manual at a

later date. After the flowchart we have provided examples of first tier

and downstream entities for MA organizations.

[GRAPHIC] [TIFF OMITTED] TP25MY07.000

we are

removing the term ``subcontractor'' from this previously published

flowchart. The original flowchart was published in the final version of

Chapter 9 of the Part

D Manual last year. We will make conforming changes to the manual at a

later date. After the flowchart we have provided examples of first tier

and downstream entities for MA organizations.

[GRAPHIC] [TIFF OMITTED] TP25MY07.000

An example of a first tier entity for MA organizations would be a

provider group that contracts with the MA organization to provide

health care services to MA members. An example of a downstream entity

for MA organizations would be an individual provider who contracts with

a provider group that contracts with the MA organization to provide

health care services to MA members.

Sections 422.503 and 423.504--General Provisions

The current regulations at Sec. 423.504 include a requirement that

a Part D sponsor's compliance plan consist of training and education as

well as effective lines of communication between the compliance

officer, and the organization's employees, contractors, agents,

directors, and managers. The terms ``contractor'' and ``agent'' are not

defined in current regulation, and it has been unclear to the industry

which entities are subject to the training and education, and the

effective lines of communication requirements. In response to industry

concerns and to eliminate the confusion associated with using the term

``contractor'', currently used in those sections, we are proposing to

revise paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D) of Sec. 423.504 to

clarify that a compliance plan must consist of training, education, and

effective lines of communication between the compliance officer and the

Part D sponsor's employees, managers, and directors, as well as the

Part D sponsor's ``first tier, downstream, and related entities'' which

are defined at 422.500 and 423.501

ing to

revise paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D) of Sec. 423.504 to

clarify that a compliance plan must consist of training, education, and

effective lines of communication between the compliance officer and the

Part D sponsor's employees, managers, and directors, as well as the

Part D sponsor's ``first tier, downstream, and related entities'' which

are defined at 422.500 and 423.501. This proposed change would clarify

that Part D plan sponsors need to apply these training and

communication requirements to all entities they are partnering with to

provide benefits or services in the Part D program, not just their

direct employees within their organizations.

Pursuant to our authority under section 1856(b)(1) of the Act to

establish Medicare Advantage standards by regulation, we are also

proposing to require MA organizations to apply their training and

education and effective lines of communication requirements to their

first tier, downstream, and related entities. Since many MA-PDs, as

Part D sponsors, have already been required to apply these requirements

to the entities they contract with to deliver the Part D benefit, we

are taking this opportunity to make the compliance plan requirements

uniform across MA organizations, MA-PDs, and other Part D sponsors.

Additionally, we propose clarifying paragraph (b)(4)(vi) in Sec.

422.503 and Sec. 423.504 by removing what we believe to be a

duplicative and confusing ``final element'' of the compliance plan-- a

``comprehensive fraud, waste, and abuse plan to detect, correct, and

prevent fraud, waste and abuse'' at paragraph (b)(4)(vi)(H) of both

regulations. We are proposing to remove this element because we

received feedback from many Part D sponsors indicating that it was not

clear whether CMS was requiring a fraud, waste, and abuse (FWA) plan

separate and distinct from a compliance plan

plan-- a

``comprehensive fraud, waste, and abuse plan to detect, correct, and

prevent fraud, waste and abuse'' at paragraph (b)(4)(vi)(H) of both

regulations. We are proposing to remove this element because we

received feedback from many Part D sponsors indicating that it was not

clear whether CMS was requiring a fraud, waste, and abuse (FWA) plan

separate and distinct from a compliance plan. In fact, we believe that

a compliance plan that meets the compliance plan requirements in the

regulations already has a ``comprehensive fraud, waste, and abuse plan

to detect, correct, and prevent fraud, waste, and abuse.''

In April 2006, we issued Chapter 9 of the Part D Manual (``Part D

Program to Control Fraud, Waste and Abuse'') as ``best practices''

guidance for Part D sponsors to develop a FWA plan. We intended for

Chapter 9 to be similar to the type of best practices guidance issued

by the Office of the Inspector General (OIG) in its Compliance Program

Guidance for drug manufacturers and health care providers. While we

clarified in Chapter 9 that Part D sponsors could choose whether to

incorporate FWA measures in a compliance plan or develop a separate,

stand-alone FWA plan, we believe the final element continues to cause

potential confusion to the industry and therefore, are proposing to

remove this element from (b)(4)(vi) of 422.503 and 422.504.

We continue to believe an effective compliance plan includes

procedures and policies for preventing fraud, waste, and abuse and have

proposed changes to the introductory clause of Sec. 423.504(b)(4)(vi)

that reflect our policy stance. Since Congress mandated that Part D

sponsors have a ``program to control fraud, waste, and abuse'' (section

1860D-4(c)(1)(D) of the Act), we also are clarifying that if Part D

plan sponsors develop an effective compliance plan that incorporates

measures to detect, prevent, and correct fraud, waste, and abuse, this

compliance plan would also satisfy the statutory requirement for

sponsors to have a FWA plan

mandated that Part D

sponsors have a ``program to control fraud, waste, and abuse'' (section

1860D-4(c)(1)(D) of the Act), we also are clarifying that if Part D

plan sponsors develop an effective compliance plan that incorporates

measures to detect, prevent, and correct fraud, waste, and abuse, this

compliance plan would also satisfy the statutory requirement for

sponsors to have a FWA plan. Part D sponsors should look to Chapter 9

as recommended guidance for the types of measures we recommend in

detecting and preventing fraud, waste, and abuse. Chapter 9 can be

viewed at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf.

Also pursuant to our authority under section 1856(b)(1) of the Act,

we are proposing to make the same change to the introductory clause of

Sec. 422.503(b)(4)(vi) so that the compliance plan requirements for MA

organizations will be identical to those for Part D sponsors. We

propose that MA organizations must include ``measures to detect,

correct, and prevent fraud, waste, and abuse'' throughout the 7

elements of the compliance plan requirement. While the existing MA

compliance plan requirement does not explicitly refer to the prevention

of fraud, waste, and abuse, it has always been our expectation that

fraud, waste, and abuse would be addressed through the implementation

of each of the 7 elements in a compliance plan, enumerated at

paragraphs (A) through (G) of Sec. 422.504(b)(4)(vi). It has been our

longstanding policy that an effective MA compliance plan addresses the

detection, correction, and prevention of fraud, waste, and abuse in the

MA program, and our proposed change would make this policy explicit in

our regulations. We welcome your comments on this proposal.

Since we are proposing to remove Sec. 423.504(b)(4)(vi)(H), we are

proposing to add paragraph (b)(4)(vi)(G)(3) to Sec. 423.504 to include

a provision on self-reporting of potential fraud or misconduct, which

was addressed in Sec. 423.504(b)(4)(vi)(H)

abuse in the

MA program, and our proposed change would make this policy explicit in

our regulations. We welcome your comments on this proposal.

Since we are proposing to remove Sec. 423.504(b)(4)(vi)(H), we are

proposing to add paragraph (b)(4)(vi)(G)(3) to Sec. 423.504 to include

a provision on self-reporting of potential fraud or misconduct, which

was addressed in Sec. 423.504(b)(4)(vi)(H). Pursuant to our authority

under section 1856(b)(1) of the Act we also propose to add paragraph

(b)(4)(vi)(G)(3) to Sec. 422.503 to add a self-reporting provision to

the MA regulations as well, in order to make the compliance plan

requirements uniform across MA organizations and Part D sponsors.

We note that when the original Part C regulations were issued in a

June 26, 1998 interim final rule establishing a new part 422, they

included a self-reporting requirement at Sec. 423.501(b)(4)(vi)(H).

(See 63 FR 35100.) Unlike the current Part D self-reporting provision,

this original paragraph (H) required that compliance plans have an

``adhered-to-process for reporting to [CMS] and/or the OIG credible

information of violations of law by the [MA] organization * * *.'' In a

June 29, 2000 final rule responding to comments on the June 26, 1998

interim final rule, this mandatory self-reporting requirement was

eliminated. (See 65 FR 40264-40265, 40299.)

We believe that the decision to eliminate a mandatory self-

reporting requirement has contributed to some highly publicized cases

in which we have first found out about a major MA organization

compliance issue when it appeared in the press. We have expressed our

concerns in such situations that the matter was not promptly reported

to us when it came to the attention of the MA organization in question.

We believe that it is important for the government to have information

on possible fraud or misconduct as soon as possible in order to

determine whether any actions would be appropriate

mpliance issue when it appeared in the press. We have expressed our

concerns in such situations that the matter was not promptly reported

to us when it came to the attention of the MA organization in question.

We believe that it is important for the government to have information

on possible fraud or misconduct as soon as possible in order to

determine whether any actions would be appropriate. We therefore are

proposing to restore a mandatory self-reporting requirement for MA

organizations, and to make the self-reporting provision that applies to

Part D sponsors mandatory. The language in the new proposed Sec.

423.504(b)(4)(vi)(G)(3) and new proposed Sec. 422.503(b)(4)(vi)(G)(3)

accordingly provides for mandatory self-reporting. We welcome your

comments on all of these changes.

Sections 422.504 and 423.505--General Provisions

We are proposing to clarify which entities under contract to MA

organizations and Part D sponsors are subject to the contract

provisions in the MA and Part D programs. Currently, the contract

provisions at 422.504 and 423.505 refer to such entities as the MA

organization or Part D sponsor's ``contractors'' and

``subcontractors,'' which as we described above, are undefined terms in

the statute and regulations. We are proposing, where applicable, to

delete the term ``contractor'' and replace the term ``subcontractor''

with the terms ``first tier and downstream entity'' in 422.504(e) and

sions at 422.504 and 423.505 refer to such entities as the MA

organization or Part D sponsor's ``contractors'' and

``subcontractors,'' which as we described above, are undefined terms in

the statute and regulations. We are proposing, where applicable, to

delete the term ``contractor'' and replace the term ``subcontractor''

with the terms ``first tier and downstream entity'' in 422.504(e) and

(i) to clarify which entities are subject to the contract provisions at

422.504.

We are also proposing, where applicable, to delete the term

``contractor,'' and replace the term ``subcontractor'' with the terms

``first tier entity'' and ``downstream entity'' in the Part D contract

provisions at 423.505(e) and (i) for the same reasons. We believe using

``first tier and downstream entity'' instead of ``subcontractor'' would

lessen the potential for confusion in the Part D program. To clarify,

under the Part D program, an example of a ``first tier entity'' is a

pharmaceutical benefit manager (PBM) under contract to a Part D sponsor

to provide all or some aspect of the Part D benefit on behalf of the

sponsor. An example of a ``downstream entity'' in the Part D program is

a pharmacy under contract to such a PBM. As discussed above, we are

proposing to use the definitions of ``first tier entity'' and

``downstream entity'' (as well as ``related entity'') set forth at

Sec. 423.501 to lessen any potential confusion in both programs. We

welcome your comments on these proposed changes to the contract

provisions.

We have existing authority under section 1860D-12(b)(3)(c) of the

Act and Sec. 422.504(e) and Sec. 423.505(e) to inspect and audit any

books, contracts, requests, and records of a Part D sponsor or MA

organization relating to the Part D program

h at

Sec. 423.501 to lessen any potential confusion in both programs. We

welcome your comments on these proposed changes to the contract

provisions.

We have existing authority under section 1860D-12(b)(3)(c) of the

Act and Sec. 422.504(e) and Sec. 423.505(e) to inspect and audit any

books, contracts, requests, and records of a Part D sponsor or MA

organization relating to the Part D program. In the preamble to the

Part D proposed rule, published on January 28, 2005 (70 FR 4194),

describing these provisions, we clearly stated our inspection and audit

rights with respect to a Part D sponsor and its contractors,

subcontractors, and related entities under the section entitled

``Access to Facilities and Records.'' (69 FR 46632, 46712). These third

party disclosure requirements were finalized in the final MA and Part D

rules and were approved

under the Paperwork Reduction Act approval under OMB 0938-1004

(Part C) and OMB 0938-1000 (Part D). The information

collection section of this preamble also references the OMB approval

numbers.

In addition, we note that the solicitation for a Part D application

already requires that a Part D sponsor's contract or letter of

agreement with each subcontractor ``contain language ensuring that the

subcontractor will make its books and other records available in

accordance with 42 CFR 423.505(i)(2).''

Under this established legal authority, HHS, the Comptroller

General, or their designees have the right to inspect, evaluate, and

audit the books and other records of Part D sponsors and their first

tier, downstream, and related entities. These rights continue for a

period of 10 years from the final date of the contract period or the

date of audit completion, whichever is later

.505(i)(2).''

Under this established legal authority, HHS, the Comptroller

General, or their designees have the right to inspect, evaluate, and

audit the books and other records of Part D sponsors and their first

tier, downstream, and related entities. These rights continue for a

period of 10 years from the final date of the contract period or the

date of audit completion, whichever is later. However, based on

industry feedback and our own varied experience with accessing Medicare

payment-related records from subcontracting entities, we believe we

need to provide clarity to both the Part D sponsors and their first

tier, downstream, and related entities regarding our expectation for

complying with this disclosure requirement. Our expectation is that the

first tier, downstream, and related entities will, upon CMS' or our

designees' request, produce any pertinent contracts, books, documents,

papers, and records relating to the Part D program.

We are proposing in this rule to add a provision to the contracts

and written arrangements between sponsors and their first tier,

downstream, and related entities at Sec. 423.505(i)(3)(iv) to clarify

that this information can be provided to either the Part D sponsor or

directly to CMS or our designees. We do not intend this new contract

provision to explicitly require first tier, downstream, or related

entities to produce their books and records directly to the Part D

sponsor. Instead, we propose to leave it to the contracting parties to

determine during their contract negotiations the process for submitting

the requested information to CMS or our designees. The provision must

be clear as to whether or not the requested documentation is to be

submitted through the Part D sponsor to CMS, or submitted directly to

CMS or our designees. The parties could also decide to have such books

and records made directly available to CMS or our designees through

onsite access

iations the process for submitting

the requested information to CMS or our designees. The provision must

be clear as to whether or not the requested documentation is to be

submitted through the Part D sponsor to CMS, or submitted directly to

CMS or our designees. The parties could also decide to have such books

and records made directly available to CMS or our designees through

onsite access. The Part D sponsor should be prepared to submit evidence

of this agreed upon provision in its executed contracts to CMS.

Because of the proposed contract provision, we are also proposing

to redesignate Sec. 423.505(i)(4)(iv) as Sec. 423.505(i)(4)(v).

In accessing Part D-related books and records, HHS, the Comptroller

General, or its designees have the authority to collect any information

from the first tier, downstream, or related entities that is related to

the Medicare Part D prescription drug transaction. Examples of this

type of information include, but are not limited to: Policies and

procedures; compliance plans; statements of conflict of interest; proof

of beneficiary identification; documentation of the quantity and

frequency of drugs being received by the beneficiary; evidence of the

prescriber of the Part D drugs and the individual who signs for the

drugs; and documentation relating to the drug's history and origin.

This information is critical to our ability to effectively oversee and

monitor the Part D benefit, with the ultimate goal of protecting the

Medicare Trust Fund and those beneficiaries enrolled in Part D. The

information provided will be used to conduct investigations and audits

of the Part D sponsors and its first tier, downstream, or related

entities, to ensure compliance with Medicare Part D requirements, and

to address potential fraud, waste, and abuse in the Part D benefit.

CMS or our designees will make information requests as necessary to

support any Part D investigations and audits

D. The

information provided will be used to conduct investigations and audits

of the Part D sponsors and its first tier, downstream, or related

entities, to ensure compliance with Medicare Part D requirements, and

to address potential fraud, waste, and abuse in the Part D benefit.

CMS or our designees will make information requests as necessary to

support any Part D investigations and audits. There is no continuous

reporting requirement under sections 423.505(e) and (i), but rather

requests are dependent upon the nature and severity of the complaint

and the extent to which the investigation relies on supporting data

from the first tier, downstream, and related entities.

In addition to proposing a new contract provision at Sec.

423.505(i)(4)(iv), we are also proposing minor regulatory changes which

clarify the sponsor's CMS contractual requirements. While we continue

to believe our regulations clearly state our authority to access the

books and records of a sponsor's first tier, downstream, and related

entities, we are proposing to add language about these partnering

entities to Sec. 423.505(b)(10) and proposing to consolidate Sec.

423.505(e)(2) and (3) into one provision at (e)(2). We are proposing

these revisions to make explicit the Part D plan sponsor's contractual

obligation to ensure HHS, the Comptroller General, or their designees

have access to any books and records related to the Part D program,

including those of a sponsor's first tier, downstream, and related

entities. These proposed revisions do not impose any new requirements

on Part D sponsors or its partnering entities.

We are also proposing to clarify, without specific regulatory

change in this rule that HHS, the Comptroller General, or their

designees have the authority under the statute to request records

relating to Part D rebate and any other price concessions information

from Part D sponsors or their first tier, downstream, or related

entities

quirements

on Part D sponsors or its partnering entities.

We are also proposing to clarify, without specific regulatory

change in this rule that HHS, the Comptroller General, or their

designees have the authority under the statute to request records

relating to Part D rebate and any other price concessions information

from Part D sponsors or their first tier, downstream, or related

entities. These records would include, for example, copies of rebate

agreements between PBMs and manufacturers and any records reflecting

discounts, price concessions, chargebacks, rebates, cash discounts,

free goods contingent on a purchase agreement, up-front payments,

coupons, goods in kind, free or reduced price services, grants or other

price concessions or similar benefits offered to some or all

purchasers.

Part D plan sponsors must maintain, as required by Sec.

423.505(d), financial records, books and records pertaining to

``determinations of amounts payable under the contract,'' agreements,

contracts, and subcontracts, and ``all prescription drug claims for the

current period and 10 prior periods.'' Since Part D sponsors have

delegated many Part D functions to their first tier entities, many of

these records reside with first tier entities, such as PBMs. We are

taking this opportunity in this proposed rule to make explicit that we

have the authority to request for verification of payment purposes, any

records relating to rebates and any other price concessions between

PBMs and manufacturers that may impact payments made to sponsors in the

Part D program.

We believe our proposal to obtain rebate and price-concession

related records is supported by the statute. Sections 1860D-15(d)(2)

and 1860D-15(f)(1)(A) of the Act give us authority to request any

information ``necessary'' to carry out the payment provisions in

section 1860D-15 of the Act, which include payments of direct

subsidies, reinsurance, and risk corridor costs to sponsors

D program.

We believe our proposal to obtain rebate and price-concession

related records is supported by the statute. Sections 1860D-15(d)(2)

and 1860D-15(f)(1)(A) of the Act give us authority to request any

information ``necessary'' to carry out the payment provisions in

section 1860D-15 of the Act, which include payments of direct

subsidies, reinsurance, and risk corridor costs to sponsors. While the

rebate and other price concession information reported by the sponsors

may provide some payment information, it may not be enough for us to

determine in all cases whether appropriate payments have been made to

the sponsor. It may be ``necessary'' for us to obtain more detailed

rebate and other price concession information from first tier entities

in order to verify proper payments made to the sponsor. For example, we

must receive accurate and complete rebate and other price concession

information in order to determine what was ``actually paid'' and

to clearly reflect what was a gross covered cost, which excludes

administrative costs.

As stated in the CMS 2007 Prescription Drug Sponsor Call Letter,

``CMS must assume that if a PBM retains a portion of the manufacturer

rebates it negotiates on behalf of the Part D sponsors then the direct

payment the sponsor pays the PBM for its services will be less, that

is, the sponsor receives a price concession from the PBM.'' If the

rebates are passed completely through to the Plan then the charge from

the PBM to the Plan would be an administrative cost that will need to

be deducted from the ``gross covered prescription drug costs'' which

along with the ``actually paid costs'' are a basis for CMS payment to

the plans.

In addition, such rebate and other price concession information is

critical to our oversight efforts in curbing fraud, waste, and abuse in

the Part D program

the charge from

the PBM to the Plan would be an administrative cost that will need to

be deducted from the ``gross covered prescription drug costs'' which

along with the ``actually paid costs'' are a basis for CMS payment to

the plans.

In addition, such rebate and other price concession information is

critical to our oversight efforts in curbing fraud, waste, and abuse in

the Part D program. Congress granted us, under section 1860D-2(d)(3) of

the Act, the right to conduct periodic audits of a sponsor's financial

statements, books, and records ``to protect against fraud and abuse and

to ensure proper disclosure and accounting'' in the Part D program.

Given the history of rebate reporting problems the government has

encountered with PBMs in administering the Medicaid Drug Rebate Act, we

believe we must have the ability to evaluate and inspect records

relating to Part D rebates and other price concessions in order to

fulfill our statutory duty of protecting beneficiaries from fraud and

abuse and to ensure the financial integrity of the Part D program.

Therefore, we propose when appropriate, to reserve the right to request

records relating to Part D rebates and price concessions from the

sponsor's first tier entities.

To the extent information necessary to verify payment would be

collected under the auspices of section 1860D-15 of the Act, the

restrictions on using such information under 1860D-15(f) and (d) of the

Act would also apply. Thus, the information collected to verify payment

would be used only in carrying out the provisions of section 1860D-15

of the Act, and would not be used for other purposes.

We are also clarifying in this proposed rule that in instances of

suspected improper payment or potential fraud, we may obtain the actual

records used by a Part D sponsor to submit its prescription drug event

(PDE) data for payment, whether such records are with the sponsor or

its first tier, downstream, or related entities

ction 1860D-15

of the Act, and would not be used for other purposes.

We are also clarifying in this proposed rule that in instances of

suspected improper payment or potential fraud, we may obtain the actual

records used by a Part D sponsor to submit its prescription drug event

(PDE) data for payment, whether such records are with the sponsor or

its first tier, downstream, or related entities. Sections 1860D-

15(d)(2)(A) and 1860D-15(f)(1) of the Act require the sponsor to

disclose or provide ``such information as the Secretary determines is

necessary'' to verify appropriate payments made to the Part D sponsor

and to do so in a ``form and manner'' specified by the Secretary. The

Secretary has also delegated to CMS inspection and audit rights under

section 1860D-15(f)(1)(B) of the Act to ensure proper payments to

sponsors.

Based on these authorities, we are clarifying in the preamble of

this proposed rule that we have the ability to access any records used

by a Part D plan sponsor to calculate and submit its PDE data,

including any records with the sponsor's first tier, downstream, or

related entities, for purposes of verifying payment. In order to verify

accurate payments to the Part D plan sponsor, we may need at times to

evaluate the records which comprised the basis for the PDE submission

to ensure there are no inconsistencies, inaccuracies, or mistakes

contained in these records which could have resulted in inappropriate

or inaccurate determinations of payment. Moreover, we may need to

review the underlying records of the PDE submission for purposes of

investigating allegations of misconduct such as data tampering,

fraudulent misrepresentation, or omissions of data which could have

affected whether appropriate and accurate payments were made to the

sponsor

e records which could have resulted in inappropriate

or inaccurate determinations of payment. Moreover, we may need to

review the underlying records of the PDE submission for purposes of

investigating allegations of misconduct such as data tampering,

fraudulent misrepresentation, or omissions of data which could have

affected whether appropriate and accurate payments were made to the

sponsor.

In such instances of suspected fraud or improper payment, we may

request from the sponsor, or its first tier, downstream, and related

entities, records that include for example, the prescription drug claim

or transaction record submitted by a pharmacy to a PBM. We are

soliciting comment on what types of records should be subject to this

access requirement. Again, to the extent such information would be

provided under the authority of 1860D-15 of the Act, the restrictions

on use in that section would also apply.

We note that any failure or omission by a first tier, downstream,

or related entity to provide information requested by us, or to allow

HHS access to its books and records relating to payment, would

constitute a violation by the MA organization or Part D plan sponsor of

its contract with us and a violation of the MA and Part D regulations.

Such a failure would provide the basis for any applicable adverse

actions, including potentially, the imposition of intermediate

sanctions, civil money penalties, or contract termination against the

Part D sponsor or MA organization. We welcome comments on these

proposed changes.

Sections 422.505 and 423.506--Effective Date and Term of Contract

We propose removing Sec. 422.505(c)(1) and Sec. 423.506(c)(1),

which state that contracts with MA organizations or Part D plan

sponsors are only renewed if CMS informs the MA organization or Part D

sponsor that it has authorized a renewal

nst the

Part D sponsor or MA organization. We welcome comments on these

proposed changes.

Sections 422.505 and 423.506--Effective Date and Term of Contract

We propose removing Sec. 422.505(c)(1) and Sec. 423.506(c)(1),

which state that contracts with MA organizations or Part D plan

sponsors are only renewed if CMS informs the MA organization or Part D

sponsor that it has authorized a renewal. Section 1857(c)(1) of the Act

provides that the contract renews automatically, unless CMS or the

organization notifies the other party of its intent to terminate the

contract at the end of the existing contract term. Therefore, we

propose to revise Sec. 422.505(c) and Sec. 423.506(c) to state that

in accordance with Sec. 422.506 and Sec. 423.507, contracts are

renewed annually only if the MA organization or Part D plan sponsor has

not provided us with a notice of intent not to renew and we have not

provided the MA organization or Part D plan sponsor with a notice of

intent not to renew. This proposed change would better align the

regulations with the statute.

Sections 422.506 and Sec. 423.507--Nonrenewal of a Contract

We propose revising the introductory text for Sec. 422.506(b)(2)

and Sec. 423.507(b)(2). In addition, we propose revising Sec.

422.506(b)(2)(i) and Sec. 423.507 (b)(2)(i). The existing provisions

require us to provide plans with notice of both renewal and nonrenewal

decisions by May 1. We propose that a notice only be provided if we

decide not to renew an MA organization or a Part D plan sponsor's

contract with us. As discussed above, Section 1857(c)(1) of the Act

provides for an automatically renewable contract and does not require

us to provide notice when we decide to renew a plan or sponsor's

contract with us. We propose revising the Sec. 422.506(b)(2)

introductory text and the Sec. 423.507(b)(2) introductory text to

clarify that we must provide notice of our decision not to authorize

renewal of a contract. In addition, we propose to revise Sec.

422.506(b)(2)(i) and Sec

ically renewable contract and does not require

us to provide notice when we decide to renew a plan or sponsor's

contract with us. We propose revising the Sec. 422.506(b)(2)

introductory text and the Sec. 423.507(b)(2) introductory text to

clarify that we must provide notice of our decision not to authorize

renewal of a contract. In addition, we propose to revise Sec.

422.506(b)(2)(i) and Sec. 423.507 (b)(2)(i) to require that we provide

notice by September 1 of the contract year, rather than May 1. If an MA

organization or Part D sponsor receives a non-renewal notice from CMS,

we will not provide information regarding the MA or Part D plans that

the organization or sponsor offers in certain hard copy materials, such

as the ``Medicare & You'' handbook. Information regarding the plans

would continue to be available on the CMS website. For purposes of this

proposed rule, a non-renewal would take effect on January 1 of the

following contract year, whereas a termination may take effect at any

time during the

contract year. Our proposed provisions would make contract renewal

automatic, without notice, unless we notify the MA organization or

Medicare Part D plan sponsor of our intent to nonrenew the contract by

September 1 of the current contract year. We welcome comments on these

proposed changes.

Changing the notification deadline to September 1 would provide us

with additional time to make a determination as to whether an MA

organization or Part D plan sponsor is in compliance with our

requirements and should have its contract renewed for the following

contract year. It has been our experience that the May 1 deadline does

not provide us with enough time to obtain accurate up-to-date

information in order to make a decision about contract renewals. This

change would provide more time for us to make an accurate determination

concerning contract non-renewals.

We propose redesignating Sec. 422.506(b)(3) as Sec. 422.506(b)(4)

and redesignating Sec. 423.507(b)(3) as Sec. 423.507(b)(4)

ce that the May 1 deadline does

not provide us with enough time to obtain accurate up-to-date

information in order to make a decision about contract renewals. This

change would provide more time for us to make an accurate determination

concerning contract non-renewals.

We propose redesignating Sec. 422.506(b)(3) as Sec. 422.506(b)(4)

and redesignating Sec. 423.507(b)(3) as Sec. 423.507(b)(4). We

propose adding a new paragraph at Sec. 422.506(b)(3) and Sec.

423.507(b)(3) which would clarify the CAP process for nonrenewals. The

Act requires us to provide MA organizations and Part D plan sponsors

with a reasonable opportunity to develop a CAP prior to terminating a

contract, in this case, a nonrenewal. The CAP process for nonrenewals

would be the same process as we propose for terminations. We propose a

more structured process which outlines the processes and timeframes for

CAPs. Since we have the discretion to provide plans with the

opportunity to develop and implement a CAP either prior to, or after,

sending out a notice of intent to nonrenew, we would provide an MA

organization or Part D plan sponsor with an opportunity to develop and

implement a CAP prior to sending the sponsor or organization a notice

of intent to nonrenew. This proposal marks a divergence from our past

practice with respect to the CAP process as we have previously asked

sponsors or organizations to develop CAPs subsequent to notifying them

of a nonrenewal or termination decision. Our proposal clarifies that,

in the future, once we issue a notice of nonrenewal or a notice of

termination, the MA organization or Part D plan sponsor would not have

an opportunity to submit a CAP. We would provide that opportunity to

organizations and sponsors prior to issuing a notice of intent to

nonrenew or a notice of intent to terminate. MA organizations and Part

D plan sponsors should take very seriously any request from us to

develop and implement a CAP since a failure to comply may result in a

nonrenewal or termination action

nsor would not have

an opportunity to submit a CAP. We would provide that opportunity to

organizations and sponsors prior to issuing a notice of intent to

nonrenew or a notice of intent to terminate. MA organizations and Part

D plan sponsors should take very seriously any request from us to

develop and implement a CAP since a failure to comply may result in a

nonrenewal or termination action. We welcome comments on these proposed

changes.

We propose time limits at Sec. 422.506(b)(3) and Sec.

423.507(b)(3) for the development and implementation of a CAP. Our

experience with the CAP process is that plans may attempt to draw out

the process indefinitely in the absence of a time limit. We do not

believe that the statute intends for this process to go on

indefinitely. We propose to provide the MA organization or Part D plan

sponsor 45 days in which to submit a CAP to us. If we find that the CAP

is unacceptable, the MA organization or Part D plan sponsor would have

an additional 30 days to revise and resubmit the CAP. If we then find

the CAP acceptable, we would provide the MA organization or Part D plan

sponsor with a deadline by which the CAP must be implemented. If we

find that the second version of the CAP is unacceptable, we would be

under no obligation to accept further revisions to the CAP and would

have the discretion to proceed directly to issuing a notice of

nonrenewal to the MA organization or Part D plan sponsor. We welcome

comments on these proposed changes.

Sections 422.510 and 423.509--Termination of Contract by CMS

We propose revising Sec. 422.510(a)(1) and Sec. 423.509(a)(1) to

clarify one of the bases for contract termination

on to accept further revisions to the CAP and would

have the discretion to proceed directly to issuing a notice of

nonrenewal to the MA organization or Part D plan sponsor. We welcome

comments on these proposed changes.

Sections 422.510 and 423.509--Termination of Contract by CMS

We propose revising Sec. 422.510(a)(1) and Sec. 423.509(a)(1) to

clarify one of the bases for contract termination. The existing

provision states that we may terminate an MA organization or Part D

plan sponsor's contract with us if the MA organization or Part D plan

sponsor ``failed substantially to carry out the terms of its contract

with CMS.'' We propose language to clarify that we may terminate an MA

organization or Part D plan sponsor's contract if the organization

substantially failed to carry out the terms of its contract with us for

the current term or its contract from a previous term. This

clarification would be consistent with section 1857(c)(1) of the Act,

which states that a contract must be for a period of at least 1 year

with the contract being automatically renewable from term to term,

absent notice from either party of an intent to terminate the contract

at the end of the current term. Given that we have already adopted

automatically renewable multi-year contracts, failure to substantially

carry out a contract term necessarily would apply to all years of the

contract.

We propose revising Sec. 422.510(b) and Sec. 423.509(b)

introductory text and revising the paragraph heading for Sec.

422.510(b)(2) and Sec. 423.509(b)(2) to delete the term ``immediate''

and replace it with ``expedited''. In addition, we propose revising

Sec. 422.510(b)(2)(i) and Sec. 423.509(b)(2)(i) to state that an

expedited termination would take effect on a date specified by us

ntract.

We propose revising Sec. 422.510(b) and Sec. 423.509(b)

introductory text and revising the paragraph heading for Sec.

422.510(b)(2) and Sec. 423.509(b)(2) to delete the term ``immediate''

and replace it with ``expedited''. In addition, we propose revising

Sec. 422.510(b)(2)(i) and Sec. 423.509(b)(2)(i) to state that an

expedited termination would take effect on a date specified by us.

According to the existing regulations, an immediate termination takes

effect once the MA organization or Part D plan sponsor receives notice

that we intend to immediately terminate the plan's contract with us and

a plan's enrollees are automatically disenrolled from the plan on the

date such notice is received. Our proposed change would provide greater

protection for Medicare beneficiaries because we would have time

between notifying a plan of an expedited termination decision and the

actual date of termination to provide enrollees of the MA or Part D

plan with enough information to enroll in another plan. We welcome

comments on these proposed changes.

These changes are supported by section 1857(h)(2) of the Act which

permits us to terminate a contract with an MA organization or Part D

plan sponsor without providing the plan with an opportunity to submit a

CAP and without notice and opportunity for a hearing, where the notice

and hearing procedures required by section 1857(h)(1) of the Act would

pose an imminent and serious risk to the health of enrollees in the

plan. Section 1857(h)(2) of the Act is silent on the specifics of this

alternate termination process and does not require ``immediate''

termination; merely that the procedures at section 1857(h)(1) of the

Act shall not apply.

We would also clarify that we would be able to invoke the expedited

termination process when a determination regarding an MA organization

is made according to Sec. 422.510(a)(5). The existing regulations

state that we invoke the current immediate termination process when a

determination is made according to Sec

ion; merely that the procedures at section 1857(h)(1) of the

Act shall not apply.

We would also clarify that we would be able to invoke the expedited

termination process when a determination regarding an MA organization

is made according to Sec. 422.510(a)(5). The existing regulations

state that we invoke the current immediate termination process when a

determination is made according to Sec. 422.510(a)(4) for the MA

program and Sec. 423.509(a)(4) or (a)(5) for the Medicare Part D

program. By adding (a)(5) as a basis for an expedited termination for

MA organizations, the grounds for expedited terminations would be

identical for the MA and Part D programs. The addition of Sec.

422.510(a)(5) would provide consistency between the Part C regulations

and the Part D regulations.

We propose to amend our procedures at Sec. 422.510(c) and Sec.

423.509(c) to provide more structure to the process for the submission

and review of CAPs. The Act requires us to provide MA organizations and

Part D plan sponsors with a reasonable opportunity to

develop and implement a CAP before we terminate the organization or

sponsor's contract. The CAP process we are proposing is the same

process for nonrenewals outlined above and which we are proposing at

Sec. 422.506 and Sec. 423.507, providing for a more structured

process and timeframes for the development and implementation of a CAP.

Subpart N--Medicare Contract Determinations and Appeals

We propose revisions to subpart N of 42 CFR part 422 and 42 CFR

part 423 to coordinate and improve the contract determination and

appeals processes for MA organizations and Part D plan sponsors. We

propose removing the reconsideration process for appeals of all types

of contract determinations. We also propose to make the appeals process

consistent for all three types of contract determinations

(terminations, nonrenewals, and decisions by us not to enter into a

contract with an applicant)

the contract determination and

appeals processes for MA organizations and Part D plan sponsors. We

propose removing the reconsideration process for appeals of all types

of contract determinations. We also propose to make the appeals process

consistent for all three types of contract determinations

(terminations, nonrenewals, and decisions by us not to enter into a

contract with an applicant). In addition, we propose that the MA

organization or Part D plan sponsor have the burden of proof in

appealing a contract determination. Below is a more detailed

explanation of our proposals.

We propose removing the provisions regarding the reconsideration

process for appeals of contract determinations at Sec. 422.648, Sec.

422.650, Sec. 422.652, Sec. 422.654, Sec. 422.656, Sec. 422.658,

Sec. 423.644, Sec. 423.645, Sec. 423.646, Sec. 423.647, Sec.

423.648, and Sec. 423.649. Section 1857(h) of the Act requires only

that we provide an organization with notice and an opportunity for a

hearing before terminating a contract. The reconsideration process is

not required by statute. Eliminating the reconsideration process would

expedite the appeals process which would benefit MA organizations and

Part D plan sponsors as well as CMS. We welcome comments on the

proposal to eliminate the reconsideration process for appeals or

contract determinations.

Sections 422.644 and 423.642--Notice of Contract Determination

We are proposing to make conforming changes to Sec. 422.644(b)(2)

and Sec. 423.642(b)(2) as a result of the changes we are making to the

immediate termination process. Consistent with the proposed revisions

we have previously described, we propose to revise Sec. 422.644(c) and

Sec. 423.642(c) to state that we would determine the effective date of

an expedited termination. We also propose adding the reference Sec.

422.510(a)(4) as a basis for which we may undertake an expedited

termination.

We also propose to revise the provisions at Sec. 422.644(d) and

Sec

onsistent with the proposed revisions

we have previously described, we propose to revise Sec. 422.644(c) and

Sec. 423.642(c) to state that we would determine the effective date of

an expedited termination. We also propose adding the reference Sec.

422.510(a)(4) as a basis for which we may undertake an expedited

termination.

We also propose to revise the provisions at Sec. 422.644(d) and

Sec. 423.642(d) to conform to the proposed change previously described

whereby we would provide notice of nonrenewal to MA organizations or

Part D plan sponsors by September 1, rather than the current May 1. We

welcome comments on the proposal to shift the date of the notice of

nonrenewal from May 1 to September 1.

Sections 422.646 and 423.643--Effect of Contract Determination

We propose making conforming changes to the provisions at Sec.

422.646 and Sec. 423.643 to reflect our proposal to eliminate the

reconsideration process. The current regulations state that a contract

determination is final unless an MA organization or Part D plan sponsor

requests reconsideration. Since we have proposed eliminating the

reconsideration process, we are proposing a conforming change to

indicate that a contract determination would be a final decision unless

a timely request for a hearing is filed.

Sections 422.660 and 423.650--Right to a Hearing and Burden of Proof

We also propose making conforming changes to the provisions at

Sec. 422.660(a) and 423.650(a) to reflect our proposal to eliminate

the reconsideration process. These provisions would then state that if

we determine that an applicant is not qualified to enter into a

contract with us and the applicant chooses to appeal the determination,

a hearing before a CMS hearing officer would be the first step in the

appeal process. We propose to make similar conforming changes to Sec.

422.660(b) and Sec. 423.650(b), to indicate that a hearing before a

CMS hearing officer would be the first step in appealing a nonrenewal

determination or a termination decision

to a

contract with us and the applicant chooses to appeal the determination,

a hearing before a CMS hearing officer would be the first step in the

appeal process. We propose to make similar conforming changes to Sec.

422.660(b) and Sec. 423.650(b), to indicate that a hearing before a

CMS hearing officer would be the first step in appealing a nonrenewal

determination or a termination decision.

We propose to add a new provision at Sec. 422.660(c) and at Sec.

423.650(c) to clarify that the burden of proof would be on the MA

organization or Part D plan sponsor at a hearing appealing a CMS

contract determination. We believe case law supports our decision to

place the burden of proof on the affected party in an administrative

hearing on a contract determination involving a Part D plan sponsor or

MA organization. The DAB has previously held that in a termination

proceeding by the Secretary, the facility bears the ultimate burden of

proving it is in compliance with program requirements. (See Hillman

Rehabilitation Center, DAB No. 1611 (1990), aff'd Hillman

Rehabilitation Center v. United States, No. 98-3789 (GEB)(D.N.J. May

13,1999).) We require that MA organizations and Part D sponsors are in

compliance with our program requirements during the entire contract

period. When we provide a notice of nonrenewal or termination, the

basis for the notice is noncompliance with contractual and regulatory

provisions. Once we have determined that the MA organization or Part D

plan sponsor is out of compliance, the MA organization or Part D plan

sponsor has the burden to prove it was in compliance

pliance with our program requirements during the entire contract

period. When we provide a notice of nonrenewal or termination, the

basis for the notice is noncompliance with contractual and regulatory

provisions. Once we have determined that the MA organization or Part D

plan sponsor is out of compliance, the MA organization or Part D plan

sponsor has the burden to prove it was in compliance. In addition, we

also propose to specify that the MA organization or Part D plan sponsor

must demonstrate substantial compliance with the relevant MA or Part D

plan requirements as of the earliest of the following dates: (1) The

date the organization or sponsor received written notice of the

contract determination; (2) the date of the most recent on-site audit

conducted as the basis of the termination; (3) or the date of the

alleged breach of the current contract or past substantial

noncompliance as determined by CMS. We welcome comments on these

proposed changes.

Based on our experience with appeals of contract determinations, we

have found the current regulations do not provide hearing officers with

a particular ``compliance date'' to use as a reference point in issuing

a ruling. This creates the potential for inconsistency in the decisions

issued by hearing officers. We believe our proposal to provide a

framework for hearing officers to use in establishing a compliance date

as a reference point will lessen the potential for such inconsistency.

By requiring the compliance date to be the earliest of the three

possible dates, the hearing will reflect that circumstances may differ

on a case by case basis. For example, where an onsite audit was

conducted or where a significant breach occurred, we think it is

appropriate for us to base our decision to terminate a plan's contract

on the date of either the audit or the breach

consistency.

By requiring the compliance date to be the earliest of the three

possible dates, the hearing will reflect that circumstances may differ

on a case by case basis. For example, where an onsite audit was

conducted or where a significant breach occurred, we think it is

appropriate for us to base our decision to terminate a plan's contract

on the date of either the audit or the breach. However, where an onsite

audit did not occur, or where the basis of our termination decision is

not one major breach, we think it is appropriate to use the date we

notified the MA organization or Part D sponsor of our intent to

terminate as a reference point. Without a specific date as a reference

point for evaluating compliance, the hearing officer lacks the

information necessary to arrive at a determination. We welcome comments

on these proposed changes.

Sections 422.662 and 423.651--Request for a Hearing

We propose to revise Sec. 422.662(b) and Sec. 423.651(b) to

conform to our proposed

change to eliminate the reconsideration process. These provisions would

specify that a request for a hearing must be filed within 15 days after

the date of the initial determination.

Sections 422.664 and 423.652--Postponement of Effective Date of a

Contract Determination When a Request for a Hearing is Filed Timely

We propose to revise Sec. 422.664 and Sec. 423.652 to postpone

the effective date of a contract determination when an MA organization

or Part D sponsor timely requests a hearing to appeal the contract

determination. However, the postponement would not override the

requirement that any final decision in favor of the plan or sponsor

must be issued by July 15 for an initial contract to be effective for

the upcoming year. Thus, if an organization's application is not

approved and the hearing officer's decision is not provided until

August, the applicant would not be able to have a contract for the next

year. This is consistent with our current process

the

requirement that any final decision in favor of the plan or sponsor

must be issued by July 15 for an initial contract to be effective for

the upcoming year. Thus, if an organization's application is not

approved and the hearing officer's decision is not provided until

August, the applicant would not be able to have a contract for the next

year. This is consistent with our current process. We do not currently

postpone the effective date of termination in cases of immediate

termination, and we are not proposing any change in policy with respect

to expedited terminations.

Sections 422.670 and 423.655--Time and Place of Hearing

We propose revising Sec. 422.670(a) and Sec. 423.655(a), to

require the hearing officer to send written notice to the parties

specifying the general and specific issues to be resolved at the

hearing, outlining the burden of proof and providing any information

about the hearing procedures. In addition, the notice would inform the

parties that they may conduct formal discovery.

Sections 422.682 and 423.661--Discovery

We propose revising Sec. 422.682 and Sec. 423.661, to clarify the

scope of permissible discovery, and to require the hearing officer to

conclude discovery and provide all documents to both the hearing

officer and the opposing party at least 10 days prior to the hearing.

It has been our experience that such a deadline, which is not set out

in the existing regulations, is necessary to provide enough time for

the parties or the hearing officer to review documents prior to the

hearing. We welcome comments on these proposed changes.

Sections 422.684 and 423.662--Prehearing and Summary Judgment

We propose to amend the provisions at Sec. 422.684 and Sec.

423.662 (and revise the section heading accordingly) to permit the

hearing officer to rule on a motion for summary judgment filed by

either of the parties to the hearing. In ruling on such a motion, we

propose that the hearing officer would be bound by CMS regulations and

general instructions

423.662--Prehearing and Summary Judgment

We propose to amend the provisions at Sec. 422.684 and Sec.

423.662 (and revise the section heading accordingly) to permit the

hearing officer to rule on a motion for summary judgment filed by

either of the parties to the hearing. In ruling on such a motion, we

propose that the hearing officer would be bound by CMS regulations and

general instructions. Where no factual dispute exists, the hearing

officer may make a decision on the papers, without the need for a

hearing. This would be more efficient and cost effective for both

parties when no factual dispute exists. We welcome comments on these

proposed changes.

Sections 422.692 and 423.666--Review by the Administrator

The existing regulations only explicitly permit Administrator

review of a hearing officer's decision in appeals of a contract

termination. We clarify that this review is available for all appeals

of CMS contract terminations, including decisions not to contract with

an applicant and nonrenewals.

We propose revising the provisions at Sec. 422.692(a) and Sec.

423.666(a) to allow us to request Administrator review of a hearing

officer's decision regarding a contract determination. The existing

regulations permit only the MA organization or Part D sponsor to

request Administrator review. In addition, we propose to amend the same

provisions to permit both the parties to submit written arguments to

the Administrator.

We propose revising the provisions at Sec. 422.692(b) and Sec.

423.666(b), to permit the Administrator, upon receipt of a request for

Administrator review, to accept or decline to review the hearing

decision. The existing regulations require the Administrator to review

the decision when a request for review is received. We believe that

providing the Administrator with the discretion to accept or decline

the request for review would lead to a more expeditious resolution of

appeals of contract determinations.

We propose redesignating Sec. 422.692(c) as Sec

or decline to review the hearing

decision. The existing regulations require the Administrator to review

the decision when a request for review is received. We believe that

providing the Administrator with the discretion to accept or decline

the request for review would lead to a more expeditious resolution of

appeals of contract determinations.

We propose redesignating Sec. 422.692(c) as Sec. 422.692(e) and

redesignating Sec. 423.666(c) as Sec. 423.666(e).

We propose adding a new Sec. 422.692(c) and Sec. 423.666(c), to

require the Administrator to make a determination as to whether to

accept or decline the request for review within 30 days of the request

of the review. The failure of the Administrator to make a determination

within 30 days of the request would be treated as a decision to decline

the request for review. We believe that providing this timeline would

assist all parties in reaching a final decision in an expeditious

manner. We welcome comments on these proposed changes.

In addition, we propose amending our existing regulations to add a

new paragraph at Sec. 422.692(d) and Sec. 423.666(d) which specifies

that Administrator review is based on the hearing record and any

written arguments submitted by the parties. However, review would not

be based on any new evidence, such as evidence that was not before the

hearing officer. We believe the specified sources provide a sufficient

basis for the Administrator to make a determination.

If the Administrator declines to review the hearing officer's

decision, the decision of the hearing officer would become final and

binding.

Sections 422.696 and 423.668--Reopening of Initial Contract

Determination or Intermediate Sanction or Decision of a Hearing Officer

of the Administrator

We propose to revise the section headings for Sec. 422.696 and

Sec

istrator to make a determination.

If the Administrator declines to review the hearing officer's

decision, the decision of the hearing officer would become final and

binding.

Sections 422.696 and 423.668--Reopening of Initial Contract

Determination or Intermediate Sanction or Decision of a Hearing Officer

of the Administrator

We propose to revise the section headings for Sec. 422.696 and

Sec. 423.668 from ``Reopening of a contract or reconsidered

determination or decision of a hearing officer or the Administrator''

to ``Reopening of an initial contract determination or decision of a

hearing officer or the Administrator'' to conform to our proposed

elimination of the reconsideration process described above.

Sections 422.698 and 423.669--Effect of Revised Determination

We propose making a conforming change to reflect our proposed

elimination of the reconsideration process by removing in its entirety

Sec. 422.698 and Sec. 423.669, ``Effect of revised determination.''

Subpart O--Intermediate Sanctions

We are proposing several changes to our regulations in Subpart O--

Intermediate Sanctions in 42 CFR Part 422 and 42 CFR Part 423, to

clarify our policies and procedures for imposing intermediate sanctions

and Civil Money Penalties (CMPs) on MA organizations and Part D

sponsors. Specifically, we propose to modify the appeals procedures for

intermediate sanctions and clarify which set of procedures affected

parties should use to appeal a CMP. We are soliciting public comment on

our proposed changes to subpart O.

Sections 422.750 and 423.750--Types of Intermediate Sanctions and Civil

Monetary Penalties

We propose reorganizing Sec. 422.750 and Sec. 423.750, to

distinguish the three different types of intermediate sanctions from

CMPs. We also propose to clarify that each of the three intermediate

parties should use to appeal a CMP. We are soliciting public comment on

our proposed changes to subpart O.

Sections 422.750 and 423.750--Types of Intermediate Sanctions and Civil

Monetary Penalties

We propose reorganizing Sec. 422.750 and Sec. 423.750, to

distinguish the three different types of intermediate sanctions from

CMPs. We also propose to clarify that each of the three intermediate

sanctions, (suspension of enrollment, suspension of payment, and

suspension of marketing) would remain in effect until we are satisfied

that the reasons for the initial suspensions have been corrected and

are not likely to reoccur. This revision reflects our current policy

and practice.

For clarity, we propose specifying at Sec. 422.750(b) and Sec.

423.750(b) that we may impose CMPs in the dollar amounts specified in

Sec. 422.760 and Sec. 423.760. We propose to remove the prior

reference at Sec. 422.750(a)(1) and Sec. 423.750(a)(1) to the range

of CMPs because it is confusing.

Sections 422.752 and 423.752--Basis for Imposing Intermediate Sanctions

and Civil Money Penalties

At Sec. 422.752 and Sec. 423.752, we are proposing to reorganize

the regulation to clarify the breakdown of responsibility between CMS

and the OIG for imposing intermediate sanctions and CMPs based on the

type of violation involved. Specifically, we clarify that CMS may

impose a suspension of enrollment, payment, or marketing on an MA

organization or Part D sponsor for violations specified in Sec.

422.752(a)(1) through (a)(8) and for violations specified in Sec.

423.752(a)(1) through (a)(6).

As part of the reorganization to the regulation, we also are

proposing to add a new Sec. 422.752(c) and Sec. 423.752(c), to

clarify that in addition to the intermediate sanctions, we continue to

have authority to impose CMPs for contract determinations made under

Sec. 422.510(a) and Sec. 423.509(a). However, as specified in Sec.

422.752(c)(2) and Sec

ed in Sec.

423.752(a)(1) through (a)(6).

As part of the reorganization to the regulation, we also are

proposing to add a new Sec. 422.752(c) and Sec. 423.752(c), to

clarify that in addition to the intermediate sanctions, we continue to

have authority to impose CMPs for contract determinations made under

Sec. 422.510(a) and Sec. 423.509(a). However, as specified in Sec.

422.752(c)(2) and Sec. 423.752(c)(2), OIG would continue to have sole

authority to impose CMPs for any determinations concerning the MA

organization or the Part D sponsor committing or participating in

false, fraudulent, or abusive activities affecting the Medicare

program, including the submission of false or fraudulent data, as

stated in Sec. 422.510(a)(4) and Sec. 423.509(a)(4).

Sections 422.756 and 423.756--Procedures for Imposing Intermediate

Sanctions and Civil Money Penalties

At Sec. 422.756 and Sec. 423.756 we propose to eliminate the

existing informal reconsideration process used for review of a decision

by CMS to impose an intermediate sanction, and allow an MA organization

or Part D sponsor to proceed directly to a hearing, pursuant to the

same procedures used to appeal contract determinations in Subpart N.

(See Sec. 422.660 through Sec. 422.698 and Sec. 423.650 through

Sec. 423.669.) We believe it would be more efficient and effective to

allow the MA organization or Part D sponsor to proceed to a hearing in

appealing an intermediate sanction. We note that a request to appeal an

intermediate sanction before a hearing officer does not delay the

intermediate sanction from taking effect on the date specified in the

sanction notice. We welcome comments on these proposed changes.

Because we propose to eliminate the informal reconsideration step,

we propose that an MA organization or Part D sponsor have an

opportunity to present information to us that may affect our decision

to impose an intermediate sanction prior to the sanction taking effect

diate sanction from taking effect on the date specified in the

sanction notice. We welcome comments on these proposed changes.

Because we propose to eliminate the informal reconsideration step,

we propose that an MA organization or Part D sponsor have an

opportunity to present information to us that may affect our decision

to impose an intermediate sanction prior to the sanction taking effect.

We recognize there may be occasions when we receive information that we

previously did not have when making a decision to impose an

intermediate sanction. Therefore, we propose that MA organizations and

Part D sponsors have an opportunity to submit a written rebuttal

statement as specified at Sec. 422.756(a)(2) and Sec. 423.756(a)(2),

and to require the rebuttal statement be provided to us within ten (10)

calendar days after the MA organization or sponsor receives notice of

the intermediate sanction. The 10 calendar days begin the day after the

notice of intermediate sanction is mailed to the plan. A notice of

intermediate sanction is sent by overnight mail and by e-mail or fax.

In some cases we may decide to impose multiple sanctions, for

example, contract termination, intermediate sanction, or CMP, against

an MA organization or Part D sponsor. We propose to have the CMP appeal

process go to an ALJ while the other actions such as an intermediate

sanction or a termination go to a CMS hearing official. Although the

same underlying conduct may be the basis for both actions we believe

that the separate processes would result in more consistent decision

making by hearing officers and ALJs.

Sections 422.758 and 423.758--Collection of Civil Money Penalties

Imposed by CMS

At Sec. 422.758 and Sec. 423.758 we propose to revise the section

heading ``Maximum amount of civil money penalties imposed by CMS'' to

read ``Collection of civil money penalties imposed by CMS.'' In

addition, we propose to revise Sec. 422.758 and Sec. 423.758

istent decision

making by hearing officers and ALJs.

Sections 422.758 and 423.758--Collection of Civil Money Penalties

Imposed by CMS

At Sec. 422.758 and Sec. 423.758 we propose to revise the section

heading ``Maximum amount of civil money penalties imposed by CMS'' to

read ``Collection of civil money penalties imposed by CMS.'' In

addition, we propose to revise Sec. 422.758 and Sec. 423.758.

Specifically, we propose that we would initiate collection of the CMPs

if the MA organization or Part D sponsor does not timely request a

hearing, or if our decision to impose a CMP is upheld by an ALJ.

Sections 422.760 and 423.760-- Determinations Regarding the Amount of

Civil Money Penalties and Assessment Imposed by CMS

We propose redesignating the existing Sec. 422.760 as Sec.

422.764 and redesignating the existing Sec. 423.760 as Sec. 423.764

because in this rule we have made explicit which provisions of section

1128A of the Act apply to CMP appeals procedures in proposed subpart T

in parts 422 and 423.

We propose adding a new Sec. 422.760 and Sec. 423.760 to clarify

that we use the statutory factors in section 1128(A) of the Act in

determining the appropriate amount of civil money penalties or

assessments to impose on an MA organization or Part D sponsor. These

factors, if applicable, include the nature of the conduct, the degree

of culpability, the prior history of offenses, the financial condition

of the MA organization or Medicare Part D sponsor presenting the

claims, and other matters as fair administration may require. These

factors are based on the same statutory factors used in other Medicare

enforcement programs, including those in the nursing facility

enforcement context.

We also propose to clarify in Sec. 422.760(b) and Sec.

423.760(b), the amounts that may be assessed for CMPs that we impose.

We welcome comments on these proposed changes.

Sections 422.762 and 423.762--Settlement of Penalties

We propose to add a new Sec. 422.762 and Sec

statutory factors used in other Medicare

enforcement programs, including those in the nursing facility

enforcement context.

We also propose to clarify in Sec. 422.760(b) and Sec.

423.760(b), the amounts that may be assessed for CMPs that we impose.

We welcome comments on these proposed changes.

Sections 422.762 and 423.762--Settlement of Penalties

We propose to add a new Sec. 422.762 and Sec. 423.762 to clarify

that in accordance with section 1128A(f) of the Act, we have the

authority to settle CMPs imposed by us. This provision would make it

explicit what the parties may agree to settle the dispute instead of

litigating an appeal. We welcome comments on these proposed changes.

Sections 422.764 and 423.764--Other Applicable Provisions

We propose to redesignate Sec. 422.760 and Sec. 423.760 as Sec.

422.764 and Sec. 423.764 respectively to conform to the changes

proposed at the new Sec. 422.760 and Sec. 423.760. No substantive

changes to the text have been made.

Subpart T--Appeal Procedures for Civil Money Penalties

We propose to reserve subparts P, Q, R, and S in Part 422. In

addition, we propose to add a new subpart T in Part 422 and Part 423,

respectively. These new subparts would outline the CMP appeal

procedures for MA organizations and Part D sponsors.

Our current MA and Part D regulations do not specify which

procedures an MA organization or Part D sponsor must use to appeal a

CMS-imposed penalty under either of these two programs. The regulations

at 42 CFR part 422.760 and 42 CFR part 423.760 state only that the

provisions of section 1128A of the Act (except paragraphs (a) and (b))

apply to civil money penalties under this subpart to the same extent

that they apply to a civil money penalty or procedure under section

1128A of the Act. Nor have we issued any guidance directing parties to

the appropriate appeals procedures for MA and Part D CMPs

R part 422.760 and 42 CFR part 423.760 state only that the

provisions of section 1128A of the Act (except paragraphs (a) and (b))

apply to civil money penalties under this subpart to the same extent

that they apply to a civil money penalty or procedure under section

1128A of the Act. Nor have we issued any guidance directing parties to

the appropriate appeals procedures for MA and Part D CMPs.

Therefore, to ensure a consistent approach in this area, we are

proposing incorporating appeals procedures for parties to use when

appealing a CMP imposed under the MA or Part D program in a new subpart

T in Parts 422 and 423 respectively.

Based on certain statutory requirements and policy considerations,

we are proposing to adopt CMP appeals procedures almost identical to

those in part 498 of Title 42, which are used by certain Medicare

providers and suppliers to challenge adverse agency enforcement

decisions. Part 498 sets forth the rules for administrative and

judicial review of CMS determinations that affect participation in the

Medicare and Medicaid programs for a wide array of medical providers of

services. These rules, issued on June 12, 1987 (52 FR 22446), have been

used by CMS for almost 20 years and provide established appeals

procedures for various types of adverse agency determinations,

including civil money penalties imposed on nursing facilities. We

welcome comments on the proposed changes to adopt most aspects of 42

CFR 498 into the 42 CFR 422 and 42 CFR 423 proposed regulations.

The statute authorizing CMPs in the MA and Part D programs require

the provisions of section 1128A of the Act, (except for subsection (a)

and (b)), to apply to MA and Part D CMP proceedings, in the ``same

manner'' as such provisions apply to other CMPs imposed under section

1128A. (See section 1857(g)(4) of the Act.) CMPs imposed on nursing

facilities are also authorized under section 1128A of the Act

te authorizing CMPs in the MA and Part D programs require

the provisions of section 1128A of the Act, (except for subsection (a)

and (b)), to apply to MA and Part D CMP proceedings, in the ``same

manner'' as such provisions apply to other CMPs imposed under section

1128A. (See section 1857(g)(4) of the Act.) CMPs imposed on nursing

facilities are also authorized under section 1128A of the Act. (See

section 1819(h)(2)(B)(ii) of the Act (SNFs) and section

1919(h)(3)(C)(ii) of the Act (NFs), which state that ``[t]he provisions

of the section 1128A (other than subsections (a) and (b)) shall apply

to a civil money penalty[] in the same manner as such provisions apply

to a penalty or proceeding under section 1128A(a).'') Based on this

common statutory basis, we believe using the Part 498 procedures to

hear CMP appeals in the MA and Part D programs is consistent with

Congress' intent.

We also believe that relying on Part 498 appeals procedures for CMP

appeals in the MA and Part D programs make sense for policy reasons. We

have substantial experience using these procedures and they provide an

established infrastructure and well-vetted process for hearing CMP

appeals. The bases on which we may impose CMP in the MA and Part D

programs are also somewhat similar to those used in the nursing

facility context. For example, CMPs can be imposed on MA organization

and Part D sponsors for a wide range of regulatory and/or contractual

violations, which may be brought to the agency's attention based on

audit findings. We believe the part 498 appeals procedures are the most

appropriate procedures to use for hearing disputes involving a wide

range of violations. We welcome your comments on our proposal to adopt

the part 498 procedures as our CMP appeals procedures

t D sponsors for a wide range of regulatory and/or contractual

violations, which may be brought to the agency's attention based on

audit findings. We believe the part 498 appeals procedures are the most

appropriate procedures to use for hearing disputes involving a wide

range of violations. We welcome your comments on our proposal to adopt

the part 498 procedures as our CMP appeals procedures.

While the statute authorizing CMPs in the MA and Part D programs

requires the provisions of section 1128A of the Act, (except for

subsections (a) and (b)), to apply to MA and Part D CMP proceedings, it

does not require that section 1128A's provisions apply to other CMP

appeals procedures in the exact same manner, or without some

consideration for the MA or Part D program's unique characteristics. In

fact, section 1857(g)'s ``same manner'' language appears throughout the

Act and serves as the statutory basis for several different types of

CMP enforcement and appeals procedures. In the past, we have used our

discretion to tailor certain hearing procedures to the particular type

when developing other CMP appeals proceedings. Since the MA and Part D

programs differ from the nursing facility program, we are proposing

modifying certain sections of part 498 to take into account some of

these differences.

For example, we have proposed removing the reconsideration step in

the MA and Part D CMP appeals procedures since this step in part 498

only applies to initial determinations made for prospective providers

entering the Medicare or Medicaid program and is not applicable to CMP

appeals. Removing the reconsideration step in subpart T would also help

expedite the CMP appeals process.

Since it is not clearly stated in part 498's regulations, we are

proposing to make explicit in our regulations that in a hearing of a

CMP appeal before an ALJ or the Departmental Appeals Board (DAB), the

ultimate burden of persuasion would rest on the MA organization or Part

D sponsor

P

appeals. Removing the reconsideration step in subpart T would also help

expedite the CMP appeals process.

Since it is not clearly stated in part 498's regulations, we are

proposing to make explicit in our regulations that in a hearing of a

CMP appeal before an ALJ or the Departmental Appeals Board (DAB), the

ultimate burden of persuasion would rest on the MA organization or Part

D sponsor. The DAB has previously held that in a provider termination

proceeding by the Secretary, the facility bears the ultimate burden of

proving it is in compliance with program requirements. (See Hillman

Rehabilitation Center, DAB No. 1611 (1990), aff'd Hillman

Rehabilitation Center v. United States, No. 98-3789 (GEB) (D.N.J. May

13, 1999).) The DAB has also held that the same allocation of the

burden of proof is appropriate where a CMP has been imposed on a

nursing facility participating in Medicare. (See Batavia Nursing and

Convalescent Center, DAB No. 1904 (2004).) We believe the

administrative caselaw supports our decision to place the burden of

proof on the affected party in an administrative hearing on the

imposition of MA and Part D CMPs. As discussed above, noncompliance

with requirements for MA and Part D organizations who participate in

Medicare is analogous to noncompliance by providers (including nursing

facilities) who participate in the program. Moreover, like the

providers in the cited cases, an MA or Part D organization is party in

possession of the most complete evidence of the state of its

compliance. Thus, placing the ultimate burden of persuasion on the

organization is fair.

III. Collection of Information Requirements

care is analogous to noncompliance by providers (including nursing

facilities) who participate in the program. Moreover, like the

providers in the cited cases, an MA or Part D organization is party in

possession of the most complete evidence of the state of its

compliance. Thus, placing the ultimate burden of persuasion on the

organization is fair.

III. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA), we are required to

provide 60-day notice in the Federal Register and solicit public

comment before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. In

order to fairly evaluate whether an information collection should be

approved by OMB, section 3506(c)(2)(A) of the PRA requires that we

solicit comment on the following issues:

The need for the information collection and its usefulness

in carrying out the proper functions of our agency.

The accuracy of our estimate of the information collection

burden.

The quality, utility, and clarity of the information to be

collected.

Recommendations to minimize the information collection

burden on the affected public, including automated collection

techniques.

The following information collection requirements included in this

proposed rule and their associated burdens are subject to the PRA.

We are soliciting public comment on each of the issues for the

following sections of this document that contain

information collection requirements and are not currently approved by

the OMB.

Section 422.503 General Provisions

automated collection

techniques.

The following information collection requirements included in this

proposed rule and their associated burdens are subject to the PRA.

We are soliciting public comment on each of the issues for the

following sections of this document that contain

information collection requirements and are not currently approved by

the OMB.

Section 422.503 General Provisions

Sections 422.503(b)(4)(vi)(C) and (b)(4)(vi)(D) require a MA

organization to have a compliance plan, which includes measures to

detect, correct, and prevent fraud, waste, and abuse. The compliance

plan shall include effective training and education between the

compliance officer and the MA organization's employees, managers and

directors, the MA organization's first tier, downstream, and related

entities; and, effective lines of communication between the compliance

officer, members of the compliance committee, the MA organization's

employees, managers and directors, and the MA organization's first

tier, downstream, and related entities.

The burden associated with this requirement is the time and effort

put forth by the MA organization to prepare a compliance plan that

meets the requirements of this section. While this requirement is

subject to the PRA, it is currently approved under OMB 0938-

1004.

Section 422.503(b)(4)(vi)(G)(3) would require a MA organization to

have procedures in place for mandatory self-reporting of potential

fraud or misconduct related to the MA program to the appropriate

government authority. The MA organization would be required to report

potential fraud or misconduct related to the MA program to the

appropriate government authority.

The burden associated with this requirement is the time and effort

put forth by the MA organization to implement procedures for mandatory

self-reporting. We estimate it would take one MA organization 40 hours

to fulfill this requirement. The total number of MA organizations

affected by this requirement is 393

ud or misconduct related to the MA program to the

appropriate government authority.

The burden associated with this requirement is the time and effort

put forth by the MA organization to implement procedures for mandatory

self-reporting. We estimate it would take one MA organization 40 hours

to fulfill this requirement. The total number of MA organizations

affected by this requirement is 393. The total one-time burden for this

requirement would be 15,720 hours. We cannot anticipate how many plans

will need to report any potentially fraudulent activities to CMS.

However, based on historical evidence, we believe that less than 10 MA

organizations would be required to self-report potential fraud or

misconduct related to the MA program. While this burden is subject to

the PRA, we expect that less than 10 entities will be affected.

Therefore, we believe these collection requirements are exempt as

specified at 5 CFR 1320.3(c)(4).

Section 422.504 Contract Provisions

Section 422.504(e)(2) requires MA organizations to agree to allow

HHS, the Comptroller General, or their designees to audit, evaluate, or

inspect any books, contracts, medical records, patient care

documentation, and other records of the MA organization, its first

tier, downstream, related entity, or its transferee that pertain to any

aspect of services performed, reconciliation of benefit liabilities,

and determination of amounts payable under the contract, or as the

Secretary may deem necessary to enforce the contract.

The burden associated with this requirement is the time and effort

put forth by the MA organization to maintain appropriate records and

documentation. While this requirement is subject to the PRA, it is

currently approved under OMB 0938-1004

liation of benefit liabilities,

and determination of amounts payable under the contract, or as the

Secretary may deem necessary to enforce the contract.

The burden associated with this requirement is the time and effort

put forth by the MA organization to maintain appropriate records and

documentation. While this requirement is subject to the PRA, it is

currently approved under OMB 0938-1004.

Section 422.504(i)(2) requires the MA organization to require all

first tier, downstream, and related entities to agree that HHS, the

Comptroller General, or their designees have the right to inspect,

evaluate, and audit any pertinent contracts, books, documents, papers,

and records of the first tier, downstream, and related entities

involving transactions related to CMS' contract with the MA

organization.

The burden associated with this requirement is the time and effort

put forth by the MA organization's first tier, downstream, and related

entities to maintain appropriate records and documentation. While the

burden associated with this requirement is subject to the PRA, it is

currently approved under OMB 0938-1004.

Section 422.505 Effective Date and Term of Contract

Section 422.505(c) requires MA organizations who wish not to renew

their contract to submit a notice of intent to CMS.

The burden associated with this requirement is the time and effort

put forth by the MA organization to prepare the notice and submit it to

CMS. While this requirement is subject to the PRA, it is currently

approved under OMB 0938-0753.

Section 422.506 Nonrenewal of Contract

Section 422.505(c) requires MA organizations who wish not to renew

their contract to submit a notice of intent to CMS.

The burden associated with this requirement is the time and effort

put forth by the MA organization to prepare the notice and submit it to

CMS. While this requirement is subject to the PRA, it is currently

approved under OMB 0938-0753.

Section 422.506 Nonrenewal of Contract

Section 422.506 requires an MA organization to develop and submit a

CAP to correct the deficiencies that are the basis of the termination

decision. The MA organization must submit the CAP within 45 days of

receiving notice of termination.

The burden associated with this requirement is the time and effort

it would take for the MA organization to develop and submit a CAP.

While this requirement is subject to the PRA, we expect less than 10

entities will be affected; therefore, we believe these collection

requirements are exempt as specified at 5 CFR 1320.3(c)(4).

Section 423.504 General Provisions

Sections 423.504(b)(4)(vi)(C) and (b)(4)(vi)(D) require Part D

Sponsors to have a compliance plan, which includes measures to detect,

correct, and prevent fraud, waste, and abuse. The compliance plan shall

include effective training and education between the compliance officer

and the Part D sponsor's employees, managers and directors, and the

Part D plan sponsor's first tier, downstream, and related entities; and

effective lines of communication between the compliance officer,

members of the compliance committee, the Part D sponsor's employees,

managers and directors, and the Part D sponsor's first tier,

downstream, and related entities.

The burden associated with this requirement is the time and effort

put forth by the Part D sponsor to prepare a compliance plan that meets

the requirements of this section. While this requirement is subject to

the PRA, it is currently approved under OMB 0938-1000

ee, the Part D sponsor's employees,

managers and directors, and the Part D sponsor's first tier,

downstream, and related entities.

The burden associated with this requirement is the time and effort

put forth by the Part D sponsor to prepare a compliance plan that meets

the requirements of this section. While this requirement is subject to

the PRA, it is currently approved under OMB 0938-1000.

Section 423.504(b)(4)(vi)(G)(3) would require a Part D sponsor to

have procedures in place for mandatory self-reporting of potential

fraud or misconduct related to the Part D program to the appropriate

government authority. The Part D sponsor would be required to report

potential fraud or misconduct related to the Part D program to the

appropriate government authority.

The burden associated with this requirement is the time and effort

put forth by the Part D sponsor to implement procedures for mandatory

self-reporting. We estimate it would take one Part D sponsor 40 hours

annually to fulfill this requirement. The total number of Part D

sponsors affected by this requirement is 91. The total one-time burden

would be 3,640 hours. We cannot anticipate how many plans will need to

report any potentially fraudulent activities to CMS. However, in the

event a Part D sponsor needed to self-report potential fraud or

misconduct related to the Part D sponsor the total burden would be 5

hours annually. If every sponsor had to report potential fraud or

misconduct, the total burden would be 455 annual hours.

Section 423.505 Contract Provisions

Section 423.505(e)(2) requires Part D sponsors to make available

its premises, physical facilities, equipment, and records that relate

to its Medicare enrollees, and any additional relevant

he Part D sponsor the total burden would be 5

hours annually. If every sponsor had to report potential fraud or

misconduct, the total burden would be 455 annual hours.

Section 423.505 Contract Provisions

Section 423.505(e)(2) requires Part D sponsors to make available

its premises, physical facilities, equipment, and records that relate

to its Medicare enrollees, and any additional relevant

information that CMS may require. The Part D sponsor also agrees to

make available any books, contracts, medical records, patient care

documentation, and other records of the Part D sponsor, first tier,

downstream and related entity(s), or its transferee.

The burden associated with this requirement is the time and effort

put forth by the Part D sponsor to make available records that relate

to its Medicare enrollees. The burden associated with this requirement

is currently approved under OMB 0938-1000.

Section 423.505(i)(2) requires the Part D sponsor to require all

first tier, downstream, and related entities to agree that HHS, the

Comptroller General, or their designees have the right to inspect,

evaluate, and audit any pertinent contracts, books, documents, papers,

and records of the first tier, downstream, and related entities

involving transactions related to CMS' contract with the Part D

sponsor.

The burden associated with this requirement is the time and effort

put forth by the Part D sponsor's first tier, downstream, and related

entities to maintain appropriate records and documentation. While this

requirement is subject to the PRA, it is currently approved under OMB

0938-1000. However, we have prepared the following analysis of

the costs and burden associated with our proposal to require sponsors

to include a provision in their contracts requiring their first tier

and downstream entities to produce or make available their books and

records

opriate records and documentation. While this

requirement is subject to the PRA, it is currently approved under OMB

0938-1000. However, we have prepared the following analysis of

the costs and burden associated with our proposal to require sponsors

to include a provision in their contracts requiring their first tier

and downstream entities to produce or make available their books and

records.

In the January 28, 2005 final rule that implemented the Medicare

Prescription Drug Program (70 FR 4194), we noted that ``The

administrative cost estimates are based on taking into account the

normal fixed costs associated with administering a prescription drug

benefit, for example, such functions as claims processing, responding

to customer inquiries, information, dissemination, appeals processes,

pharmacy network negotiations, and contracting. The other factor taken

into account when developing our estimate is that Prescription Drug

Plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs)

will likely incur slightly higher administrative costs during the

initial few years of the Part D benefit due to start-up costs related

to implementation and initial operation for a new benefit.'' The

narrative explains that the average administrative costs associated

with insurance products are typically expressed as a percentage

relative to net standard benefit expenses and that the administrative

load is expected to decline slightly over time. For purposes of this

analysis, the impact is presented in burden hours and broken out into

requests for purposes of:

1. Provision in Contracts;

2. BI Audit; and

3. Investigation of complaints.

1. Provision in contracts

Ultimately, this additional provision would have to be discussed

like all other provisions of a contract between a Part D sponsor and

its first tier, downstream, and related entities

ses of this

analysis, the impact is presented in burden hours and broken out into

requests for purposes of:

1. Provision in Contracts;

2. BI Audit; and

3. Investigation of complaints.

1. Provision in contracts

Ultimately, this additional provision would have to be discussed

like all other provisions of a contract between a Part D sponsor and

its first tier, downstream, and related entities. Since we have the

authority to request this information and the Part D sponsor has

attested to providing this data, we do not believe that this issue

would be contentious or constitute negotiation discussion. We believe

that, at the most, this provision would require 1 hour of attorney time

to draft and discuss the provision.

2. BI Audit

Currently, there are a total of 650 Part D contracts (90 of those

contracts represent PDPs and the remainder, 560 contracts, represents

MA-PDs and employer groups). A further breakdown of those numbers out

to the plan level would be: 4,927 total MA-PDs and PDP plans (including

employer groups). We note that if employer groups are excluded, the

actual number drops to 4,191.

Based on this information, it is believed that 16 percent of the

plans will be audited during the course of a contract year. Of the

plans audited, it is estimated that approximately 10 percent of the

plans will be required to produce evidence or other supporting

documentation related to ``first tier, downstream and other related

entities.'' It is further asserted that the labor hours required to

produce the required documentation for those entities would be

estimated at 10 hours per plan. Therefore, based on the number of Part

D plans, the percentage of organizations that might be required to

produce documentation for ``first tier, downstream, and other related

entities'' and the number of labor hours required to produce this

documentation we expect that the total impact would be 140 hours in

administrative costs

ion for those entities would be

estimated at 10 hours per plan. Therefore, based on the number of Part

D plans, the percentage of organizations that might be required to

produce documentation for ``first tier, downstream, and other related

entities'' and the number of labor hours required to produce this

documentation we expect that the total impact would be 140 hours in

administrative costs. The following table summarizes our calculation of

the burden estimate for Part D plans:

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

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

Total number of Part D plans (PDP, MA-PD & Employer Groups)... 650

Percentage of plans to be audited (16%)....................... 104

Percentage of plans audited that would be required to produce 10

additional documentation for ``first tier, downstream and

related entities'' (10%).....................................

Burden hours required to assemble documentation and submit to 100

CMS (10 hours/plan)..........................................

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

3. Investigation of complaints

Based on the past 18 months, we assume that investigation of

complaints that require contacting a Part D plan to request

documentation from first tier, downstream, and related entities would

be approximately six instances. In the following table, we show our

estimate of burden hours for downstream entities:

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

3. Investigation of complaints

Based on the past 18 months, we assume that investigation of

complaints that require contacting a Part D plan to request

documentation from first tier, downstream, and related entities would

be approximately six instances. In the following table, we show our

estimate of burden hours for downstream entities:

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

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

Total number of Part D plans (PDP, MA-PD & Employer Groups)... 650

Percentage of plans to be audited (16%)....................... 104

Percentage of plans audited that would be required to produce 10

additional documentation for ``first tier, downstream and

related entities'' (10%).....................................

Average number of ``downstream entities'' (e.g. pharmacy

network):

Retail.................................................... 55,000

Mail Order................................................ 1

Home Infusion............................................. 150

Long Term Care............................................ 593

I/T/U..................................................... 329

Total burden hours required for downstream entities to 166,440

assemble and submit documentation to the Part D organizations

(hours/organization) at 3 hrs/downstream entity..............

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

Section 423.506 Effective Date and Term of Contract

................. 593

I/T/U..................................................... 329

Total burden hours required for downstream entities to 166,440

assemble and submit documentation to the Part D organizations

(hours/organization) at 3 hrs/downstream entity..............

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

Section 423.506 Effective Date and Term of Contract

This section states that an entity is determined qualified to renew

its contract annually only if the Part D sponsor has not provided CMS

with a notice of intention not to renew and CMS has not provided the

Part D sponsor with a notice of intention not to renew.

The burden associated with this requirement is the time and effort

put forth by the Part D sponsor to prepare a notice of intent not to

renew and submit it to CMS. While this requirement is subject to the

PRA, it is currently approved under OMB 0938-0964.

Section 423.507 Nonrenewal of Contract

Section 423.507 requires a Part D Plan Sponsor to develop and

submit a corrective action plan (CAP) to correct the deficiencies that

are the basis of the termination decision. The Part D Sponsor must

submit the CAP within 45 days of receiving notice of termination.

The burden associated with this requirement is the time and effort

it would take for the Part D Sponsor to develop and submit a CAP. While

this requirement is subject to the PRA, we expect less than 10 entities

will be affected; therefore, we believe these collection requirements

are exempt as specified at 5 CFR 1320.3(c)(4).

As reflected in the table that follows, the aggregate annual burden

associated with the collection of information section totals 73,236

hours.

take for the Part D Sponsor to develop and submit a CAP. While

this requirement is subject to the PRA, we expect less than 10 entities

will be affected; therefore, we believe these collection requirements

are exempt as specified at 5 CFR 1320.3(c)(4).

As reflected in the table that follows, the aggregate annual burden

associated with the collection of information section totals 73,236

hours.

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

Number of

OMB No. Requirements respondents Burden hours Total annual burden

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

0938-1004..................... 422.503(b)(4)(vi)(C) 393............. 96 hours........ 12,576 hours (based

and (b)(4)(vi)(D), on 131 responses per

422.504(e)(2) & year).

422.504(i)(2).

None-requesting OMB approval.. 422.503(b)(4)(vi)(G)( 393............. 40 hours........ 15,720 hours (based

3). on every plan

reporting fraud or

misconduct).

0938-0753..................... 422.505(c)........... 5-10............ 2 hours per 20 hours (estimated

notice. using 10

respondents).

None/Exempt................... 422.506.............. Less than 10.... N/A............. N/A.

0938-1000\*\.................. 423.504(b)(4)(vi)(C) 430............. 96 hours........ 41,280 hours.

and (b)(4)(vi)(D),

423.505(e)(2), &

423.505(i)(2).

None-requesting OMB approval.. 423.504(b)(4)(vi)(G)( 91.............. 40 hours........ 3,640 hours.

3).

Exemption mentioned in 0938- 423.506.............. Less than 10.... N/A............. N/A.

0964.

None/Exempt................... 423.507.............. Less than 10.... N/A............. N/A.

Total Annual Burden....... ..................... ................ ................ 73,236 hours

05(i)(2).

None-requesting OMB approval.. 423.504(b)(4)(vi)(G)( 91.............. 40 hours........ 3,640 hours.

3).

Exemption mentioned in 0938- 423.506.............. Less than 10.... N/A............. N/A.

0964.

None/Exempt................... 423.507.............. Less than 10.... N/A............. N/A.

Total Annual Burden....... ..................... ................ ................ 73,236 hours.

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

*This package will be revised to reflect new respondent numbers & annual burden, which are previously discussed

in this section (166,440 hours). The total annual burden of 73,236 hours includes 19,360 new hours, which

added to 166,440 gives a total new burden of 185,800 hours which have not previously been approved.

If you comment on any of these information collection and

recordkeeping requirements, please mail copies directly to the

following:

Centers for Medicare & Medicaid Services, Office of Strategic

Operations and Regulatory Affairs, Regulations Development Group,

Attn.: Melissa Musotto, CMS-4124-P, Room C4-26-05, 7500 Security

Boulevard, Baltimore, MD 21244-1850; and

Office of Information and Regulatory Affairs, Office of Management and

Budget, Room 10235, New Executive Office Building, Washington, DC

20503, Attn: Carolyn Lovett, CMS Desk Officer, (CMS-4124-P), [email protected]. Fax (202) 395-6974.

IV. Response to Comments

Because of the large number of public comments we normally receive

on Federal Register documents, we are not able to acknowledge or

respond to them individually. We will consider all comments we receive

by the date and time specified in the DATES section of this preamble,

and, when we proceed with a subsequent document, we will respond to the

comments in the preamble to that document.

V. Regulatory Impact Statement

ber of public comments we normally receive

on Federal Register documents, we are not able to acknowledge or

respond to them individually. We will consider all comments we receive

by the date and time specified in the DATES section of this preamble,

and, when we proceed with a subsequent document, we will respond to the

comments in the preamble to that document.

V. Regulatory Impact Statement

We have examined the impact of this rule as required by Executive

Order 12866 (September 1993, Regulatory Planning and Review), the

Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),

section 1102(b) of the Social Security Act, the Unfunded Mandates

Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 directs agencies to assess all costs and

benefits of available regulatory alternatives and, if regulation is

necessary, to select regulatory approaches that maximize net benefits

(including potential economic, environmental, public health and safety

effects, distributive impacts, and equity). A regulatory impact

analysis (RIA) must be prepared for major rules with economically

significant effects ($100 million or more in any 1 year). This rule

does not reach the economic threshold and thus is not considered a

major rule. The provisions of this proposed rule would require MA and

Part D sponsors to spend a total of approximately 186,000 additional

hours on the functions addressed in this proposed rule. This includes

our reestimates of burden. The details behind these estimates are

presented in the preceding Paperwork Reduction Act section.

Assuming an average cost to plans and downstream entities of $37.50

an hour for staff time spent on auditing and related functions covered

by this proposed rule, the total net incremental cost of this proposal

would be approximately $7 million ($37.50 x 185,000 hours), far below

the $100 million threshold for a major rule

imates are

presented in the preceding Paperwork Reduction Act section.

Assuming an average cost to plans and downstream entities of $37.50

an hour for staff time spent on auditing and related functions covered

by this proposed rule, the total net incremental cost of this proposal

would be approximately $7 million ($37.50 x 185,000 hours), far below

the $100 million threshold for a major rule. This cost would be spread

more or less evenly across participating plans, and hence would impose

negligible burden on any plan in relation to existing administrative

costs.

In the Regulatory Impact Analysis of the January 28, 2005 final

rule that implemented the Medicare Prescription Drug Program (70 FR

4194), we noted that ``The administrative cost estimates are based on

taking into account the normal fixed costs associated with

administering a prescription drug

benefit, for example, such functions as claims processing, responding

to customer inquiries, information, dissemination, appeals processes,

pharmacy network negotiations, and contracting.'' This estimate

included audit and related costs. The estimate was that administrative

costs would constitute about one tenth of the cost of the program, or

about $5 billion a year. (Similar estimates were prepared for the

Medicare Advantage program's final rule.) Accordingly, the estimated

cost of this proposed rule adds negligibly to the total administrative

costs of these programs.

With respect to economic benefits, we have no reliable basis for

estimating the effects of these proposals. It is important to

understand that MA and Part D sponsors--not the government--bear the

direct consequences of all their program costs, including unnecessary

costs created by downstream entities. These plans are paid on a

capitated basis and the amounts paid are not adjusted for realized

costs. Hence, these plans already have strong incentives to prevent all

forms of waste, including fraud and abuse

portant to

understand that MA and Part D sponsors--not the government--bear the

direct consequences of all their program costs, including unnecessary

costs created by downstream entities. These plans are paid on a

capitated basis and the amounts paid are not adjusted for realized

costs. Hence, these plans already have strong incentives to prevent all

forms of waste, including fraud and abuse. Accordingly, we estimate the

benefits of these proposals as likely to be small, though larger than

the costs involved. These benefits will accrue primarily to the plans

themselves and, over time, to the participants who pay lower premiums

as a result of plans' cost-reducing incentives.

The RFA requires agencies to analyze options for regulatory relief

of small businesses. For purposes of the RFA, small entities include

small businesses, nonprofit organizations, and small governmental

jurisdictions. Most hospitals and most other providers and suppliers

are small entities, either by nonprofit status or by having revenues of

$6 million to $29 million in any 1 year. Individuals and States are not

included in the definition of a small entity. As explained above, this

proposed rule will not impose consequential costs on affected entities.

Accordingly, we have determined that this proposed rule will not have a

significant economic impact on a substantial number of small entities,

and are not preparing an initial regulatory flexibility analysis.

In addition, section 1102(b) of the Act requires us to prepare a

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

the operations of a substantial number of small rural hospitals. This

analysis must conform to the provisions of section 603 of the RFA. For

purposes of section 1102(b) of the Act, we define a small rural

hospital as a hospital that is located outside of a Metropolitan

Statistical Area and has fewer than 100 beds

prepare a

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

the operations of a substantial number of small rural hospitals. This

analysis must conform to the provisions of section 603 of the RFA. For

purposes of section 1102(b) of the Act, we define a small rural

hospital as a hospital that is located outside of a Metropolitan

Statistical Area and has fewer than 100 beds. We are not preparing an

analysis for section 1102(b) of the Act because we have determined that

this rule will not have a significant impact on the operations of a

substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also

requires that agencies assess anticipated costs and benefits before

issuing any rule whose mandates require spending in any 1 year of $100

million in 1995 dollars, updated annually for inflation. That threshold

level is currently approximately $120 million. This rule will have no

consequential effect on State, local, or tribal governments or on the

private sector.

Executive Order 13132 establishes certain requirements that an

agency must meet when it promulgates a proposed rule (and subsequent

final rule) that imposes substantial direct requirement costs on State

and local governments, preempts State law, or otherwise has Federalism

implications.

List of Subjects

42 CFR Part 422

Administrative practice and procedure, Grant programs-health,

Health care, Health insurance, Health maintenance organizations (HMO),

Loan programs--health, Medicare, Reporting and recordkeeping

requirements.

42 CFR Part 423

Administrative practice and procedure, Emergency medical services,

Health facilities, Health maintenance organizations (HMO), Medicare,

Penalties, Privacy, Reporting and recordkeeping.

For the reasons set forth in the preamble, the Centers for Medicare

& Medicaid Services would amend 42 CFR chapter IV as set forth below:

PART 422--MEDICARE ADVANTAGE PROGRAM

1. The authority citation for part 422 continues to read as

follows:

, Emergency medical services,

Health facilities, Health maintenance organizations (HMO), Medicare,

Penalties, Privacy, Reporting and recordkeeping.

For the reasons set forth in the preamble, the Centers for Medicare

& Medicaid Services would amend 42 CFR chapter IV as set forth below:

PART 422--MEDICARE ADVANTAGE PROGRAM

1. The authority citation for part 422 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

Subpart A--General Provisions

2. Section 422.2 is amended by adding the definitions ``Downstream

entity'', ``First tier entity'', and ``Related entity'' to read as

follows:

Sec. 422.2 Definitions.

* * * * *

Downstream entity means any party that enters into a written

arrangement, acceptable to CMS, below the level of the arrangement

between an MA organization (or applicant) and a first tier entity.

These written arrangements continue down to the level of the ultimate

provider of both health and administrative services.

First tier entity means any party that enters into a written

arrangement, acceptable to CMS, with an MA organization or applicant to

provide administrative services or health care services for a Medicare

eligible individual under the MA program.

* * * * *

Related entity means any entity that is related to the MA

organization by common ownership or control and

(1) Performs some of the MA organization's management functions

under contract or delegation;

(2) Furnishes services to Medicare enrollees under an oral or

written agreement; or

istrative services or health care services for a Medicare

eligible individual under the MA program.

* * * * *

Related entity means any entity that is related to the MA

organization by common ownership or control and

(1) Performs some of the MA organization's management functions

under contract or delegation;

(2) Furnishes services to Medicare enrollees under an oral or

written agreement; or

(3) Leases real property or sells materials to the MA organization

at a cost of more than $2,500 during a contract period.

* * * * *

Subpart K--Contracts With Medicare Advantage Organizations

3. Amend Sec. 422.503 by--

A. Revising paragraph (b)(4)(vi) introductory text.

B. Revising paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D).

C. Adding paragraph (b)(4)(vi)(G)(3)

D. Removing paragraph (b)(4)(vi)(H).

The revisions and additions read as follows:

Sec. 422.503 General provisions.

* * * * *

(b) * * *

(4) * * *

(vi) A compliance plan, which must include measures to detect,

correct, and prevent fraud, waste, and abuse, shall include the

following elements:

* * * * *

(C) Effective training and education between the compliance officer

and the MA organization's employees, managers and directors, and the MA

organization's first tier, downstream, and related entities.

(D) Effective lines of communication between the compliance

officer, members of the compliance committee, the MA organization's

employees, managers and directors, and the MA organization's first

tier, downstream, and related entities.

* * * * *

(G) * * *

ficer

and the MA organization's employees, managers and directors, and the MA

organization's first tier, downstream, and related entities.

(D) Effective lines of communication between the compliance

officer, members of the compliance committee, the MA organization's

employees, managers and directors, and the MA organization's first

tier, downstream, and related entities.

* * * * *

(G) * * *

(3) The MA organization must have procedures for mandatory self-

reporting of potential fraud or misconduct related

to the MA program to the appropriate government authority. The MA

organization is required to report potential fraud or misconduct

related to the MA program to the appropriate government authority.

* * * * *

4. Amend Sec. 422.504 by--

A. Republishing paragraph (e) introductory text.

B. Revising paragraph (e)(1) introductory text

C. Revising paragraph (i) introductory text and (i)(1).

D. Revising paragraph (i)(2) introductory text.

E. Revising paragraph (i)(2)(i).

F. Revising paragraph (i)(3) introductory text.

G. Revising paragraph (i)(3)(ii).

H. Revising paragraph (i)(3)(iii)

I. Revising paragraph (i)(4) introductory text.

The revisions and additions read as follows:

Sec. 422.504 Contract provisions.

* * * * *

(e) Access to facilities and records. The MA organization agrees to

the following:

(1) HHS, the Comptroller General, or their designee may evaluate,

through inspection, audit, or other means--

* * * * *

(2) HHS, the Comptroller General, or their designees may audit,

evaluate, or inspect any books, contracts, medical records, patient

care documentation, and other records of the MA organization, its first

tier, downstream, related entity, or its transferee that pertain to any

aspect of services performed, reconciliation of benefit liabilities,

and determination of amounts payable under the contract, or as the

Secretary may deem necessary to enforce the contract.

* * * * *

pect any books, contracts, medical records, patient

care documentation, and other records of the MA organization, its first

tier, downstream, related entity, or its transferee that pertain to any

aspect of services performed, reconciliation of benefit liabilities,

and determination of amounts payable under the contract, or as the

Secretary may deem necessary to enforce the contract.

* * * * *

(i) MA organization relationship with first tier, downstream, and

related entities. (1) Notwithstanding any relationship(s) that the MA

organization may have with first tier, downstream, and related

entities, the MA organization maintains ultimate responsibility for

adhering to and otherwise fully complying with all terms and conditions

of its contract with CMS.

(2) The MA organization agrees to require all first tier,

downstream, and related entities to agree that--

(i) HHS, the Comptroller General, or their designees have the right

to inspect, evaluate, and audit any pertinent contracts, books,

documents, papers, and records of the first tier, downstream, and

related entities involving transactions related to CMS' contract with

the MA organization.

* * * * *

(3) All contracts or written arrangements between MA organizations

and providers, related entities, first tier and downstream entities

must contain the following:

* * * * *

(ii) Accountability provisions that indicate that the MA

organization may only delegate activities or functions to a provider,

first tier, downstream, or related entity, in a manner consistent with

the requirements set forth at paragraph (i)(4) of this section.

(iii) A provision requiring that any services or other activity

performed by a related entity, first-tier, or downstream entity in

accordance with a contract or written agreement are consistent and

comply with the MA organization's contractual obligations.

r,

first tier, downstream, or related entity, in a manner consistent with

the requirements set forth at paragraph (i)(4) of this section.

(iii) A provision requiring that any services or other activity

performed by a related entity, first-tier, or downstream entity in

accordance with a contract or written agreement are consistent and

comply with the MA organization's contractual obligations.

(4) If any of the MA organizations' activities or responsibilities

under its contract with CMS are delegated to other parties, the

following requirements apply to any provider or first tier, downstream

and related entity:

* * * * *

5. Amend Sec. 422.505 by revising paragraph (c) to read as

follows:

Sec. 422.505 Effective date and term of contract.

* * * * *

(c) Renewal of contract. In accordance with Sec. 422.506,

contracts are renewed annually only if the MA organization has not

provided CMS with a notice of intention not to renew and CMS has not

provided the MA organization with a notice of intention not to renew.

* * * * *

6. Amend Sec. 422.506 by--

A. Revising paragraph (b)(2) introductory text.

B. Revising paragraph (b)(2)(i).

C. Redesignating paragraph (b)(3) as (b)(4).

D. Adding a new paragraph (b)(3).

The revisions and additions read as follows:

Sec. 422.506 Nonrenewal of contract.

* * * * *

(b) * * *

(2) Notice of non-renewal. CMS provides notice of its decision not

to authorize renewal of a contract as follows:

. 422.506 by--

A. Revising paragraph (b)(2) introductory text.

B. Revising paragraph (b)(2)(i).

C. Redesignating paragraph (b)(3) as (b)(4).

D. Adding a new paragraph (b)(3).

The revisions and additions read as follows:

Sec. 422.506 Nonrenewal of contract.

* * * * *

(b) * * *

(2) Notice of non-renewal. CMS provides notice of its decision not

to authorize renewal of a contract as follows:

(i) To the MA organization by September 1 of the contract year.

* * * * *

(3) Corrective action plan. (i) Before nonrenewing a contract, CMS

will provide the MA organization with a reasonable opportunity to

develop and submit a corrective action plan (CAP).

(ii) The MA organization must develop and submit the CAP within 45

days of receiving a request for a CAP.

(iii) If CMS determines the CAP is unacceptable, CMS will provide

the MA organization with an additional 30 days to submit a revised CAP.

(iv) If CMS determines the CAP is acceptable, CMS will notify the

MA organization of a deadline by which the CAP must be fully

implemented. CMS has sole discretion on whether the CAP is fully

implemented.

(v) Failure to develop and implement a CAP within the timeframes

specified in paragraphs (3)(i) through (3)(iii) of this section may

result in the nonrenewal of the MA contract.

* * * * *

7. Amend Sec. 422.510 by--

A. Republishing paragraph (a) introductory text.

B. Revising paragraph (a)(1).

C. Revising paragraph (b) introductory text.

D. Revising paragraph (b)(2) heading.

E. Revising paragraph (b)(2)(i).

F. Revising paragraph (c).

The revisions read as follows:

Sec. 422.510 Termination of contract by CMS.

(a) Termination by CMS. CMS may terminate a contract for any of the

following reasons:

(1) The MA organization has failed substantially to carry out the

terms of--

(i) Its current contract term with CMS, or

(ii) Its contract with CMS from the preceding contract term.

* * * * *

b)(2)(i).

F. Revising paragraph (c).

The revisions read as follows:

Sec. 422.510 Termination of contract by CMS.

(a) Termination by CMS. CMS may terminate a contract for any of the

following reasons:

(1) The MA organization has failed substantially to carry out the

terms of--

(i) Its current contract term with CMS, or

(ii) Its contract with CMS from the preceding contract term.

* * * * *

(b) Notice. If CMS decides to terminate a contract for reasons

other than the grounds specified in Sec. 422.510(a)(4) or Sec.

422.510(a)(5), it gives notice of the termination as follows:

* * * * *

(2) Expedited termination of contract by CMS. (i) For terminations

based on violations prescribed in Sec. 422.510(a)(4) or Sec.

422.510(a)(5), CMS notifies the MA organization in writing that its

contract will be terminated on a date specified by CMS. If termination

is effective in the middle of a month, CMS has the right to recover the

prorated share of the capitation payments made to the MA organization

covering the period of the month following the contract termination.

* * * * *

(c) Corrective action plan.--(1) General. Before terminating a

contract for reasons other than the grounds specified in paragraphs

(a)(4) or (a)(5) of

this section, CMS will provide the MA organization with a reasonable

opportunity to develop and submit a corrective action plan (CAP).

(i) The MA organization must develop and submit the CAP within 45

days of receiving a request for a CAP.

(ii) If CMS determines the CAP is unacceptable, CMS will provide

the MA organization with an additional 30 days to submit a revised CAP.

(iii) If CMS determines the CAP is acceptable, CMS will notify the

MA organization of a deadline by which the CAP must be fully

implemented. CMS has sole discretion on whether the CAP is fully

implemented.

(iv) Failure to develop and implement a CAP within the timeframes

specified in paragraphs (c)(1)(i) through (c)(1)(iii) may result in the

termination of the MA contract.

it a revised CAP.

(iii) If CMS determines the CAP is acceptable, CMS will notify the

MA organization of a deadline by which the CAP must be fully

implemented. CMS has sole discretion on whether the CAP is fully

implemented.

(iv) Failure to develop and implement a CAP within the timeframes

specified in paragraphs (c)(1)(i) through (c)(1)(iii) may result in the

termination of the MA contract.

(2) Exceptions. If a contract is terminated under Sec.

422.510(a)(4) or Sec. 422.510(a)(5), the MA organization will not have

the opportunity to submit a CAP.

* * * * *

Subpart N--Medicare Contract Determinations and Appeals

8. Amend Sec. 422.644 by--

A. Republishing paragraph (b) introductory text.

B. Revising paragraph (b)(2).

C. Revising paragraph (c).

D. Revising paragraph (d).

The revisions read as follows:

Sec. 422.644 Notice of contract determination.

* * * * *

(b) The notice specifies--

(1) * * *

(2) The MA organization's right to request a hearing.

(c) For CMS-initiated terminations, CMS mails notice to the MA

organization 90 days before the anticipated effective date of the

termination. For terminations based on determinations described at

Sec. 422.510(a)(4) or Sec. 422.510(a)(5) CMS notifies the MA

organization of the date that it will terminate the organization's MA

contract.

(d) When CMS determines that it will not authorize a contract

renewal, CMS mails the notice to the MA organization by September 1 of

the current contract year.

9. Section 422.646 is revised to read as follows:

Sec. 422.646 Effect of contract determination.

The contract determination is final and binding unless a timely

request for a hearing is filed under Sec. 422.662.

Sec. 422.648 [Removed]

10. Section 422.648 is removed.

Sec. 422.650 [Removed]

11. Section 422.650 is removed.

Sec. 422.652 [Removed]

12. Section 422.652 is removed.

Sec. 422.654 [Removed]

13. Section 422.654 is removed.

Sec. 422.656 [Removed]

14. Section 422.656 is removed.

Sec. 422.658 [Removed]

final and binding unless a timely

request for a hearing is filed under Sec. 422.662.

Sec. 422.648 [Removed]

10. Section 422.648 is removed.

Sec. 422.650 [Removed]

11. Section 422.650 is removed.

Sec. 422.652 [Removed]

12. Section 422.652 is removed.

Sec. 422.654 [Removed]

13. Section 422.654 is removed.

Sec. 422.656 [Removed]

14. Section 422.656 is removed.

Sec. 422.658 [Removed]

15. Section 422.658 is removed.

16. Revise Sec. 422.660 to read as follows:

Sec. 422.660 Right to a hearing and burden of proof.

(a) The following parties are entitled to a hearing:

(1) A contract applicant that has been determined to be unqualified

to enter into a contract with CMS under Part C of Title XVIII of the

Act pursuant to Sec. 422.501.

(2) An MA organization whose contract has been terminated pursuant

to Sec. 422.510.

(3) An MA organiza

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