Federal Register, Volume 75 Issue 224 (Monday, November 22, 2010)

[Federal Register Volume 75, Number 224 (Monday, November 22, 2010)]
[Proposed Rules]
[Pages 71190-71292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28774]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 417, 422, and 423

Medicare Program; Proposed Changes to the Medicare Advantage and the
Medicare Prescription Drug Benefit Programs for Contract Year 2012 and
Other Proposed Changes; Proposed Rule

Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 /
Proposed Rules

[[Page 71190]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, and 423

[CMS-4144-P]
RIN 0938-AQ00

Medicare Program; Proposed Changes to the Medicare Advantage and
the Medicare Prescription Drug Benefit Programs for Contract Year 2012
and Other Proposed Changes

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

ACTION: Proposed rule.

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SUMMARY: We are proposing revisions to the Medicare Advantage (MA)
program (Part C) and Prescription Drug Benefit Program (Part D) to
implement provisions specified in the Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act of 2010
(collectively referred to as the Affordable Care Act) (ACA) and make
other changes to the regulations based on our continued experience in
the administration of the Part C and D programs. These latter proposed
revisions would clarify various program participation requirements;
make changes to strengthen beneficiary protections; strengthen our
ability to identify strong applicants for Parts C and D program
participation and remove consistently poor performers; and make other
clarifications and technical changes.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. Eastern Standard
Time (EST) on January 21, 2011.

ADDRESSES: In commenting, please refer to file code CMS-4144-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-4144-P, P.O. Box 8013, Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address only: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-4144-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) 786-7195 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.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Vanessa Duran, (410) 786-8697 and Sabrina Ahmed, (410) 786-7499,
General information.
Christopher McClintick, (410) 786-4682, Part C issues.
Deborah Larwood, (410) 786-9500, Part D issues.
Kristy Nishimoto, (410) 786-8517, Part C and D enrollment and appeals
issues.
Deondra Moseley, (410) 786-4577, Part C payment issues.

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-4144-P.
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 at 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.

Table of Contents

I. Background
A. Overview of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003
B. History and Overview
II. Provisions of the Proposed Regulation
A. Overview of the Proposed Changes
B. Changes To Implement the Provisions of the Affordable Care
Act of 2010
1. Cost Sharing for Specified Services at Original Medicare
Levels (Sec. 417.101 and Sec. 422.100)
2. Simplification of Beneficiary Election Periods (Sec. 422.62,
Sec. 422.68, Sec. 423.38, and Sec. 423.40)
3. Special Needs Plan (SNP) Provisions (Sec. 422.2, Sec.
422.4, Sec. 422.101, Sec. 422.107, and Sec. 422.152)
a. Adding a Definition of Fully Integrated Dual Eligible SNP
(Sec. 422.2)
b. Extending SNP Authority
c. Dual-Eligible SNP Contracts With State Medicaid Agencies
(Sec. 422.107)
d. Approval of Special Needs Plans by the National Committee for
Quality Assurance (Sec. 422.4, Sec. 422.101, and Sec. 422.152)
4. Section 1876 Cost Contractor Competition Requirements (Sec.
417.402)
5. Making Senior Housing Facility Demonstration Plans Permanent
(Sec. 422.2 and Sec. 422.53)
6. Authority To Deny Bids (Sec. 422.254, Sec. 422.256, Sec.
423.265, and Sec. 423.272)

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7. Determination of Part D Low-Income Benchmark Premium (Sec.
423.780)
8. Voluntary De Minimis Policy for Subsidy Eligible Individuals
(Sec. 423.34 and Sec. 423.780)
a. Reassigning LIS Individuals (Sec. 423.34)
b. Enrollment of LIS-Eligible Individuals (Sec. 423.34)
c. Premium Subsidy (Sec. 423.780)
9. Increase in Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44, Sec. 423.286, and Sec.
423.293)
a. Rules Regarding Premiums (Sec. 423.286)
b. Collection of Monthly Beneficiary Premium (Sec. 423.293)
c. Involuntary Disenrollment by CMS (Sec. 423.44)
10. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
11. Appropriate Dispensing of Prescription Drugs in Long-Term
Care Facilities Under PDPs and MA-PD Plans (Sec. 423.154)
12. Complaint System for Medicare Advantage Organizations and
PDPs (Sec. 422.504 and Sec. 423.505)
13. Uniform Exceptions and Appeals Process for Prescription Drug
Plans and MA-PD Plans (Sec. 423.128 and Sec. 423.562)
14. Including Costs Incurred by AIDS Drug Assistance Programs
and the Indian Health Service Toward the Annual Part D Out-of-Pocket
Threshold (Sec. 423.100 and Sec. 423.464)
15. Cost Sharing for Medicare-Covered Preventive Services (Sec.
417.101 and Sec. 422.100)
16. Elimination of the Stabilization Fund (Sec. 422.458)
17. Improvements to Medication Therapy Management Programs
(Sec. 423.153)
18. Changes To Close the Part D Coverage Gap (Sec. 423.104 and
Sec. 423.884)
19. Payments to Medicare Advantage Organizations (Sec. 422.308)
a. Authority To Apply Frailty Adjustment Under PACE Payment
Rules for Certain Specialized MA Plans for Special Needs Individuals
(Sec. 422.308)
b. Application of Coding Adjustment (Sec. 422.308)
c. Improvements to Risk Adjustment for Special Needs Individuals
With Chronic Health Conditions (Sec. 422.308)
20. Medicare Advantage Benchmark, Quality Bonus Payments, and
Rebate (Sec. 422.252, Sec. 422.258, and Sec. 422.266)
a. Terminology (Sec. 422.252)
b. Calculation of Benchmarks (Sec. 422.258)
c. Increases to the Applicable Percentage for Quality (Sec.
422.258(d))
d. Beneficiary Rebates (Sec. 422.266)
21. Quality Bonus Payment and Rebate Retention Appeals (Sec.
422.260)
C. Clarify Various Program Participation Requirements
1. Clarify Payment Rules for Non-Contract Providers (Sec.
422.214)
2. Pharmacist Definition (Sec. 423.4)
3. Prohibition on Part C and D Program Participation by
Organizations Whose Owners, Directors, or Management Employees
Served in a Similar Capacity With Another Organization That
Terminated Its Medicare Contract Within the Previous 2 Years (Sec.
422.506, Sec. 422.508, Sec. 422.512, Sec. 423.508, Sec. 423.507,
and Sec. 423.510)
4. Timely Transfer of Data and Files When CMS Terminates a
Contract With a Part D Sponsor (Sec. 423.509)
5. Review of Medical Necessity Decisions by a Physician or Other
Health Care Professional and the Employment of a Medical Director
(Sec. 422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
6. Compliance Officer Training (Sec. 422.503 and Sec. 423.504)
7. Removing Quality Improvement Projects and Chronic Care
Improvement Programs From CMS Deeming Process (Sec. 422.156)
8. Definitions of Employment-Based Retiree Health Coverage and
Group Health Plan for MA Employer/Union-Only Group Waiver Plans
(Sec. 422.106)
D. Strengthening Beneficiary Protections
1. Agent and Broker Training Requirements (Sec. 422.2274 and
Sec. 423.2274)
a. CMS-Approved or Endorsed Agent and Broker Training and
Testing (Sec. 422.2274 and Sec. 423.2274)
b. Extending Annual Training Requirements to All Agents and
Brokers (Sec. 422.2274 and Sec. 423.2274)
2. Call Center and Internet Web Site Requirements (Sec. 422.111
and Sec. 423.128)
a. Extension of Customer Call Center and Internet Web site
Requirements to MA Organizations (Sec. 422.111)
b. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
3. Require Plan Sponsors To Contact Beneficiaries To Explain
Enrollment by an Unqualified Agent/Broker (Sec. 422.2272 and Sec.
423.2272)
4. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
5. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
6. Prohibition on Use of Tiered Cost Sharing by MA Organizations
(Sec. 422.262)
7. Delivery of Adverse Coverage Determinations (Sec. 423.568)
8. Extension of Grace Period for Good Cause and Reinstatement
(Sec. 422.74 and Sec. 423.44)
9. Translated Marketing Materials (Sec. 422.2264 and Sec.
423.2264)
E. Strengthening Our Ability To Distinguish for Approval
Stronger Applicants for Part C and Part D Program Participation and
To Remove Consistently Poor Performers
1. Expand Network Adequacy Requirements to Additional MA Plan
Types (Sec. 422.112)
2. Maintaining a Fiscally Sound Operation (Sec. 422.2, Sec.
422.504, Sec. 423.4, and Sec. 423.505)
3. Release of Part C and Part D Payment Data
4. Required Use of Electronic Transaction Standards for Multi-
Ingredient Drug Compounds; Payment for Multi-Ingredient Drug
Compounds (Sec. 423.120)
5. Denial of Applications Submitted by Part C and D Sponsors
With Less Than 14 Months Experience Operating Their Medicare
Contracts (Sec. 422.502 and Sec. 423.503)
F. Other Clarifications and Technical Changes
1. Clarification of the Expiration of the Authority To Waive the
State Licensure Requirement for Provider-Sponsored Organizations
(Sec. 422.4)
2. Cost Plan Enrollment Mechanisms (Sec. 417.430)
3. Fast-Track Appeals of Service Terminations to Independent
Review Entities (IREs) (Sec. 422.626)
4. Part D Transition Requirements (Sec. 423.120)
5. Revision to Limitation on Charges to Enrollees for Emergency
Department Services (Sec. 422.113)
6. Clarify Language Related to Submission of a Valid Application
(Sec. 422.502 and Sec. 423.503)
7. Modifying the Definition of Dispensing Fees (Sec. 423.100)
III. Collection of Information Requirements
A. ICRs Regarding Cost Sharing for Specified Services at
Original Medicare Levels (Sec. 417.101 and Sec. 422.100)
B. ICRs Regarding SNP Provisions (Sec. 422.101, Sec. 422.107,
and Sec. 422.152)
1. Dual-Eligible SNP Contracts With State Medicaid Agencies
(Sec. 422.107)
2. ICRs Regarding NCQA Approval of SNPs (Sec. 422.101 and Sec.
422.152)
C. ICRs Regarding Voluntary De Minimis Policy for Subsidy
Eligible Individuals (Sec. 423.34 and Sec. 423.780)
D. ICRs Regarding Increase in Part D Premiums Due to the Income
Related Monthly Adjustment Amount (D--IRMAA) (Sec. 423.44)
E. ICRs Regarding Elimination of Medicare Part D Cost Sharing
for Individuals Receiving Home and Community-Based Services (Sec.
423.772 and Sec. 423.782)
F. ICRs Regarding Appropriate Dispensing of Prescription Drugs
in Long-Term Care Facilities Under PDPs and MA-PD plans (Sec.
423.154) and Dispensing Fees (Sec. 423.100)
G. ICRs Regarding Complaint System for Medicare Advantage
Organizations and PDPs (Sec. 422.504 and Sec. 423.505)
H. ICRs Regarding Uniform Exceptions and Appeals Process for
Prescription Drug Plans and MA-PD Plans (Sec. 423.128(b)(7)(i),
Sec. 423.128(d), and Sec. 423.562(a)(3))
I. ICRs Regarding Including Costs Incurred by AIDS Drug
Assistance Programs and the Indian Health Service Toward the Annual
Part D Out-of-Pocket Threshold (Sec. 423.100 and Sec. 423.464)
J. ICRs Regarding Improvements to Medication Therapy Management
Programs (Sec. 423.153(vii))
K. ICRs Regarding Changes To Close the Part D Coverage Gap
(Sec. 423.104 and Sec. 423.884)
L. ICRs Regarding Medicare Advantage Benchmark, Quality Bonus
Payments, and Rebate (Sec. 422.252, Sec. 422.258 and Sec.
422.266)
M. ICRs Regarding Quality Bonus Appeals (Sec. 422.260)
N. ICRs Regarding Timely Transfer of Data and Files When CMS
Terminates a

[[Page 71192]]

Contract With a Part D Sponsor (Sec. 423.509)
O. ICRs Regarding Compliance Officer Training (Sec. 422.503 and
Sec. 423.504)
P. ICRs Regarding Agent and Broker Training Requirements (Sec.
422.2274 and Sec. 423.2274)
Q. ICRs Regarding Call Center and Internet Web Site Requirements
(Sec. 422.111 and Sec. 423.128)
R. ICRs Regarding Requiring Plan Sponsors To Contact
Beneficiaries To Explain Enrollment by an Unqualified Agent/Broker
(Sec. 422.2272 and Sec. 423.2272)
S. ICRs Regarding Customized Enrollee Data (Sec. 422.111 and
Sec. 423.128)
T. ICRs Regarding Extending the Mandatory Maximum Out-of-Pocket
(MOOP) Amount Requirements to Regional PPOs (Sec. 422.100(f) and
Sec. 422.101(d))
U. ICRs Regarding Prohibition on Use of Tiered Cost Sharing by
MA Organizations (Sec. 422.100 and Sec. 422.262)
V. ICRs Regarding Translated Marketing Materials (Sec. 422.2264
and Sec. 423.2264)
W. ICRs Regarding Expanding Network Adequacy Requirements to
Additional MA Plan Types (Sec. 422.112)
X. ICRs Regarding Maintaining a Fiscally Sound Operation (Sec.
422.2, Sec. 422.504, Sec. 423.4, and Sec. 423.505)
Y. ICRs Regarding Release of Part C and Part D Payment Data
Z. ICRs Regarding Revision to Limitation on Charges to Enrollees
for Emergency Department Services (Sec. 422.113)
IV. Response to Comments
V. Regulatory Impact Analysis
A. Overall Impact
B. Costs, Savings, and Anticipated Effects Associated With This
Proposed Rule
1. Cost Sharing for Specified Services at Original Medicare
Levels (Sec. 417.101 and Sec. 422.100)
2. Approval of Special Needs Plans (SNPs) by National Committee
for Quality Assurance (NCQA) (Sec. 422.4, Sec. 422.101, and Sec.
422.152)
3. Determination of Part D Low-Income Benchmark Premium (Sec.
423.780)
4. Voluntary De Minimis Policy for Subsidy Eligible Individuals
(Sec. 423.34 and Sec. 423.780)
5. Increase in Part D Premiums Due to the Income-Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44)
6. Elimination of Medicare Part D Cost Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
7. Appropriate Dispensing of Prescription Drugs in Long-Term
Care Facilities Under PDPs and MA-PD Plans (Sec. 423.154) and
Dispensing Fees (Sec. 423.100)
8. Complaint System for Medicare Advantage Organizations and
PDPs (Sec. 422.504 and Sec. 423.505)
9. Uniform Exceptions and Appeals Process for Prescription Drug
Plans and MA-PD Plans (Sec. 423.128 and Sec. 423.562)
10. Including Costs Incurred by the AIDS Drug Assistance Program
(ADAP) and the Indian Health Service (IHS) Toward the Annual Part D
Out-of-Pocket Threshold (Sec. 423.100 and Sec. 423.464)
11. Cost Sharing for Medicare Covered Preventive Services (Sec.
417.101 and Sec. 422.100)
12. Elimination of the Stabilization Fund (Sec. 422.458)
13. Improvements to Medication Therapy Management Programs
(Sec. 423.153)
14. Changes To Close the Part D Coverage Gap (Sec. 423.104 and
Sec. 423.884)
15. Medicare Advantage Benchmark, Quality Bonus Payments, and
Rebate and Application of Coding Adjustment (Sec. 422.252, Sec.
422.258, Sec. 422.266, and Sec. 422.308)
16. Quality Bonus Appeals (Sec. 422.260)
17. Timely Transfer of Data and Files When CMS Terminates a
Contract With a Part D Sponsor (Sec. 423.509)
18. Review of Medical Necessity Decisions by a Physician or
Other Health Care Professional and the Employment of a Medical
Director (Sec. 422.562, Sec. 422.566, Sec. 423.562, and Sec.
423.566)
19. Compliance Officer Training (Sec. 422.503 and Sec.
423.504)
20. Agent and Broker Training Requirements (Sec. 422.2274 and
Sec. 423.2274)
21. Call Center Interpreter Requirements (Sec. 422.111 and
Sec. 423.128)
22. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
23. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
24. Translated Marketing Materials (Sec. 422.2264 and Sec.
423.2264)
C. Expected Benefits
1. Cost Sharing for Specified Services at Original Medicare
Levels (Sec. 417.101 and 422.100)
2. Determination of Part D Low-Income Benchmark Premium (Sec.
423.780)
3. Voluntary De Minimis Policy for Subsidy Eligible Individuals
(Sec. 423.34 and Sec. 423.780)
4. Increase in Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44)
5. Elimination of Medicare Part D Cost Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
6. Appropriate Dispensing of Prescription Drugs in Long-Term
Care Facilities Under PDPs and MA-PD Plans (Sec. 423.154) and
Dispensing Fees (Sec. 423.100)
7. Complaint System for Medicare Advantage Organizations and
PDPs (Sec. 422.504 and Sec. 423.505)
8. Uniform Exceptions and Appeals Process for Prescription Drug
Plans and MA-PD Plans (Sec. 423.128 and Sec. 423.562)
9. Including Costs Incurred by the AIDS Drug Assistance Program
(ADAP) and the Indian Health Services (IHS) Toward the Annual Part D
Out-of-Pocket Threshold (Sec. 423.100 and Sec. 423.464)
10. Cost Sharing for Medicare Covered Preventive Service (Sec.
417.101 and Sec. 422.100)
11. Elimination of the Stabilization Fund (Sec. 422.458)
12. Improvements to Medication Therapy Management Programs
(Sec. 423.153)
13. Changes to Close the Part D Coverage Gap (Sec. 423.104 and
Sec. 423.884)
14. Medicare Advantage Benchmark, Quality Bonus Payments, and
Rebate and Application of Coding Adjustment (Sec. 422.252, Sec.
422.258 and Sec. 422.266, and Sec. 422.308)
15. Quality Bonus Appeals (Sec. 422.260)
16. Timely Transfer of Data and Files When CMS Terminates a
Contract With a Part D Sponsor (Sec. 423.509)
17. Review of Medical Necessity Decisions by a Physician or
Other Health Care Professional and the Employment of a Medical
Director (Sec. 422.562, Sec. 422.566, Sec. 423.562, and Sec.
423.566)
18. Compliance Officer Training (Sec. 422.503 and Sec.
423.503)
19. Agent and Broker Training Requirements (Sec. 422.2274 and
Sec. 423.2274)
20. Call Center Interpreter Requirements (Sec. 422.111 and
Sec. 423.128)
21. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
22. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
23. Translated Marketing Materials (Sec. 422.2264 and Sec.
423.2264)
D. Alternatives Considered
1. Cost Sharing for Specified Services at Original Medicare
Levels (Sec. 417.101 and Sec. 422.100)
2. Cost Sharing for Medicare Covered Preventive Services (Sec.
417.101 and Sec. 422.100)
3. Quality Bonus Appeals (Sec. 422.260)
4. Timely Transfer of Data and Files When CMS Terminates a
Contract With a Part D Sponsor (Sec. 423.509)
5. Review of Medical Necessity Decisions by a Physician or Other
Health Care Professional and the Employment of a Medical Director
(Sec. 422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
6. Compliance Officer Training (Sec. 422.503 and Sec. 423.504)
7. Agent and Broker Training Requirements (Sec. 422.2274 and
Sec. 423.2274)
8. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
9. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
10. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
11. Translated Marketing Materials (Sec. 422.2264 and Sec.
423.2264)
12. Increases to the Applicable Percentage for Quality (Sec.
422.258(d))
E. Accounting Statement

Regulations Text

Acronyms

ACA The Affordable Care Act of 2010 (which is the collective term
for the Patient Protection and Affordable Care Act (Pub. L. 111-148)
and the Health Care and Education Reconciliation Act (Pub. L. 111-
152))
AO Accrediting Organization
ADS Automatic Dispensing System

[[Page 71193]]

AEP Annual Enrollment Period
AHFS American Hospital Formulary Service
AHFS-DI American Hospital Formulary Service-Drug Information
AHRQ Agency for Health Care Research and Quality
ALJ Administrative Law Judge
ANOC Annual Notice of Change
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA [Medicare, Medicaid and State Child Health Insurance Program]
Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection
Act of 2000 (Pub. L. 106-554)
CAHPS Consumer Assessment Health Providers Survey
CAP Corrective Action Plan
CCIP Chronic Care Improvement Program
CCS Certified Coding Specialist
CHIP Children's Health Insurance Programs
CMP Civil Money Penalties
CMR Comprehensive Medical Review
CMS Centers for Medicare & Medicaid Services
CMS-HCC CMS Hierarchal Condition Category
CTM Complaints Tracking Module
COB Coordination of Benefits
CORF Comprehensive Outpatient Rehabilitation Facility
CPC Certified Professional Coder
CY Calendar Year
DOL U.S. Department of Labor
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)
DUM Drug Utilization Management
EGWP Employer Group/Union-Sponsored Waiver Plan
EOB Explanation of Benefits
EOC Evidence of Coverage
ESRD End-Stage Renal Disease
FACA Federal Advisory Committee Act
FDA Food and Drug Administration (HHS)
FEHBP Federal Employees Health Benefits Plan
FFS Fee-for-Service
FY Fiscal Year
GAO Government Accountability Office
HCPP Health Care Prepayment Plans
HEDIS HealthCare Effectiveness Data and Information Set
HHS [U.S. Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
(Pub. L. 104-191)
HMO Health Maintenance Organization
HOS Health Outcome Survey
HPMS Health Plan Management System
ICD-9-CM Internal Classification of Disease, 9th, Clinical
Modification Guidelines
ICEP Initial Coverage Enrollment Period
ICL Initial Coverage Limit
ICR Information Collection Requirement
IRMAA Income-Related Monthly Adjustment Amount
IVC Initial Validation Contractor
LEP Late Enrollment Penalty
LIS Low Income Subsidy
LTC Long Term Care
MA Medicare Advantage
MAAA Member of the American Academy of Actuaries
MA-PD Medicare Advantage-Prescription Drug Plans
M+C Medicare +Choice Program
MOC Medicare Options Compare
MPDPF Medicare Prescription Drug Plan Finder
MIPPA Medicare Improvements for Patients and Providers Act of 2008
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (Pub. L. 108-173)
MSA Metropolitan Statistical Area
MSAs Medical Savings Accounts
MSP Medicare Secondary Payer
MTM Medication Therapy Management
MTMP Medication Therapy Management Programs
NAIC National Association Insurance Commissioners
NCPDP National Council for Prescription Drug Programs
NCQA National Committee for Quality Assurance
NGC National Guideline Clearinghouse
NIH National Institutes of Health
NOMNC Notice of Medicare Non-Coverage
OEP Open Enrollment Period
OIG Office of Inspector General
OMB Office of Management and Budget
OPM Office of Personnel Management
OTC Over the Counter
PART C Medicare Advantage
PART D Medicare Prescription Drug Benefit Programs
PBM Pharmacy Benefit Manager
PDE Prescription Drug Event
PDP Prescription Drug Plan
PFFS Private Fee For Service Plan
POS Point of Service
PPO Preferred Provider Organization
PPS Prospective Payment System
P&T Pharmacy & Therapeutics
QIO Quality Improvement Organization
QRS Quality Review Study
PACE Programs of All Inclusive Care for the Elderly
RADV Risk Adjustment Data Validation
RAPS Risk Adjustment Payment System
RHIA Registered Health Information Administrator
RHIT Registered Health Information Technician
SEP Special Enrollment Periods
SHIP State Health Insurance Assistance Programs
SNF Skilled Nursing Facility
SNP Special Needs Plan
SPAP State Pharmaceutical Assistance Programs
SSA Social Security Administration
SSI Supplemental Security Income
TrOOP True Out-Of-Pocket
U&C Usual and Customary
USP U.S. Pharmacopoeia

SUPPLEMENTARY INFORMATION:

I. Background

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

The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA) (Pub. L. 108-173) established the Part D program and made
significant revisions to Part C provisions governing the Medicare
Advantage (MA) program. The MMA directed that important aspects of the
Part D program be similar to, and coordinated with, regulations for the
MA program. Generally, the provisions enacted in the MMA took effect
January 1, 2006. The final rules implementing the MMA for the MA and
Part D prescription drug programs appeared in the Federal Register on
January 28, 2005 (70 FR 4588 through 4741 and 70 FR 4194 through 4585,
respectively).
As we have gained experience with the MA program and the
prescription drug benefit program, we periodically have revised the
Part C and D regulations to continue to improve or clarify existing
policies and/or codify current guidance for both programs. For example,
in December 2007, we published a final rule with comment on contract
determinations involving Medicare Advantage (MA) organizations and
Medicare Part D prescription drug plan sponsors (72 FR 68700). In April
2008, we published a final rule to address policy and technical changes
to the Part D program (73 FR 20486). In September 2008 and January
2009, we finalized revisions to both the Medicare Advantage and
Medicare prescription drug benefit programs (73 FR 54226 and 74 FR
1494, respectively) to implement provisions in the Medicare Improvement
for Patients and Providers Act (MIPPA) (Pub. L. 110-275), which
contained provisions affecting both the Medicare Part C and D programs,
and to make other policy changes and clarifications based on experience
with both programs (73 FR 54208, 73 FR 54226, and 74 FR 2881). In April
2010, we finalized new policies for both the MA and Part D prescription
drug programs as part of our continuing efforts to protect
beneficiaries from excessive out-of-pocket costs, ensure transparency
in plan costs and benefits, and strengthen plan compliance with our
requirements (75 FR 19678 through 19826).

B. History and Overview

The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established
a new ``Part C'' in the Medicare statute (sections 1851 through 1859 of
the Social Security Act (the Act)) which established the current MA
program. As discussed above, the MMA, enacted on December 8, 2003,
added a new ``Part D'' to the Medicare statute (sections 1860D-1
through 42 of the Act) creating the Medicare Prescription Drug Benefit
Program, and made significant changes to the M+C program.

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Also as noted previously, MIPPA, enacted on July 15, 2008, further
amended provisions in Part C and D, including adding extensive new
provisions governing marketing under both programs, which were
implemented in a final rule that paralleled provisions in MIPPA that
was published in the Federal Register on September 18, 2008 (73 FR
54208), and in the same issue of the Federal Register (73 FR 54226) we
published a separate interim final rule that addressed the other
provisions of MIPPA affecting the MA and Part D programs. We also
clarified the MIPPA marketing provisions in a November 2008 interim
final rule (73 FR 67407) and issued a separate interim final rule in
January 2009 to address MIPPA provisions related to Part D plan
formularies (74 FR 2881).
The proposed and final rules addressing additional policy
clarifications under the Part C and D programs appeared in the October
22, 2009 (74 FR 54634) and April 15, 2010 Federal Register (75 FR 19678
through 19826), respectively. (These rules are hereinafter referred to
as the October 2009 proposed rule and the April 2010 final rule,
respectively.) As noted when issuing these rules, we believed that
additional programmatic and operational changes were needed in order to
further improve our oversight and management of the Part C and D
programs, and to further improve a beneficiary's experience under MA or
Part D plans.
Indeed, one of the primary reasons set forth in support of issuing
our April 2010 final rule was to address beneficiary concerns
associated with the annual task of selecting a Part C or Part D plan
from so many options. We noted that while it was clear that the
Medicare Part C and D programs have been successful in providing
additional health care options for beneficiaries, a significant number
of beneficiaries have been confused by the array of choices provided
and have found it difficult to make enrollment decisions that are best
for them. Moreover, experience had shown that organizations submitting
multiple bids under Part C and D had not consistently submitted benefit
designs significantly different from each other, which we believed
added to beneficiary confusion. For this reason, the April 2010 rule
required that multiple plan submissions in the same area have
significant differences from each other. Other changes set forth in the
April 2010 final rule were aimed at strengthening existing beneficiary
protections, improving payment rules and processes, enhancing our
ability to pursue data collection for oversight and quality assessment,
strengthening formulary policy, and finalizing a number of
clarifications and technical corrections to existing policy.
In this new proposed rule, we are continuing our process of
implementing improvements in policy consistent with those included in
the April 2010 final rule, while also implementing changes to the Part
C and Part D programs made by recent legislative changes. The Patient
Protection and Affordable Care Act (Pub. L. 111-148) was enacted on
March 23, 2010, as passed by the Senate on December 24, 2009, and the
House on March 21, 2010. The Health Care and Education Reconciliation
Act (Pub. L. 111-152), which was enacted on March 30, 2010, modified a
number of Medicare provisions in Pub. L. 111-148 and added several new
provisions. The Patient Protection and Affordable Care Act (Pub. L.
111-148) and the Health Care and Education Reconciliation Act (Pub. L.
111-152) are collectively referred to as the Affordable Care Act (ACA).
The ACA includes significant reforms to both the private health
insurance industry and the Medicare and Medicaid programs. Provisions
in the ACA concerning the Part C and D programs largely focus on
beneficiary protections, MA payments, and simplification of MA and Part
D program processes. These provisions affect the way we implement our
policies concerning beneficiary cost-sharing, assessing bids for
meaningful differences, and ensuring that cost-sharing structures in a
plan are transparent to beneficiaries and not excessive. Some of the
other provisions for which we are proposing revisions to the MA and
Part D programs, based on the ACA and our experiences in administering
the MA and Part D programs, concern MA and Part D marketing, including
agent/broker training; payments to MA organizations based on quality
ratings; standards for determining if organizations are fiscally sound;
low income subsidy policy under the Part D program; payment rules for
non-contract health care providers; extending current network adequacy
standards to Medicare medical savings account (MSA) plans that employ a
network of providers; establishing limits on out-of-pocket expenses for
MA enrollees; and several revisions to the special needs plan
requirements, including changes concerning SNP approvals and deeming.
In general, our proposals are intended to strengthen the way we
administer the Part C and D programs, and help beneficiaries make the
best plan choices for their health care needs.

II. Provisions of the Proposed Regulations

A. Overview of Proposed Changes

In the sections that follow, we discuss the proposed changes to the
regulations in 42 CFR parts 417, 422, and 423 governing the MA and
prescription drug benefit programs. To better frame the discussion of
the specific regulatory provisions we are proposing, we have structured
the preamble narrative by topic area rather than in subpart order.
Accordingly, our proposals address the following five specific goals:
Implementing the provisions of the ACA.
Clarifying various program participation requirements.
Strengthening beneficiary protections.
Strengthening our ability to distinguish for approval
stronger applicants for Parts C and D program participation and to
remove consistently poor performers.
Implementing other clarifications and technical changes.
A number of the proposed revisions and clarifications affect both
the MA and prescription drug programs, while some affect section 1876
cost contracts. Within each section, we have provided a chart listing
all subject areas containing provisions affecting the Part C, Part D,
and section 1876 cost contract programs, and the associated regulatory
citations that would be revised.
We note that these regulations would be effective 60 days after the
publication of the final rule that will finalize the proposed changes
discussed in this proposed rule, except where otherwise noted in the
preamble. Table 1 lists the proposed changes that have an effective
date other than 60 days after the publication of the final rule. The
proposed effective dates are discussed in the preamble for each of
these items.
We are proposing several changes to the regulations to reflect
provisions in the ACA which either are already in effect, or have an
effective date that will likely be earlier than 60 days after the
publication of the final rule. Table 2 lists these proposed changes.
While these ACA provisions are effective on the statutory effective
date, we propose that the regulations implementing these provisions be
effective 60 days after the publication of the final rule.
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B. Changes to Implement the Provisions of the Affordable Care Act

The ACA includes significant reforms of both the private health
insurance industry and the Medicare and Medicaid programs. Provisions
in the Act concern the Part C and D programs and largely focus on
beneficiary protections, MA payments, and simplification of MA and Part
D program processes. The changes based on provisions in the ACA are
detailed in Table 3.
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1. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.101 and Sec. 422.100)
Section 3202 of the ACA amended section 1852 of the Act to
establish new standards for MA plans' cost sharing. Specifically,
section 1852(a)(1)(B) of the Act was amended by the addition of a new
clause (iii) that limits cost sharing under MA plans so that it cannot
exceed the cost sharing imposed under Original Medicare for specific
services identified in a new clause (iv). New section 1852(a)(1)(B)(iv)
of the Act lists the three services for which cost sharing in MA plans
may not exceed that required in Original Medicare (chemotherapy
administration services, renal dialysis services, skilled nursing care)
and at section 1852(a)(1)(B)(iv)(IV) of the Act specifies that this
limit on cost sharing also applies to such other services that the
Secretary determines appropriate, including services that the Secretary
determines require a high level of predictability and transparency for
beneficiaries. The limits on cost sharing in clause (iii) are ``subject
to'' an exception in clause (v) which provides that, ``[i]n the case of
services described in clause (iv) for which there is no cost sharing
required under Parts A and B, cost sharing may be required for those
services'' under the clause (i) standard in place prior to the
amendments made by section 3202 of the ACA. This section requires that
overall cost sharing for Medicare Part A and B services be actuarially
equivalent to that imposed under Original Medicare. As noted in the
final rule that appeared in the April 15, 2010 Federal Register (75 FR
19712) and clarified in our April 16, 2010 policy guidance, the
provisions of section 3202 of the ACA apply to MA plans offered in CY
2011. To codify these provisions, we are proposing to amend Sec.
422.100 by adding a new paragraph (g). In addition, under our authority
in section 1876(i)(3)(D) of the Act to impose ``other terms and
conditions'' deemed ``necessary and appropriate,'' we are proposing in
a proposed new paragraph (g) in Sec. 417.100 that the requirements in
section 3202 of the ACA be extended by regulation to section 1876 cost
contracts. We believe that this extension is necessary in order to
ensure that all Medicare beneficiaries have the benefit of the cost
sharing protections enacted in the ACA, regardless of whether they
receive their Part A and B benefits through Original Medicare, an MA
plan, or under a section 1876 cost contract.
We believe that the measures to protect beneficiaries from high
out-of-pocket costs in section 3202 of the ACA complement the steps we
already have taken in our April 2010 final rule to protect
beneficiaries from health plans with high out-of-pocket costs,
discriminatory cost sharing and benefit designs that interfere with
beneficiaries' access to affordable high quality health care, and
create confusion that is attributable to having too many MA plan
choices in an area that are not ``meaningfully different.'' In fact,
for CY 2011, MA organizations already were expected to comply with new
standards for cost sharing and to submit meaningfully different plans
in order to reduce beneficiary confusion, and were strongly encouraged
to provide Medicare-covered preventive services without cost sharing.
Organizations also were expected to limit the number of plans offered
in a service area by identifying for non-renewal plans with sustained
low enrollment.
In our April 16, 2010 guidance issued via the Health Plan
Management System (HPMS) (``Benefits Policy and Operations Guidance
Regarding Bid Submissions; Duplicative and Low Enrollment Plans; Cost
Sharing Standards; General Benefits Policy Issues; and Plan Benefits
Package (PBP) Reminders for Contract Year (CY) 2011''), we included
clarifying information related to implementation of the required cost
sharing for chemotherapy administration services, renal dialysis
services, and skilled nursing care for CY 2011 and we defined
chemotherapy administration services to include chemotherapy drugs,
radiation therapy services and other related chemotherapeutic agents,
as well as administration, and skilled nursing care to mean skilled
nursing facility services. We also clarified that, since there is no
cost sharing under Original Medicare for the first 20 days of skilled
nursing services, under section 1852(a)(1)(B)(v) of the Act, the new
restrictions in section 3202 of the ACA

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do not apply to such services during this period.
In our proposed addition to Sec. 422.100 and Sec. 417.101, we
would incorporate these definitions for the two service categories. We
welcome comments on these proposed cost sharing standards.
We also are proposing to limit cost sharing for home health
services under MA plans to that charged under Original Medicare. We
note that, although we can generally rely on our authority at
1852(a)(1)(B)(iv)(IV) of the Act to apply Original Medicare cost
sharing limits to other services that the Secretary determines
appropriate, because there is no cost sharing under Original Medicare
for home health services, as in the case of the first 20 days of
skilled nursing facility services, the exception in clause (v) of
section 1852(a)(1)(B) of the Act would apply, and the limit on cost
sharing under section 1852(a)(1)(B)(iii) of the Act would not apply.
Thus, in proposing to apply Original Medicare cost sharing amounts to
home health services or any other service with zero cost sharing, we
would rely instead on our authority in section 1856(b)(1) of the Act to
establish MA standards by regulation, and in section 1857(e)(1) of the
Act to impose additional ``terms and conditions'' found ``necessary and
appropriate'' to require that cost sharing for these services under MA
plans conform to that under Original Medicare, meaning that no cost
sharing could be imposed for these services.
We believe that even with the additional restriction on cost
sharing for home health services, MA organizations will continue to
have adequate flexibility to design plan benefits that are responsive
to beneficiary needs and preferences while providing access to high
quality and affordable health care. We are soliciting public comment on
our proposal to limit cost sharing for home health services to that
charged for those services under Original Medicare.
2. Simplification of Beneficiary Election Periods (Sec. 422.62, Sec.
422.68, Sec. 423.38, and Sec. 423.40)
Section 3204 of the ACA modified section 1851(e)(3)(B) of the Act
such that, beginning with plan year 2012, the annual coordinated
election period (AEP) under Parts C and D will be held from October 15
to December 7. We propose to amend Sec. 422.62(a)(2) and Sec.
423.38(b) to codify this change, which will be effective October 15,
2011 for elections effective January 1, 2012.
Section 3204 of the ACA also revised section 1851(e)(2)(C) of the
Act to establish, beginning in 2011, a 45-day period at the beginning
of the year (January 1 through February 14) that allows beneficiaries
enrolled in MA plans the opportunity to disenroll and join Original
Medicare, with the option to enroll in a Medicare prescription drug
plan. This 45-day period replaces the MA open enrollment period that
previously occurred annually from January 1 to March 31, and eliminates
the requirements in section 1851(e)(2)(c)(iii) of the previous open
enrollment provision that required that Part D status be maintained
when an election is made (under the previous rule, an individual
disenrolling from an MA-PD plan to Original Medicare was required to
enroll in a Part D plan, where it is optional under the new provision).
We propose to amend Sec. 422.62(a) to provide for this new
disenrollment opportunity, and modify Sec. 423.38(d) to allow for
enrollment into a standalone PDP.
We also would amend Sec. 422.62(a) to clarify that the open
enrollment opportunities for those beneficiaries who are newly eligible
for MA would continue only through the end of 2010. Additionally, we
would modify Sec. 422.68(f) to specify the effective date for
disenrollment requests submitted during the new 45-day disenrollment
period. Finally, in Sec. 423.40(d), we would specify the enrollment
effective dates for individuals who enroll in a standalone Medicare
prescription drug plan after disenrolling from MA during the 45-day
period. These changes would be effective January 1, 2011.
As indicated in section II.A. of this proposed rule, we propose
that the regulations implementing these provisions be effective 60 days
after the publication of the final rule.
3. Special Needs Plan (SNP) Provisions (Sec. 422.2, Sec. 422.4, Sec.
422.101, Sec. 422.107, and Sec. 422.152)
This section proposes a definition of a fully integrated dual-
eligible special needs plan (SNP) for purposes of section
3205(b)(iv)(II) of the ACA, and regulations implementing changes made
by the ACA which extend the SNP program, extend provisions permitting
existing DE-SNPs that were not seeking to expand their service areas to
continue operating through 2012, and establish a required NCQA approval
process for SNPs.
a. Adding a Definition of Fully Integrated Dual Eligible SNP (Sec.
422.2)
Section 3205 of the ACA revised section 1853(a)(1)(B) of the Act
provides authority to apply a frailty payment under PACE payment rules
for certain individuals under fully integrated dual-eligible special
needs plans described in section 3205(b)(iv)(II) of the ACA. We are
adding a definition of fully integrated dual-eligible SNPs to Sec.
422.2 that would apply for these purposes. Under this definition, a
plan--
Is a SNP enrolling special needs individuals entitled to
medical assistance under a State plan under Medicaid, as defined under
section 1859(b)(6)(B)(ii) of the Act and Sec. 422.2;
Provides dually-eligible beneficiaries access to Medicare
and Medicaid benefits under a single managed care organization (MCO);
Has a capitated contract with a state Medicaid agency that
includes coverage of specified primary, acute and, long-term care
benefits and services, consistent with State policy;
Coordinates the delivery of covered Medicare and Medicaid
health and long-term care services, using aligned care management and
specialty care network methods for high-risk beneficiaries; and
Employs policies and procedures approved by CMS and the
State to coordinate or integrate member materials, including
enrollment, communications, grievance and appeals, and quality
assurance.
b. Extending SNP Authority
Section 3205 of the ACA revised section 1859(f)(1) of the Act to
extend the authority for SNPs to restrict enrollment to special needs
individuals, thereby permitting SNPs to continue to limit enrollment to
special needs individuals through the 2013 contract year. This
extension applies to all SNP categories, with the exception of dual
eligible SNPs that do not have a contract with the State in which they
operate as described in section II.B.1.c. of this proposed rule. This
provision is effective upon enactment of the ACA. However, as indicated
in section II.A. of this proposed rule, we propose that the regulations
implementing this provision be effective 60 days after the publication
of the final rule.
c. Dual-Eligible SNP Contracts With State Medicaid Agencies (Sec.
422.107)
Section 164 of MIPPA provided that all new dual-eligible SNPs (DE
SNPs) must have contracts with the State Medicaid Agencies in the
States in which the SNP plans operate. The provision also allowed
existing DE SNPs that were not seeking to expand their service areas to
continue to operate without a State contract through the 2010 contract
year as long as all other MIPPA established requirements were met. This
authority was codified at Sec. 422.107. Section 3205 of the ACA
extended this provision for existing DE SNPs through December 31, 2012
such

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that all new DE SNPs must have contracts with State Medicaid agencies,
while all renewing DE SNPs that do not have contracts with State
Medicaid agencies and are not seeking to expand their service areas may
continue to offer DE SNPs through the 2012 contract. For contract year
2013, all DE SNPs--new and renewing--must have contracts with State
Medicaid agencies. Accordingly, we propose revising Sec.
422.107(d)(ii) to codify this provision. This provision is effective
upon enactment of the ACA. However, as indicated in section II.A. of
this proposed rule, we propose that the regulations implementing this
provision be effective 60 days after the publication of the final rule.
d. Approval of Special Needs Plans by the National Committee for
Quality Assurance (Sec. 422.4, Sec. 422.101, and Sec. 422.152)
The ACA amended section 1859(f) of the Act to require that SNPs be
approved by the National Committee for Quality Assurance (NCQA)
effective January 1, 2012 and subsequent years. Under this section, the
NCQA approval process shall be based on the standards established by
the Secretary.
The NCQA SNP approval process should provide a foundation for
selecting Medicare Advantage organizations that comprehend the unique
requirements of the SNP program and are capable of implementing these
requirements. Both the overall quality improvement (QI) program
description and the model of care (MOC) are critical clinical elements
that represent the potential for the SNP to provide integrated care for
Medicare enrollees.
New SNPs or SNPs that are expanding their service areas are already
required to submit a QI Program Plan and a MOC as part of the
application process. For 2012, we will also require existing SNPs to
submit their QI Program and MOC during the same application timeframe.
NCQA will review the QI program and the MOC elements during the
application process using the standards that are currently being
developed by CMS. NCQA would assume responsibility for the review and
scoring of the overall QI program plan and the MOC based on the
standards developed by CMS. While we will coordinate with NCQA in
developing these standards, CMS will not participate in the scoring and
review of the MOC and QI program plans.
Shortly, we will release specific instructions and guidance to
organizations about how to submit their QI program and MOCs. This
guidance will include the specific criteria that NCQA will use to
evaluate the QI program and the MOC. Also included in the guidance will
be information about technical assistance that will be available to the
SNPs as they prepare their QI Program and MOC submissions as well as
details on the frequency of the SNP approval process. We are concerned
that an annual approval process could be burdensome for plans.
Therefore, we are considering an approval cycle that would occur
between 1 to 5 years. This approval cycle would be designed so that the
plans that have a higher score on the initial approval of their QI
program and MOC would be granted a longer period before being required
to be re-approved. While plans that scored at the lower end of the
acceptable spectrum would be granted a shorter period before the next
approval was required. We are also considering using other quality
improvement measures to help determine the length of time a plan may
have before reapproval. For example, plans that score well during their
annual quality improvement audits may be eligible for extensions to the
time period for the approval process. We would like to use the public
comment period to help to determine the appropriate frequency for the
SNP approval process.
We are conducting a review of the MOCs from a sample of the SNPs.
Data are not yet available from these audits. However, it is
anticipated that the audits will be completed by the end of the
calendar year. Information received from the audits will be used to
assist CMS in revising and improving the MOC. In addition, we intend to
use this information to modify and refine the required evaluation
criteria over time to improve the QI program and the MOC.
Accordingly, we propose adding a new paragraph (iv) to Sec.
422.4(a) to require MA plans wishing to offer a SNP, whether new or
current, to be approved by NCQA, effective January 1, 2012, by
submitting their overall quality QI program and MOC to CMS for NCQA
evaluation and approval, per CMS guidance. We also propose codifying
the new requirement at Sec. 422.101(f), which specifies MOC
requirements, by adding a new paragraph (vi). Finally we propose
codifying the new requirement by revising Sec. 422.152(g), which
specifies QI program requirements.
4. Section 1876 Cost Contractor Competition Requirements (Sec.
417.402)
Section 3206 of the ACA revised section 1876(h)(5)(C) of the Act to
extend implementation of the section 1876 cost contract competition
provisions until January 1, 2013. Previously, MIPPA had specified that
section 1876 cost contractors operating in service areas or portions of
service areas with two or more local or two or more regional Medicare
coordinated care plans meeting minimum enrollment requirements (5,000
enrollees for urban areas and 1,500 enrollees for non urban areas) be
non-renewed beginning in 2010. In addition, MIPPA specified that MA
plan enrollment be assessed over a full contract year.
As a result of the ACA revision, we will evaluate enrollment of
competing MA coordinated care plans beginning 2012, and affected
section 1876 cost contractors will receive non-renewal notices
beginning 2013. Beginning in 2014, section 1876 cost contractors will
no longer be able to offer health care services in affected service
areas. We propose to revise Sec. 417.402(c) to specify the statutory
change in the implementation date of the section 1876 cost plan
competition requirements from 2010 to 2013.
This provision is effective upon enactment of the ACA. However, as
indicated in section II.A. of this proposed rule, we propose that the
regulations implementing this provision be effective 60 days after the
publication of the final rule.
5. Making Senior Housing Facility Demonstration Plans Permanent (Sec.
422.2 and Sec. 422.53)
Section 3208 of the ACA establishes (at section 1859(g) of the Act)
that as of January 1, 2010, senior housing facility plans participating
as of December 31, 2009 ``in a demonstration project established by the
Secretary under which such a plan was offered for not less than 1
year'' may continue participation as Medicare Advantage senior housing
facility plans. MA senior housing facility plans must:
Limit enrollment to residents of continuing care
retirement communities as defined in section 1852(l)(4)(B) and codified
at Sec. 422.133(b)(2)--that is, an arrangement under which housing and
health-related services are provided (or arranged) through an
organization for the enrollee under an agreement that is effective for
the life of the enrollee or for a specified period;
Provide primary care services onsite and have a ratio of
accessible physicians to beneficiaries that the Secretary determines is
adequate; and
Provide transportation services for beneficiaries to
specialty providers outside of the facility.
We propose to amend the definitions section at Sec. 422.2 to
include ``senior

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housing facility plan'' as a new coordinated care plan type. Our
proposed definition of the term senior housing facility plan would be
consistent with the statutory requirements for such plans at section
1859(g) of the Act--that is, that such plan restrict enrollment to
individuals who reside in a continuing care retirement community as
defined in Sec. 422.133(b)(2); provide primary care services onsite
and have a ratio of accessible physicians to beneficiaries that we
determine is adequate consistent with prevailing patterns of community
health care as provided under Sec. 422.112(a)(10); provide
transportation services for beneficiaries to specialty providers
outside of the facility; and was participating as of December 31, 2009
in a demonstration established by us for not less than 1 year. We note
that a senior housing facility plan must otherwise meet all
requirements applicable to MA organizations under this part.
In addition, we propose to add a new Sec. 422.53 to subpart B of
Part 422 to address the eligibility and enrollment policies applicable
to senior housing facility plans. We propose specifying at Sec. 422.53
that MA senior housing facility plans must restrict enrollment in these
plans to residents of continuing care retirement communities, and that
individuals enrolled in such plans must meet all other MA eligibility
requirements in order to be eligible to enroll. In addition, we propose
specifying at Sec. 422.53(c) that an MA senior housing facility plan
must verify the eligibility of each individual enrolling in its plan
using a CMS approved process. As indicated in section II.A. of this
proposed rule, we propose that the regulations implementing this
provision be effective 60 days after the publication of the final rule.
6. Authority To Deny Bids (Sec. 422.254, Sec. 422.256, Sec. 423.265,
and Sec. 423.272)
Section 3209 of the ACA amends section 1854(a)(5) of the Act by
adding subsections (C)(i) and (ii) to provide that nothing in section
1854 of the Act shall be construed as requiring the Secretary to accept
any or every bid submitted by an MA organization, and expressly
provides that the Secretary may deny a bid submitted by an MA
organization for an MA plan if it proposes significant increases in
cost sharing or decreases in benefits offered under the plan. Section
3209 also extends these provisions to apply to the review of bids from
Part D sponsors by amending section 1860D-11(d) of the Act to add a new
paragraph (3). This statutory authority applies to bids submitted for
contract years beginning on or after January 1, 2011. However, as
indicated in section II.A. of this proposed rule, we propose that the
regulations implementing this provision be effective 60 days after the
publication of the final rule.
We believe that these amendments clarify the Secretary's authority
to deny bids submitted by MA organizations and PDP sponsors and provide
support for our current policies intended to encourage plans that are
high quality, meaningfully different from each other, and
nondiscriminatory with respect to cost sharing. In our final rule
entitled ``Policy and Technical Changes to the Medicare Advantage and
the Medicare Prescription Drug Benefit Programs'' (75 FR 19678), we
established authority to impose limits on cost sharing and to deny bids
submitted by plans with sustained low enrollment, and for plans not
meaningfully different from other plans offered by the same MA
organization or PDP sponsor in a service area. We provided further
guidance related to these policies via the Health Plan Management
System (HPMS) on April 16, 2010 (``Benefits Policy and Operations
Guidance Regarding Bid Submissions; Duplicative and Low Enrollment
Plans; Cost Sharing Standards; General Benefits Policy Issues; and Plan
Benefits Package (PBP) Reminders for Contract Year (CY) 2011''and
``2011 Part D Plan Benefit Package (PBP) Submission and Review
Instructions'').
Using our authority under sections 1857(c)(2)(B) and 1860D-
12(b)(3)(D) of the Act, we codified requirements in Sec.
422.506(b)(1)(iv) and Sec. 423.507(b)(1)(iii) for Part C and Part D,
respectively, to non-renew a health plan or prescription drug plan (at
the benefit-package level) if the plan does not have sufficient number
of enrollees to establish that it is a viable independent plan option.
Consistent with that authority, we scrutinized low-enrollment plans
during the bid review period this year and encouraged sponsors to
withdraw or consolidate low-enrollment plans prior to submitting bids
for CY 2011. We revised Sec. 422.256(b)(4)(i) and Sec.
423.272(b)(3)(i) to stipulate that we would only approve a bid
submitted by a MA organization or Part D sponsor if its benefit package
or plan cost structure is substantially different from those of other
plan offerings by the organization or sponsor in the service area with
respect to key characteristics such as premiums, cost-sharing,
formulary structure, or benefits offered. Related changes to Sec.
422.254(a)(4) and Sec. 423.265(b)(2) provide that MA organizations and
Part D sponsors may submit multiple bids in the same area only if the
offerings are substantially different from each other. In the above-
mentioned April 16, 2010 guidance for PDP sponsors, for the CY 2011
plan year, we defined meaningful differences between health plans as a
$20 per member per month difference (PMPM) in cost sharing and for PDPs
as a $22 PMPM difference in cost sharing (not including premiums) as
reflected in the out-of-pocket cost (OOPC) data.
We further indicated that we do not believe sponsors can
demonstrate meaningful differences based on expected out-of-pocket
costs between two stand-alone basic Part D benefit designs and maintain
both statutory actuarial equivalence requirements and fulfill the
requirement (in Sec. 423.153(b)) to maintain cost-effective drug
utilization review programs. Therefore, we indicated that PDP sponsors
should submit only one basic offering (where basic offering includes
defined standard, actuarial equivalent or basic alternative drug
benefit types) for a stand-alone prescription drug plan in a service
area. We also are increasing our scrutiny of the expected cost sharing
amounts incurred by beneficiaries under coinsurance tiers, in order to
more consistently compare copay and coinsurance cost sharing impacts.
If a sponsor submitted coinsurance values (instead of copayment values)
for its formulary tiers, we requested documentation from the sponsor on
the average expected price for medications on the coinsurance tier(s)
in order to better translate the coinsurance value into an average cost
sharing amount for the purpose of our anti-discrimination review. These
additional benefit and formulary evaluations are in addition to our
formulary review and analysis of tier placement of drugs to ensure that
the coverage is balanced and that the associated cost sharing does not
discriminate against beneficiaries with a certain disease or diagnosis
category. Therefore, we have already established, in effect, a bid
review policy that evaluates the limits plans place on member benefits
and cost sharing.
Under authority clarified in section 3209 of the ACA to decline to
accept bids, we believe that we can choose to limit the number and/or
type of plans offered in service areas to enhance our ability to
achieve our goals, which are to protect beneficiaries from confusion,
discriminatory cost sharing, and any but the highest performing plans.
For instance, for CY 2011, we are requiring that MA organizations and
PDP sponsors meet new cost sharing standards, ensure that meaningful
differences exist between plan offerings,

[[Page 71201]]

and consolidate or terminate plans with sustained low enrollment.
Although we are not now proposing to establish additional restrictive
criteria for CY 2012, we considered proposing additional regulatory
restrictions and assessed the expected effects of such additional
restrictions on MA organizations, PDP sponsors, and beneficiaries. For
example, we believe the Secretary has authority under section 3209 by
regulation to set specific thresholds limiting premium increases that
can be imposed without a bid being denied, limit which MA organizations
and PDP sponsors may offer plans based on quality ratings, and specify
caps on the number or the types of plans that may be offered in a
service area.
We concluded that we would not propose such additional restrictions
limiting MA organizations' or PDP sponsors' plan bids until we were
able to evaluate the effectiveness of the limits in place for CY 2011.
We also are aware of the many changes we required plans to make for CY
2011 and believe that allowing plans time to adjust to the most recent
policies prior to implementing further restrictions may be the most
advantageous and reasonable approach for CMS, Medicare beneficiaries,
and the organizations and sponsors. Thus, although we believe the new
authority strengthens our ability to take corrective action in the
event that MA organizations and PDP sponsors do not meet the criteria
in our current regulation and subsequent guidance, we realize that
setting further limits before we have enough information to evaluate
the effectiveness of our recent policy changes or their effects on the
market may be premature.
Furthermore, with respect to Part C, we believe that the
implementation of specific non-acceptance and denial policies based on
comparisons of premium and cost sharing increases and benefit decreases
from year to year would be especially challenging considering the
number of plan types and services offered by MA organizations. There
would be serious difficulties with an effective quantitative premium
and cost sharing evaluation process. Such a process would need to
measure and adjust for annual changes in maximum out-of-pocket limits,
Original Medicare cost-sharing and premiums, medical cost inflation, MA
payment policy, benefit designs, and plan service expansions and
reductions. Such a process might well turn out to be too rigid to adapt
to rapidly changing circumstances and market conditions.
To avoid such rigidity, and to promote the statutory goals
(including protection of beneficiaries from confusion and
discriminatory cost sharing), we do not propose to specify additional
criteria such as thresholds (either absolute or relative to the
distribution of bids received) limiting acceptable premium increases.
But we do seek comment on our proposed approach and on possible
alternatives, designed to balance the need to avoid rigidity while
promoting clarity and predictability. We are specifically soliciting
public comments from the industry and advocacy communities regarding
the criteria outlined in our April 16, 2010 guidance issued via HPMS
and whether we should establish additional requirements to limit plan
offerings in a service area. We also invite comment as to whether there
are other measures we should consider as part of future rulemaking that
may help us in our efforts to protect beneficiaries and promote
provision of high quality, affordable health plans. We also solicit
comments on whether we should adopt other substantive criteria for
exercising our authority under section 3209 of the ACA by implementing
caps, or limits, on the number of plans offered in a region, or on the
number of sponsors participating in the program. For example, for
contract year 2011, we identified plan outliers based on changes in
premiums and cost-sharing and required some changes to plan bids in
order for them to be approved. We solicit comment on this and other,
similar approaches of using outlier analyses based on previous and/or
current contract year bids to exercise our authority under section 3209
of the ACA. We ask the industry and advocacy communities what we should
consider when limiting the acceptance of plan bids or denying plan bids
(for example, comparability and access to services in certain service
areas, plan performance, outlier plans with the highest bids), were we
to choose to move in that direction. Finally, we solicit comment on the
best way to ensure fair notice and equal treatment for all plan bids in
the absence of specific non-acceptance and denial policies. Our
decision not to propose additional specific criteria for CY 2012 should
not be interpreted as an indication that we will not adopt specific
policies in future rulemaking or that we will not perform robust and
thorough reviews of bid submissions. We will continue to use our
statutory and regulatory authority to ensure that only high value, non-
discriminatory, and actuarially sound bid submissions are approved as
we evaluate the effects of our current cost sharing, meaningful
differences and low-enrollment policies and consider the timely
suggestions and comments we receive from the public on this proposed
rule to guide our future policy. Additionally, we note that our
discretion to make determinations that MA plan bids propose significant
increases in cost sharing or decreases in benefits offered on a case-
by-case basis, in accordance with statutory goals, is limited to
consideration of the criteria for acceptance or denial of plan bids
that have been established via rulemaking and guidance.
We propose to codify the amendments made to sections 1854(a)(5) and
1860D-11(d) of the Act by adding paragraph (a)(5) to Sec. 422.254,
revising Sec. 422.256(a), adding paragraph (b)(3) to Sec. 423.265 and
by adding paragraph (b)(4) to Sec. 423.272.
7. Determination of Part D Low-Income Benchmark Premium (Sec. 423.780)
The ACA amends the statute governing the calculation of the LIS
benchmark premium amount. Section 1860D-14(b)(3)(B)(iii) of the Act, as
amended by the ACA, requires us to calculate the LIS benchmarks using
MA-PD basic Part D premiums before the application of Part C rebates
each year, beginning with 2011. This proposed rule updates the
regulations at Sec. 423.780(b)(2)(ii)(C) to incorporate this change.
As indicated in section II.A. of this proposed rule, we propose that
the regulations implementing this provision be effective 60 days after
the publication of the final rule.
We note that the ACA also requires us to calculate the low-income
premium benchmarks before the application of the quality bonuses under
section 1853(o) of the Act. The ACA section 1102(d) ties the level of
rebate to a plan's star rating for quality of performance. Since the
quality bonus is part of the rebate, we do not refer to this
requirement in the regulation text. The quality bonus is described in
more detail in the Medicare Advantage Benchmark, Quality Bonus
Payments, and Rebate section (see section II.B.20. of this proposed
rule).
8. Voluntary De Minimis Policy for Subsidy Eligible Individuals (Sec.
423.34 and Sec. 423.780)
Section 3303(a) of the ACA modifies section 1860D-14(a) of the Act
by creating a new subsection (5) that permits PDPs and MA-PD plans to
waive a de minimis monthly beneficiary premium for low income subsidy
(LIS) eligible individuals who are enrolled in the plan. The provision
also prohibits the Secretary from reassigning LIS individuals the
plan's premium was greater than the LIS benchmark premium amount, so
long as amount of

[[Page 71202]]

the premium is de minimis and the plan waives it.
Section 3303(b) of the ACA modifies section 1860D-1(b)(1) of the
Act that permits the Secretary to include PDPs and MA-PD plans that
waive the de minimis amount in the auto-enrollment process that we use
to enroll those LIS eligible individuals who fail to enroll in a Part D
plan. If these plans are included in the process, and there is more
than one plan, the statute requires that enrollees be randomly assigned
among all such plans in the PDP region. We propose to amend regulations
in Sec. 423.34 and Sec. 423.780(f) to codify the new statutory
requirements. The statutory provision is effective January 1, 2011.
However, as indicated in section II.A. of this proposed rule, we
propose that the regulations implementing these provisions be effective
60 days after the publication of the final rule.
a. Reassigning LIS Individuals (Sec. 423.34)
Currently, Sec. 423.34(c) specifies that CMS may reassign certain
low income subsidy eligible individuals if CMS determines that further
enrollment is warranted. We have used this authority to reassign LIS
eligible individuals annually when a PDP's monthly beneficiary premium
amount is going to exceed the low income benchmark as calculated in
Sec. 423.780(b)(2). As noted above, the ACA prohibits the Secretary
from reassigning a plan's LIS eligible enrollees based on the fact that
the plan's monthly beneficiary premium exceeds the LIS benchmark
premium amount, so long as the amount of premium is de minimis and the
plan volunteers to waive the amount by which their monthly premium
exceeds the LIS benchmark. Thus, plans that would otherwise have lost
enrollees because of a de minimis monthly beneficiary premium can
retain their membership. We are proposing to amend Sec. 423.34(c)
regarding reassignment of LIS beneficiaries to reflect section 1860D-
1(a)(5) of the Act.
b. Enrollment of LIS-Eligible Individuals (Sec. 423.34)
Currently, Sec. 423.34(d) specifies that CMS enroll LIS eligible
individuals who fail to enroll in a PDP. The PDP into which we auto-
enroll these individuals are those plans with monthly beneficiary
premiums for LIS eligible individuals that do not exceed the low income
benchmark as calculated in Sec. 423.780(b)(2).
We are proposing to amend Sec. 423.34(d) regarding auto-enrollment
of LIS eligible individuals to be consistent with section 1860D-1(b)(1)
of the Act, as modified by the ACA. We will provide details on when we
will use this discretion in forthcoming guidance, specifically
operational guidance memorandums as well as in Chapter 3 on
Eligibility, Enrollment, and Disenrollment of the Medicare Prescription
Drug Benefit Manual. We expect that we will not auto-enroll or reassign
beneficiaries into plans that volunteer to waive the de minimis amount.
The only exception would be in cases where the reassignments would
allow beneficiaries to remain within the same parent organization.
Plans within the same organization usually have the same formulary, so
keeping a person within the same organizations minimizes disruption.
This mimics the policy in place during the de minimis demonstration
from 2007 and 2008. The goal of that policy was to minimize
reassignments, while maintaining downward pressure on Part D bids by
not rewarding de minimis plans with new enrollees. Beneficiaries with
100 percent premium subsidy who are already enrolled in, or voluntarily
elect, a PDP or MA-PD plan that waives the de minimis amount will not
be liable for premiums. Although we do not intend to exercise this
discretion by including Part D plans that waive the de minimis amount
in the pool of Part D plans qualified to receive auto-enrollees or
reassignees, we do believe that the D regulations should be modified so
that the flexibility to do so can be maintained.
c. Premium Subsidy (Sec. 423.780)
We are also proposing to amend Sec. 423.780(f) to reflect section
1860D-14(a)(5) of the Act. In addition, because section 1860D-14(a)(5)
of the Act refers to waivers of de minimis premium that exceeds the
low-income benchmark, which accounts only for the basic benefit, we
propose to limit the waiver of the de minimis amount to the premium
applicable to the basic benefit. We will determine the de minimis
amount taking into consideration the goal of minimizing reassignments
without undue cost to the program. We will announce the de minimis
amount each August, in conjunction with our announcement of the LIS
benchmarks. Plans will volunteer as part of the bid finalization
process. Additional details will be provided in forthcoming guidance.
9. Increase In Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44, Sec. 423.286, and Sec.
423.293)
Section 3308 of the ACA amended section 1860D-13(a) of the Act by
establishing an income related monthly adjustment amount (hereafter
referred to as Part D--IRMAA) that is added to the monthly Part D
premium for individuals whose modified adjusted gross income exceeds
the same income threshold amounts established under section 1839(i) of
the Act with respect to the Medicare Part B income-related monthly
adjustment amount (Part B--IRMAA).
In calendar year (CY) 2007, the income ranges set forth in section
1839(i) of the Act required that individual and joint tax filers
enrolled in Part B whose modified adjusted gross income exceeded
$80,000 and $160,000, respectively, would be assessed the Part B--IRMAA
on a sliding scale. As specified in section 1839(i)(5) of the Act,
since the implementation of the Part B--IRMAA, each dollar amount
within the income threshold tiers has been adjusted annually based on
the Consumer Price Index. As a result of the annual adjustment, for
calendar year 2010, the income threshold amounts were increased to
reflect the four income threshold amount tiers shown below:

------------------------------------------------------------------------
Individual tax filers with Joint tax filers
income: with income: Premium percentage
------------------------------------------------------------------------
Equal to or less than Equal to or less 0--No IRMAA.
$85,000. than $170,000.
Greater than $85,000 and Greater than 35.
less than or equal to $170,000 and less
107,000. than or equal to
$214,000.
Greater than $107,000 and Greater than 50.
less than or equal to $214,000 and less
$160,000. than or equal to
$320,000.
Greater than $160,000 and Greater than 65.
less than or equal to $320,000 and less
$214,000. than or equal to
$428,000.
Greater than $214,000....... Greater than 80.
$428,000.
------------------------------------------------------------------------

[[Page 71203]]

We note that section 3402 of the ACA freezes the income thresholds
at the above 2010 levels through 2019.
In accordance with section 3308 of the ACA, effective January 1,
2011, any individual enrolled in the Medicare prescription drug program
whose modified adjusted gross income exceeds the same income threshold
amount tiers established under Part B will have an income related
increase to his/her Part D monthly premium. Section 3308 of the ACA
provides that the income related monthly amount for Part D will be
calculated using the Part D national base beneficiary premium and the
premium percentages in the above chart as follows: BBP x [(P percent -
25.5 percent)/25.5 percent]. The BBP is the base beneficiary premium
and P percent is the applicable premium percentage (35 percent, 50
percent, 65 percent, or 80 percent). The premium percentage used in the
calculation will depend on the level of the Part D enrollee's modified
adjusted gross income.
Section 3308 of the ACA requires us to provide the Social Security
Administration (SSA) with the national base beneficiary premium amount
used to calculate the Part D--IRMAA, no later than September 15 of
every year, beginning in 2010. We must also provide SSA, no later than
October 15 of each year, beginning 2010, with: (1) The modified
adjusted gross income threshold ranges; (2) the applicable percentages
established for Part D--IRMAA in accordance with section 1839(i) of the
Act; (3) the corresponding monthly adjustment amounts; and (4) any
other information SSA deems necessary to carry out the Part D--IRMAA.
With respect to the final item, we will provide SSA with an initial
list of all individuals enrolled in the Part D program. In accordance
with section 3308 of the ACA, SSA will use this initial list of Part D
enrollees to request beneficiary-specific tax payer information from
the Internal Revenue Service in order to determine: (1) Which Part D
enrollees exceed the income threshold amounts established under section
1839(i) of the Act; and (2) the income related monthly adjustment
amount that these enrollees must pay. This exchange of information
between CMS and SSA will occur in 2010 so that individuals identified
will be billed the correct Part D--IRMAA beginning January 1, 2011.
Following this initial data exchange with SSA, CMS will routinely
provide SSA with the names of all individuals newly enrolling in the
Part D program so that SSA can repeat the process of identifying
individuals who must pay the Part D--IRMAA and the specific income
related amount. We will also routinely provide the names of individuals
who have disenrolled from the Part D program so that such individuals
will no longer be assessed the Part D--IRMAA. In cases where an
individual disagrees with a determination that he/she is subject to the
Part D--IRMAA, such individual may appeal to SSA in the same manner
that has been established for the Part B--IRMAA under 20 CFR Part 418.
Section 3308 of the ACA also stipulates that the Part D--IRMAA must
be withheld from benefit payments in accordance with section 1840 of
the Act. Therefore, in cases where an individual is receiving benefit
payments from SSA, the Railroad Retirement Board (RRB), or the Office
of Personnel Management (OPM), the Part D--IRMAA must be withheld from
such benefit payments. However, if the benefit payment is insufficient
to allow the Part D--IRMAA withholding, or an individual is not
receiving benefit payments as described in section 1840 of the Act,
section 3308 of the ACA requires SSA to enter into agreements with CMS,
RRB, and OPM, as necessary, in order to allow the Part D--IRMAA to be
collected directly from these beneficiaries.
To implement section 3308 of the ACA, we are proposing to revise
Sec. 423.286 (rules regarding premiums), Sec. 423.293 (collection of
monthly beneficiary premium), and Sec. 423.44 (involuntary
disenrollment by PDP).
a. Rules Regarding Premiums (Sec. 423.286)
Currently, Sec. 423.286(a) provides that the monthly beneficiary
premium for a Part D plan in a PDP region is the same for all Part D-
eligible individuals enrolled in the plan with the exception of
employer group waivers, the assessment of the Part D late enrollment
penalty, or an enrollee receiving low-income assistance. We propose to
revise Sec. 423.286(a) to include the assessment of the income related
monthly adjustment amount as another exception to the requirement for a
uniform monthly beneficiary premium for a Part D plan in a PDP region.
We also propose to add a new Sec. 423.286(d)(4) to define the
increase for the income related monthly adjustment amount for Part D.
This provision would specify that, beginning, January 1, 2011, the
monthly beneficiary premium amount would be increased for any
individual whose modified adjusted gross income amount exceeds the
minimum income threshold amounts established at 20 CFR 418.1115 for the
Part B--IRMAA. Additionally, proposed Sec. 423.286(d)(4)(i) would
specify that SSA would determine the individuals that are subject to
the Part D--IRMAA and the amount of the adjustment. Proposed Sec.
423.286(d)(4)(ii) would provide the formula used to calculate the
monthly adjustment amount. Finally, proposed Sec. 423.286(d)(4)(iii)-
(iv) would provide appeals rights to individual who disagree with SSA's
determination that they are subject to Part D--IRMAA or the threshold
amount.
b. Collection of Monthly Beneficiary Premium (Sec. 423.293)
We are proposing to establish a new Sec. 423.293(d)(1) that
describes how the Part D--IRMAA would be collected. First, we would
address the process for collecting the Part D--IRMAA from SSA, RRB or
OPM benefit payments. In cases where SSA had determined that a Part D
enrollee must pay an income related monthly adjustment amount, such
amount must be paid through withholding from the enrollee's Social
Security benefit payments, or benefit payments by the RRB or OPM in the
manner that the Part B premium is withheld. Additionally, we would
establish at Sec. 423.293(d)(2) that in cases where premium
withholding is not possible because the monthly benefit check is
insufficient to allow the withholding, or the enrollee is not receiving
any monthly benefit payment, the individual must be directly billed for
the Part D--IRMAA through an electronic funds transfer mechanism (such
as automatic charges of an account at a financial institution or a
credit or debit card account) or according to other means that we may
specify.
Section 3308 of the ACA provides that the Part D--IRMAA is an
increase to the monthly beneficiary premium for certain individuals.
Section 1851(g)(B)(i) of the Act, as incorporated by section 1860D-
1(b)(5) of the Act, establishes that a beneficiary may be terminated
for failing to pay his/her Part D premiums. Although the Part D--IRMAA
is paid to CMS (via benefit payment withholdings or direct billing as
described above), and not to the PDP, we believe the same consequences
should apply for failure to pay the Part D--IRMAA as for failure to pay
plan premiums. Therefore, we are proposing, at Sec. 423.293(d)(3),
that CMS would terminate Part D coverage for any individual who fails
to pay the income related monthly adjustment amount in accordance with
proposed Sec. 423.44.
c. Involuntary Disenrollment by CMS (Sec. 423.44)
Section 3308 of the ACA provides that the Part D--IRMAA increases
the

[[Page 71204]]

monthly beneficiary premium for individuals who are subject to the
assessment. Therefore, we propose to apply provisions similar to the
existing Part D premium rules to terminate Part D coverage for any
individual who fails to pay the Part D--IRMAA. However, prior to
terminating coverage, we propose to provide the beneficiary with a
grace period to pay the Part D--IRMAA. We propose to add Sec.
423.44(e), to specify the involuntary disenrollment process by CMS when
an individual fails to pay the Part D--IRMAA.
Section 1860D-13(c) of the Act provides that enrollees' Part D
coverage can be terminated if they fail to pay their Part D premiums to
the PDP after a grace period and adequate notice has been provided. In
cases where enrollees' Part D coverage is terminated due to their
failure to pay premiums, Medicare rules do not now provide
reinstatement if the enrollee later pays the premium arrearages after
the termination date. We note that section C.8 of this preamble
addresses our proposal to amend Sec. 423.44(d)(1) to reinstate a
beneficiary's enrollment into Part D if the beneficiary demonstrates
good cause for failing to pay the Part D premium. Additionally,
terminated enrollees cannot re-enroll in a stand-alone Part D or MA-PD
plan unless they have a valid enrollment period. Consequently, waiting
for a valid enrollment period may create a period in which an
individual is without coverage and, depending on the duration, the
enrollee may incur a Part D late enrollment penalty. Therefore, we
propose to create a grace period and an extension of the grace period
for good cause and reinstatement at Sec. 423.44(e)(2) and (3) for
individuals subject to the Part D--IRMAA. Although CMS recently
extended the grace period that PDPs must provide enrollees before
disenrolling them for failure to pay their premium (75 FR 19816) from a
minimum of 1 month to 2 months, we propose to apply a longer grace
period with respect to the Part D--IRMAA. The extended grace period
under this proposed provision would be similar to the grace period (and
extension of the initial grace period) afforded individuals under
section 1838(b) of the Act with respect to the Part B premium
(including the Part B--IRMAA).
We believe that it is appropriate to provide additional beneficiary
flexibility in terms of a longer grace period for the Part D--IRMAA
because section 3308 of the ACA does not impact the direct subsidy
amount that CMS is required to pay Part D plan sponsors. Specifically,
the Part D--IRMAA is not a reduction in the direct subsidy that CMS
pays to PDPs; instead, it is an income-based amount paid to CMS in
addition to the premium that is paid by the enrollee to his/her Part D
plan. Thus, an extended grace period would not impact PDPs negatively.
Furthermore, the extended grace period would allow the beneficiary more
time to pay the Part D--IRMAA arrearages and avoid an immediate
disenrollment that would leave the beneficiary without Part D coverage
sooner. Therefore, we are proposing to allow all enrollees a minimum
grace period of 3 months following the billing month to pay any Part
D--IRMAA arrearages before they are disenrolled from their Part D plan.
In addition, we propose that an enrollee's Part D coverage may be
reinstated without interruption if the enrollee, within 3 calendar
months after the termination date, demonstrates ``good cause'' (as
defined under Sec. 423.44(d)(1)(iv)of this proposed rule) for failure
to pay Part D--IRMAA during the initial grace period, pays all Part D--
IRMAA arrearages, and does not owe any plan premiums to the PDP. CMS
(or an entity acting on behalf of CMS) will determine whether the
beneficiary has demonstrated ``good cause.''
We are also proposing at Sec. 423.44(e)(4) to require PDPs, after
notification by CMS, to notify enrollees of the termination of their
enrollment in the Part D plan in a form and manner determined by CMS.
We are also proposing to add a provision at Sec. 423.44(e)(5) that
would stipulate that in cases where an enrollee has been directly
billed for the Part D--IRMAA and provided with the appropriate grace
period as described above, the enrollee's termination will be effective
the first day following the last day of the initial grace period. That
is, the enrollee's last day of Part D coverage would be the last day of
the grace period.
Finally, we propose to modify the title of Sec. 423.44 from
``Involuntary disenrollment by the PDP'' to ``Involuntary Disenrollment
from Part D Coverage.'' The new title would encompass disenrollments at
the behest of both PDPs and CMS. In addition to disenrollments for
failure to pay the Part D--IRMAA, examples of disenrollments that may
be initiated by CMS include disenrollment due to death or loss of
entitlement to Medicare Parts A or B.
10. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
The MMA, as reflected in Sec. 423.782, established that full-
benefit dual eligible institutionalized individuals have no cost-
sharing for covered Part D drugs under their PDP or MA-PD plan. Section
3309 of the ACA also eliminates cost-sharing for full-benefit dual
eligible individuals who are receiving home and community-based
services (HCBS) under a home and community-based waiver authorized for
a State under section 1115 or subsection (c) or (d) of section 1915 of
the Act, or under a State Plan Amendment under section 1915(i) of the
Act, or if such services are provided through enrollment in a Medicaid
managed care organization with a contract under section 1903(m) or 1932
of the Act. These services are targeted to frail, elderly individuals
who, without the delivery in their home of services such as personal
care services, would be at risk of institutionalization. We propose to
amend Sec. 423.772 to establish the definition of ``individual
receiving home and community-based services'' and Sec.
423.782(a)(2)(ii) to reflect that these individuals will have no cost-
sharing. The Best Available Evidence policy in 42 CFR 423.800--which
requires plans to charge a lower copayment if certain evidence is
provided--is written broadly enough that it will apply to this new
copayment category without any further regulatory changes. We will
update our guidance to plans to provide additional detail on how the
Best Available Evidence regulation applies to this population.
Section 3309 of the ACA provides the Secretary the discretion
regarding the effective date of this provision, with the stipulation
that it shall be effective no earlier than January 1, 2012. We rely on
data from State Medicaid agencies, submitted to us no less frequently
than monthly, to identify the individuals in the State who are full-
benefit dual eligibles and are institutionalized. These data allow us
to set these individuals' Part D cost-sharing to zero. To expand the
population entitled to zero cost-sharing to include individuals
receiving home and community-based services, states would be required
to identify these additional individuals in their data to CMS.
We are proposing that this provision take effect on January 1,
2012. We believe it is important to provide this benefit at the
earliest possible date, since it will provide assistance to an
estimated 600,000 beneficiaries a year. In proposing an effective date,
we considered the administrative impact on States, and we believe that
even the earliest possible effective date will provide States with
adequate time for implementation.

[[Page 71205]]

11. Appropriate Dispensing of Prescription Drugs in Long-Term Care
Facilities Under PDPs and MA-PD Plans (Sec. 423.154)
Section 3310 of the ACA provides that the Secretary shall require
Part D sponsors to utilize specific, uniform dispensing techniques, as
determined by the Secretary in consultation with relevant stakeholders,
such as weekly, daily, or automated dose dispensing when dispensing
covered Part D drugs to enrollees who reside in long-term care (LTC)
facilities in order to reduce waste associated with 30-day fills. We
propose to implement this requirement by adding a new regulation at
Sec. 423.154 to govern how plan sponsors handle dispensing of covered
Part D drugs in LTC facilities. The provisions of this regulation will
apply to all organizations and sponsors offering Part D including stand
alone Part D plans, MA organizations, EGWP contracts, and PACE plans.
Consistent with section 3310 of the ACA, we consulted with a number
of stakeholders about dispensing in the LTC arena and their
recommendations for implementing section 3310 of the ACA. On March 19,
2010, we participated in the ``Short Cycle Dispensing Focus Group for
Long Term Care'' program hosted by the National Council for
Prescription Drug Programs (NCPDP). The well attended focus group
brought together pharmacies servicing LTC facilities, LTC facilities,
vendors, prescription drug plans, and pharmacy benefit managers (PBMs).
The objective of the conference was to discuss the implementation of 7-
day-or-less dispensing from various points of view. We announced our
open-door policy in several industry forums and have also actively
reached out to all industry groups we could identify. We have consulted
with a wide spectrum of industry stakeholders including professional
organizations and trade groups; providers of LTC pharmacy services;
vendors for automated dispensing technologies, pre-pack filling
equipment and software; Part D sponsors; group purchasing
organizations; LTC pharmacy networks; and pharmacy benefit managers. On
June 29, 2010, we hosted a meeting on long-term care waste and the
implementation of section 3310 of the ACA. The meeting brought together
leaders in the LTC industry including nursing and pharmacy professional
organizations, LTC facilities, and LTC pharmacies. The industry has
been helpful in providing recommendations for implementing Section 3310
of the ACA to reduce waste associated with 30-day dispensing.
We consider ``waste'' to occur when a Part D drug is dispensed to a
Part D enrollee residing in a LTC facility and billed to a Part D
sponsor, but is not consumed by the Part D enrollee. Waste may occur,
for example, when treatment with the Part D drug has been discontinued,
the Part D enrollee has been discharged to the community, the Part D
enrollee has been hospitalized, or the Part D enrollee has died,
leaving unused dispensed drugs.
Under Sec. 423.154 (a)(1)(i), we propose to require all pharmacies
servicing long-term care facilities, as defined in Sec. 423.100, to
dispense brand-name medications, as defined in Sec. 423.4, to
enrollees in such facilities in no greater than 7-day increments at a
time. During our discussions with the industry, multiple parties
reported that 75 percent to 80 percent of the cost of drug wastage
arises from only 20 percent of the drugs. That 20 percent is made up
exclusively of brand-name medications. In an effort to target the drugs
resulting in the most financial waste and to lessen the burden for
facilities transitioning from 30-day supplies to 7-day supplies, we
propose initially limiting the requirement for 7-day-or-less dispensing
to brand-name drugs as defined in Sec. 423.4. However, nothing
precludes LTC pharmacies and facilities from expanding 7-day-or-less
dispensing to more than brand-name drugs, and we encourage Part D
sponsors to facilitate that practice. While we considered imposing the
7-day dispensing requirement for all drugs at once, in consultation
with industry representatives, we have concluded that a transitional
approach would ease the initial burden on nursing facility nursing
staff time and LTC pharmacy pharmacist staff time, in particular by
reducing the number of products for which a pharmacy would have to
transition from dispensing one 30-day supply per month to dispensing at
least four 7-day supplies per month. Many industry participants in our
consultative phone interviews and face-to-face meetings indicated that
they believed it would be feasible to change quickly to 7-days-or-less
dispensing for the 20 percent of total scripts (that is, those for
brand-name drugs). Although other industry representatives opined that
a transitional approach was not necessary and that the additional labor
associated with four times as many dispensing events per month on all
applicable medications was being overestimated. Nonetheless, we are not
aware of any objective data which demonstrate the cost effectiveness of
full versus partial implementation, and thus we believe the more
prudent course is to proceed with a transitional approach. If such data
does exist, we welcome comments from the public presenting such data.
Therefore, our proposal would apply the 7-day-or-less supply
requirement initially only to brand-name drugs and would postpone
applying the requirement to generic drugs until a later date which we
will determine through future rulemaking. In the meantime, we solicit
comments on how soon the industry can transition to include generic
drugs in the 7-day-or-less requirement.
We also propose excluding from the requirements of Sec. 423.154(a)
those drugs that are difficult to dispense in a 7-day or less supply
and drugs that are dispensed for acute illnesses. We believe that
requiring these types of drugs to be dispensed in 7-day-or-less
increments could result in safety or efficacy concerns or could have
the counterproductive effect of increasing drug waste. We propose to
codify these exclusions at Sec. 423.154(b). In proposing these
exclusions, we recognize that there are some medications that, for the
reasons described above, do not lend themselves well to a 7-day or less
supply. These include eye drops, ear drops, inhalers and inhalation
drugs, nasal sprays, reconstituted antibiotics and other drugs with
parenteral route of administration, drugs that must remain in their
original container, and topical medications. However, in keeping with
the statute's intent--that is, the reduction of drug waste in the LTC
setting--our proposal aims to be limited to instances where a 7-day-or-
less dispensing requirement is truly not feasible. For example, some in
the industry have suggested that we exclude liquids from the
requirements; however, we believe most liquids can be transferred to
smaller amber prescription bottles or oral syringes to accommodate 7-
day-or-less dispensing, so we decline to propose the exclusion of all
liquids. In contrast, we believe antibiotics reconstituted from powder
need to remain in their original container and, thus, our proposal
would exclude them from the 7-day-or-less dispensing requirement. For
other medications that we proposed excluding from the requirement, we
encourage use of smaller size containers, when available, to reduce the
potential for waste. We solicit comments on the types of dosage forms
and drugs that should be excluded from the requirements under Sec.
423.154(a).
Another solution we considered to reduce waste in LTC facilities is
in the area of return for credit and reuse. Under this scenario, Part D
sponsors

[[Page 71206]]

would have policies in place, consistent with state law, to require
unused Part D drugs to be returned to the pharmacy for reuse to fill
another patient's prescription. Although return for credit and reuse is
not prohibited by CMS, we recognize limitations to this approach since
return for credit and reuse is not permitted in all states, often
excludes lower cost generic drugs, and is frequently limited to a
subset of drugs in unused or specially approved packaging. Moreover,
return and reuse of controlled substances is limited by the Drug
Enforcement Agency (DEA). In order to reduce pharmaceutical and
financial waste, pharmacies must reclaim the unused medications from
the LTC facility, reverse, and re-bill the claim to reflect the unused
portion of drug, and restock the drug. We understand from discussions
with the industry that this places a significant burden on the
pharmacies. In addition, there are safety and quality control issues
regarding storage of the unused medications in the LTC facility and
chain of custody of the drugs to be returned. Finally, return for
credit and reuse does not address issues regarding drug diversion
because unused drugs that may be returned to the pharmacy for reuse are
still available for diversion prior to restocking. Upon consideration
of these facts, we decided that return for credit and reuse would not
be the optimal solution to address drug waste generated by LTC
facilities under Part D. However, we believe that Part D sponsor
contracts should not be silent on the disposition of unused drugs. Only
when data has been systematically collected will the extent of waste of
Part D drugs be quantifiable on other than an anecdotal basis.
Therefore, we propose to add a provision at Sec. 423.154(f) to require
that Part D sponsors include terms in their LTC pharmacy contracts that
require any unused drugs originally dispensed to the Part D sponsor's
enrollees to be returned to the pharmacy (not necessarily for reuse)
and reported to the sponsor. Such contracts will also address
contractual obligations for disposal in accordance with Federal and
State regulations, as well as whether return for credit and reuse is
authorized where permitted under State law. Beyond these proposed
requirements, we urge the industry to improve practices with respect to
the tracking and inventory control of returned unused drugs, as well as
electronic transactions for adjustments to previously submitted claims
and other reporting on the disposition of unused drugs. We solicit
comments on whether there are DEA or state technical issues that may be
barriers to the implementation of this provision.
Although we are not proposing to recognize return for credit and
reuse as an alternative to 7-day-or-less dispensing, we understand that
return for credit and reuse may be a supplement to reduce the minimal
pharmaceutical waste associated with 7-day-or-less dispensing. Through
conversations with the industry, we learned that there are
circumstances where a Part D drug can be safely returned to stock for
reuse. For example, a LTC facility may have an onsite pharmacy that
services only that facility using unit dose packaging. Under those
conditions, assuming state law allows return for credit and reuse, it
would be a reasonable way to reduce the minimal waste that may be
generated with 7-day-or-less dispensing. We will allow return for
credit and reuse in LTC pharmacies, when return for credit and reuse is
permitted under the state law and is allowed under the contract between
the Part D sponsor and the pharmacy. We expect that if Part D drugs are
returned for credit, the Part D drugs will be reused only if the
environments to which the drugs have been exposed and chain of custody
of the drugs do not compromise the safety or efficacy of the
medication. In addition, when permitted or required contractually, we
believe pharmacy dispensing fees paid to pharmacies may take into
account restocking fees consistent with the proposed modification to
dispensing fees under Sec. 423.100, ``Dispensing Fees'' discussed in
section II.F. of this proposed rule (Other Clarifications and Technical
Changes).
While we believe return for credit and reuse, where permitted, can
help to reduce some drug waste after it occurs, we believe it is better
to prevent the waste from occurring in the first place through the use
of 7-day-or-less dispensing. It stands to reason that if fewer drugs
are available to be wasted, fewer drugs will be wasted. That
proposition is supported in smaller studies and analyses projecting
waste based on retrospective reviews of drugs dispensed using less than
30-day dispensing methodologies.\1\ Those studies not only show a
reduction in pharmaceutical waste, but also show savings associated
with reduction of the waste.
---------------------------------------------------------------------------

\1\ James W. Moncrief, Advanced Pharmacy, data from a seven
month study of 36 LTC facilities presented at the NCPDP Short Cycle
Dispensing Meeting. Sheraton Hotel BWI, March 19, 2010.
Lepinski PW, Am J Hosp Pharm 1986 Nov; 43 (11):2771-9 Cost
comparison of unit dose and traditional drug distribution in a long-
term-care facility.
Brown CH, Am J Hosp Pharm. 1984 Apr; 41(4):698-702 Cost of
discarded medication in Indiana LTC facilities.
Parrott KA Am J Hosp Pharm 1980 Nov; 37(11);1531-4 Drug waste in
LTC facilities: impact of drug distribution system.
Farmer RG Am J Hosp Pharm 1985 Nov; 42(11):2488-91 Cost of drugs
wasted in the multiple-dose drug distribution system in long-term-
care facilities.
---------------------------------------------------------------------------

Seven-day-or-less dispensing has advantages besides reducing
financial waste. For example, 7-day-or-less dispensing is consistent
with the DEA's requirement to guard against diversion of controlled
substances by limiting the quantity of drugs dispensed. (See for
example 21 CFR 1301.71). We are also convinced that 7-day-or-less
dispensing would be more beneficial for the environment. We note that
the Environmental Protection Agency (EPA) recommends that LTC
facilities reduce the amount of pharmaceutical waste generated by
limiting the amount of pharmaceuticals dispensed at one time.\2\
---------------------------------------------------------------------------

\2\ Environmental Protection Agency, Unused Pharmaceuticals the
health care industry: Interim report, August 2008 (available at
http://epa.gov/waterscience/ppcp/hcioutreach.pdf)
---------------------------------------------------------------------------

Based on our research and discussions with stakeholders, we
therefore propose to require that for the purposes of dispensing Part D
drugs to Part D enrollees in LTC facilities, Part D sponsors require
that their contracted pharmacies dispense no more than a 7-day supply
of brand-name drugs as defined in Sec. 423.4, except when a brand-name
drug is excluded from the requirement. We understand from the industry
that 7-day-or-less dispensing has been used for decades by some
pharmacies servicing small facilities with as few as ten beds, as well
as by some pharmacies that service large facilities with hundreds of
beds. Many pharmacies are currently using 14-day or 7-day-or-less
dispensing methodologies for their Medicare Part A population since the
nursing facilities are responsible for Part A stay-related costs and
recognize the cost-saving value of lesser amounts dispensed at a time.
As a result, many pharmacies providing drugs to LTC facilities have
experience with 7-day-or-less dispensing.
The requirement would generally apply to ``all pharmacies,''
including not only closed-door exclusively LTC pharmacies, but also
retail pharmacies and mail order pharmacies that dispense to LTC
facilities. Under section Sec. 423.100, a LTC facility means a skilled
nursing facility as defined in section 1819(a) of the Act, or a medical
institution or nursing facility for which payment is made for an
institutionalized

[[Page 71207]]

individual under section 1902(q)(1)(B) of the Act. We note that this
provision does not encompass settings such as group homes or assisted
living facilities that may also be serviced by these same pharmacies.
We also note that 7-day-or-less dispensing does not correspond to a
change in the quantity of a prescription a prescriber writes, or the
number of prescriptions. Unlike the typical 30 or 90-day prescriptions
written for individuals in the community, prescribing in the LTC
setting is generally done by physicians inserting standing orders for
medications into the residents' medical record. Pharmacies may dispense
a partial days supply in a manner consistent with the proposed
requirements of Sec. 423.154(a)(1). Partial filling of prescriptions
is not inconsistent with DEA regulations and is permissible under 21
CFR 1306.23 for Schedule III, IV, and V drugs and under 21 CFR
1306.13(b) for Schedule II drugs.
Under Sec. 423.154(a)(1)(ii), we propose to permit the use of
uniform dispensing techniques defined by each of the LTC facilities
being serviced. By uniform techniques, we mean that dispensing
methodologies will be uniform with respect to the type of packaging
used to dispense Part D drugs within a LTC facility, but may vary by
the quantity of medication (days' supply) dispensed at a time. The
industry currently employs a variety of single and multi-dose packaging
systems such as punch cards (also known as blister packs or bingo
cards), strip packaging, cassettes, pouches, and envelopes. Consistent
with section 3310 of the ACA, we consulted with the LTC industry and
based on industry input, we have determined that it is not possible or
practical for CMS or Part D sponsors to identify the uniform dispensing
techniques that must be used by all pharmacies. Rather, it is the LTC
facilities that are in the best position to identify uniform dispensing
techniques to be used throughout their LTC facility. We understand from
the industry that there are various constraints and considerations that
limit the type of dispensing systems used in a particular LTC facility.
For example, we understand that there are older LTC facilities that
cannot easily support automated dose dispensing technology because of
the computer networking and ventilation considerations for that type of
equipment. Therefore, we are proposing that Part D sponsors must permit
their contracted pharmacies to implement the uniform dispensing
techniques selected by each LTC facility, and may not require the use
of a different packaging system or technology than that selected by the
facility through its contracted LTC pharmacy. Based on our
conversations with industry, we understand that one of the greatest
potential problems in implementing a 7-day-or-less dispensing approach
would be any inconsistency in the dispensing methodology and/or
packaging technique utilized in the same LTC facility. We believe our
proposal to require that Part D sponsors must ensure that their
contracted pharmacies dispense Part D drugs using techniques that are
uniform throughout the facility would address this concern. We believe
this proposal is consistent with the purpose of section 3310 of the ACA
because it is intended to minimize waste through the use of uniform
dispensing techniques that are specific to the LTCs being served.
We understand from the industry that depending on the 7-day-or-less
dispensing methodology used, there may be an increase in nursing time
devoted to ordering and receiving medication. We encourage LTC
facilities to work with the pharmacies serving them to determine the 7-
day-or-less dispensing methodology that will work best for the LTC
facility, taking into account not only physical plant and labor
considerations, but also overall cost effectiveness and waste reduction
potential . We believe our proposed requirement will accommodate
various 7-day-or-less on-demand or cycle filling methodologies in use
by the LTC industry today, including (1) 7-day-supply dispensing; (2)
dispensing of a drug for 2 days, followed by the dispensing of the drug
for another 2 days, followed by dispensing of the drug for 3 days,
referred to as ``2-2-3'' day dispensing; (3) dispensing of a drug for 4
days followed by the dispensing of the drug for 3 days, referred to as
``4-3'' day dispensing; (5) daily dispensing; and (6) automated shift
or dose dispensing.
In making this proposal, we recognize that automated dose
dispensing, which generally refers to medication dispensing through
automated technology located at the facility on a demand basis, is
likely the most efficient dispensing methodology and the most effective
in reducing waste. However, we recognize there are significant
limitations to the rapid adoption of automated dose dispensing systems,
including capital acquisition costs, state pharmacy board restrictions,
the lack of final automated medical record and interface standards, and
inventory considerations. Additionally, automated dose dispensing may
not be considered practical by some LTC facilities and the pharmacies
servicing them due to size or physical plant limitations. Thus, we
expect Part D sponsors to encourage pharmacies and LTC facilities to
work together to determine the most appropriate dispensing methodology
or methodologies to be used for a particular facility.
We recognize that the majority of pharmacies not already using 7-
day-or-less dispensing methodologies are using 30-day dispensing for
their Part D population. We understand that the most common 30-day
dispensing system is the 30-day punch card. As a result, these
pharmacies will have to make changes in the number of medications
packed in a 30-day card or switch to 7-day card stock in order to
continue dispensing brand-name drugs to Part D enrollees residing in
LTC facilities. Our conversations with manufacturers of the 30-day
punch card systems have indicated that there is minimal conversion
involved in the transition from 30-day dispensing to 7-day dispensing.
We also do not expect a pharmacy's delivery schedule to be greatly
affected since deliveries are generally made at least daily to long-
term care facilities to accommodate first dose and new admission needs.
However, we recognize that for some pharmacies there will be changes in
the way deliveries are made. Some pharmacies may not service the number
of beds to justify hiring additional delivery drivers and purchasing
additional delivery vehicles. These arrangements need to be considered
by the pharmacy and LTC facilities. As specified under 50.5.2 of
Chapter 5 of the Medicare Prescription Drug Benefit Manual (See http://www.cms.gov/PrescriptionDrugCovContra/Downloads/Chapter5.pdf ), which
outlines the Long-Term Care Performance and Service Criteria, specific
delivery arrangements are to be determined through an agreement between
the pharmacy and the LTC facility. Accordingly and subject to any state
law restrictions, pharmacies and LTC facilities may agree to use a
common carrier for some deliveries of drugs to LTC facilities. We would
not consider a contractual agreement to deliver a portion of Part D
drugs to Part D enrollees residing in LTC facilities via a common
carrier to constitute a mail order benefit, or the pharmacy making some
but not all deliveries by common carrier being considered a mail order
pharmacy. We solicit comments on this interpretation.
We note that options for billing to accommodate 7-day-or-less
dispensing are being discussed in a National Council for Prescription
Drug Programs (NCPDP) workgroup. Unless the

[[Page 71208]]

industry voluntarily adopts a single billing standard, we believe that
Part D sponsors should generally allow pharmacies to use currently
accepted transactions to minimize burden in transitioning to more
frequent dispensing of smaller amounts. However, pursuant to our
authority under section 1860D-12(b)(3)(D) of the Act, which
incorporates by reference section 1857(e)(1) of the Act, we also
propose establishing a new requirement under Sec. 423.154(a)(2) in
which Part D sponsors must collect and report to CMS the dispensing
methodology used for each dispensing event described by proposed Sec.
423.154(a)(1)(i) and (ii). We expect that our data collection efforts
will help us to estimate the relative efficiencies of dispensing
methodologies and determine the residual waste to estimate additional
savings. We cannot establish the impact of increased dispensing fees
prior to the dispensing fees being renegotiated. We believe that it is
critical for Part D sponsors and CMS to obtain data to identify changes
in the industry and to evaluate the effect of different dispensing
methodologies on the reduction of waste. We note that the NCPDP
workgroup is considering the adoption and transmission of specific
codes on billing transactions that would facilitate the collection of
this information by Part D sponsors in an automated and cost-effective
manner.
We note that if adopted, this proposal would likely lead to a
change in copayment methodology. We anticipate the implementation of
particular co-payment methodologies will be dependent on the billing
and dispensing methodologies used, and as a result, we acknowledge that
co-payment methodologies within the same plan may vary depending on the
LTC facility where the beneficiary resides. We believe implementation
of co-payment methodologies in this way is consistent with the uniform
benefit requirement at Sec. 423.104(b)(2) so long as the copayment
methodology throughout the plan's service area is consistent for
beneficiaries who receive their Part D medications using the same
dispensing methodology. Copayment may be collected at the first
dispensing event in a month, the last dispensing event in a month, or
prorated based on the number of days a Part D drug was dispensed in a
month. However, due to the relatively small copayments for low-income
subsidy (LIS) beneficiaries, copayments for LIS beneficiaries should be
billed with the first or last dispensing event of the month.
Despite the changes in dispensing events, billing, and co-payments,
we are considering limiting the LTC claims prescription drug events
(PDEs) to 1 per month for each standing order or prescription. We
solicit comments on this proposal.
We realize our proposed requirements are likely to result in
renegotiations of dispensing fees to reflect the costs associated with
additional dispensing events in a single billing cycle for a single
prescription and the costs undertaken to acquire technology aimed at
reducing waste. Currently, Part D plans have the flexibility to vary
the actual dispensing fees paid to pharmacies. As provided in section
1860D-11(i) of the Act, we are prohibited from intervening in
negotiations between pharmacies and Part D plans; however, we do
believe that it reasonable to expect that dispensing fees be adjusted
based on the proposed requirements under this provision. Accordingly,
we propose to modify the definition of ``dispensing fee'' under Sec.
423.100 to include costs associated with the acquisition and
maintenance of technology to maintain reasonable pharmacy costs.
Although it is not our intent to include all activities that are
``reasonable costs'' in the definition of ``dispensing fees,'' in light
of statutory requirements regarding LTC pharmacy dispensing, we believe
it is particularly important to highlight potential pharmacy costs
aimed at reducing waste and efficiency of dispensing. We also believe
dispensing fees are likely to differentiate among the costs associated
with different dispensing methodologies and appropriately address costs
that are incurred to offset waste. Appropriate dispensing fees that
differentiate among the various dispensing methodologies could
incentivize more rapid adoption of the most cost-effective technologies
and align facility, plan sponsor, and public interests in minimizing
costs and pharmaceutical waste.
We also solicit comments on whether the requirements should be
waived for particular types of LTC pharmacies. We propose to waive the
requirements under paragraph (a) for pharmacies when they dispense
brand-name Part D drugs to Part D enrollees residing in an intermediate
care facilities for the mentally retarded and developmentally disabled
(ICFMRDD) and institutes for mental disease (IMDs) under Sec.
423.154(c). We believe that due to specific problems with medication
delivery and dispensing to closed (and often locked) facilities, it
would be difficult for these pharmacies to adhere to 7-day-or-less
dispensing. Waving the requirements in this instance would be
consistent with the statute when done on a uniform basis (that is, all
similarly situated LTCs) and when there is a demonstration that
applying the dispensing requirements to that type of LTC would not
serve to reduce waste. For the ICFMRDD and IMDs, there is a good
rationale for not requiring 7-day dispensing, because requiring 7-day-
or-less dispensing is not feasible and could increase costs rather than
decrease waste associated with 30-day dispensing. We solicit comments
on whether other types of similarly situated facilities (such as LTC
facilities utilizing Indian Health Service (IHS) facilities to provide
pharmaceuticals or utilizing Tribal facilities providing pharmacy
services for the IHS under Pub. L. 93-638 compacts or contracts) should
also be waived from the requirement and specific reasons as to why
those facilities should be waived from the requirement.
We note that we originally considered waiving the requirements for
pharmacies dispensing to small LTC facilities. However, we do not
believe that such a waiver is supported based on conversations with the
industry which, as stated above, demonstrate that pharmacies servicing
LTC facilities as small as 10 beds are using 7-day-or-less dispensing
methodologies. We also considered waiving the requirements for
pharmacies that dispense to LTC facilities in rural areas. Similarly,
we do not believe such a waiver is supported since many of these
pharmacies deliver to LTC facilities daily to accommodate first fill
and new admissions. We solicit specific comments on the waiver criteria
for LTC pharmacies.
Pursuant to section 3310 of the ACA, the requirements of this
section go into effect January 1, 2012. However, as a result of
discussions with the LTC industry, we propose a limited extension to a
Part D sponsor when an independent community pharmacy (such as, not a
closed door pharmacy dedicated to servicing LTC facilities only) with
which the Part D sponsor has contracted is the primary provider to a
small LTC facility (less than 80 beds) in rural communities, as defined
by the Bureau of the Census, and the pharmacy is not already dispensing
a 7-day supply to any patient population in the LTC facility. Since
independent community pharmacies are frequently the only pharmacy
provider to rural LTC facilities, we understand that there could be
significant challenges in getting Part D drugs to beneficiaries
residing in LTC facilities in rural areas. We have heard from the
industry that small pharmacies dispensing to small LTC facilities in
rural areas frequently only dispense in 30-day supplies. We understand
that those facilities may

[[Page 71209]]

need extra time because of a lack of dedicated staff to adequately
train and make the necessary changes to convert to 7-day-or-less
dispensing by January 1, 2012. Under Sec. 423.154(e), we propose
allowing an independent community pharmacy that is the primary provider
of the Part D drugs to a LTC facility located in a rural to dispense no
more than a 14-day supply through December 31, 2012. We expect that
these pharmacies contracted with Part D sponsors will find solutions to
their significant challenges and work towards full compliance with
Sec. 423.154(a) during this extension. We propose that Part D sponsors
contracted with these independent community pharmacies must come into
full compliance with Sec. 423.154(a) by January 1, 2013. We solicit
comments on this proposal.
Based on the preceding, we propose to revise Sec. 423.150 by
renumbering paragraphs (b) through (g) as paragraphs (c) through (h)
and adding a new paragraph (b) that would address appropriate
dispensing of covered Part D drugs in LTC facilities. We also propose
to add new requirements, as discussed previously, at Sec. 423.154 to
require Part D sponsors to ensure that all pharmacies servicing LTC
facilities dispense no more than a 7-day supply of brand-name
medications and use uniform dispensing methodologies as defined by each
of the LTC facilities being serviced. In addition, we propose Sec.
423.154 (a)(2) which requires Part D sponsors to collect and report, as
CMS requires, the dispensing methodology used for each dispensing event
described by paragraphs (a)(1)(i) and (ii) of Sec. 423.154. We propose
exceptions to this requirement at Sec. 423.154(b)(1) and (2) relative
to specific drugs and waivers of this requirements for specific
pharmacies under Sec. 423.154(c). Pursuant to section 3310 of the ACA,
we propose the effective date of January 1, 2012 for Sec. 423.154
under Sec. 423.154(d) with a limited extension through December 31,
2012 to pharmacies meeting the requirements under Sec. 423.154(e). We
also propose to add the requirement that Part D sponsors require any
unused Part D drugs originally dispensed to its enrollees to be
returned to the pharmacy and reported to the sponsor and address
whether return for credit and reuse is permitted under their contracts
with pharmacies servicing LTC facilities in Sec. 423.154(f).
12. Complaint System for Medicare Advantage Organizations and PDPs
(Sec. 422.504 and Sec. 423.505)
The Secretary has the authority under the Act to include any terms
or conditions the Secretary deems necessary and appropriate in MA
organization and Part D sponsor contracts, including requiring the
organization to provide the Secretary with such information as the
Secretary may find necessary and appropriate. (See section 1857(e)(1)
of the Act as incorporated into Part D through section 1860D-
12(b)(3)(D) of the Act.) Under this authority, we have proposed a
number of contract provisions that require MA organizations and Part D
sponsors to report specific information to CMS for a variety of
purposes, with the overall goal of improving the Part C and D programs.
For example, we relied on this authority to establish a requirement
related to the reporting of prescription drug event data under Part D
for purposes other than payment. One of the purposes for requiring
submission of these data for nonpayment-related purposes was to enable
us to conduct evaluations of the data in order to make recommendations
for improving the Medicare program.
Up until now, we have not implemented specific regulatory
requirements related to the tracking and resolution of complaints that
we capture from the Part C and D enrollees in the CMS-established
Health Plan Management System (HPMS) Complaints Tracking Module (CTM).
This system was established at the start of the Part D program in order
to record and track complaints received by CMS from beneficiaries,
providers, and other constituents about prescription drug plans. After
the start of the Part D program, the system was expanded in July 2008
to collect and capture complaints related to the Part C program.
With the establishment of the CTM system, we have routinely
provided complaint-related information to Part C and D sponsoring
organizations to assist sponsors in the identification of operational
and plan performance issues. In addition, we have issued oversight and
compliance direction to Part C and D sponsors with respect to CTM
complaints, including CMS' expectations of MA organization and Part D
sponsors with regard to complaint resolution. These expectations are
largely contained in recommended standard operation procedures (SOPs)
that CMS issued to MA organization and Part D sponsors ( see https://www.cms.gov/PrescriptionDrugCovContra/Downloads/CTMSOP_10.06.09.pdf).
As part of these procedures, CMS directed MA organizations and Part D
sponsors to document when they resolve a complaint in their case notes,
and to enter a resolution date and a resolution summary note in the CTM
complaint tracking system, to which they have access. Since we
developed the CTM system, we have focused on complaint resolution
monitoring for oversight purposes but have not gone so far as requiring
in regulation that MA organizations and Part D sponsors respond to
complaints received by us and document the details of the complaint
resolution in the CMS CTM system.
With the enactment of the Affordable Care Act, we now believe
additional requirements in the area of complaint resolutions are
necessary. Under section 3311 of the Affordable Care Act, we (under our
delegation of authority by the Secretary of HHS) are directed to
develop a complaint system that will allow for the collection and
maintenance of complaints against PDPs and MA-PD plans. We are also
directed to develop a model electronic complaint form that is to be
maintained on http://www.medicare.gov and the Office of Medicare
Ombudsman's Web site. Finally, we are required to report to Congress
annually on the number and types of complaints reported in the system,
geographic variations in such complaints, the timeliness of agency or
plan responses to such complaints, and the resolution of such
complaints.
We believe that the current CTM system largely fulfills the
requirement by Congress that we establish a complaint system to capture
complaints against Part D plans. As explained previously, the CTM
system was established to record and track complaints received by us
from beneficiaries, providers, and other constituents about health and
drug plans. However, to ensure that the data collected and warehoused
in the system provide us with sufficient information to report to
Congress, we believe that enhancements to the current system are
necessary, particularly with respect to the data relating to the
closure of complaints. While our SOP instructs MA organizations and
Part D sponsors to indicate in the system a clear and concise complaint
resolution summary note when the complaint is resolved, we have
determined that many sponsors do not do so and merely write the words
``complaint closed'' in the CTM. Absent more detailed information on
how a complaint is resolved by the plan, we do not believe we will be
able to meet the objectives of Congress to report on the timeliness and
resolution of complaints. Therefore, to ensure that we have the
appropriate information to report to Congress, and to further improve
our monitoring efforts with respect to complaint closure, we are
proposing a

[[Page 71210]]

new requirement on MA organizations and Part D sponsors, under the
authority of section 3311 of the ACA and section 1857(e)(1) and 1860D-
12(b)(3)(D) of the Act, to require sponsors to respond to complaints
received by us. We believe it is necessary and appropriate to apply
these requirements to both MA organizations and Part D sponsors to
maintain a balanced and fair program for beneficiaries receiving
medications under the Part D program or an enhanced benefit under the
MA program. At this time, with respect to the proposed requirement to
document how a complaint was resolved, we are contemplating adding a
drop down checklist to CTM that MA organization and Part D sponsors
would use to document closure of complaints, as opposed to requiring
free text descriptions of complaint closure. We invite comments on this
approach.
With respect to the model electronic complaint form to be used for
reporting plan complaints, Congress has directed us to prominently
display the form on the front page of the Medicare.gov Internet Web
site and on the Internet Web site of the Medicare Beneficiary
Ombudsman. We are in the process of developing the model electronic
complaint form and plan to make this form available on the internet
websites as required. Considering the importance that Congress has
given to the issue of reporting complaints and the development of a
standardized form for taking complaints against plans, we are also
proposing to require MA organizations and Part D plans to link to the
CMS-developed electronic complaint form on the Medicare.gov Internet
Web site from their main Web page. We believe the importance Congress
has given to the issue of complaint reporting makes it necessary and
appropriate to propose to apply this requirement to both MA
organizations and Part D plans.
Accordingly, based on the preceding, we propose to add a new
requirement to Sec. 422.504(a) and Sec. 423.505(b) to require MA
organization and Part D sponsors to address and resolve all complaints
in the CMS complaint tracking system and to require a link to the
electronic complaint form at the Medicare.gov Internet Web site on each
Part C and Part D sponsor main Web page. If adopted, this requirement
would be effective January 1, 2012. Following the issuance of a final
rule, we will develop guidance to instruct MA organizations and Part D
sponsors on how to comply with this new requirement.
13. Uniform Exceptions and Appeals Process for Prescription Drug Plans
and MA-PD Plans (Sec. 423.128 and Sec. 423.562)
Section 3312 of the ACA amends section 1860D-4(b)(3) of the Act by
adding a new section (H) that will require, effective January 1, 2012,
each PDP sponsor of a prescription drug plan to use a single, uniform
exceptions and appeals process (including, to the extent the Secretary
determines feasible, a single uniform model form for use under such
process) with respect to the determination of prescription drug
coverage for an enrollee under the plan; and to provide instant access
to such processes by enrollees through a toll-free telephone number and
an Internet Web site.
Since the inception of the Part D program, we have received
numerous comments, especially from beneficiary advocacy groups,
suggesting the coverage determination and appeals processes are too
complex and difficult for enrollees to navigate. The commenters
recommended streamlining the existing coverage determination and
appeals processes in order to simplify the plan appeals procedures for
both enrollees and providers. The most significant concerns noted by
commenters involve access to the Part D coverage determination and
redetermination processes. For a variety of reasons, enrollees often
have difficulty making initial requests for coverage. Over time, plan
sponsors have developed plan-specific forms for requesting coverage,
and often have multiple request forms that are drug-specific. As a
result, enrollees often have difficulty locating or obtaining these
plan-specific request forms and determining which form should be used
for their particular request. Even when enrollees are able to locate
and complete the appropriate request forms, they may have trouble
determining where the forms should be submitted, because plan sponsors
often have multiple addresses, telephone numbers, and fax numbers, and
it is not clear which address or phone number should be used to submit
a particular request. Commenters indicate these elements create a
process that is quite overwhelming and frustrating for enrollees, and
for those who try to assist them.
In accordance with the new section 1860D-4(b)(3)(H) of the Act, we
propose to revise the regulation at Sec. 423.562(a) to require Part D
plans to use a single, uniform exceptions and appeals process that
includes procedures for accepting oral and written requests for
coverage determinations and redeterminations. In addition, we also
propose to revise the regulation at Sec. 423.128 paragraphs (b)(7) and
(d) to provide specific mechanisms that plan sponsors must have in
place in order to meet the uniform appeals requirements of section
1860D-4(b)(3)(H) of the Act. We believe the proposed requirements will
address many of the long-standing concerns about the Part D coverage
determination and appeals processes being too complex and difficult for
enrollees to navigate.
At Sec. 423.128(b)(7), we propose adding paragraph (i) to require
that plan sponsors make available a standard form to request a coverage
determination and a standard form to request a redetermination, to the
extent such standard request forms have been approved for use by CMS.
We plan to evaluate the feasibility of developing and requiring the use
of standard request forms and will determine whether a single form can
reduce confusion and address the needs of beneficiaries, providers, and
PDP sponsors. If it is determined that standardized forms are
appropriate, the forms will be developed by us and will be used to
request any type of coverage determination under Part D (including
exception requests and requests for drugs that may be subject to a
utilization management requirement) and redeterminations. We will
evaluate existing plan and CMS forms used for requesting coverage
determinations and redeterminations to determine what elements should
be included in the forms. We welcome comments and suggestions
regarding: (1) The specific elements that should be included in these
forms; (2) whether a single request form is feasible; and (3) any other
issues that should be considered and/or resolved before this
requirement is operationalized.
Section 3312 of the ACA also requires plan sponsors to provide
instant access to the coverage determination and appeals processes
through an internet Web site. Therefore, we propose to add paragraph
(ii) to Sec. 423.128(b)(7), which would require sponsors to develop a
Web-based electronic interface that allows an enrollee (or an
enrollee's prescriber or representative) to immediately request a
coverage determination or redetermination via a plan's secure Web site.
We believe that allowing requests for coverage determinations and
redeterminations to be made through plan websites will further increase
beneficiary access to the coverage determination and redetermination
processes. We propose that the interface would be the ``electronic
equivalent'' of the paper

[[Page 71211]]

coverage determination and appeals forms proposed at Sec.
423.128(b)(7)(i). In establishing this interface, Part D sponsors must
ensure that any such interface complies with the Health Insurance
Portability and Accountability Act (HIPAA) of 1996, the Privacy Act,
and CMS's information security requirements where appropriate. Some
Part D sponsors may already have an electronic means for requesting
coverage determinations and redeterminations available to their
enrollees. We request comments and ideas regarding how such an
electronic interface should work and any issues that need to be
addressed before operationalizing this requirement.
Plan sponsors must also establish a toll-free telephone line that
provides instant access to the coverage determination and appeals
process pursuant to section 3312 of the ACA. Therefore, we propose to
revise Sec. 423.128(d)(1) to include a requirement that sponsors
provide a toll-free telephone line for requesting coverage
determinations and appeals. We currently require sponsors to offer a
toll-free customer call center as part of the provision of specific
information requirements at Sec. 423.128(d), and propose requiring
plan sponsors to provide enrollees with access to the coverage
determination and redetermination processes through the toll-free
customer call center if sponsors are not doing so already. In other
words, we envision the customer service representative (CSR) accessing
the on-line coverage determination and redetermination process via the
plan's web-based application discussed previously, and entering the
information supplied by the enrollee via telephone. We will develop
model scripts for the CSRs to use for this purpose.
Consistent with the proposals to require the use of standardized
forms for requesting coverage determinations and redeterminations
(should this be determined feasible and to the extent that standard
request forms have been approved for use by CMS), and the establishment
of a toll-free telephone number and Web site for accepting requests for
coverage determinations and redeterminations, we propose to amend Sec.
423.562 by adding a new paragraph (a)(1)(ii) which cross-references the
proposed requirements in Sec. 423.128 paragraphs (b)(7) and
(d)(1)(iii), and redesignating paragraphs (a)(1)(ii) and (a)(1)(iii) as
paragraphs (a)(1)(iii) and (a)(1)(iv) respectively.
Finally, we are proposing to require Part D sponsors to modify
their electronic response transactions to pharmacies so that they can
transmit codes instructing the pharmacy to provide a point-of-sale
(POS) notice to enrollees when a prescription cannot be filled.
Currently, when an enrollee attempts to fill a prescription at a
pharmacy, the pharmacist receives certain information electronically
related to the prescription from the Part D sponsor, which may include
whether it is on the plan's formulary, and whether there are any
conditions associated with filling the prescription. In cases where a
prescription cannot be filled as written, Part D sponsors are required
under Sec. 423.562(a)(3) to arrange with their network pharmacies to
either post or distribute a pharmacy notice advising the enrollee of
his or her right to contact the plan to request a coverage
determination. The pharmacy notice is generic and does not include
plan-specific information for requesting coverage determinations. While
the current pharmacy notice provides enrollees with some information
about requesting coverage determinations, beneficiary advocacy groups
have argued the notice is too generic to provide enrollees with all of
the information they need to easily access the coverage determination
process. Advocates have also expressed concern about enrollees not
receiving, or not being directed to the notice. Although we have been
concerned about these complaints, under the existing pharmacy billing
standard agreed upon by the National Council of Prescription Drug
Programs (NCPDP version 5.1), it has not been feasible for plan
sponsors to systematically transmit situation-specific messaging to
pharmacists because transaction coding could not easily or quickly be
changed. Furthermore, the pharmacies do not have the capability to
populate, print, and distribute plan-specific notices to each enrollee
who is not able to obtain a prescription as written.
With the adoption of the new HIPAA pharmacy billing standard (NCPDP
version D.0), we now have the opportunity to work with the NCPDP to
develop and standardize use of codes that will prompt a Part D network
pharmacist to print or provide a POS notice to give to enrollees when a
prescription cannot be filled. Accordingly, we are proposing at Sec.
423.128(b)(7)(iii) that Part D sponsors modify their systems so that
the plan sponsors are capable of transmitting codes to their contracted
pharmacies and that the pharmacy will be notified to populate or
provide a notice that can be printed by the pharmacist at the point of
sale. We believe such notices should be printed and provided in the
same manner as other instructions (for example, instructions for taking
prescriptions). We will develop a model notice to ensure that messaging
at the pharmacy is consistent with and in accordance with CMS rules.
Consistent with this proposal, we are also proposing to revise Sec.
423.562(a)(3) by deleting the reference to posting the pharmacy notice
and requiring the sponsor to arrange with its network pharmacies to
distribute notices instructing enrollees how to contact their plans to
obtain a coverage determination or request an exception if they
disagree with the information provided by the pharmacist. We propose
that the pharmacy notice be provided in writing, consistent with the
standards established in Sec. 423.128(b)(7)(iii), and will include
instructions explaining how enrollees can request coverage
determinations by calling their plan sponsor's toll free customer
service line or accessing their plan sponsor's Web site.
14. Including Costs Incurred by AIDS Drug Assistance Programs and the
Indian Health Service Toward the Annual Part D Out-of-Pocket Threshold
(Sec. 423.100 and Sec. 423.464)
Section 1860D-2(b)(4)(C) of the Act provides protection against
high out-of-pocket expenditures for Part D eligible individuals. Under
the standard Part D benefit, a beneficiary is entitled to reductions in
cost sharing under the catastrophic phase of the benefit once his or
her true out-of-pocket (TrOOP) expenditures reach the annual Part D
out-of-pocket threshold. TrOOP expenditures represent costs actually
paid by the beneficiary, another person on behalf of the beneficiary,
or a qualified State Pharmaceutical Assistance Program (SPAP). Most
third party assistance, such as that from employers and unions, does
not count toward the TrOOP threshold.
Prior to the passage of the ACA, our policy as specified in the
definition of ``incurred cost'' at Sec. 423.100 and as clarified in
section 30.4 of Chapter 5 of the Prescription Drug Benefit Manual was
that to the extent that a party paying for cost-sharing on behalf of a
Part D enrollee was a group health plan, insurance program or otherwise
(such as a government-funded health program), or third party payment
arrangement with an obligation to pay for covered Part D drugs, that
party's payment would not count toward TrOOP. Under this policy,
supplemental drug coverage provided by the Indian Health Service (IHS),
as defined in section 4 of the Indian Health Care Improvement Act,
Indian tribes and organizations, and

[[Page 71212]]

urban Indian organization facilities were not considered to be TrOOP
eligible because these entities fell under our definition of
``government-funded health program,'' under Sec. 423.100.
Similarly, Aids Drug Assistance Programs (ADAPs) co-payments, which
are funded under the Ryan White CARE Act, were not counted toward TrOOP
for the purpose of meeting the out-of-pocket threshold at which
catastrophic coverage under the Part D benefit begins. As explained in
the preamble in the January 2005 final rule (see 70 FR 4240 and 4241)
implementing the Part D program, ADAPs were not considered SPAPs
because these programs receive Federal funding. Moreover, because the
law specified that costs for covered Part D drugs paid by insurance or
otherwise on behalf of a Part D enrollee do not count as incurred
costs, any coverage that supplements the benefits available under Part
D coverage that are provided to beneficiaries by Medicaid, Medicaid
Section 1115 waiver programs, the VA health care program, the IHS, ADAP
programs, and local or State indigent drug programs would not count as
an incurred cost for purposes of TrOOP (see 70 FR 4240 and 4241).
With the passage of the ACA, CMS requirements as they relate to IHS
and ADAPs have been superseded effective January 1, 2011. Section 3314
of the ACA amends section 1860D-2(b)(4)(C) of the Act to specify that
costs borne or paid for by IHS, an Indian tribe or tribal organization,
or an urban Indian organization, and costs borne or paid for by an ADAP
would be treated as incurred costs for the purpose of meeting the
annual out-of-pocket threshold. Based on these amendments, we propose
to revise the definition of incurred cost at Sec. 423.100(2)(ii) to
include cost paid for by the IHS (as defined in section 4 of the Indian
Health Care Improvement Act), an Indian tribe or tribal organization,
or an urban Indian organization (referred to as I/T/U pharmacy in Sec.
423.100) or under an AIDS Drug Assistance Program (as defined in part B
of title XXVI of the Public Health Service). We also propose to amend
Sec. 423.464(f)(2) to specifically exclude expenditures made by IHS,
an Indian tribe or tribal organization, or an urban Indian organization
(referred to as I/T/U pharmacy in Sec. 423.100) or under an AIDS Drug
Assistance Program (as defined in part B of title XXVI of the Public
Health Service) from the requirement to exclude such expenditures for
the purpose of determining whether a Part D enrollee has satisfied the
out-of-pocket threshold.
As indicated in section II.A. of this proposed rule, we propose
that the regulations implementing this provision be effective 60 days
after the publication of the final rule.
15. Cost Sharing for Medicare-Covered Preventive Services (Sec.
417.101 and Sec. 422.100)
Effective January 1, 2011, sections 4103 and 4104 of the ACA revise
sections 1833 and 1861 of the Act to create new coverage of
Personalized Prevention Plan Services (PPPS) or ``annual wellness
visits'' and establish a requirement that no cost sharing may be
charged to beneficiaries under Original Medicare for the annual
wellness visit, the initial preventive physical exam (IPPE) and
Medicare-covered preventive services graded as an A or B by the U.S.
Preventive Services Task Force (USPSTF).
In light of the new legislative requirements for Original Medicare,
and the importance of preventive services in managed and coordinated
care, we included information related to coverage and cost sharing for
preventive services in guidance issued via the Health Plan Management
System (HPMS) on April 16, 2010 (``Benefits Policy and Operations
Guidance Regarding Bid Submissions; Duplicative and Low Enrollment
Plans; Cost Sharing Standards; General Benefits Policy Issues; and Plan
Benefits Package (PBP) Reminders for Contract Year (CY) 2011'') and May
20, 2010 (``Supplemental 2011 Benefits Policy and Operations Guidance
on Application of the Mandatory Maximum Out-of-Pocket (MOOP) for Dual
Eligible SNPs, and Cost Sharing for Preventive Services''). In this
guidance, we strongly encouraged MA organizations to provide all in-
network Medicare-covered preventive services without cost sharing
charges under their MA plans in contract year 2011, indicated our
intention to consider rulemaking to require that such preventive
services be provided with no cost sharing, and provided instructions on
how to reflect the zero cost sharing in their plan benefit package
(PBP) submissions for contract year 2011.
As required at section 1852(a)(1)(A) of the Act (except as provided
in section 1859(b)(3) of the Act for MSA plans and in section
1852(a)(6) of the Act for MA regional plans), each MA plan must provide
to its members all Parts A and B benefits included under the Original
Medicare fee-for-service program as defined at section 1852(a)(1)(B) of
the Act. Because we agree with Congress that the utilization of
preventive services should be encouraged by providing them without cost
sharing, we believe it is necessary, and appropriate, to provide this
same incentive to all Medicare beneficiaries, whether they receive
their benefits through Original Medicare, under an MA plan, or under a
section 1876 cost contract.
Therefore, under our authority in section 1856(b)(1) of the Act to
establish MA standards by regulation, and our authority in section
1857(e)(1) of the Act to establish requirements we find ``necessary and
appropriate,'' we propose to add a new paragraph (h) to Sec. 422.100
to require MA organizations to provide in-network Medicare-covered
preventive benefits at zero cost sharing, consistent with the new
regulations for Original Medicare-covered preventive benefits. More
specifically, we propose requiring that all MA organizations provide
Medicare-covered preventive services, as specified by CMS, without
enrollee cost sharing charges. Under our authority in section
1876(i)(3)(D) of the Act to impose requirements we find ``necessary and
appropriate,'' we also propose to add a new paragraph (f) to Sec.
417.101 to extend this proposed requirement to section 1876 cost plans.
For specific information about the list of preventive services
covered under Original Medicare without cost sharing and information
about what is included in the annual wellness visit, we propose to
direct plans to go to the following Medicare Web sites: https://www.cms.HospitalOPPS/ and http://www.cms.gov/PhysicianFeeSched/.
16. Elimination of the Stabilization Fund (Sec. 422.458)
Section 221(c) of the MMA added section 1858 of the Act to
establish rules for MA Regional Plans. Section 1858(e) established an
MA Regional Plan Stabilization Fund (the Fund) for the purpose of
providing financial incentives to MA organizations that offered new MA
Regional Plans nationally, or in each MA region without one. The Fund
was also established to retain MA regional plans in regions with
relatively low MA market penetration. Specifically, the MMA authorized
us to make a 1-year ``national bonus payment'' to an organization or
organizations that offered an MA Regional Plan in each MA region in a
given year (if there was no such plan offered in one or more regions in
the previous year). If no national bonus payment was made in a given
year, we could have used the fund to increase payments to MA regional
plans offered in regions that did not have any MA regional plans
offered in the prior year. Finally, to encourage plans to remain in
regions with

[[Page 71213]]

relatively low MA market penetration, we could have used the Fund to
make retention payments to MA regional plans that notified us of their
intent to exit a region prior to the bidding deadline. Payments from
the Fund, which was initially established at $10 billion, were first
available beginning January 1, 2007.
Section 301 of Division B, Title III, of the Tax Relief and Health
Care Act of 2006--enacted December 20, 2006--delayed Stabilization Fund
payments until January 1, 2012, and limited initial funding to $3.5
billion. Subsequent legislation, including the Medicare, Medicaid and
SCHIP Extension Act of 2007, and the Medicare Improvements for Patients
and Providers Act of 2008, further delayed the timeframe during which
initial funding was available until 2014 and limited the amount to $1.
Section 10327(c) of the ACA repealed section 1858(e) of the Act,
eliminating the Stabilization Fund. Therefore, we are proposing to
delete paragraph (f) from Sec. 422.458, since the statutory basis for
the Fund no longer exists.
17. Improvements to Medication Therapy Management Programs (Sec.
423.153)
Section 1860D-4(c)(1)(C) of the Act requires Part D sponsors to
establish Medication Therapy Management programs (MTMPs). Section
1860D-4(c)(2) of the Act requires MTMPs to be designed to ensure that,
with respect to targeted beneficiaries described in section 1860D-
4(c)(2)(A)(ii) of the Act, covered Part D drugs are appropriately used
to optimize therapeutic outcomes through improved medication use and to
reduce the risk of adverse events. These requirements are codified in
Sec. 423.153(d) of the Part D regulations.
The federal regulations at Sec. 423.153(d)(1) require each Part D
sponsor to establish a MTMP that is designed to ensure that covered
Part D drugs (as defined in Sec. 423.100) prescribed to targeted
beneficiaries are appropriately used to optimize therapeutic outcomes
through improved medication use; designed to reduce the risk of adverse
events for targeted beneficiaries; furnished by a pharmacist or other
qualified provider; and allowed to distinguish between services
provided in ambulatory and institutional settings. Beginning in 2011,
Sec. 423.153(d)(2) defines targeted beneficiaries as enrollees who
have multiple chronic diseases, are taking multiple Part D drugs, and
are likely to incur annual costs for covered Part D drugs that are
greater than or equal to $3,000 as adjusted by the annual percentage
increase under Sec. 423.153(d)(5)(iv) for subsequent years.
With the recent passage of the Affordable Care Act, Congress
provided for specific MTMP improvements by law. Effective January 1,
2013, section 10328 of the ACA amends section 1860D-4(c)(2) of the Act
to require prescription drug plan sponsors to perform a quarterly
assessment of all ``at risk'' individuals who are not already enrolled
in an MTMP, establish opt-out enrollment for MTM, and offer medication
therapy management services to targeted beneficiaries that include, at
a minimum, an annual comprehensive medication review (CMR) that may be
furnished person-to-person or via telehealth technologies and a review
of the individual's medications, which may result in the creation of a
recommended medication action plan, with a written or printed summary
of the results of the review provided to the targeted individual. The
law also requires that the action plan and summary resulting from the
CMR be written in a standardized format.
Prior to the passage of the new legislation, we had already made
several improvements to the MTM program via the 2010 Call Letter to
Part D sponsors on the CMS Web site at http://www.cms.gov/PrescriptionDrugCovContra/, as well as via the 2011 final rule
containing policy and technical changes under the Part C and D programs
(see 75 FR 19772 through 19776 and 19818 and 19819). In this final
rule, in accordance with our authority under sections 1860D-4(c)(1)(C)
and 1860D-4(c)(2) of the Act, we revised our regulations at Sec.
423.153(d)(1)(v) to require Part D sponsors to enroll beneficiaries in
their MTMPs using only an opt-out method of enrollment; Sec.
423.153(d)(1)(vi) to require Part D sponsors to target beneficiaries
for enrollment in the MTMP at least quarterly during each plan year;
and Sec. 423.153(d)(1)(vii) to require Part D sponsors to offer a
minimum level of MTM services for each beneficiary enrolled in the MTMP
that includes interventions for both beneficiaries and prescribers
including, an annual comprehensive medication review with a written
summary, and quarterly targeted medication reviews with follow up when
necessary. We also revised Sec. 423.153(d)(2) to clarify which
beneficiaries should be targeted for MTMP services.
In comparing the requirements codified in the final rule to those
required by section 10328 of the ACA, we found that a number of the
provisions are consistent. The final rule requires opt-out enrollment
of targeted beneficiaries, quarterly targeting of beneficiaries for
enrollment into the MTMP, and quarterly targeted medication reviews for
individuals enrolled in the MTMP with follow up interventions when
necessary.
Based on this review and to ensure that our policies are fully
consistent with the new requirements added by section 10328 of the ACA,
we have determined that it is necessary to amend the current
regulations to clarify the Part D MTMP requirements relating to the
required use of a standardized format for the written summary and
action plan that may result from the CMR. Thus, in accordance with
sections 1860D-4(c)(1)(C) and 1860D-4(c)(2) of the Act as amended by
section 10328 of the ACA, we propose to amend Sec. 423.153(d)(1)(vii)
to add the requirement that Part D sponsors use a standardized format
for the action plan and summary resulting from a review of the targeted
beneficiary's individual medications, and to provide the individual
with a written or printed copy of the summary. We plan to award a
contract to an outside entity to work in consultation with stakeholders
in order to develop a standardized format for the action plan and
summary which may result from annual or quarterly targeted medication
reviews.
We also propose to amend the MTMP requirements at Sec.
423.153(d)(1)(vii) to explicitly permit the use of telehealth
technologies to conduct the required annual CMR as referenced under the
ACA, to allow the sponsors to attempt innovative techniques that
provide care at a distance in order to better serve the beneficiary,
especially beneficiaries that cannot travel to the provider's location,
or who reside in a remote location or in different time zone. Recent
advancements in digitized health care and telecommunication now permit
some direct provider care to be delivered to beneficiaries remotely. As
promoted in the American Recovery and Reinvestment Act of 2009 (ARRA),
the adoption and use of health information technology (HIT) and
electronic health records (EHR) to provide patient care is encouraged
by the federal government. We emphasize that when using telehealth
technologies, personal health information privacy and security must be
ensured.
In addition to the regulatory changes required to implement the ACA
provisions, we are proposing a further revision to the MTMP
requirements related specifically to MTM services furnished in LTC
facilities. Under sections 1819(b)(4) and 1919(b)(4) of the Act, LTC
facilities must provide, either directly or under arrangements with

[[Page 71214]]

others, for the provision of pharmaceutical services to meet the needs
of each resident. This requirement is codified in regulations at Sec.
483.60 which require LTC facilities to employ or obtain the services of
a licensed pharmacist to provide consultation on all aspects of the
provision of pharmacy services in the facility, including a drug
regimen review at least once a month for each facility resident.
Although Part D sponsors are required to provide MTM services to all
beneficiaries meeting the target criteria, it is not clear that these
services are being made available to nursing home residents meeting
these criteria. Further, we are concerned that if MTM is provided, in
the absence of coordination, the MTMP and the consultant pharmacist's
drug regimen review could result in conflicting recommendations
relating to medication management. Therefore, we propose to add a
requirement for Part D sponsors to coordinate their MTMP with the drug
regimen reviews performed by the LTC consultant pharmacists.
Specifically, we propose to revise Sec. 423.153(d)(5) to require
Part D sponsors to contract with LTC facilities to provide appropriate
MTM services to residents in coordination with the monthly medication
reviews and assessments performed by the LTC consultant pharmacist. We
believe this approach would enable beneficiaries to receive the full
benefits of the sponsor's MTMP and would also result in coordinated
assessments that would be more likely to discover evidence of adverse
side effects and medication overuse. We believe that requiring this
coordination is the best way to ensure that residents receive the
advantage of MTM services in LTC facilities. We are soliciting comments
from the public on how such coordination between sponsors and LTC
facilities might work best.
18. Changes To Close the Part D Coverage Gap (Sec. 423.104 and Sec.
423.884)
Section 1860D-2(b) of the Act, as amended by the ACA, revises the
Part D benefit structure to close the gap in coverage that occurs
between the initial coverage limit for the year and the out-of-pocket
threshold. The new provisions not only revise the amount of coinsurance
for costs of covered drugs above the initial coverage limit and below
the out-of-pocket threshold (that is, within the Part D coverage gap),
but also reduce the growth in the annual out-of-pocket threshold from
2014 to 2019.
Under the new provisions in section 1860D-2(b)(2)(C) and (D) of the
Act, effective January 1, 2011, cost sharing in the coverage gap will
be determined on the basis of whether the covered Part D drug is
considered an ``applicable drug'' under the Medicare coverage gap
discount program as defined at section 1860D-14A(g)(2). Section 1860D-
14A(g)(2)(A) defines an applicable drug under the Medicare coverage gap
discount program as a covered Part D drug that is either approved under
a new drug application (NDA) under section 505(b) of the Federal Food,
Drug, and Cosmetic Act or, in the case of a biologic product, licensed
under section 351 of the Public Health Service Act (BLA) (other than
under section 351(k)). Under standard prescription drug coverage,
coinsurance in the coverage gap for drugs that are not applicable drugs
under the Medicare coverage gap discount program (that is, generic
drugs) will be either: (1) Equal to the statutory generic gap
coinsurance percentage for the year; or (2) actuarially equivalent to
an average expected coinsurance for covered Part D drugs that are not
applicable drugs under the Medicare coverage gap discount program at
the statutory generic gap coinsurance percentage for the year, as
determined through processes and methods established under section
1860D-11(c) of the Act and implemented at Sec. 423.265(c) and (d) of
our regulations. For applicable drugs under the Medicare gap coverage
discount program, coinsurance in the coverage gap for the actual cost
of the drug as defined at Sec. 423.100 minus any applicable dispensing
fees will be either: (1) Equal to the difference between the applicable
gap percentage for the year and the discount percentage determined
under the Medicare coverage gap discount program at section 1860D-
14A(4)(A) of the Act; or (2) actuarially equivalent to an average
expected payment of the coinsurance for applicable covered Part D drugs
at the applicable gap percentage for the year, as determined through
processes and methods established under section 1860D-11(c) of the Act
and implemented at Sec. 423.265(c) and (d) of our regulations. As a
result, when the applicable drug is purchased at a network pharmacy,
the beneficiary will be fully liable for any dispensing fees, since the
statute requires that the coinsurance apply only to the negotiated
price of the drug minus dispensing fees.
We propose codifying these new requirements in Sec. 423.104(d)(4).
Additionally, since the terms applicable drug, applicable beneficiary,
and coverage gap have not been previously defined in regulation, we are
proposing new definitions for these terms at Sec. 423.100.
Under the new provisions in section 1860D-2(b)(4)(B)(i) of the Act,
the rate of growth of the annual out-of-pocket threshold will be
reduced from 2014 to 2019. In accordance with the new requirements, as
proposed in Sec. 423.104(d)(5)(iii), the annual out-of-pocket
threshold for years 2014 and 2015 will be the amount specified for the
previous year, increased by the ``annual percentage increase'' in the
average expenditures for Part D drugs per eligible beneficiary
currently specified in Sec. 423.104(d)(5)(iv), minus 0.25 percentage
point. In accordance with the new requirements in sections 1860D-
2(b)(4)(B)(i) and 1860D-2(b)(7) of the Act, we propose amending Sec.
423.104(d)(5)(iii) and (v), to reflect that for years 2016 through
2019, the annual out-of-pocket threshold will be the amount specified
for the previous year, increased by the lesser of: (1) The annual
percentage increase in the consumer price index specified in Sec.
423.104(d)(5)(v) for the year involved plus 2 percentage points; or (2)
the ``annual percentage increase'' specified in Sec.
423.104(d)(5)(iv), rounded to the nearest $50. The new provisions in
section 1860D-2(b)(4)(B)(i) of the Act require us to calculate the
annual out-of-pocket threshold for 2020 and later as if no change had
been made to the calculation of the out-of-pocket threshold for 2014
through 2019 under the ACA. Thus, we propose to amend Sec.
423.104(d)(5)(iii) to reflect this requirement.
The ACA also amended section 1860D-22(a)(2)(A) of the Act by adding
a provision with regard to the actuarial equivalence of retiree
prescription drug plan coverage to standard coverage. Specifically, the
new provision requires that when attesting to the actuarial equivalence
of the plan's prescription drug coverage to defined standard coverage,
qualified retiree prescription drug plans not take into account the
value of any discount or coverage provided during the gap in coverage
that occurs between the initial coverage limit during the year and the
out-of-pocket threshold for defined standard coverage under Part D. We
propose codifying this new requirement in Sec. 423.884(d) of this
rule.
As indicated in section II.A. of this proposed rule, we propose
that the regulations implementing these provisions be effective 60 days
after the publication of the final rule.

[[Page 71215]]

19. Payments to Medicare Advantage Organizations (Sec. 422.308)
Section 1853(a)(1)(C) of the Act requires the Secretary to adjust
MA payments by risk factors including age, disability status, gender,
institutional status, and other factors as the Secretary determines to
be appropriate, including adjustment for health status. Section
1853(a)(3) of the Act required the Secretary to establish a ``risk
adjustment'' methodology which ``accounts for variations in per capita
costs based on [the] health status [of the enrollee].''
Generally, the law related to MA payments is self-implementing, and
the effective dates for changes to the payment methodology are
established in statute and announced in accordance with section 1853(b)
of the Act. Regulations related to payment provisions thus implement
requirements that are effective on the date specified in statute and as
provided for in the Annual Announcement of MA Capitation Rates and MA
and Part D Payment Policies.
a. Authority To Apply Frailty Adjustment Under PACE Payment Rules for
Certain Specialized MA Plans for Special Needs Individuals (Sec.
422.308)
Section 3205 of the ACA provides the Secretary with the authority
to apply a frailty adjustment to payments to certain SNPs, starting
with plan year 2011. The statute permits the Secretary to apply the
payment rules under section 1894(d) of the Act (other than paragraph
(3) of such section), rather than the payment rules that would
otherwise apply under this part, but only to the extent necessary to
reflect the costs of treating high concentrations of frail individuals.
We are interpreting this new statutory language to mean that
payments to frailty-qualifying SNPs will continue to be calculated
using the existing MA payment rules under which all SNPs are paid with
the sole exception of the application of a frailty adjustment. Further,
we are interpreting this new statutory language to permit us to use the
same methodology to adjust payment to take into account the frailty of
SNP enrollees as we use for the PACE program.
The Secretary determines the adjustment methodology for frailty,
which frailty scores will be considered ``similar'' to PACE program,
and how to measure the ``average level of frailty of the PACE
program.'' We will announce any changes to the methodology used to pay
for the frailty, as well as how we determine PACE program averages, and
which frailty-qualifying SNPs have similar levels of frailty, in the
Advance Notice and Rate Announcement for the plan year in question.
The Secretary has the authority to make an adjustment to payment to
take into account the level of frailty among the enrollees of a plan if
the plan meets our proposed definition of a fully integrated dual-
eligible special needs plan at Sec. 422.2 and the plan has a similar
average level of frailty as the PACE program. In order to have a
frailty score that can be compared to the PACE program, MA
organizations sponsoring a dual eligible SNP that meets our proposed
definition of a fully integrated dual-eligible SNP must fund any survey
used by us to support the calculation of frailty scores; the survey
must be fielded such that we can calculate a frailty score at the plan
benefit package level for each SNP in question (currently the counts of
limitations on activities of daily living (ADLs) used to calculate
frailty scores are taken from the HOS or HOS-M). Further, the survey
must adhere to the methodological requirements of any such survey.
As indicated in section II.A. of this proposed rule, we propose
that the regulations implementing this provision be effective 60 days
after the publication of the final rule.
b. Application of Coding Adjustment (Sec. 422.308)
Section 1102(e) of the ACA amended section 5301(b) of the Deficit
Reduction Act (DRA) of 2005. Beginning in 2006, section
1853(a)(1)(C)(ii), as added by section 5301(b) of the DRA, required the
Secretary, in risk adjusting payments for health status under
1853(a)(1)(C)(i), to ensure that such adjustment reflects changes in
treatment and coding practices in the FFS sector and beginning in 2008
reflects differences in coding patterns between MA plans and providers
under Part A and B, to the extent that the Secretary has identified
such differences. The ACA adds new statutory language clarifying our
existing authority to adjust risk scores for coding trends in the FFS
sector, under its general authority to conduct risk adjustment in an
actuarially equivalent manner under 1853(a)(1)(C)(i) of the Act.
Further, this new language extends the mandate that CMS adjust risk
scores for differences in coding patterns between MA plans and FFS
beyond 2010.
Adjusting risk scores for the underlying FFS trend--or
normalization--is necessary to ensure accurate payments because, each
time we recalibrate a risk adjustment model, the average risk score is
set to 1.0 using the fixed set of coefficients appropriate to the
population and data for that calibration year. When the model with
fixed coefficients is used to predict expenditures for other years,
predictions for prior years are lower and predictions for succeeding
years are higher than for the calibration year. Because average
predicted expenditures increase after the model calibration year due to
coding and population changes, we apply a normalization factor to
adjust beneficiaries' risk scores so that the average risk score is 1.0
in subsequent years.
Adjusting risk scores for the difference between MA and FFS coding
patterns is also necessary in order for payments to be accurate because
we calibrate the CMS-HCC model using FFS data, and the relative factors
reflect the FFS pattern of coding. We adjust for the trend in the rate
of increase of diagnoses codes submitted by FFS providers with the
application of a normalization factor that is updated annually and that
adjusts risk scores with the goal that the average remains 1.0 in each
payment year. However, because MA coding patterns differ from those in
FFS, MA risk scores generally increase more quickly and are, therefore,
higher than they would be if MA plans coded in the same manner as FFS
providers.
The DRA also required the Secretary to conduct an analysis of the
differences in FFS and MA coding patterns in order to ensure payment
accuracy. Such an analysis was to be completed in time to ensure that
the results of such analysis were incorporated into the risk scores for
2008 through 2010. In conducting such analysis, the Secretary was to
use data submitted with respect to 2004 and subsequent years, as
available.
The ACA made four modifications to this requirement for analysis.
They are--(1) The analysis must now be conducted annually; (2) the data
used in the analysis is to be updated as appropriate; (3) the results
of the analysis are to be incorporated into risk scores on a timely
basis; and (4) the application of an adjustment for differences in
coding patterns is extended indefinitely.
The ACA added two additional requirements to the DRA-mandated
requirements. First, the ACA requires that the adjustment factor for
2014 be not less than the adjustment factor applied for 2010 plus 1.3
percentage points; for each of the years 2015 through 2018, not less
than the adjustment factor applied for the previous year plus 0.25
percentage points; and for 2019 and each subsequent year not less than
5.7 percent.

[[Page 71216]]

Second, the ACA requires the Secretary to apply the coding
adjustment to risk scores until the implementation of risk adjustment
using MA diagnostic, cost, and use data.
As indicated in section II.A. of this proposed rule, we propose
that the regulations implementing this provision be effective 60 days
after the publication of the final rule.
c. Improvements to Risk Adjustment for Special Needs Individuals With
Chronic Health Conditions (Sec. 422.308)
The CMS-HCC risk adjustment model incorporates a set of
coefficients for calculating risk scores for new enrollees that are
based on demographic factors only, such as age, sex, Medicaid status,
and original reason for entitlement. A new enrollee risk score is used
in the payment of a beneficiary who is enrolled in an MA plan or PACE
organization and who does not have enough diagnoses in the data
collection period to calculate a full risk score. We classify a
beneficiary as a new enrollee when they do not have 12 months of Part B
in the data collection period.
Because chronic SNP enrollees must, as a condition of enrollment,
have specific conditions, the average new enrollee risk score of new
enrollees in chronic SNPs is likely to understate these beneficiaries'
risk. For 2011 and subsequent years, for purposes of the adjustment
under section 1853(a)(1)(C)(i) of the Act, the Secretary will use a
risk score that reflects the known underlying risk profile and chronic
health status of similar individuals. The Secretary is required to use
such risk score instead of using the default risk score that is
otherwise used in payment for new enrollees in MA plans.
The risk score developed for this purpose will be used in
calculating payments for a special needs individual described in
section 1859(b)(6)(B)(iii) of the Act who enrolls in a specialized MA
plan for special needs individuals on or after January 1, 2011.
For 2011 and periodically thereafter, the Secretary will evaluate
and revise the risk adjustment system under this subparagraph in order,
as accurately as possible, to account for higher medical and care
coordination costs associated with frailty, individuals with multiple,
comorbid chronic conditions, and individuals with a diagnosis of mental
illness, and also to account for costs that may be associated with
higher concentrations of beneficiaries with those conditions. The
Secretary is required to publish in the Rate Announcement, as described
under section 1853(b) of the Act, a description of any evaluation
conducted during the preceding year and any revisions made under such
clause as a result of such evaluation.
As indicated in section II.A. of this proposed rule, we propose
that the regulations implementing this provision be effective 60 days
after the publication of the final rule.
20. Medicare Advantage Benchmark, Quality Bonus Payments, and Rebate
(Sec. 422.252, Sec. 422.258, and Sec. 422.266)
a. Terminology (Sec. 422.252)
In order to implement new ACA provisions affecting MA payments, we
propose to revise Sec. 422.252 by adding two new terms and revising
one term. We propose to add the terms ``new MA plan'' and ``low
enrollment contract.'' A new MA plan means, for the purpose of quality
ratings under proposed Sec. 422.258(d)(7) (discussed below), with
respect to a year, a plan offered by an organization or sponsor that
has not had a contract as an MA organization in the preceding 3-year
period. A low enrollment contract is a contract that could not
undertake Healthcare Effectiveness Data and Information Set (HEDIS) and
Health Outcome Survey (HOS) data collections because of a lack of a
sufficient number of enrollees to reliably measure the performance of
the health plan.
We also propose to revise the definition of Unadjusted MA area-
specific non-drug monthly benchmark amount to reflect the provision of
the ACA that, effective for 2012, the MA area-specific non-drug monthly
benchmark amount is the blended benchmark amount determined according
to the rules set forth under Sec. 422.258(d). In addition, this
revision clarifies that ratesetting rules for county capitation rates
are specific to a time period, as set forth at Sec. 422.258(a).
Finally, this revision further clarifies that the term ``unadjusted''
refers to a standardized amount, reflecting a risk profile based on the
national average.
b. Calculation of Benchmarks (Sec. 422.258)
Section 1102(b) of the ACA establishes a new blended benchmark as
the MA county rate, effective 2012, and section 1102(c) of the Act
establishes quality-based increases to the blended benchmark. To
implement these rate-setting rules for the MA program effective 2012
onward, we propose amendments to Sec. 422.258(a) and Sec.
422.258(c)(3), and propose the addition of a new paragraph Sec.
422.258(d), which sets forth the provisions for MA blended benchmarks,
including increases to the benchmarks for quality bonuses at Sec.
422.258(d)(7).
Proposed Sec. 422.258(a) implements section 1853(j) of the Act to
reflect the ACA requirement that CY 2011 MA capitation rates be set at
2010 levels. Proposed Sec. 422.258(a) also clarifies which ratesetting
rules are in effect for a particular time period by distinguishing the
(c)(1) capitation rates in effect prior to 2007 from the applicable
amount rates in effect from 2007 to 2011 (section 1853(k)(1) of the
Act), and from the blended benchmark rates effective for 2012 (section
1853(n) of the Act).
We also propose to amend Sec. 422.258(c)(3) to require that the MA
regional plan statutory component of the region-specific benchmarks be
calculated using the county rates determined under proposed Sec.
422.258(a) for the year. This amendment ensures that the statutory
component of the regional plan benchmarks reflects rate-setting rules
regarding blended benchmarks for counties that are effective in 2012.
To implement sections 1853(n) and (o) of the Act, as added by
sections 1102(b) and (c) of the ACA, respectively, on blended
benchmarks and quality-based increases to the benchmarks, we propose to
add a new paragraph Sec. 422.258(d). Paragraphs (1) through (6), and
(8) and (9), of paragraph (d) implement provisions regarding the
blended benchmark, effective for 2012 onward. Paragraph (7) implements
the provisions to increase the blended benchmarks for MA plans that
receive quality ratings of a specified level. The quality bonus
provisions in Sec. 422.258(d)(7) are discussed following presentation
of other provisions on the blended benchmarks that are implemented in
this proposed paragraph.
The MMA established the concept of the ``unadjusted MA area-
specific non-drug monthly benchmark amount'' as the service-area level
benchmark for an MA plan, as specified in section 1853(j) of the Act
and implemented at Sec. 422.258(a) for MA local plans and Sec.
422.258(b) for MA regional plans. Under rules established by the MMA,
the service area-level benchmark for an MA plan is, in effect, the
bidding target. Service area-level benchmarks are based on county
capitation rates, and the general amendments to the rules for setting
county capitation rates are as follows. The MMA eliminated the ``higher
of three'' rate-setting rule that had been established by the Balanced
Budget Act of 1997 (BBA), and mandated a transition to the ratesetting
rule that a county capitation rate was

[[Page 71217]]

the (redefined) minimum percentage increase rate for a year (that is,
the previous year's rate increased by the greater of 102 percent or the
National Per Capita Medicare Advantage Growth Percentage), except in
years when county average FFS expenditures were rebased (updated with
more recent data); in rebasing years a county rate for a year was the
greater of the FFS rate and the minimum percentage increase rate. The
DRA introduced section 1853(k)(1) of the Act, which mandated that a
county rate is an ``applicable amount'' for an area for a year, also
used ``for purposes of subsection (j),'' that is, to determine a plan's
service area-level benchmark. Effective in 2007, the applicable amount
under section 1853(k)(1) of the Act for an area for a year was the
(again, redefined) minimum percentage increase rate (that is, the prior
year's rate increase by the National Per Capita Medicare Advantage
Growth Percentage), except in a year when we rebased the FFS rates; in
a rebasing year, the applicable amount was the greater of the county's
rebased FFS rate and its minimum percentage increase rate. In other
words, the ``unadjusted MA area-specific non-drug monthly benchmark
amount'' was now based on applicable amounts under section 1853(k)(1)
of the Act.
Section 1102(b)(2) of the ACA introduces section 1853(n) of the
Act, which creates a new type of county capitation rate, the ``blended
benchmark amount'' for an area for a year, which also must be
determined ``for purposes of subsection (j)''--to determine MA plans'
service area-level benchmarks. Effective 2012 onward, the blended
benchmark will be set at some percentage of the county's average FFS
expenditure (the FFS rate). This percentage varies depending on several
rules discussed below. The minimum percentage increase rate will no
longer exist. Rather, we must rebase the 2012 county FFS rates, and all
2012 county capitation rates are based on the FFS rates. The rebasing
rule at section 1853(c)(1)(D)(ii) of the Act remains in effect,
requiring us to rebase the FFS rates at least every 3 years. In years
after 2012 when the FFS rates are not rebased, the county rate is the
previous year's rate increased by the National Per Capita Medicare
Advantage Growth Percentage. In effect, the ACA mandates that the
``unadjusted MA area-specific non-drug monthly benchmark amount'' will
be based on the blended benchmark rate, thus replacing the applicable
amounts determined under section 1853(k)(1) of the Act.
However, section 1853(n) of the Act states that there are two
components of the blended benchmark: The applicable amount determined
under section 1853(k)(1) of the Act and described at proposed Sec.
422.258(d)(1); and the ``specified amount'' introduced at section
1853(n)(2) of the Act and described at proposed Sec. 422.258(d)(2).
The two components must be combined using weights that are specific to
the phase-in period assigned each area (county), according to rules set
forth at sections 1853(n)(1) and (n)(3) of the Act and implemented at
proposed paragraphs (d)(8) and (d)(9) of Sec. 422.258 of the
regulations. At the conclusion of an area's phase-in period, the
blended benchmark for the area for a year will be the area's specified
amount under section 1853(n)(2) of the Act. In other words, when all
counties have concluded their transition periods to a blended benchmark
based on 100 percent of the specified amount, the ``blended'' aspect of
the benchmark will also be concluded, because the proportion attributed
to the applicable amount under section 1853(k)(1) of the Act will be
zero. However, we will continue to calculate the applicable amounts
under section 1853(k)(1) of the Act because section 1853(n)(4) of the
Act requires that the blended benchmarks for an area for a year must be
capped at what the applicable amount under section 1853(k)(1) of the
Act would be for a year if the blended benchmark provisions were not in
effect.
Specified Amount. Section 1853(n)(2) of the Act, as implemented by
proposed Sec. 422.258(d)(2), (d)(3), and (d)(4), sets forth the
formula for the specified amount and the rules for tabulating the
components of the formula. Specifically, the specified amount is the
product of two quantities: the base payment amount defined at section
1853(n)(2)(E) of the Act (adjusted to carve-out the indirect medical
education (IME) amount, as required at section 1853(k)(4)) of the Act
and implemented at Sec. 422.306(c); and the applicable percentage
defined at section 1853(n)(2)(B) of the Act and implemented at proposed
Sec. 422.258(d)(4).
The base payment amount for an area for 2012 is the average FFS
expenditure amount determined for 2012, as specified in proposed Sec.
422.306(b)(2). For subsequent years, the base payment amount for an
area is the average FFS expenditure amount specified in Sec.
422.306(b)(2), which includes the requirement to rebase (update with
more recent data) the FFS rates no less frequently than every 3 years.
The applicable percentage is one of four values assigned to an area
(a county) based on our determination of the quartile ranking for the
previous year of the area's average FFS expenditure amount (described
at Sec. 422.306(b)(2)) relative to this amount for all counties. The
FFS rate used for the quartile ranking must be net of the IME amount
determined under Sec. 422.306(c) for the year. For the 50 States or
the District of Columbia, counties whose FFS rates (net of the IME
amount for the year) fall in the highest quartile of all such amounts
for the previous year receive an applicable percentage of 95 percent,
while counties falling in the second highest quartile receive an
applicable percentage of 100 percent, counties falling in the third
highest quartile receive an applicable percentage of 107.5 percent, and
counties falling in the lowest quartile receive an applicable
percentage of 115 percent. To determine the applicable percentages for
a territory, we must rank such areas for a year based on the level of
the area's FFS amount net of the IME amount, relative to the quartile
rankings computed for the 50 States and the District of Columbia.
After establishing the basic formula for the specified amount and
setting the rules for calculating its components--the base payment
amount and the applicable percentage, sections 1853(n) and (o) of the
Act provide additional rules for determining the applicable percentage
for a county for a year. There are four sets of rules: (1) When to re-
rank the county FFS rates to determine whether some counties receive
quartile reassignments; (2) how to transition a county from one
quartile assignment to another; (3) how to assign a county its
transition period of 2, 4, or 6 years, whereby at the conclusion of the
transition period, the county's blended benchmark equals 100 percent of
the specified amount; and (4) under what conditions the applicable
percentage shall be increased to provide a quality bonus payments to
qualifying plans. The first three types of rules are discussed here,
and the fourth rule on quality bonuses is discussed in the next section
on paragraph Sec. 422.258(d)(7).
First, section 1853(n)(2)(C) of the Act, implemented at proposed
Sec. 422.258(d)(5)(i), provides that the quartile ranking of all
county FFS rates (net of the IME carve-out) for a contract year must be
re-ranked whenever the FFS rates for the year prior to the contract
year are rebased FFS rates, per the rebasing rule set forth at Sec.
422.306(b)(2). For example, if we did not rebase the FFS rates for
contract year 2013, but did rebase them for contract year 2014, the
base payment amount for contract year 2014 would be

[[Page 71218]]

the 2014 rebased FFS rates, but the applicable percentage for contract
year 2014 must be based on the previous year's quartile ranking, which
would be the 2013 rates. Under this hypothetical scenario, because the
2013 FFS rates were not rebased, the 2013 FFS rates are the 2012 FFS
rates increased by the 2013 National Per Capita Medicare Advantage
Growth Percentage; further, because the 2013 growth trend would be
applied as a constant to all 2012 FFS rates, in effect the applicable
percentages for contract year 2014 would be based on the quartile
ranking of the 2012 rebased FFS rates.
Second, section 1853(n)(2)(D) of the Act, implemented at proposed
Sec. 422.258(d)(5)(ii), provides that for a year after 2012, if there
is a change in a county's quartile ranking for a contract year compared
to the county's ranking in the previous year, the applicable percentage
for the area for the year shall be the average of the applicable
percentage for the previous year and the applicable percentage that
would otherwise apply for the area for the year in the absence of this
transitional provision. For example, if a county's ranking changed from
the third quartile to the second quartile, the applicable percentage
would be 103.75 percent for the year of the change--the average of
107.5 percent and 100 percent.
Third, sections 1853(n)(2) and (n)(3) of the Act, implemented at
proposed Sec. 422.258(d)(8) and (d)(9) respectively, establish the
methodology that we must use to assign one of three transition periods
to each county--a 2-year, 4-year, or 6-year transition--to phase-in the
blended benchmark amount to be equal to 100 percent of the specified
amount. Assignment of a phase-in period is determined by the size of
the difference between the 2010 applicable amount under section
1853(k)(1) of the Act at proposed paragraph (d)(1) and ``the projected
2010 benchmark amount'' at proposed (d)(8)(i), which is a quantity
created at section 1853(n)(3)(C) of the Act solely for the purpose of
assigning a transition period to each county. The projected 2010
benchmark amount is equal to one-half of the 2010 applicable amount and
one-half of the specified amount; the latter is calculated as if the
2012 effective date for the specified amount were instead 2010. This
modified specified amount for 2010 is the product of two quantities:
the 2010 base payment amount adjusted as required under paragraph Sec.
422.306(c); and the applicable percentage, which is determined under
the rules set forth at proposed paragraph (d)(8)(ii)(B). Specifically,
all applicable percentages are increased as if all counties were in
qualifying plans in 2010 for the purpose of calculating the projected
2010 benchmark amount (thus adding 1.5 percentage points to each
county's applicable percentage). Further, we must determine a list of
2010 qualifying counties using the criteria set forth for 2012 onward
in proposed paragraph (d)(7)(ii), thus further increasing the
applicable percentage of this subset of 2010 counties an additional 1.5
percentage points.
Once the special quantity ``projected 2010 benchmark amount'' is
compared to the 2010 specified amount under section 1853(k)(1) of the
Act, the phase-in assignments are made as follows. A county is assigned
a 2-year phase-in period if the difference between the applicable
amount and the projected 2010 benchmark amount is less than $30, a 4-
year phase-in period if the difference is at least $30 but less than
$50, and a 6-year phase-in period if the difference is at least $50.
Finally, section 1853(n)(3), implemented at proposed Sec.
422.258(d)(8), sets forth the rules for calculating the blended
benchmark depending on the assigned phase-in period. For counties
assigned the 2-year phase-in period, the blended benchmark for 2012 is
the sum of one-half of the applicable amount at paragraph (1) and one-
half of the specified amount at paragraph (2); and or subsequent years,
the blended benchmark equals the specified amount. For counties
assigned the 4-year phase-in period, the blended benchmark is
calculated as follows: for 2012 the blended benchmark is the sum of
three-quarters of the applicable amount for the area and year and one-
fourth of the specified amount for the area and year; for 2013, it is
the sum of one-half of the applicable amount for the area and year and
one-half of the specified amount for the area and year; for 2014 it is
the sum of one-fourth of the applicable amount for the area and year
and three-fourths of the specified amount for the area and year; and
for subsequent years, the blended benchmark equals the specified
amount. For counties assigned the 6-year phase-in period, for 2012, the
blended benchmark is the sum of five-sixths of the applicable amount
for the area and year and one-sixth of the specified amount for the
area and year; for 2013 it is the sum of two-thirds of the applicable
amount for the area and year and one-third of the specified amount for
the area and year; for 2014 it is the sum of one-half of the applicable
amount for the area and year and one-half of the specified amount for
the area and year; for 2015 it is the sum of one-third of the
applicable amount for the area and year and two-thirds of the specified
amount for the area and year; for 2016 it is the sum of one-sixth of
the applicable amount for the area and year and five-sixths of the
specified amount for the area and year; and for subsequent years, the
blended benchmark equals the specified amount.
c. Increases to the Applicable Percentage for Quality (Sec.
422.258(d))
Under the ACA, the Secretary is required to implement increases to
MA plan benchmarks (which are the basis of a plan's bidding target) if
they attain 4 or more stars on a 5 star quality rating system
implemented by the Secretary. The effective date for this provision is
January 1, 2012. For the purposes of this preamble, we will refer to
these quality-based increases in MA benchmarks as quality bonus
payments (QBPs) for MA plans. We propose to implement the quality
payment provisions under section 1102 of the ACA at Sec. 422.258(d)(7)
and at Sec. 422.252. Below we discuss our proposal for applying a star
rating system to MA plan benchmarks.
Under the terms of proposed Sec. Sec. 422.258(d)(7) and 422.252,
MA organizations would be evaluated and scored on a 5-star rating
system, with bonus payments made to qualifying organizations that have
a star rating of 4 or higher. As specified under section 1102 of the
ACA, the 5 star rating system that serves as the basis for making the
bonus payment must be based on quality information collected by us
under authority of section 1852(e) of the Act.
Under the proposed regulations, the blended benchmark for 2012 and
future years would reflect the level of quality rating at the
organization or contract level, as determined by the Secretary pursuant
to a methodology that would be set forth in a notice to MA
organizations for the calendar year in question. This notice would come
in the form of a memorandum to the Medicare Compliance Officers of MA
organizations. As discussed in section II.B.20.b of this proposed rule,
the blended benchmark has two components--the applicable amount and the
specified amount. A qualifying organization that receives 4 or more
stars on a 5 star rating system would, under the proposed regulations,
receive an increase in the specified amount component of the blended
benchmark amount of 1.5 percentage points in 2012, 3.0 percentage
points in 2013 and 5.0 percentage points in 2014 and in subsequent
years. A qualifying organization in a qualifying county would receive
double the applicable

[[Page 71219]]

percentage increase. A qualifying county is defined as a county that
has an MA capitation rate that, in 2004, was based on the amount
specified in subsection c1b for a Metropolitan Statistical Area (MSA)
with a population of more than 250,000; has at least 25 percent of MA
eligible individuals enrolled in MA plans as of December 2009; and has
a per capita fee-for-service spending that is lower than the national
monthly per capita cost for expenditures for individuals enrolled under
the Original Medicare fee-for-service program for the year. Under the
proposed regulations, a new MA plan would receive an increase in the
specified amount component of the blended benchmark amount of 1.5
percentage points in 2012; 2.5 percentage points in 2013; and 3.5
percentage points in 2014 and in subsequent years.
The 5 star ratings system that would be used is the system
currently in place, which historically has served two purposes. First,
the plan ratings provide beneficiaries information on organization
performance that they may consider (in addition to cost and benefit
information) when choosing a plan. The second purpose is to assist us
in identifying poor performing organizations for compliance actions.
Under the plan rating system, if an MA-PD organization offers health
and drug benefits, both Part C and Part D summary ratings scores are
generated. In the Fall of 2010, MA-PDs will receive a combined Part C
and D summary rating to summarize overall contract performance with
respect to health and drug issues. This combined rating would, under
the proposed regulations, be used to determine the new quality bonus
payments (QBPs) based on quality.
We have always considered the plan rating system to be based on
information consistent with section 1852(e) of the Act, which specifies
that MA organizations are required to collect, analyze and report data
that measure health outcomes and other quality indices. Because section
1852(e) of the Act states that ``The Secretary shall not collect data
on quality, outcomes and beneficiary satisfaction to facilitate
consumer choice and program administration other than the types of data
that were collected by the Secretary as of November 1, 2003'', we
clarify here the types of data included under the plan rating system
are consistent with the types of data collected as of November 1, 2003.
Since 1997 Medicare managed care organizations have been required to
annually report quality of care performance measures through HEDIS.
HEDIS is a widely used quality measures set in the managed care
industry, developed and maintained by the National Committee for
Quality Assurance (NCQA). HEDIS data includes clinical measures
assessing the effectiveness of care, access/availability measures such
as telephone customer service, and use of service measures. We have
also been conducting the Consumer Assessment of Healthcare Providers
and Systems (CAHPS) survey since 1997 to measure beneficiary's
experiences and satisfaction with their health plans. HOS began in 1998
to capture changes in the physical and mental health of MA enrollees.
Additionally, there are several measures based on performance that
address telephone customer service, members' complaints, disenrollment
rates, and the seriousness of problems found during a Medicare audit.
All of these measures reflect structure, process, and outcomes indices
of quality that form the measurement set under plan ratings.
Additionally, since 2007, we have publicly reported a number of
measures related to the drug benefit as part of the plan ratings. For
MA organizations that offer prescription drug coverage, we have
developed a series of measures focusing on administration of the drug
benefit. Similar to MA measures of quality relative to health services,
the Part D measures focus on customer service and satisfaction,
effectiveness, and access to care relative to the drug benefit. Because
these measures focus on structure, process, and outcomes indices of
quality, we believe that they too are consistent with the types of
information referenced in section 1852 (e) of the Act. Therefore, we
believe that the Part C and D plan ratings are consistent with the
limitation expressed in section 1852(e) of the Act limiting data
collection for quality to the types of data collected as of November 1,
2003.
Additionally, for 2012 and thereafter, the ACA directs the
Secretary to develop definitions for new organizations that lack
sufficient data to produce a star rating. Those new plans as defined by
the Secretary will be considered qualifying organizations and will
receive a bonus payment. The ACA requires that for 2012 the Secretary
develop definitions for low enrollment plans that lack sufficient data
to produce a star rating. For years after 2012, the Secretary must
develop a methodology in order to rate these low enrollment plans for
purposes of determining whether these plans qualify for quality bonus
payments and what are the applicable beneficiary rebates percentages
for these plans. We are proposing to add a new paragraph (d)(7) to
Sec. 422.258 to reflect our authority to make bonus payments based on
quality. Under Sec. 422.252, we propose definitions of a low
enrollment organization and a new organization for the purpose of
identifying qualifying organizations eligible to receive a bonus
payment. Low enrollment plans will be qualifying plans for 2012 and in
subsequent years, the Secretary is directed to develop a methodology to
assign star ratings to low enrollment organizations. MA organizations
that fail to report data as required by the Secretary shall be counted
as having a rating of fewer than 3.5 stars at the organization or
contract level, as determined by the Secretary. For the purpose of
awarding 2012 quality bonus payments, we propose to define low
enrollment organizations as those that could not undertake HEDIS and
HOS data collections because of a lack of a sufficient number of
enrollees to reliably measure the performance of the health plan. New
MA organizations that meet criteria specified by the Secretary are also
treated as qualifying organizations for the purposes of QBPs. We
propose to define a new MA organization as a MA contract offered by a
parent organization that has not had another MA contract in the
previous 3 years; these contracts would qualify for the QBP. Other MA
contracts that open in a given year, but have had other contracts
offered by the parent organization offering the new plan in the prior
three years would be assigned a star rating based on the average
enrollment-weighted performance of the other contracts offered by the
parent organization to reflect the overall performance of the
organization. Also under the ACA, new MA organizations that meet
criteria specified by the Secretary are treated as qualifying
organizations for the purposes of QBPS. We propose to define a new MA
organization as a MA contract offered by a parent organization that has
not had another MA contract in the previous 3 years; these contracts
would qualify for the QBP. Other MA contracts that open in a given
year, but have had other contracts offered by the parent organization
offering the new plan in the prior three years would be assigned a star
rating based on the average enrollment-weighted performance of the
other contracts offered by the parent organization to reflect the
overall performance of the organization.
We anticipate moving toward transformation of the rating system in
future years in order to advance more ambitious and comprehensive
quality improvement objectives. These

[[Page 71220]]

objectives will include greater emphasis on demonstrable improvements
in beneficiary access to care, beneficiary health status and outcomes,
beneficiary satisfaction and engagement, prevention and management of
chronic conditions as well as coordination across the continuum of
care. By designing the MA quality rating system around these types of
objectives, we expect to encourage and incentivize MA plans and
affiliated providers to transform their delivery systems and processes
to provide beneficiaries with high-quality and efficient care.
Ultimately, we seek to design the MA quality rating system to ensure
that Medicare beneficiaries enrolled in MA organizations receive
efficient, high quality care and services every time. Future quality
agenda and measurement development will be designed to ensure that MA
organizations lead the healthcare industry in providing cutting edge,
integrated and coordinated care for our beneficiaries using evidence-
based and demonstrable metrics.
As we develop a longer term strategic framework for transforming
the MA quality rating system, over the near term, we also will consider
guiding principles for the MA quality agenda. For instance, these
principles could be based on aims from the 2001 Institute of Medicine
(IOM) Report ``Crossing the Quality Chasm: A New Health System for the
21st Century.'' From this IOM Report, the six aims that have been
described are being proposed as a framework for the MA Quality
Strategic Plan. The IOM Report provides the following definitions for
the six aims: Safe is defined as avoiding injuries to patients from the
care that is intended to help them. Effective refers to providing
services based on scientific knowledge to all who could benefit, and
refraining from providing services to those not likely to benefit.
Patient-centered is providing care that is respectful of and responsive
to individual patient preferences, needs, and values, and ensuring that
patient values guide all clinical decisions. Timely is defined as
reducing waits and sometimes harmful delays for both those who receive
and those who give care. Efficient is avoiding waste, including waste
of equipment, supplies, ideas, and energy. Equitable is providing care
that does not vary in quality because of personal characteristics such
as gender, ethnicity, geographic location, and socioeconomic status
(IOM, 2001).
We invite public comment on what types of principles or objectives
that we should adopt for the MA quality rating system over the longer
term. For instance, are there specific frameworks or elements that we
should adopt from the National Quality Forum (NQF), NCQA, the Agency
for Healthcare Research and Quality and Research (AHRQ) or other
experts in this field? How should these objectives evolve over time so
the rating system rewards continual improvement and innovation on the
part of MA organizations?
As a part of developing our long-term quality strategy, we have
begun to identify measures that can be implemented in the near term to
further the MA quality agenda. Looking beyond the 2012 plan ratings, we
are exploring using measures, such as reportable adverse events and
hospital acquired conditions, which are submitted via the Part C
reporting requirements. We are also examining the use of alternative
measurement sets (for example, ACOVE), exploring the use of data
collected in other settings (for example, rural hospital quality data
annual payment update (RHQDAPU)), considering incorporating encounter
data into quality measures, and are considering development of
additional outcome measures designed specifically for MA. The NCQA is
also developing measures of all-cause readmission rates and ambulatory
care sensitive conditions that we would look to implement as they
become available. These are some of the activities that we anticipate
engaging in over the next few years, and we expect to undertake further
measure identification, refinement, and development as we implement the
MA quality bonus payments.
Further, beyond broadening the goals of the MA quality rating
system, for instance by incorporating more outcomes-based measures, we
also seek to continually raise performance targets, so as to
incentivize continual quality improvement across established metrics of
performance and quality. We invite public comment on appropriate
performance and quality benchmarks, and what approach should be used
for updating these benchmarks, including frequency of updates.
The MA quality agenda will also be coordinated with the national
priorities for quality that are being set as part of the ACA. As the
national priorities for quality are shaped, the MA quality agenda will
be aligned with these priorities. We are working on the MA quality
agenda and have also established an agency-wide Quality Working Group
Advisory Panel. Senior CMS leadership has convened an agency-wide
Quality Working Group Advisory Panel to facilitate the coordination of
the CMS quality initiatives in support of the development of the HHS
National Strategy for Quality that is required by the ACA. This working
group will ensure that the MA Quality agenda aligns with other
components within CMS and with HHS national goals. CMS's participation
in the HHS-wide Interagency Quality Measures Workgroup will also
further ensure that MA quality measures are developed in a coordinated
way across the Department.
Accordingly, based on the preceding, we are proposing the following
amendment to Sec. 422.258 to add a new paragraph (d)(7) to reflect our
authority to make bonus payments based on quality. Under Sec. 422.252,
we propose definitions of low enrollment organization and new
organization for the purpose of identifying qualifying organizations
eligible to receive a bonus payment.
While the regulations we are proposing in this section would
implement the QBP provisions specified in the ACA on a permanent basis,
for the near term we will be conducting a demonstration project under
which the rules for determining QBPs set forth in the Affordable Care
Act and in these proposed regulations would be waived, and QBPs would
instead be determined under the terms of the demonstration. For CYs
2012 through 2014, MA payment will be determined under the terms of the
national quality bonus payment demonstration project. Details on the
demonstration will be provided on the CMS Web site.
d. Beneficiary Rebates (Sec. 422.266)
The proposed rule for calculation of beneficiary rebates implements
section 1102(d) of the ACA, which reduces the amount of beneficiary
rebate, and ties the level of rebate to a plan's star rating for
quality of performance.
The ACA does not change the basic rules for determining whether or
not an MA plan must provide a beneficiary rebate. These three basic
rules are as follows. As set forth at Sec. 422.262, we determine
whether an MA plan must charge a basic beneficiary premium for coverage
of Original Medicare benefits by comparing the unadjusted
(standardized) Parts A/B bid amount to the unadjusted (standardized)
Parts A/B benchmark amount for the plan for the year. If the bid is
less than the benchmark, the basic beneficiary premium for coverage of
Original Medicare benefits is zero. Second, as set forth at Sec.
422.264(c) and (d) for local and regional plans, we calculate the
amount of savings for MA plans with zero basic beneficiary premiums,
which is 100 percent of the difference between

[[Page 71221]]

the risk-adjusted bid amount and the risk-adjusted benchmark amount.
Finally, as set forth at Sec. 422.266, the MA plan's beneficiary
rebate amount is calculated as a percentage of the savings amount.
Rebates must be used to reduce the costs of Part C mandatory
supplemental benefits, Part D supplemental benefits, and/or to reduce
the Part D basic premium and Part B premium.
Section 1102(d) of the ACA changes the share of savings that MA
plans must provide to enrollees as the beneficiary rebate specified at
Sec. 422.266(a). Specifically, this provision mandates that the level
of rebate is tied to the level of a plan's star rating for quality of
performance. Under the new provisions, the highest possible rebate, for
plans with a 4.5 star rating or higher, is set at 70 percent of the
average per capita savings. The rebate is reduced further for plans
with lower star ratings for a year. These new provisions are phased-in
from 2012 through 2014. The demonstration project mentioned in section
II.B.20.c. of this proposed rule would not affect the rebate
percentages associated with a particular star rating, under the terms
of the ACA.
We propose to revise Sec. 422.266 by first redesignating paragraph
(a) as paragraph (a)(1), and amending it to apply to years 2006 through
2011. We further propose to add paragraph (a)(2), which sets forth the
rebate determination rules for 2012 and subsequent years. Proposed
Sec. 422.266(a)(2)(ii) states that for 2014 and subsequent years, the
final applicable rebate percentage (the percentage applied to the
savings amount to determine the rebate amount) is 70 percent in the
case of a plan with a quality rating under such system of at least 4.5
stars; 65 percent in the case of a plan with a quality rating of at
least 3.5 stars and less than 4.5 stars; and 50 percent in the case of
a plan with a quality rating of less than 3.5 stars.
Proposed Sec. 422.266(a)(2)(i) describes the transition period
during which the old 75 percent rule at paragraph (a)(1) will be
phased-out and the (a)(2)(ii) rules phased in. For 2012, the rebate
percentage equals the sum of: Two-thirds of the old proportion of 75
percent of the average per capita savings; and one-third of the new
proportion assigned the plan or contract under paragraph (ii), based on
the plan's star rating for the year. For 2013, the rebate percentage
equals the sum of: One-third of the old proportion of 75 percent of the
average per capita savings; and two-thirds of the new proportion
assigned the plan or contract based on the plan's star rating for the
year.
Proposed Sec. 422.266(a)(2)(iii) describes the rules for low
enrollment plans. For 2012, the ACA requires that low enrollment plans
shall be treated as having a rating of 4.5 stars for the purpose of
determining the beneficiary rebate amount. Proposed Sec.
422.266(a)(2)(iii) describes the rules for new MA plans. For 2012 or a
subsequent years, a new MA plan defined at Sec. 422.252 that meets the
criteria specified by us for purposes of Sec. 422.258(d)(7)(v) shall
be treated as a qualifying plan under paragraph (7)(i), except that
plan must be treated as having a rating of 3.5 stars for purposes of
determining the beneficiary rebate amount.
For the purpose of setting a plan's rebate level for 2012 and 2013,
we anticipate that MA organizations will receive adjustments to their
quality ratings in a manner similar to the adjustments proposed for
benchmarks, in recognition that MA organizations have limited ability
to influence their summary plan ratings for purposes of the 2012 and
2013 determination of the plan rebate amount.
21. Quality Bonus Payment and Rebate Retention Appeals (Sec. 422.260)
Section 1853(o) of the Act requires us to make QBPs to MA
organizations that achieve performance rating scores of at least 4
stars under a five star rating system. While we have applied a star
rating system to MA organizations for a number of years, these star
ratings have thus far been used only to provide additional information
for beneficiaries to consider in making their Part C and D plan
elections. Beginning in 2012, the star ratings we assign for purposes
of QBPs under section 1858(o) of the Act will directly affect the
monthly payment amount MA organizations receive from us under their
contracts. In effect, the bonus payment provisions of the new statute
create a new category of CMS determinations related to MA organizations
that affect their payments, arguably similar in terms of possible
adverse impact to determinations related to contract qualification,
termination, sanction, and payment reconciliation. Historically, a key
aspect of the exercise of our authority to make such organization-
specific determinations has been making an administrative review
process available to MA organizations. Accordingly, we are proposing a
review process through which MA organizations may seek review of their
star rating (``QBP status'') for QBP determinations.
Section 1854(b)(1)(C)(v) of the Act, as added by the ACA, also
requires us to change the share of savings that MA organizations must
provide to enrollees as the beneficiary rebate specified at Sec.
422.266(a) based on the level of a sponsor's star rating for quality
performance. This review process will also apply to the determinations
made by us where the organization's plan rating sets its QBP status at
ineligible for rebate retention.
While the statute does not specify a process for appealing low star
ratings for QBP purposes, we are proposing this process pursuant to our
authority to establish MA program standards by regulation at section
1856(b)(1) of the Act. We are proposing to afford the MA organization
the opportunity to seek an appeal of their QBP status by a hearing
officer. Prior to a request for an appeal, we will afford MA
organizations the benefit of a technical report on the calculation of
their QBP status, at the organization's request.
As previously discussed, for calendar years 2012 through 2014, QBP
payments will be awarded under the terms of a demonstration project.
Because the appeals process proposed in this proposed rule contemplates
that the regulations governing QBP payments would be in effect, we are
considering that these regulations not take effect until after the
demonstration project has terminated. We anticipate making the appeals
regulations effective when the demonstration project has terminated. In
the interim, we will announce a process to appeal low star ratings for
both QBP determinations under the demonstration and rebate retention
allowances in separate guidance. We request comment regarding our
proposal to delay the effective date of the appeals process set forth
in this proposed rule until after the end of the demonstration.
Under the proposed regulations described in this section, MA
organizations would be permitted to request a report on the calculation
of their QBP status upon CMS' issuance of its final QBP payment
determinations each year. Currently, we make plan star ratings
available to MA organizations each September. As we have in prior
years, we will continue to provide all organizations with a two-week
preview period during which they can review their plan rating and raise
questions concerning its accuracy with us before it is displayed on the
CMS Web site. As noted in the discussion of the implementation of
quality bonus payments earlier in this preamble, the plan ratings play
a significant role in identifying MA organizations that qualify for
QBPs. While we reserve the

[[Page 71222]]

right to use the same star rating that applies to the plan rating for
QBP determinations, we will provide MA organizations notice each year
regarding their QBP status. QBP determinations will be considered made,
subject to the appeal rights described in this section, when the notice
of QBP status is released.
Under our proposed regulations, MA organizations would have 5
calendar days from the date of CMS' release of its QBP determinations
to request from CMS a technical report explaining the development of
their QBP status. The report would be produced by an independent
contractor engaged by us to review the application of CMS' QBP payment
methodology to the organization's performance for the most recent
evaluation period. The technical report would be designed primarily to
allow MA organizations to ``see CMS' work'' by providing the
organization with a full explanation of how the values were determined
for each performance area and how those values were in turn
incorporated into the methodology used to calculate the QBP. This
information would help MA organizations identify the ways in which
their organization would need to improve to qualify for a QBP in future
MA program years. The technical report contractor would provide its
report in writing by electronic mail to the MA organization and CMS
within 30 days of CMS' receipt of the organization's request for the
report.
If, after reviewing the technical report, the MA organization
believes that we were incorrect in its QBP determination, the MA
organization would be able to request an appeal to be conducted by a
hearing officer designated by CMS. The organization would be required
to make such a request within 7 calendar days of the MA organization's
confirmed receipt of the technical report. Such request would have to
include a statement that describes the errors that we made in our QBP
determination and how correction of those errors would result in the
organization's qualification for a QBP.
We propose that the scope of the hearing be limited to challenges
of CMS' application of its QBP determination methodology to the
appealing MA organization and, in very limited instances, the accuracy
of the data CMS used to make the QBP determination. We would make
available and request comment from the public on the star rating
calculation methodology each year. Once that process is concluded, the
appeals process proposed may not be used as a means to challenge the
validity of the adopted methodology.
Generally, we do not believe that the appeals process should
provide a forum for MA organizations to challenge the accuracy of plan
rating data as such data has often been made available to the sponsor
and been subject to independent review (for example, HEDIS, CAHPS)
prior to their use in QBP determinations. However, we acknowledge that
while MA organizations often have access to the their raw performance
data, the data sets we actually develop and use for the calculation of
some of the performance measures may not be made available to the MA
organization until they are released to them during the star rating
preview period or through the technical report proposed here (for
example, call center studies, appeals processing analysis). With
respect to those data sets, we think it is appropriate to afford MA
organizations the opportunity to challenge their accuracy during an
appeal. Therefore, we propose to limit the scope of the hearing
officer's consideration concerning the underlying data sets to those
that have not been previously subject to independent validation. We are
soliciting comments on whether this is an appropriate limitation on the
scope of a QBP status appeal.
We expect that the appropriately limited scope of the appeal means
that the relevant issues can be developed sufficiently for review by a
hearing that would be conducted on the record, unless the parties
requested and the hearing officer approved, a live or telephonic
hearing. Also, the parties will not be permitted to conduct discovery
as the only facts at issue will already have been sufficiently
developed by CMS and in the QBP technical report contractor.
In determining the appropriate official to conduct a QBP appeal, we
must consider issues of expertise and efficiency. We are proposing to
designate a hearing officer who was not directly involved in the QBP
determinations but who has sufficient understanding of the QBP
methodology to promptly and effectively consider an MA organization's
appeal. The designated hearing officer for the purpose of these appeals
may or may not be the CMS Hearing Officer.
The hearing officer would be required to issue his or her decision
on or before May 15 of the year preceding the year in which the plans
for which the QBP is to be applied will be offered. This deadline is
necessary to afford MA organizations time to incorporate their QBP
status into their plan bids, due to us by the first Monday in June. The
hearing officer's decision would be final and binding on both the MA
organization and CMS. In the event that the hearing officer finds that
CMS' QBP determination was incorrect, we would be obligated to
recalculate the organization's QBP status based on the hearing
officer's findings.
We would have the right to revise, on its own initiative, an MA
organization's QBP status at any time after the initial release of the
QBP determinations through May 15 of each year. We may take this action
on the basis of any credible information, including the technical
report issued pursuant to the process proposed here, which demonstrates
that the initial QBP determination was incorrect.
At this time, we are not proposing another level of administrative
review beyond the hearing officer. While many of our administrative
processes include the potential for review by the CMS Administrator,
given the timing considerations of concern for both CMS and the MA
organizations, we have opted not to propose Administrator review in
these cases. We expect that the time between our notification to MA
organizations of their QBP status and the date by which organizations
need to have certainty concerning their QBP status to develop their MA
plan bids each year may only be sufficient to accommodate the
completion of the technical report and the hearing officer review. We
believe that it would not benefit MA organizations to afford them an
appeal right which they likely may not be able to avail themselves of
in time to affect their bid calculations. However, we are soliciting
comments on the need for an independent contractor level review prior
to an appeal to be conducted by a hearing officer designated by CMS or
an Administrator-level review both in terms of its contribution to
administrative due process and its impact on the annual MA bid
submission timeline.

C. Clarify Various Program Participation Requirements

The proposed regulations in this section clarify existing
regulations or implement new requirements consistent with existing
policy guidance to assist sponsoring organizations with attaining the
goals envisioned by the Congress when the legislation implementing the
Medicare Advantage and Prescription Drug Benefit programs was first
passed. These clarifications are detailed in Table 4.

[[Page 71223]]

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1. Clarify Payment Rules for Non-Contract Providers (Sec. 422.214)
Section 1866(a)(1)(O) of the Act and regulations at Sec.
422.214(b) require that, when paid by an MA organization for services
furnished to an MA plan enrollee, a non-contracting provider of
services (for example, a hospital, skilled nursing facility or home
health agency) must accept, as payment in full, the amounts that the
provider could collect if the beneficiary were enrolled in Original
Medicare. While this provision acts as a cap on what an MA organization
is required to pay a non-contracting provider of services, if the
provider of services bills the MA organization an amount that is less
than the Original Medicare payment amount, the MA organization is only
obligated to pay the amount billed.
Payment disputes have occurred in recent years for services
provided on a non-contract basis to MA enrollees by providers of
services that are paid under prospective payment (PPS) methodologies,
such as hospitals and home health agencies. In several cases, MA
organizations have interpreted requests for payment by such providers
to be requests for amounts less than the amount that would be paid
under Original Medicare. This is because, under PPS methodologies,
providers are to submit estimated charges, which are then combined with
diagnostic information in pricing software to determine the PPS payment
rate for the service. Under Original Medicare, if these estimated
charges are less than the PPS payment amount produced by the Medicare
pricing software, the higher Medicare payment amount is paid. Because
this is the method for requesting payment at the Original Medicare
payment amount under the Original Medicare program, we believe that the
same information should similarly be treated as a request for the full
Medicare payment amount when submitted to an MA organization in a
request for payment unless the provider has made clear that it intends
to bill the MA organization less than the Original Medicare amount.
Thus, if the provider of services notifies the MA organization in
writing that it intends to bill less than the payment amount it would
receive under Original Medicare, consistent with longstanding policy,
the MA organization may pay the provider the lower amount that is
billed.
In response to questions about this issue, CMS clarified its
expectations for plans and out-of-network providers in its Out-of-
Network Payment Guide released February 25, 2010. This guidance
reflected CMS' longstanding policy that if a non-network facility such
as a hospital, skilled nursing facility, or home health agency renders
services which were not arranged by the plan, a non-private-fee-for-
service MA organization may pay the lesser of the Original Medicare
amount or a lower billed amount if it is clear that the provider is
billing for less than the Original Medicare rate. However, the guide
also clarified that when a provider of services that is paid under a
PPS system under Original Medicare submits the same information to an
MA organization that it would submit to Original Medicare for the
services in question, this should be considered a bill for the PPS
amount (and not the

[[Page 71224]]

``billed'' or ``charge'' amount from the claim) that Original Medicare
would pay in the case of the same submission.
We propose to reflect the policy set forth in our February 25, 2010
guidance in the regulations governing payment to non-contract providers
by adding a new paragraph (c) to Sec. 422.214 to provide that a
request for payment from an MA organization by a non-contract provider
paid under a PPS methodology under Original Medicare is deemed to be a
request to be paid at the Original Medicare payment rate unless the
provider has notified the MA organization in writing that it wishes to
bill less than the Original Medicare payment amount.
We also think it is important to clarify in this proposed rule that
MA organizations offering regional PPO MA plans must always pay non-
contract providers the Original Medicare payment rate in those portions
of their service area where they are meeting requirements for access to
services by non-network means as described in Sec. 422.111(b)(3)(ii).
We believe this requirement is justified under Medicare access
requirements at section 1852(a)(2)(A) of the Act, which specify that an
MA plan may meet access requirements if it pays providers at the
Original Medicare payment rate.
We propose adding a new paragraph (d) to Sec. 422.214 clarifying
that an MA organization must always pay non-contract providers at least
the Original Medicare payment rate in those portions of its service
area where it is meeting access to services requirements by non-network
means under Sec. 422.111(b)(3)(ii).
2. Pharmacist Definition (Sec. 423.4)
Pursuant to our authority under section 1860D-4(b)(3)(A)(i)and
1860D-4(c)(2)(A)(i) of the Act, we propose to codify our understanding
that, for purposes of the Part D program, a pharmacist is an individual
with a current, valid license to practice pharmacy issued by the
appropriate regulatory authority of any of the states or territories of
the United States or the District of Columbia (D.C.) (collectively
referred to as ``United States authorities''). We propose adding a
definition for the word ``pharmacist'' to Sec. 423.4 in Subpart A to
reflect this understanding.
The proposed change is prompted by recent Medicare Part D sponsor
audit findings in which CMS found that at least some Part D sponsors
were relying on pharmacists not licensed by United States authorities
to make clinical judgments associated with the administration of the
Part D benefit. We believe that there are potential threats to
beneficiary safety and access when decisions are made by clinicians who
are not licensed by United States authorities. As Medicare provides
coverage for services throughout the United States, beneficiaries
should be able to expect that individuals making clinical decisions
related to their access to pharmaceuticals are experts in United States
pharmaceutical practice; make clinical decisions consistent with the
Federal Drug Administration (FDA) prescribing information for products;
and are knowledgeable about the range of pharmaceutical products
available on the United States market, appropriate generic
substitutions, and over-the-counter and behind-the-counter products. We
believe that requiring pharmacists to be licensed by United States
authorities will help guarantee that Part D sponsors meet these
expectations.
3. Prohibition on Part C and D Program Participation by Organizations
Whose Owners, Directors, or Management Employees Served in a Similar
Capacity With Another Organization That Terminated Its Medicare
Contract Within the Previous 2 Years (Sec. 422.506, Sec. 422.508,
Sec. 422.512, Sec. 423.507, Sec. 423.508, and Sec. 423.510)
In our final rule (75FR 19678) entitled ``Policy and Technical
Changes to the Medicare Advantage and the Medicare Prescription Drug
Benefit Programs.'' that appeared in the April 15, 2010 Federal
Register, we modified Sec. 423.508 by adding a paragraph (e) stating
that as a condition precedent to CMS' consent to a mutual termination,
CMS requires language in the termination agreement prohibiting the
sponsor from applying for new contracts or service area expansions for
a period of up to 2 years, absent circumstances warranting special
consideration. Similarly, in Sec. 423.504(b), we added a new paragraph
(b)(6) stating that as a necessary condition to contract as a Part D
sponsor, an organization must not have terminated a contract by mutual
consent and, as part of that consent, agreed not to apply for new
contracts or service area expansions for a period of up to 2 years.
Similar modifications were made for the MA regulations. Specifically,
we modified Sec. 422.508 by adding paragraph (c) and Sec. 422.503(b)
by adding a new paragraph (b)(7). These changes ensured consistency
across all situations in which a sponsor elects--through non-renewal,
termination, or mutual termination--to discontinue its participation in
the Part C or D programs.
In this rule we are proposing to amend the 2-year new contract
prohibition in both Sec. 422.508 and Sec. 423.507 by adding a new
subsection entitled ``Prohibition of Part C and D program participation
by organizations whose owners, directors, or management employees
served in a similar capacity with another organization that terminated
its Medicare contract within the previous 2 years.'' We also propose
adding similar clarifying language to the existing language at Sec.
422.506, Sec. 422.512, 423.508, and Sec. 423.510. Under sections
1857(e)(1) and 1860D-12(b)(3)(D) of the Act, the Secretary may add
terms to the contracts with MA and Part D sponsors including requiring
the organization to provide the Secretary with such information as the
Secretary may find necessary and appropriate. It is our belief that to
carry out the intentions of the 2-year exclusion we need to ensure that
new contracting organizations are not actually repackaged versions of
the same organizations that elected to discontinue their participation
in the Part C and D programs. In order to meet this goal we want to
evaluate the new organization's management and ownership to detect a
situation in which ``ABC, Inc.'' applies for a new contract as ``XYZ,
Inc.'' Therefore, we are proposing a requirement which will allow us to
determine whether the primary players in the organization submitting
the new application are the same as those in an organization that has
recently non-renewed, terminated, or mutually terminated a Medicare
contract. We are proposing to develop standards and benchmarks
regarding the percentage of ownership or management control that we
would conclude is problematic.
This proposed requirement will assist CMS in prohibiting and
preventing such organizations from gaming the Medicare program by
reapplying for a contract as a new organization during the 2-year ban,
when the applying organization has common ownership and management
control. Since the start of the Medicare Advantage and Part D programs,
we have seen MA organizations and Part D entities that terminated a
contract for various reasons apply as a new organization with Medicare
within the 2-year exclusion period with the same ownership and
management structure as the previous organization. This proposed
requirement will help ensure that the provisions of the 2-year
application prohibition are given full effect.
Therefore, we are proposing that the 2-year ban on new Part C or D
sponsor contracts to which non-renewing, terminating, or mutually
terminating organizations are currently subject under the regulation be
expanded to

[[Page 71225]]

include organizations owned or managed by an individual (referred to as
a ``covered person'') who served in a similar capacity for a previously
terminated or non-renewed Part C or D organization. Under this proposed
regulation, we would then require as part of the contract application
process that applicants supply CMS with full and complete information
as to the identity of each ``covered person'' associated with the
organization. For this proposal we are defining ``covered persons'' to
include--
All owners of applicant organizations who are natural
persons (other than shareholders who: (1) Have an ownership interest of
less than 5 percent; and (2) acquired the ownership interest through
public trading). In addition, is a natural person who is an owner in
whole or part interest in any mortgage, deed of trust, note or other
obligation secured (in whole or in part) by the entity or any of the
property assets thereof, which whole or part interest is equal to or
exceeds 5 percent of the total property, and assets of the entity; or
An officer or member of the board of directors or board of
trustees of the entity, if the entity is organized as a corporation.
This standard for disclosure is modeled after the authority granted
to the Secretary by section 1124(a) of the Act (42 U.S.C. 1320a-3)
which provides for disclosure standards for, among other entities,
Medicaid managed care organizations and Medicare carriers and fiscal
intermediaries.
We solicit comments on whether plan sponsors, or other stakeholders
consider the proposed definition of ``5 percent or more'' truly
represents current market conditions. We are requesting comments on
this section because we do not want to arbitrarily decide on the
percentage of interest the above mentioned persons could have in an
organization, especially if this percentage does not reflect standard
business practices.
We are proposing to amend Sec. 422.508 and Sec. 423.507 to make
the 2-year exclusion applicable to organizations for which any covered
persons were also covered persons for the excluded organization. We are
proposing to make similar amendments to Sec. 422.506, Sec. 422.512,
Sec. 423.508, and Sec. 423.510.
4. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
Federal regulations at Sec. 423.509(a)(1) through (a)(12) clearly
defines the circumstances under which we have the authority to
terminate a Part D sponsor's contract. When we terminate a contract, we
must have assurances that the terminated Part D sponsor will maintain
sufficient staff and operations to effectuate a smooth transition of
the sponsor's enrollees to new Part D coverage in a fashion that
facilitates continuity of care and fiscal responsibility. These
responsibilities include providing timely documentation requested by
CMS, retaining all documents for the periods specified in the Federal
laws and CMS regulations (see Sec. 423.505(d) and (e)) and otherwise
providing the resources necessary for an orderly transition of Medicare
beneficiaries to their newly assigned or selected plan.
In order for a timely and orderly transition to occur, the
terminated Part D sponsor must provide us with certain critical
Medicare beneficiary data including information to identify each
affected beneficiary, pharmacy claims files, true out-of-pocket (TrOOP)
cost balances, and information concerning pending grievances and
appeals. Data such as TrOOP balances are necessary to correctly place
the beneficiary in the benefit and provide the catastrophic level of
coverage at the appropriate time. This list is an example of various
required data and is not intended to be all inclusive of the data
necessary to assure a timely and smooth transition for the Medicare
beneficiary when leaving the terminated plan and enrolling in a new
plan.
The requirement to provide such data and files is already clearly
articulated for voluntarily non-renewing Part D plan sponsors (Sec.
423.507(a)(4)); for contracts terminated by mutual consent (Sec.
423.508(d)); and for contracts terminated by the plan sponsor for cause
(Sec. 423.510(f)). However, the regulation is currently silent
regarding contracts terminated by CMS. Therefore, in order to protect
both Medicare beneficiaries and CMS and to ensure that the requirement
to provide such data and files is clear for all types of contract non-
renewals and terminations, we are proposing to add a new section (e)
``Timely transfer of data and files'' to Sec. 423.509 (Termination of
Contract by CMS) to state that should the Part D plan sponsor's
contract be terminated by CMS, the Part D sponsor must ensure the
timely transfer of any data or files. This language will inform Part D
sponsors being terminated by CMS that they are required by Federal
regulation to timely transfer all requested data and files to CMS or
its designee for the required time as specified under Sec. 423.505(d)
and (e).
Sponsors that fail to provide the necessary data directly harm
beneficiaries, as these individuals will likely be charged incorrect
amounts for their medications when transferring to a new Part D
sponsor. Specifically, beneficiaries may be forced to re-satisfy
deductible requirements under the new plan, or prevented from moving
into the catastrophic phase of the benefit (where there are minimal
out-of-pocket costs) when otherwise eligible. Therefore, plans that do
not comply with this section may be subject to a Civil Monetary Penalty
as defined by Sec. 422.752(c) and Sec. 423.752(c).
5. Review of Medical Necessity Decisions by a Physician or Other Health
Care Professional and the Employment of a Medical Director (Sec.
422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
Pursuant to our authority under sections 1852(g) and 1860D-4(g) of
the Act, which incorporates by reference paragraphs (1) through (3) of
section 1852(g), CMS established procedures for making organization
determinations and reconsiderations regarding health services under
Part C, and coverage determinations and redeterminations regarding
covered drug benefits under Part D. These requirements are codified in
our regulations at part 422 subpart M part 423 subpart M, respectively.
Section 1852(g)(1)(A) of the Act gives us broad authority to
determine how best to establish the procedures Part C organizations
must follow for processing organization determinations. Furthermore,
section 1852(g)(2)(B) of the Act requires Part C plan reconsiderations
related to medical necessity determinations to be made by physicians
with appropriate expertise in the applicable field of medicine, and
that those physicians be different from a physician involved in the
initial determination. Although Sec. 422.590(g)(2) requires physician
review of adverse organization determinations that involve medical
necessity, we do not specify in this provision or elsewhere in part 422
subpart M who must conduct the initial medical necessity
determinations. Given the language in Sec. 422.590(g)(2), we believe
Congress expected that appropriate health care professionals would
review initial determinations involving medical necessity. Further, by
requiring that all organization determinations and plan
reconsiderations involving medical necessity be reviewed by an
appropriate health care professional with sufficient medical and other
expertise, including knowledge of the Medicare program, enrolled
beneficiaries would be assured of consistent and accurate decisions by
Part C organizations. We propose to modify our requirements in Sec.
422.566 by

[[Page 71226]]

adding a new paragraph (d), which would require organization
determinations that involve medical necessity to be reviewed by a
physician or other appropriate health care professional with sufficient
medical and other expertise, including knowledge of the Medicare
program. We also propose to require the physician or other health care
professional to have a current and unrestricted license to practice
within the scope of his or her profession in a State, Territory,
Commonwealth of the United States (that is, Puerto Rico), or the
District of Columbia.
Consistent with the rationale for requiring organization
determinations that involve medical necessity to be reviewed by a
physician or other appropriate health care professional with sufficient
medical and other expertise, including knowledge of the Medicare
program, and pursuant to our authority under section 1857(e) of the Act
to add additional terms to our contracts with MA organizations as
necessary and appropriate, we also propose to revise Sec. 422.562(a)
by adding paragraph (4), which will require each MA organization to
employ a medical director who is responsible for ensuring the clinical
accuracy of all organization determinations and reconsiderations
regarding medical necessity. Under our proposal, the Medical Director
must be a physician with a current and unrestricted license to practice
medicine in a State, Territory, Commonwealth of the United States (that
is, Puerto Rico), or the District of Columbia. Because the requirement
to employ a medical director will enhance the coordination and
accountability of plan operations and strengthen quality assurance
activities across the organization, we believe that this proposal
strikes the appropriate balance between our interest in ensuring that
plans are properly administering the Part C benefit, and the plans'
interest in minimizing their administrative burden.
Section 1860D-4(g) of the Act requires Part D plan sponsors to meet
the requirements for processing requests for coverage determinations
and redeterminations in the same manner as such requirements apply to
Part C organizations with respect to organization determinations and
reconsiderations. As noted above, we are proposing a requirement that
Part C organizations employ (1) physicians or other appropriate health
care professionals with sufficient medical and other expertise,
including knowledge of the Medicare program, to review organization
determinations involving medical necessity; and (2) a medical director
who is responsible for ensuring the clinical accuracy of all
organization determinations and reconsiderations regarding medical
necessity. Consistent with the proposed changes to the Part C
organization determination process, we propose adding paragraph (d) to
Sec. 423.566, which will require Part D coverage determinations
involving medical necessity to be reviewed by a physician or other
appropriate health care professional with sufficient medical and other
expertise, including knowledge of the Medicare program, and require the
physician or other health care professional to have a current and
unrestricted license to practice within the scope of his or her
profession in a State, Territory, Commonwealth of the United States
(that is, Puerto Rico), or the District of Columbia. Also, we propose
revising Sec. 423.562(a) by adding paragraph (5), which will require
each Part D plan sponsor to employ a Medical Director who is
responsible for ensuring the clinical accuracy of all coverage
determinations and redeterminations that involve medical necessity
issues, and who must be a physician with a current and unrestricted
license to practice medicine in a State, Territory, Commonwealth of the
United States (that is, Puerto Rico), or the District of Columbia. In
addition to being consistent with the proposed changes to the Part C
organization determination process, we believe that the proposed
changes are necessary under Part D to prevent certain issues that have
been discovered while auditing plan sponsors, such as: (1) Preventing
enrollees who were stable on a protected-class drug from accessing that
drug; (2) applying inappropriate prior authorization and step therapy
criteria when adjudicating prescriptions; (3) issuing denials based on
a lack of medically accepted indications when medically accepted
indications were specified in at least one of the applicable compendia;
and (4) failing to provide transition supplies for existing members who
experienced formulary changes across plan years. We believe the
proposed changes to Sec. 423.562(a) and Sec. 423.566 will enhance
Part D plan sponsors' ability to ensure consistent formulary
administration, application of plan coverage rules, and assist in the
early identification and resolution of potential quality concerns.
6. Compliance Officer Training (Sec. 422.503 and Sec. 423.504)
Pursuant to our authority under sections 1860D-4(c)(1)(D) and
1860D-12(b)(3)(C) of the Act which incorporates by reference section
1857(d) of the Act, we propose to clarify that MA organization and Part
D sponsor compliance officers must complete annual MA and/or Part D
compliance training starting in 2013. Organizations applying for the
2013 contract year that are new to the MA or Part D programs must have
their compliance officers obtain training in 2012 to prepare for the
upcoming contract year. We propose adding Sec.
422.503(b)(4)(vi)(B)(1)(i) and (ii) to subpart K and Sec.
423.504(b)(4)(vi)(B)(1)(i) and (ii) to subpart K to reflect this
clarification.
Under Sec. 422.503(b)(4)(vi)(B) and Sec. 423.504(b)(4)(vi)(B), MA
organizations and Part D sponsors (collectively referred to as plan
sponsors) must designate a compliance officer to oversee the day-to-day
operations of the compliance program. We are proposing these training
clarifications because our reviews have found that many MA and Part D
compliance officers lack basic knowledge about the requirements of the
MA and Part D programs. Compliance officers are the individuals whom we
expect to be among the most familiar of any sponsor's executives with
basic program requirements. Our reviews have also found that many
compliance officers do not seem to understand that we expect sponsors
to actively ensure compliance with Medicare program requirements; that
those requirements are distinct from any commercial health or drug plan
benefits they may administer; and that they should not solely rely on
subcontractors or CMS to identify and resolve Part C and D contract
compliance matters for them.
We believe that requiring annual training for compliance officers
will help to address these deficiencies by emphasizing the critical
role of the compliance officer in maintaining and ensuring program
compliance. Our expectations of Medicare plan sponsor compliance
officers are different from what the expectations might be for a
commercial health insurance compliance officer. We expect plan
sponsors' compliance officers to have, at minimum, a basic, working
knowledge of the MA and/or Part D programs and an awareness of the
corresponding operational activities within their organizations.
Program knowledge and operational awareness are necessary skills for a
compliance officer, in addition to being able to implement an effective
compliance program. We rely on the compliance officer to have the
authority and resources needed to foster compliance-oriented
organizational processes and effectuate changes needed to ensure
sustained program

[[Page 71227]]

compliance. We will announce our expectations regarding the content and
hours of annual training required in forthcoming guidance. At this
time, we expect that one to two days of annual Medicare Part C and D
specific compliance training offered by an entity with expertise in MA
and Part D compliance will be sufficient. We are exploring the current
programs available as well as considering offering CMS-sponsored
training.
7. Removing Quality Improvement Projects and Chronic Care Improvement
Programs From CMS Deeming Process (Sec. 422.156)
We have delegated our authority to evaluate whether an MA
organization is in compliance with certain Medicare requirements to
three private accrediting organizations. This evaluation method is
known as ``deeming,'' and is conducted as a part of the audit process.
Currently, an MA organization may be deemed to meet requirements in the
following areas:
Quality improvement.
Confidentiality and accuracy of enrollee records.
Anti-discrimination.
Access to services.
Information on advance directives.
Provider participation rules.
Access to covered drugs.
Drug utilization management, quality assurances measures
and systems, medication therapy management, and a program to control
fraud, waste, and abuse.
Confidentiality and accuracy of enrollee prescription drug
records.
We require all MA organizations to submit their quality improvement
projects (QIPs) and chronic care improvement programs (CCIPs) on an
annual basis. We propose to exclude the QIPs and CCIPs as components of
the deeming process. Removing the QIPs and CCIPs from the deeming
process avoids redundancy and reduces the burden for the MA
organizations. Further, this process provides for improved consistency
in the evaluation and assessment of the QIPs and CCIPS. Improved
consistency in the assessment of the QIPs and CCIPs is important as
these elements may be incorporated into future plan ratings. The QIPs
and CCIPs will be reviewed and evaluated by CMS or an appropriate CMS
contractor. Therefore, we propose to amend Sec. 422.156 to specify
that the deeming process should focus on evaluating and assessing the
overall quality improvement (QI) program, but that QIPs and CCIPs will
be excluded from the deeming process.
8. Definitions of Employment-Based Retiree Health Coverage and Group
Health Plan for MA Employer/Union-Only Group Waiver Plans (Sec.
422.106)
As provided under section 1857(i) of the Act and as codified at
Sec. 422.106(d), we may waive or modify requirements that hinder the
design of, the offering of, or the enrollment in, an MA plan offered by
one or more employers, labor organizations, or combination thereof, or
that is offered, sponsored, or administered by an entity on behalf of
one or more employers or labor organizations, to furnish benefits to
the employers' employees, former employees (or combination thereof) or
members or former members (or combination thereof) of the labor
organizations. The purpose of this authority is to facilitate the
offering of MA plans under contracts between MA organizations and
employers, labor organizations, or the trustees of a fund established
by one or more employers or labor organizations (or combination
thereof). Following implementation of the Medicare Modernization Act
(MMA), similar authority was established with respect to Part D
sponsors in relation to employment-based retiree health coverage at
section 1860D-22(b) of the Act. In addition, unlike the original
authority established for employment-based retiree health coverage
under the MA program at section 1857(i) of the Act, section 1860D-22(c)
of the Act establishes definitions of terms related to this authority,
including of the terms ``employment-based retiree health coverage'' and
``group health plan.'' The definition of ``group health plan'' at
section 1860D-22(c)(3) of the Act refers to the definition of such term
in section 607(1) of the Employee Retirement Income Security Act of
1974 (ERISA).
Since the enactment of the MMA, we have become concerned that MA
organizations have been contracting with entities providing coverage
that, in some instances, cannot properly be characterized as
``employment-based'' group health plan coverage--for example, with
professional or group associations. Examples of existing employer
contracts furnished through an association include a professional trade
association representing employers and its employees within the
builders association; a professional trade association representing new
car and heavy-duty truck dealers; and a professional trade association
representing physicians and medical students. As provided in our
subregulatory guidance on MA employer group/union sponsored group
health plans, Chapter 9 of the Medicare Managed Care Manual (http://www.cms.gov/manuals/downloads/mc86c09.pdf ), entitled ``Employer/Union
Sponsored Group Health Plans,'' we restrict employer/union group health
plan enrollment in EGWPs and individual MA plans to beneficiaries who
are Medicare eligibles of an employer/union sponsored group health
plan. Thus, a beneficiary's enrollment in one of these MA plans must be
based on receiving ``employment-based'' health coverage from an
employer/union group health plan sponsor that has entered into a
contractual arrangement with an MA organization to provide coverage or
that has contracted directly with CMS to provide coverage for its
Medicare eligibles. In that guidance, we also note that coverage
obtained through a professional or other type of group association
would not make a beneficiary eligible for these kinds of plans, except
to the extent that the coverage obtained through the association can
properly be characterized as ``employment-based'' group health plan
coverage. We are aware that some MA organizations have contracted with
professional or group associations and offered coverage via EGWPs to
individuals who are members, but not employees, of such associations.
While there is no reference to the ERISA definition of group health
plan in section 1857(i) of the Act, we believe Congress did not
envision granting access to EGWP waivers based on membership in an
association or any entity that did not meet the definition of a group
health plan, as defined under ERISA.
In order to provide clarification with respect to our requirements
for offering employment-based retiree health coverage via an MA plan,
we propose to codify--under the general authority provided at section
1857(i) of the Act--definitions of the terms ``employer-sponsored group
MA plan, ``employment-based retiree health coverage,'' and ``group
health plan'' at Sec. 422.106(d)(4) through (6). These proposed
definitions are consistent with those provided for Part D sponsors at
Sec. 423.454 and Sec. 423.882. We also propose to change the
reference to an MA plan at Sec. 422.106(d) to a reference to an
employer-sponsored group MA plan.
We solicit comment on our proposals to revise these definitions.

D. Strengthening Beneficiary Protections

This section includes provisions aimed at strengthening beneficiary
protections under Parts C and D. Some of the proposals affecting both
Parts C

[[Page 71228]]

and D include requiring that MA organizations and Part D sponsors must
provide interpreters for all non-English speaking and limited English
proficient callers, and periodically disclose to each beneficiary
specific data for enrollees to use to compare utilization and out-of-
pocket costs in the current plan year to the following plan year.
Changes affecting Part C include our proposal to extend the
mandatory maximum out-of-pocket (MOOP) amount requirements to regional
PPOs, and prohibit the use of tiered cost sharing by MA organizations.
Under Part D, we address the delivery of adverse coverage
determinations.
In the area of Parts C and D marketing, proposals include requiring
MA organizations' and Part D sponsors' agents and brokers to receive
training and testing via a CMS endorsed or approved training program
and extending the annual training and testing requirements to all
agents and brokers marketing and selling Medicare products.
This information is detailed in Table 5.
[GRAPHIC] [TIFF OMITTED] TP22NO10.004

1. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
a. CMS Approved or Endorsed Agent and Broker Training and Testing
(Sec. 422.2274 and Sec. 423.2274)
Section 1851(h)(2) of the Act requires us to establish marketing
standards for Medicare Advantage organizations. Section 1860D-
1(b)(1)(B)(vi) of the Act requires that we ensure that beneficiaries
are not misled or provided inaccurate information by Part D sponsors.
Additionally, section 1851(j)(2)(E) of the Act provides the Secretary
the authority to establish limitations with respect to agent and broker
training. Section 1860D-4(l)(2) of the Act applies the same
requirements with respect to sales and marketing activities to Part D
sponsors.
Our current regulations at Sec. 422.2274(b) and (c) and Sec.
423.2264(b) and (c), require MA plans and Part D sponsors to ensure
agents selling Medicare products are trained and tested annually on
Medicare rules and regulations specific to the plan products they
intend to sell. Since the training and testing requirements were
implemented following the enactment of MIPPA, MA organizations, and
Part D sponsors conducted training and testing largely on their own or
through third party vendors. We have reviewed some training programs
upon request by third party vendors, but we do not routinely review MA
organization, Part D sponsor, or third party vendor training programs
to ensure their comprehensiveness or accuracy.
To develop a uniform understanding of the Medicare program
requirements and further ensure beneficiary protection, we launched a
pilot online training and testing module on July 31, 2009 for the CY
2010 marketing season. Twenty-six MA organizations and Part D sponsors
volunteered to participate in the pilot, and about 3,700 agents and
brokers were trained and tested. About 85 percent of trained agents and
brokers passed the certification exam.
Based on our experience with the pilot, we have concluded that we
should move toward greater standardization of agent and broker training
and testing. We believe that it is in the best interest of
beneficiaries who are educated about Medicare health plan options by
plan agents and brokers that those agents and brokers be consistently
and thoroughly trained on the fundamentals of Medicare regulations.
More specifically, we believe that MA organizations' and Part D
sponsors' agents and brokers not only should be annually trained and
tested on Medicare rules and regulations specific to the products they
intend to sell, as currently provided under Sec. 422.2274(b) and (c)
and Sec. 423.2274(b) and (c), but that the training and testing
vehicles MA organizations and Part D sponsors use meet our minimum
standards.
To that end, we are proposing to revise Sec. 422.2274(b) and (c)
and Sec. 423.2274(b) and (c) to require MA organizations' and Part D
sponsors' agents and brokers to receive training and testing via a CMS-
endorsed or approved training program. Following implementation of this
proposal, we

[[Page 71229]]

would review and endorse or approve one or more entities to provide
Medicare agents and brokers with their annual testing and training. We
would review and approve or endorse proposed training programs for
comprehensiveness and consistency with marketing rules and policies. We
are considering implementing this requirement through a request for
proposal (RFP) competitive process; however, we seek comments and
suggestions about alternatives to using the RFP competitive process. We
note that these proposed new requirements would also be applicable to
section 1876 cost contract plans, since in our April 15, 2010 final
rule (75 FR 19784 through 19785), we extended the Part 422 requirements
regarding MA marketing to section 1876 cost contract plans by cross-
referencing the MA marketing requirements at Sec. 417.428.
We believe this proposed change would ensure that agents and
brokers selling Medicare products have a comprehensive and consistent
base of understanding of Medicare rules and would eliminate the
duplication of training and testing requirements for agents and brokers
who contract with multiple plans.
b. Extending Annual Training Requirements to All Agents and Brokers
(Sec. 422.2274 and Sec. 423.2274)
In addition to the proposed changes specified above to require that
MA organization and Part D sponsor training and testing programs be CMS
endorsed or approved, we propose a correction to our current
regulations at Sec. 422.2274(b) and (c) and Sec. 423.2264(b) and (c),
which require MA plans and Part D sponsors to ensure agents selling
Medicare products are trained and tested annually on Medicare rules and
regulations specific to the plan products they intend to sell. In our
November 2008 interim final rule implementing the MIPPA agent/broker
requirements (73 FR 67413), we inadvertently made a drafting error and
applied the annual agent and broker training and testing requirements
only to independent (such as, non-employee) brokers or agents. Our
intent, which was initially stated in our September 2008 interim final
rule (73 FR 54239), was to require that all agents and brokers, whether
independent or employed by a plan, be subject to our annual training
and testing requirements. We believe it is critical that all agents and
brokers selling Medicare products receive training and testing on
Medicare rules, regulations and the plan-specific products they intend
to sell.
Consistent with our statutory authority at sections 1851(j)(2)(E)
and 1860D-4(l)(2) of the Act, we are proposing to revise Sec. 422.2274
and Sec. 423.2274 to correctly apply these requirements to all agents
and brokers marketing and selling Medicare products. We also note that
these proposed new requirements would be applicable to section 1876
cost contract plans, since in our April 15, 2010 final rule (75 FR
19784 through 19785), we extended the Part 422 requirements regarding
MA marketing to section 1876 cost contract plans by cross-referencing
the MA marketing requirements at Sec. 417.428.
2. Call Center and Internet Web Site Requirements (Sec. 422.111 and
Sec. 423.128)
a. Extension of Customer Call Center and Internet Web Site Requirements
to MA Organizations (Sec. 422.111)
As provided in section 1852(c)(1)of the Act and as codified at
Sec. 422.111(b), MA organizations must disclose in a clear, accurate,
and standardized form to each enrollee, at the time of enrollment and
annually thereafter, detailed information about the MA plans they
offer. Section 1860D-4(a)(1) of the Act provides similar authority for
Part D sponsors, which is codified at Sec. 423.128(b). Section 1860D-
4(a)(3) of the Act provides additional authority to require that Part D
sponsors provide specific plan information on a timely basis to plan
enrollees upon request through a toll-free telephone number, and that
they make available on timely basis through an Internet Web site
information on specific formulary changes under Part D plans. This
authority is codified at Sec. 423.128(d)(1) and Sec. 423.128(d)(2),
which require that Part D sponsors operate a toll-free customer service
that is open during usual business hours and provide such service in
accordance with standard business practices, as well as an Internet Web
site that, at a minimum, provides the information Part D sponsors are
required to provide enrollees at the time of enrollment and annually
thereafter under Sec. 423.128(b).
Although similar call center and Internet Web site requirements
were never codified for MA plans, we have required through
subregulatory guidance (the Medicare Marketing Guidelines at http://www.cms.gov/ManagedCareMarketing/Downloads/R91MCM.pdf) that MA
organizations comply with the same requirements regarding customer
service call centers as Part D sponsors, and--for those offering Part D
benefits through MA-PD plans--all Part D sponsor Internet Web site
requirements.
We believe it is important to clarify that current and prospective
enrollees of MA plans should have the same access to customer service
call centers and information via an Internet Web site as current and
prospective enrollees of a Part D plan in order to obtain more
information about plan coverage and benefits. Furthermore, as a
practical matter, most MA organizations must offer MA-PD plans in order
to offer MA-only plans and are therefore already operating customer
service call centers and Internet Web sites consistent with our
regulatory and subregulatory requirements. Therefore, under our
authority at section 1852(c) of the Act to require that MA
organizations disclose MA plan information upon request, as well as our
authority under section 1857(e) of the Act to specify additional
contractual terms and conditions the Secretary may find necessary and
appropriate, we propose to extend call center and Internet Web site
requirements to MA organizations. Specifically, we propose to amend
Sec. 422.111 by adding a new paragraph (g) to expressly require MA
organizations to operate a toll-free customer call center that is open
during usual business hours and provides customer telephone service in
accordance with standard business practices, as well as to provide
current and prospective enrollees with information via an Internet Web
site and in writing (upon request). We also propose deleting paragraph
Sec. 422.111(f)(12), which requires certain information--including the
evidence of coverage, summary of benefits, and information about
network providers--be posted to an Internet Web site in the event that
an MA organization has a Web site or provides MA plan information
through the internet and move these requirements to Sec.
422.111(g)(2)(i).
b. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
Pursuant to our authority under sections 1852(c)(1) and 1860D-
4(a)(3)(A) of the Act to specify additional contractual terms and
conditions the Secretary may find necessary and appropriate, we propose
to clarify Medicare Part C and D requirements regarding current and
prospective enrollee toll-free customer call centers. Specifically, we
propose clarifying that MA organizations and Part D sponsors must
provide interpreters for all non-English speaking and limited English
proficient (LEP) callers. We propose adding new paragraphs Sec.
422.111(g)(1)(iii) and

[[Page 71230]]

Sec. 423.128(d)(1)(iii), respectively, to reflect this clarification.
This proposed clarification is a result of findings from our call
center monitoring, which revealed that a significant percentage of
Medicare Part C and D sponsors were not providing foreign language
interpreters for non-English speaking callers. For example, only 65
percent of Spanish speaking callers in our monitoring study were
connected with an interpreter, and only 60 percent of Mandarin or
Russian speaking callers were connected with an interpreter. The
results varied widely among plan sponsors of all enrollment sizes. Some
plan sponsors did not provide any interpreters at all. The preamble to
our January 28, 2005 final rule (70 FR 4223) stated, ``Call centers
must be able to accommodate non-English speaking/reading beneficiaries.
Plan sponsors should have appropriate individuals or translation
services available to call center personnel to answer questions that
beneficiaries may have concerning aspects of the drug benefit.''
Subsequently, the August 15, 2005 Medicare Marketing Guidelines
contained this statement from the preamble. When we followed up with
sponsors and discussed the lack of interpreters for LEP callers, many
indicated they were unaware of the requirement to provide interpreters
to LEP callers. This clarification addresses the problem by explicitly
codifying the requirement to provide interpreters for LEP callers in
regulations. The origin of this requirement to serve LEP individuals is
Title VI of the Civil Rights Act of 1964, which, in part, prohibits
discrimination in federal programs based upon national origin.
Additionally, this clarification is consistent with fulfilling the
goals of Executive Order 13166, Improving Access to Services for
Persons with Limited English Proficiency, and with the HHS Secretary's
implementation of the Executive Order as described in the Strategic
Plan for Implementing Access to HHS Programs and Activities by LEP
Persons and the CMS Language Access Plan. Providing interpreters for
LEP beneficiaries is a key component of the CMS Language Access Plan
and helps ensure that beneficiaries have access to all of the
information they need to make appropriate decisions about their health
care. Our rules do not require translation of marketing materials into
all languages; therefore, call center interpreters are a safety net in
geographic areas where only a few beneficiaries are LEP because
interpreters can help answer questions and translate marketing
materials over the phone. Compliance with the Civil Rights Act is
included in plan sponsors' contractual requirements in accordance with
Sec. 422.503(h)(1) and Sec. 423.505(h)(1).
3. Require Plan Sponsors To Contact Beneficiaries To Explain Enrollment
by an Unqualified Agent/Broker (Sec. 422.2272 and Sec. 423.2272)
The regulations implementing section 103 of MIPPA (Sec. 422.2268,
Sec. 422.2272, Sec. 422.2274, Sec. 422.2276, Sec. 423.2268, Sec.
423.2272, Sec. 423.2274, and Sec. 423.2276), included a number of
provisions that prohibited or limited certain sales and marketing
activities by MA organizations and PDPs. Specifically, Sec. 422.2272
and Sec. 423.2272 require plan sponsors that used independent agents
and brokers for their sales and marketing to only use State licensed
and appointed agents or brokers. Under these provisions, plan sponsors
must also report the termination of agents or brokers to the State.
We have become aware through recent audits that when plan sponsors
discover that an unlicensed agent has assisted with an enrollment, they
are not notifying the beneficiary involved that the agent representing
them was unlicensed. Beneficiaries rely heavily on information they
receive from agents regarding plan benefits and costs and should have
the opportunity to ask additional questions or reconsider their
enrollment when they have been enrolled in a plan by an unlicensed
agent. Therefore, we are proposing to revise Sec. 422.2272(c) and
Sec. 423.2272(c) to require that MA organizations and Part D sponsors
must terminate unlicensed agents upon discovery and notify any
beneficiaries who were enrolled in their plans by an unlicensed agent
in order to give them the option of confirming enrollment in the plan
or making a plan change.
We believe that the proposed changes are consistent with the
statute and with the beneficiary protections we specified in our
regulations implementing MIPPA. We also note that these proposed
requirements would be applicable to section 1876 cost contract plans,
since in our April 15, 2010 final rule (75 FR 19784 and 19785), we
extended the Part 422 requirements regarding MA marketing to section
1876 cost contract plans.
4. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
Section 1852(c) of the Act requires MA organizations to disclose a
detailed plan description in a clear, accurate, and standardized form
to each Medicare enrollee in a MA plan offered by the organization. The
plan description is to be provided at the time of enrollment and
annually thereafter and includes items such as service area, premium,
benefits, plan providers and coverage. Additionally, section 1860D-
1(c)(3) of the Act requires Part D sponsors to provide comparative
information to beneficiaries about their qualified prescription drug
benefits, premiums, cost sharing, quality and performance, and results
of consumer satisfaction surveys. Specifically, the Part D plan
description includes items such as service area, benefits, premium,
formulary, network pharmacies, and coverage. These requirements are
codified at Sec. 422.111 and Sec. 423.128 and are implemented through
the annual notice of change (ANOC) and evidence of coverage (EOC)
documents, which must be furnished to all plan enrollees at least 15
days before the annual open election period.
While the ANOC describes plan benefit and cost sharing changes for
the coming year, we are concerned that this information alone may not
be enough to prompt enrollees to actively evaluate their plans annually
with respect to plan costs, benefits, and overall value. In addition,
we have received requests from the beneficiary advocacy community that
MA organizations and Part D sponsors provide enrollees with a
personalized dollar estimate of their out-of-pocket costs in the coming
contract year based on their use of services in the current contract
year. Therefore, in accordance with authority cited above, we propose
to also require MA organizations and Part D sponsors to periodically
provide each enrollee with enrollee specific data to use to compare
utilization and out-of-pocket costs in the current plan year to
projected utilization and out-of-pocket costs for the following plan
year. We propose to add new paragraphs (12) and (11) to Sec.
422.111(b) and Sec. 423.128(b), respectively, to specify this
requirement. Plans would disclose this information to plan enrollees in
each year, in which a minimum enrollment period has been met, in
conjunction with the annual renewal materials (currently the ANOC and
EOC).
We are considering several options for implementing this data
disclosure requirement, and we note that this proposal would only
specify our authority to require such a disclosure. As we contemplate
implementation and model designs moving forward, we seek suggestions
and comments from MA organizations, Part D sponsors, the beneficiary
community, and other external stakeholders related to the design,
content, and the cost calculations to assist us in

[[Page 71231]]

implementing these provisions. In addition, we are considering running
a pilot program for CY 2012 with a few MA organizations and Part D
sponsors to test approaches to conveying customized beneficiary data,
based on the comments and suggestions that we receive.
One option we are considering is a customized statement of the
beneficiary's estimated out-of-pocket costs in the following year based
on utilization of the same health care services as in the prior year.
We recognize that projecting past health care utilization as a
predictor of future use would yield only an estimate of enrollee out-
of-pocket costs. However, we believe that such an estimate, with
appropriate caveats, would illustrate in real dollar terms how the
member's costs are likely to change in the coming year, and what this
means for them. Such a statement would enable plan members to better
understand how the costs of their plan are changing in the upcoming
contract year and what that means for them if they remain in the plan
and use similar services. This customized out-of-pocket cost statement
would supplement general plan information in the ANOC and EOC documents
as well as enhance the currently available information through tools
such as Medicare Options Compare (MOC) and the Medicare Prescription
Drug Plan Finder (MPDPF), which provide general information about plan
costs. For example, the MOC approximates out-of-pocket costs based on
self-selected health status and a national cohort sample of information
calculated using data from the Medicare Current Beneficiary Survey.
MPDPF allows a beneficiary to select certain drugs and calculate annual
out-of-pocket costs, based on their expected use of those drugs. We
intend for any customized out-of-pocket cost statement to provide
personal information to beneficiaries that would help them consider
using other tools and resources, including MOC and MPDPF, to determine
whether to select a new plan. Such a statement would also include
information for accessing these tools.
We are considering several different designs for showing enrollees
how their expenses would change in the following year, in addition to
changes in the maximum out-of-pocket (MOOP) amount and network service
area for the next year (see Tables 6 through 8). Options for
categorizing services that we are considering include the following:
(1) Premium; a summation of cost-sharing for all MA services; all
prescription drug costs; and the total out-of-pocket costs for the
enrollee; (2) premium; MA cost-sharing detailing inpatient care (Part
A), outpatient care (Part B), and supplemental benefits; prescription
drug costs; and total costs; and (3) premium; a more detailed breakdown
of costs for services, including information specifying the top 5
services utilized by each individual enrollee; as well as prescription
drug costs and total costs. We seek comments on the categorizations
described above. We also seek comments on including mandatory and/or
optional supplemental benefits in the document, given their variety for
individual enrollees or plan and impact on the overall premium cost.
Since all MA organizations must currently track utilization and
beneficiary responsibility related to the MOOP and, in some cases,
catastrophic limits, we do not anticipate that they will have
difficulty in determining at least 6 months of actual beneficiary out-
of-pocket cost liability. Since this statement is intended to be
distributed in conjunction with the other renewal materials each fall,
we understand that MA organizations and Part D sponsors will have only
partial year data on beneficiary costs. Moreover, we also understand
that people tend to incur increased utilization of services during the
second half of the year, adding another trending factor to a
calculation of average monthly or yearly cost. Therefore, we also seek
comment as to whether the customized statement of costs should include
six months of actual costs for each category described, an average
monthly cost for each category described, or an estimated yearly cost
for each category. Regardless of the time period, we would require that
any costs be represented as estimates and that the notice clearly
indicate to enrollees the time period on which the estimates are based.
Tables 6 through 8 describe possible types of service categorization,
and each table includes a different option for representing the cost
calculation (average monthly, actual 6 months, and yearly estimated
costs). Dollar figures are for illustrative purposes only and do not
reflect any decision on final document design or any calculation of
actual beneficiary costs.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C
Another, but potentially complementary, option would be to require
a periodic EOB for MA plans, similar to the EOB that Part D sponsors
provide to Part D enrollees. This EOB would include a specific list of
services and the enrollee's utilization and out-of-pocket costs during
a period of time to assist him or her in evaluating their options for
the future. It would be furnished periodically throughout the contract
year and could include current as well as cumulative data on
utilization and costs for that period. It could also present data by
service categories as a percentage of total costs. We also understand
that there would be data collection and timing concerns for plans, and
the frequency of the distribution of the EOB would affect the time
period of the data collected. For example, an annual notice distributed
at the end of the contract year would not arrive in sufficient time for
a beneficiary to make determinations during an enrollment period.
However, a notice furnished just prior to the open enrollment period
could only contain partial year actual data, unless plans use 12 months
of data over two contract years. An EOB as described above could be
used in conjunction with a customized annual out-of-pocket cost
statement to fine-tune an enrollee's search for another plan that might
be a better fit for his or her particular health care needs. We seek
comments and suggestions for implementing an EOB for MA enrollees,
including suggestions for design, calculation of data and frequency of
disclosure to enrollees.
We note that we are considering exempting dual eligible special
needs plans (D-SNPs) from the requirement to provide such customized
enrollee data through a customized out-of-pocket cost statement or an
EOB, since enrollees in these plans generally do not incur out-of-
pocket costs. We seek comment on exempting D-SNPs from this proposed
requirement.
In summary, we seek comments and suggestions regarding our proposal
to add to the current disclosure requirements in Sec. 422.111 and
Sec. 423.128, a new requirement that MA organizations and Part D plan
sponsors periodically disclose to each beneficiary specific data for
enrollees to use to compare utilization and out-of-pocket costs in the
current plan year to utilization and out-of-pocket costs for the
following plan year. Such data would be disclosed to plan members
periodically in conjunction with other annual plan renewal materials
(currently the ANOC and EOC). In addition, we seek comments and
suggestions on the topics discussed above, including the number of
disclosures per year, document design models, categories of services
included, calculation, and presentation of costs, and standardization
of information.
5. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
In our April 15, 2010 final rule (75 FR 19709 through 19711), we
established a new mandatory maximum out-of-pocket (MOOP) requirement
for local MA plans effective contract year 2011. As provided at Sec.
422.100(f)(4), all local MA plans, including HMOs, HMOPOS, local PPO
(LPPO) plans and PFFS plans, must establish an annual MOOP limit on
total enrollee cost sharing liability for Parts A and B services, the
dollar amount of which will be set annually by CMS. As provided at
Sec. 422.100(f)(5), effective for contract year 2011, LPPO plans are
required to have a catastrophic limit inclusive of both in- and out-of-
network cost sharing for all Parts A and B services, the dollar amount
of which also will be set annually by CMS. All cost sharing (that is,
deductibles, coinsurance, and copayments) for Parts A and B services
must be included in plans' MOOPs. In our April 15, 2010 final rule (75
FR 19709 through 19711), we stated that for contract year 2011, we
would implement a mandatory MOOP limit in accordance with the
requirements at Sec. 422.100(f)(4), as well as continue to allow MA
organizations the option of adopting a lower, voluntary MOOP limit. MA
organizations that adopt the lower voluntary MOOP are provided more
flexibility in establishing cost sharing amounts for Parts A and B
services than those that do not elect the voluntary MOOP. However, we
did not include regional PPOs in the mandatory MOOP and catastrophic
limit requirements, as discussed below.
Since implementation of the Medicare Modernization Act of 2003,
RPPOs have been required under section 1858(b)(2) of the Act to
establish a MOOP for in-network cost sharing and a catastrophic limit
inclusive of both in- and out-of-network cost sharing for Parts A and B
services; however, those amounts are currently at the discretion of MA
organizations offering RPPO plans. Because the statutory MOOP
requirement was already in effect with respect to RPPO plans, we
applied the new mandatory MOOP requirement only to local MA plans in
our final rule (75 FR 19711). We stated that for contract year 2011,
RPPOs would continue to be permitted to establish their own in-network
MOOP and catastrophic limits without a maximum limit set by CMS, but we
encouraged them to adopt either the mandatory or voluntary MOOPs
established in CMS guidance. We stated that, to the extent an RPPO sets
its MOOP and catastrophic limits above the mandatory amounts set by CMS
for other plan types, it may be subject to additional CMS review of its
proposed Parts A and B services cost sharing amounts. However, we also
stated that, while we believe RPPOs should be subject to the same
requirements with respect to a MOOP as local PPO plans, we would
address this discrepancy in future notice-and comment rulemaking, since
our proposed rule did not give MA organizations offering RPPOs an
opportunity to comment on such a proposal. We have concluded that, in
order to make it easier for beneficiaries to understand and compare MA
plans, RPPO plans should also be subject to the mandatory maximum MOOP
requirements that currently apply to

[[Page 71234]]

local PPO plans. Therefore, we propose to extend the mandatory MOOP and
catastrophic limit requirements to RPPO plans. Each RPPO plan would
establish an annual MOOP limit on total enrollee cost sharing liability
for Parts A and B services, the dollar amount of which would be set
annually by CMS. All cost sharing (that is, deductibles, coinsurance,
and copayments) for Parts A and B services would be included in RPPO
plans' MOOPs. We propose to codify this requirement by revising Sec.
422.100(f) (CMS review and approval of MA benefits and associated cost
sharing), in paragraphs (f)(4) and (5) to include regional MA plans. In
addition, we propose to revise paragraphs (d)(2) and (d)(3) of Sec.
422.101(d) (Special cost-sharing rules for MA regional plans), to
specify that the catastrophic limits set by RPPOs may not be greater
than the annual limit set by CMS.
6. Prohibition on Use of Tiered Cost Sharing by MA Organizations (Sec.
422.262)
As provided in section 1854(c) of the Act and implemented at Sec.
422.100(d)(2), an MA organization offering an MA plan must offer it to
all Medicare beneficiaries residing in the service area of the MA plan
at a uniform premium, with uniform benefits and levels of cost sharing
throughout the plan's service area, or segment of the service area, as
provided at Sec. 422.262(c)(2). In spite of this regulatory guidance,
we have become aware that an increasing number of plans are charging
beneficiaries different amounts of cost sharing for services depending
on, for example, which provider group the beneficiary selects, the
plan's network of hospitals, or how frequently the beneficiary uses
selected services.
Program experience has demonstrated that differential, or
``tiered,'' cost sharing is simply not transparent and can be deceptive
and misleading in terms of the cost to beneficiaries. We do not believe
it is consistent with the intent of the uniformity requirement in
section 1854(c) of the Act for MA organizations to impose such
differential benefit cost sharing, or to differentially design in-
network health care benefits, network access, or cost sharing for
covered benefits in a manner that is not uniform or transparent to the
beneficiary. We believe that MA organizations should impose uniform
plan care, cost sharing and MA benefits throughout the plan's service
area. Furthermore, we believe that tiered cost sharing in certain
circumstances may deter beneficiaries from seeking care, otherwise
negatively affect beneficiaries who are sicker, or impose greater cost
sharing on beneficiaries who utilize services infrequently.
As a consequence of MA organizations' increasing and inappropriate
imposition of differential or ``tiered'' cost sharing, we have become
increasingly concerned and believe that revisions to the regulations
are warranted. Accordingly, we propose to revise Sec. 422.262 to
stipulate that MA organizations cannot vary the level of cost sharing
for basic or supplemental benefits for any reason, including based on
provider groups, hospital network, or the beneficiary's utilization of
services.
7. Delivery of Adverse Coverage Determinations (Sec. 423.568)
Section 1860D-4(g) of the Act requires Part D plan sponsors to
establish procedures for processing requests for coverage
determinations and redeterminations. Those procedures must apply to
Part D plan sponsors in the same manner as they apply to MA
organizations with respect to organization determinations and
reconsiderations under Part C. Under Sec. 422.568(d), an MA
organization must provide written notice when it makes an unfavorable
standard organization determination.
In accordance with section 1860D-4(g) of the Act, we created a
parallel notice provision for unfavorable Part D standard coverage
determinations in Sec. 423.568(f). Neither Sec. 422.568(d) nor Sec.
423.568(f) allow an MA organization or Part D plan sponsor to make the
initial notice of an adverse standard organization/coverage
determination orally. However, for the reasons noted below, we propose
to revise Sec. 423.568(f) by allowing a Part D plan sponsor to first
provide notice of an adverse standard coverage determination decision
orally, so long as it also provides a written follow-up notice within 3
calendar days of the oral notification.
We believe that the proposed change is necessary because the
timeframe for providing notice of an adverse standard determination is
much shorter under Part D than under Part C. Under Sec. 422.568(a) and
(e), MA organizations provide enrollees with written notice of adverse
standard organization determinations within 14 calendar days, but
pursuant to Sec. 423.568(a) and (c), Part D plan sponsors must provide
written notice of adverse standard coverage determinations within 72
hours. While MA organizations are largely able to meet the 14-calendar
day timeframe for providing written notice of adverse standard
organization determinations, we believe many Part D plan sponsors are
having difficulty providing written notice of adverse standard coverage
determinations within the 72-hour timeframe given the significant
number of coverage determination requests that are auto-forwarded to
the Part D Independent Review Entity (IRE) because decisions were not
issued timely. Thus, we believe plan sponsors need the ability to first
provide oral notice in order to meet the very short 72-hour timeframe.
We also believe the proposed change is consistent with the Part C
organization determination process. An MA organization is required
under Sec. 422.572(a) to make an expedited organization determination
and provide notice of its decision within 72 hours after receiving a
request. Consistent with Sec. 422.572(c), an MA organization may
choose to meet the 72-hour timeframe by providing oral notice of its
decision within 72 hours, so long as it also sends a written follow-up
notice within 3 calendar days after providing oral notice. Given that
MA organizations are permitted under the regulations to meet the 72-
hour timeframe by first providing oral notice and following up with
written notice, we believe giving Part D plan sponsors the same option
when required to provide notice within 72 hours is consistent with the
Part C organization determination process and section 1860D-4(g) of the
Act. Therefore, we propose to revise Sec. 423.568(f) by allowing a
Part D plan sponsor to provide initial notice of an adverse standard
coverage determination decision orally, so long as it also provides a
written follow-up notice within 3 calendar days of the oral notice.
8. Extension of Grace Period for Good Cause and Reinstatement (Sec.
422.74 and Sec. 423.44)
Section 1851(g)(3)(B)(i) of the Act provides that MA plans may
terminate the enrollment of individuals who fail to pay basic and
supplemental premiums after a grace period established by the plan.
Section 1860D-1(b)(1)(B) of the Act generally directs us to use
disenrollment rules for Part D sponsors that are similar to those
established for MA plans under section 1851 of the Act. Consistent with
these sections of the Act, the Part C and D regulations set forth our
requirements with respect to involuntary disenrollment procedures under
Sec. 422.74 and Sec. 423.44, respectively.
Currently, Sec. 422.74(d)(1)(i)(B) specifies that an MA
organization must provide, at minimum, a 2-month grace period before
disenrolling individuals for failure to pay the premium. Similarly,
under current regulations at

[[Page 71235]]

Sec. 423.44(d)(1)(ii), Part D sponsors must also provide a 2-month
minimum grace period before disenrolling individuals for failure to pay
the premium. For both Part C and D, involuntary disenrollments are not
mandatory and, thus, organizations may choose to implement longer grace
periods or forgo involuntary disenrollments entirely as long as they
apply their policy consistently.
Thus, MA and Part D plans that choose to disenroll beneficiaries
for failure to pay premiums must notify the beneficiary of the
delinquency and provide the beneficiary a period of no less than 2
months in which to resolve the delinquency. The plan must also be able
to demonstrate to us that it has made reasonable efforts to collect the
unpaid premium amounts.
Consistent with the provision for delinquent premium payments for
Supplementary Medical Insurance (Part B of Medicare), we propose to
permit reinstatement of enrollment in an MA or Part D plan for
instances in which the individual was involuntarily disenrolled for
failure to pay plan premiums but had demonstrated good cause for
failing to submit the premium payment timely. We propose that good
cause would be established only when an individual was prevented from
submitting timely payment due to unusual and unavoidable circumstances
beyond his or her control. For example, if an individual failed to pay
plan premiums due to an unexpected and extended hospital stay, we would
encourage a plan to consider reinstatement of the individual's
enrollment on the basis that he or she had good cause for failing to
submit the payment timely. However, we would not expect a plan to find
good cause in instances where an individual's legal guardian or
authorized representative was responsible for making premium payments
but failed to do so in a timely manner. We would hold the beneficiary
accountable for the actions, or inactions, of his or her
representative. We also propose that good cause would not exist if the
only basis for requesting reinstatement was a change in the
individual's circumstances subsequent to the involuntary disenrollment
resulting in his or her ability to pay the premiums.
Examples of circumstances that may establish good cause include,
but are not limited to, the following: (1) Serious illness, such that
the illness prevented the enrollee from making payment or contacting
the plan by telephone, in writing, or through a friend, relative, or
other person; (2) a government employee, government contractor (for
example, 1-800-MEDICARE representative), or plan representative gave
the enrollee incorrect or incomplete information about when premium
payments were due and how to make payments; (3) the enrollee did not
receive premium billing statements and/or delinquency notices due to an
error on the part of the plan or the U.S. Post Office; or (4) premium
payments were sent, or requested by the enrollee to be sent, but were
not received by the plan due to an error on the part of the U.S. Post
Office or the enrollee's financial institution.
Since a beneficiary who is disenrolled from an MA or Part D plan
for failure to pay premiums is not eligible for a special enrollment
period, the beneficiary's only opportunity to enroll in another plan is
during the annual election period in the fall. As a result, these
beneficiaries may lose their prescription drug coverage for the
remainder of the year, and may incur a late enrollment penalty if they
subsequently choose to re-enroll in Part D. Therefore, we are proposing
to amend the regulations at Sec. 422.74(d)(1) and Sec. 423.44(d)(1)
regarding disenrollment for non-payment of premiums to allow for the
reinstatement of enrollment for good cause subsequent to an involuntary
disenrollment associated with the failure to pay premiums within the
grace period. A reinstatement of enrollment would remove the
involuntary disenrollment from the enrollment record, resulting in
continuous coverage as if the disenrollment never occurred. Further,
before such reinstatement could occur, we would require an individual
to pay in full all premium arrearages on which the disenrollment was
based, as well as all other premiums that would have been due since the
disenrollment. Consistent with the provision for delinquent premium
payments for Supplementary Medical Insurance (Part B of Medicare), the
disenrolled individual would have a maximum of 3 months from the
disenrollment date in which to request the good cause reinstatement and
resolve all premium delinquencies.
9. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
Pursuant to our authority under sections 1851(d)(2)(C), 1860D-1(c),
and 1860D-4(a) of the Act, we propose to clarify MA and Part D
requirements for marketing materials in markets with a significant non-
English speaking population or large percentage of limited English
proficient (LEP) individuals. We propose to clarify that plan sponsors
must provide translated marketing materials in any language that is
spoken by more than 10 percent of the general population in a plan
benefit package (PBP) service area. We propose revising Sec.
422.2264(e) of Subpart V and Sec. 423.2264(e) of Subpart V to reflect
this clarification.
The proposed clarification codifies existing guidance regarding
translated marketing materials. We are codifying this guidance as a
result of frequent complaints to CMS from beneficiaries and advocacy
organizations that revealed plan sponsors were not providing translated
marketing materials upon request in languages spoken by more than 10
percent of the general population of a particular PBP service area. The
August 15, 2005 version of the Medicare Marketing Guidelines and every
version thereafter, included language stating, ``Organizations/plan
sponsors should make marketing materials available in any language that
is the primary language of more than 10 percent of a plan's geographic
service area.'' Nevertheless, plan sponsors have indicated they were
uncertain whether translating marketing materials were required. For
example, plan sponsors we talked to were confused whether the 10
percent threshold applied to a specific age group (for example, only
those 65+, which does not take into account younger beneficiaries who
are Medicare-eligible based on disability). Other plan sponsors assumed
they did not have to conduct a language analysis for their plan because
they were not aware of any LEP enrollees in their plans. This
clarification addresses the problem by explicitly codifying the
requirement to translate marketing materials for LEP individuals. The
origin of the requirement to provide translated materials is derived
from Title VI of the Civil Rights Act of 1964, which prohibits
discrimination in federal programs based upon national origin.
Compliance with the Civil Rights Act is included in plan sponsors'
contractual requirements under Sec. 422.503(h)(1)and Sec.
423.505(h)(1). Additionally, this clarification is consistent with
fulfilling the goals of Executive Order 13166, Improving Access to
Services for Persons with Limited English Proficiency, and with the HHS
Secretary's implementation of the Executive Order as described in the
Strategic Plan for Implementing Access to HHS Programs and Activities
by LEP Persons and the CMS Language Access Plan. Providing translated
materials for LEP beneficiaries is a key component of the CMS Language
Access Plan and helps ensure that beneficiaries have

[[Page 71236]]

access to all of the information they need to make appropriate
decisions about their health care.

E. Strengthening Our Ability To Distinguish for Approval Stronger
Applicants for Part C and Part D Program Participation and To Remove
Consistently Poor Performers

This section addresses a number of proposals designed to strengthen
our ability to approve strong applicants and remove poor performers in
the Part C and D programs. Since the implementation of revisions to the
MA and initial implementation of the prescription drug programs in
January 2006 as a result of the MMA, we have steadily enhanced our
ability to measure MA organization and PDP sponsor performance through
efforts such as the analysis of data provided routinely by sponsors and
by our contractors, regular review of beneficiary complaints, marketing
surveillance activities, and routine audits. This information, combined
with feedback we have received from beneficiary satisfaction surveys,
HEDIS data, and information from MA organizations and PDP sponsors
themselves, has enabled us to develop a clearer sense of what
constitutes a successful Medicare organization capable of providing
quality Part C and D services to beneficiaries. This information has
also allowed us to identify and take appropriate action against
organizations that are not meeting program requirements and not meeting
the needs of beneficiaries.
As our understanding of Part C and D program operations has
deepened since implementation of the MMA, our use of our authority to
determine which organizations are qualified to offer MA and PDP sponsor
contracts, evaluate their compliance with Part C and D requirements,
and make determinations concerning intermediate sanctions, contract
nonrenewals and contract terminations has evolved as well. The changes
we propose below will further allow us to make these determinations
more effectively. These provisions are described in detail in Table 9.
[GRAPHIC] [TIFF OMITTED] TP22NO10.007

1. Expand Network Adequacy Requirements to Additional MA Plan Types
(Sec. 422.112)
In our April 15, 2010 final rule (75 FR 19678 through 19826), we
established criteria that Medicare Advantage (MA) coordinated care
(CCP) plans and Private Fee-for-Service (PFFS) plans must meet so that
we can ensure that the network availability and accessibility
requirements specified in section 1852(d)(1) of the Act are met. We
focused on specifying benchmarks in community patterns of health care
delivery that we would use to evaluate any proposed MA plan health care
delivery networks. As provided under Sec. 422.112(a)(10) these
benchmarks include, but are not limited to--
The number and geographical distribution of eligible
health care providers available to potentially contract with an MA
organization to furnish plan-covered services in the proposed area of
the MA plans;
The prevailing market conditions in the service area of
the MA plan--specifically, the number and distribution of health care
providers contracting with other health care plans (both commercial and
Medicare) operating in the service area of the plan;
Whether the service area is comprised of rural or urban
areas or some combination of the two;
Whether the MA plan's proposed provider network meets
Medicare time and distance standards for member access to health care
providers including specialties; and
Other factors that we determine to be relevant in setting
a standard for an acceptable health care delivery network in a
particular service area.
As noted in our April 15, 2010 final rule, our operational
experience has demonstrated that community patterns of health care
delivery provide useful benchmarks for measuring a proposed provider
network, permitting varying geographical and regional conditions to be
taken into consideration when determining ``reasonable'' access in a
given area. Our final rule provides a detailed discussion of our
proposal and the response to public comments on the factors making up
community patterns

[[Page 71237]]

of care that we established as benchmarks for evaluating proposed MA
plan health care delivery networks.
We did not include MA MSAs in the regulation proposal initially
because MSA plans historically have not had networks and enrollees in a
MSA plan thus were able to may see any provider. However, MSA plans are
not prohibited from having networks as long as enrollee access is not
restricted to network providers. While there are currently no Medicare
MSA network plans, we are aware of possible interest in offering such
plans. As a result, we want to ensure that any MA plan that meets
Medicare access and availability requirements through direct
contracting network providers does so consistent with the requirements
at Sec. 422.112(a)(10). Therefore, we are proposing to apply the
network adequacy standards at Sec. 422.112(a)(10) to all MA plans that
meet Medicare access and availability requirements through direct
contracting network providers, including MSAs, should MSAs choose to
develop contracted networks of providers. This proposed change would
put all MA plans with contracted networks, and their enrollees, on a
level playing field with respect to network access.
2. Maintaining a Fiscally Sound Operation (Sec. 422.2, Sec. 422.504,
Sec. 423.4, and Sec. 423.505)
Sections 1857(d)(4)(A)(i) and 1860D-12(b)(3)(C) of the Act
establish requirements for MA organizations and PDP sponsors to report
financial information demonstrating that the organization has a
fiscally sound operation. This reporting requirement is separate from
the requirement that MA organizations and PDP sponsors must be
organized and licensed under State law as a risk-bearing entity
eligible to offer health insurance or health benefits coverage in each
State in which it offers a Medicare product.
The authority to license an MA organization or PDP sponsor and set
solvency standards rests with the State licensing authority (sections
1856(b)(3) and 1860D-12(g) of the Act). Sections 1855(a)(3) and 1860D-
12(e) of the Act, however, establish that licensure does not substitute
for or constitute certification. Specifically, licensure does not deem
the organization to meet other requirements imposed on the organization
under Part C or Part D.
Furthermore, sections 1857(d)(2)(B) and 1860D-12(b)(3)(C) of the
Act grant us the authority to audit and inspect any books and records
of the ``* * * organization that pertain (i) to the ability of the
organization to bear the risk of potential financial losses, or (ii) to
services performed or determinations of amounts payable under the
contract.''
The States' oversight and enforcement of financial solvency of MA
organizations and PDP sponsors provides an important protection for
Medicare beneficiaries enrolled in MA and Part D plans. We consult
regularly with state insurance regulators to ensure that sponsoring
organizations are meeting state reserve requirements and solvency
standards required for state licensure, as this is a key component of
the organization or sponsor's contract with CMS. However, we interpret
the requirement for plans to report financial information demonstrating
that the organization has a fiscally sound operation and CMS' authority
to audit and inspect any books and records, as described above, as an
indication that we have an interest in the organization maintaining a
fiscally sound operation and that this interest is separate and apart
from the State licensure requirements for an organization.
We are concerned that some organizations or sponsors may not have a
positive net worth, may be fiscally unsound, and may be therefore
unable or unwilling to expend resources necessary to continue to
provide adequate care and services to their members. However, we have
historically been limited in our ability to take compliance and
enforcement action against an organization solely on the basis of these
financial problems if the organization is still licensed by the state
and is not otherwise out of compliance with CMS requirements. In some
cases, we have been aware that an organization would inevitably lose
its state licensure because of its poor financial condition, but we
were unable to take action to terminate the organization's contract and
ensure that beneficiaries were smoothly transitioned to a new
organization or sponsor, rather than waiting for the state to act. We
believe that an organization's failure to maintain a fiscally sound
operation constitutes a failure to substantially carry out the terms of
its contract with CMS.
Therefore, we are proposing to modify the definitions at Sec.
422.2 and Sec. 423.4 to define a fiscally sound operation as one
which, at the very least, maintains a positive net worth (total assets
exceed total liabilities). In addition, sections 1857(e)(1) and 1860D-
12(b)(3)(D) of the Act afford the Secretary the authority to include
terms and conditions in the contract that are necessary and
appropriate. Thus, we are proposing to add a contract provision at
Sec. 422.504(a) and Sec. 423.505(b)(23), under which the MA
organization or Part D sponsor agrees to maintain a fiscally sound
operation by at least maintaining a positive net worth (total assets
exceed total liabilities).
We believe these changes will ensure that we have the authority to
take the steps necessary to protect beneficiaries enrolled in
organizations or sponsors that encounter financial difficulties.
3. Release of Part C and Part D Payment Data
This proposed rule would allow the Secretary to release Part C and
D summary payment data for research, analysis, and public information
functions. The Secretary believes these data should be made available
because other publicly available data are not, in and of themselves,
sufficient for the studies and operations that researchers want to
undertake to analyze the Medicare program and federal expenditures, and
to inform the public on how their tax dollars are spent.
In keeping with the President's January 21, 2009, Memorandum on
Transparency and Open Government (74 FR 26277), CMS is proposing to
routinely release Part C and Part D payment data. These data would be
routinely released on an annual basis in the year after the year for
which payments were made. The data release would occur after final risk
adjustment reconciliation has been completed for the payment year in
question and, for Part D, after final payment reconciliation of the
various subsidies. Thus, we would release data for payment year 2010 in
the fall of 2011.
This timeframe would not apply to the release of RDS payment data,
since we do not reconcile RDS payment amounts until 15 months following
the end of the plan year. The majority of our sponsors provide retiree
drug coverage on a calendar year basis. If an applicable plan year
ended December 31, 2010, the payment reconciliation would not be due
until March 31, 2012, which would be after the fall 2011 target for
other Part C and D payment data. We propose to release the most current
RDS payment data available at the time Part C and D payment
reconciliation has been completed and those data are compiled and
released.
For Part C, we are proposing the release of payment data summarized
at the plan benefit package level. Specifically, we would release
average per member per month (PMPM) payments for A/B (Medicare covered)
benefits and average PMPM rebate amounts for each MA plan. These
payments and amounts would be standardized to the 1.0 (average risk

[[Page 71238]]

score) beneficiary. Given that we already make Part C enrollment data
publicly available, interested parties could readily calculate gross
Part C payments to MA organizations and for the specific plan benefit
packages offered by these organizations. As part of the annual release,
we would also release the average Part C risk score for each plan
benefit package for the payment year in question. In addition, we would
also release aggregated Part C payment data by county. Specifically, we
would release county-level average PMPM payment amounts for A/B
benefits and average rebate amounts at the MA plan type level (that is,
HMO, PPO, etc.) for each county in which such plan types are
represented.
[GRAPHIC] [TIFF OMITTED] TP22NO10.008

For Part D, we are also proposing the release of payment data
summarized at the plan benefit package level. Specifically, we would
release average per member per month (PMPM) payments for the direct
subsidy, the low-income cost sharing subsidy, and the Federal
reinsurance subsidy. Given that we already make Part D enrollment data
publicly available, with these new data interested parties could
readily calculate gross Part D payments to Part D sponsors and for the
specific plan benefit packages offered by these sponsors. In addition,
as part of the annual release, we would release the average Part D risk
score for each plan benefit package for the payment year in question.

TABLE 12: Part D

[GRAPHIC] [TIFF OMITTED] TP22NO10.009

CMS makes monthly prospective payments to sponsors for providing
prescription drug coverage to Medicare beneficiaries. These payments
are based on estimates that sponsors provide in their approved bids
prior to the beginning of the plan year. CMS makes prospective payments
to sponsors for three subsidies based on sponsors' approved bids. These
subsidies are: (1) The direct subsidy which, together with beneficiary
premiums, is designed to cover the sponsor's cost of providing the
benefit; (2) the reinsurance subsidy, which covers the Federal
Government's share of drug costs for beneficiaries who have reached
catastrophic coverage; and (3) the low-income cost-sharing subsidy,
which covers the Federal Government's portion of the cost-sharing
payments for certain low-income beneficiaries.
After the close of the plan year, CMS must reconcile these
prospective payments with sponsors' actual costs to determine whether
sponsors owe money to Medicare or Medicare owes money to sponsors. In
2007 and 2008 (for Part D plan years 2006 and 2007) CMS published Part
D reconciliation payment data. See, for instance, https://www.cms.gov/MCRAdvPartDEnrolData/Downloads/Part_D_2007_Reconciliation.pdf and
https://www.cms.gov/MCRAdvPartDEnrolData/Downloads2006_Part_D_Payment_Recon.pdf CMS is proposing to resume this disclosure in the
late summer/early fall of 2011, for payment data related to Part D
reconciliation payments/recoveries for CY 2010. These data are
different than the Part D data discussed above since they represent
final end of year adjustments to the prospective payments made to a
Part D plan sponsor based on the difference between the plan's
estimated revenue needs and it's actual revenue needs. The prospective
Part D payment amounts we propose to

[[Page 71239]]

report above are different from the reconciliation data proposed to be
reported here in the sense that these specific reconciliation data
provide a summary of a Part D plan sponsor's ability to accurately
predict Part D costs.
Finally, we are proposing to release retiree drug subsidy (RDS)
data. These data will be released as a dollar amount of the gross
aggregate subsidy amount paid to the eligible sponsors of qualified
retiree prescription drug coverage and the total number of unduplicated
Medicare eligible retirees for each sponsor.
[GRAPHIC] [TIFF OMITTED] TP22NO10.010

We are not proposing to release detailed data that have been
provided to CMS by MA organizations or Part D sponsors as part of their
annual bids. The payment data we will release are quite different than
the bid data plans submit. Furthermore, the gross payment data we are
proposing to disclose cannot be disaggregated to derive the components
of plan bids, nor can it be used to generate meaningful estimates of
any nominally proprietary bid component such as profitability,
administrative load, medical expenses, and projected utilization. By
releasing payment data at an aggregate level, we believe we are
protecting not only the proprietary interests of MA and Part D plan
sponsors, but that we are also protecting the privacy rights of
individual MA plan enrollees.
The differences between bidding data, which MA organizations and
Part D sponsors submit to CMS, and payment data, which CMS computes and
from which it makes payments to plan sponsors, are meaningful and
significant in the context of this proposal for two basic reasons. The
first is that since CMS is not releasing data provided by plan
sponsors, the release of proprietary information provided by plan
sponsors in the course of bidding is not implicated. The second is that
we are releasing payment data in such a way that individual components
of plan bids cannot be derived. We are not providing information in
sufficient detail to allow others to disaggregate the information we
are providing in such a way as to compromise information provided by
plan sponsors in the course of bidding.
Under the Act, the Secretary has the authority to include in MA
organization and Part D sponsor contracts any terms or conditions the
Secretary deems necessary and appropriate. (See section 1857(e)(1) of
the Act and 1860D-12(b)(3)(D) of the Act, which incorporates section
1857(e) into Part D.) Our regulations at Sec. 422.504(j) and Sec.
423.505(j) also permit us to include other terms and conditions in
these contracts that we find necessary and appropriate to implement the
Part C and D programs. Similarly, under Sec. 423.884(c)(3)(i), RDS
sponsors agree to comply with the terms and conditions for eligibility
for a subsidy payment in our regulations and in related CMS guidance.
Accordingly, we propose to amend Part C and Part D contracts (and, in
the case of RDS sponsors, agreements) to include a statement informing
such sponsors that CMS payment data, as discussed in this notice, will
be released as indicated above for research, analysis, and public
information purposes. The purposes underlying such release include
allowing public evaluation of the MA, prescription drug benefit, and
RDS programs, including their effectiveness, and reporting to the
public regarding expenditures and other statistics involving these
programs.
In addition, we believe the availability of the payment data we are
proposing to release would permit potential plan sponsors to better
evaluate their participation in the Part C and D programs, as well as
facilitate the entry into new markets of existing plan sponsors. In
other words, we believe the availability of plan payment data will
enhance the competitive nature of these programs. In knowing the per
member per month payment amounts and other components of plan payment
(plan rebates and risk scores), new business partners might emerge, and
better business decisions might be made by existing partners. As a
result, we believe including a provision in our contracts with plan
sponsors regarding the release of payment information is both necessary
and appropriate for the effective operation of these programs.
We note that because this proposed rule would apply to all Part C
and Part D sponsors, it would apply to any entity offering either Part
C or Part D plans, including MA organizations offering and not offering
prescription drug plans, as well as all Part D drug plan sponsors. It
would also apply to sponsors entitled to federal RDS subsidies.
We solicit comment generally on the public release of Part C and
Part D payment data as outlined above. We also specifically solicit
comment on whether any of the Part C and Part D payment data we propose
to release contain proprietary information, and if they do, what
safeguards might be appropriate to protect those data.
4. Required Use of Electronic Transaction Standards for Multi-
Ingredient Drug Compounds; Payment for Multi-Ingredient Drug Compounds
(Sec. 423.120)
Section 1860D-4(b)(2)(A) of the Act, as codified in Sec.
423.120(c), requires Part D sponsors to issue (and reissue, as
appropriate) a card or other technology that may be used by an enrollee
to assure access to negotiated prices under section 1860D-2(d) of the
Act. Section 1860D-4(b)(2)(B) of the Act requires CMS to provide for
the development, adoption, or recognition of standards relating to a
standardized format for the card or other technology that are
compatible with the HIPAA administrative simplification requirements of
part C of Title XI of the Act and to consult with the NCPDP and other
standard setting organizations, as appropriate. Pursuant to this
authority, we recently added a new paragraph (c)(2) to Sec. 423.120 to
codify existing guidance that Part D sponsors utilize standard
electronic transactions established by 45 CFR 162.1102 for processing
Part D claims (75 FR 19726). We noted that we routinely work with the
NCPDP and industry representatives in arriving at recommendations
relating to the use of the HIPPA standard

[[Page 71240]]

transactions when necessary to improve administration of the Part D
benefit.
The NCPDP Telecommunications Standard Version D.0 (Version D.0) is
an updated version of the HIPAA standard for retail pharmacy drug
claims transactions. Version D.0 was adopted as the HIPAA standard that
must be used by HIPAA covered entities for retail pharmacy drug claims
on and after January 1, 2012. Version D.0 includes a modification from
the current version of the standard to standardize the claims
processing for compounded drugs. Unlike the current version of the
standard, all components of drug compounds will now be reflected on a
pharmacy claim. Since under Sec. 423.120(c)(2) Part D sponsors will be
required to adhere to the new standard, we are undertaking additional
rulemaking in order to provide further guidance to Part D sponsors on
how to appropriately treat compounded products under the Part D
program.
Historically, compounds have filled an important role in pharmacy
practice by providing medically necessary drug therapies that would
otherwise be unavailable to patients. We believe the main use of
compounded products under Part D has been associated with home infusion
therapy. The appropriate role of compounded products is less clear to
us when compounds are used outside of home infusion therapy. With this
proposed rule, it is not our intent to incentivize the use of
compounded drug products as a substitute for FDA approved products.
Under Part D, compounded products as a whole generally do not
satisfy the definition of a Part D drug. Under section 10.4 of Chapter
6 of the Medicare prescription Drug Benefit Manual (http://www.cms.gov/PrescriptionDrugCovContra/Downloads/Chapter6.pdf), CMS clarified that
only those costs associated with those components of a compounded
product that satisfy the definition of a Part D drug are allowable
costs under Part D. Since pharmacy transactions up to this point have
not captured all components of a billed compounded drug, our policy
clarification has generally resulted in Part D plans' paying for the
most expensive Part D drug component in a compound and submitting that
component on the prescription drug event record transmitted to CMS for
Part D payment reconciliation purposes. Generally, our policy guidance
has been limited to clarifying that the dispensing fee may include the
labor costs associated with mixing the compounded product (provided
that at least one component of the compound was a Part D drug) and to
providing guidance on appropriate cost-sharing that may be charged.
With respect to the latter, we have specified that in the case of a
compounded product that contains all generic products, the generic
cost-sharing should be applied. However, if a compounded product
contains any brand name products, the Part D sponsor may apply the
higher brand name cost-sharing to the entire compound. Beyond these
requirements, we have not provided more explicit guidance.
As noted above, the adoption under HIPAA of Version D.0 for retail
pharmacy claims transactions will require the inclusion of individual
components that make up a compounded product. Because, as a result,
plan sponsors will have access to more complete information regarding
the components of a compound, we believe it is appropriate to provide
additional clarification with respect to the treatment under Part D of
compounds in general and with respect to the treatment of compounded
products that include non-Part D drugs in particular.
First, we propose to codify our existing guidance--which will
comprise the general rule--that only compounded products that contain
at least one component that independently meets the definition of a
Part D drug may be covered under Part D. Such compounded products may,
for example, contain all Part D drug components or some Part D
components. Consistent with our current policy, we propose to clarify
that sponsors may cover the Part D components even if the compounded
product as a whole does not satisfy the definition of a Part D drug
(subject to the exception for Part B drug compounds described below).
For purposes of this preamble, these compounds are referred to as
``Part D compounds.'' As specified in our existing guidance, and
consistent with the statute, however, components of a Part D compound
that do not independently meet the definition of Part D drug are not
allowable costs under Part D, so, non-Part D drug components of these
compounds are not covered under Part D.
An exception to our general policy will apply to those compounds
that include a drug component that is covered under Part B. If a
compound includes a Part B drug component, no components of the
compound may be covered under Part D, even if one or more components of
the compound would meet the definition of Part D drug if the component
were dispensed or administered separately. This exception to the
general rule is based both on current Part B payment policy and Section
1860D-2(e)(2)(B) of the Act. Section 1860D-2(e)(2)(B) specifies that a
drug prescribed to a Part D eligible individual cannot be considered a
Part D drug if payment for such drug, as prescribed and dispensed or
administered to the beneficiary, is available under Medicare Part A or
B. In general under Part B, when a compounded product meets the
definition of a drug in section 1861(t)(1) of the Act, fits within a
Part B benefit category, and otherwise meets coverage requirements,
then payment is available for that compounded product. Therefore, in
our view, when a compound that otherwise would be a Part D compound
contains a Part B component that meets the above requirements, the
exclusion of section 1860D-2(e)(2)(B) of the Act applies--in other
words, because payment for such a compound is available under Part B,
the compound as a whole is excluded from Part D. We propose to codify
this exception to the general rule for Part D compounds.
We also propose a requirement that the Part D sponsor make a
determination as to which copayment or coinsurance applies to a Part D
compound. In making this determination, we propose that a flat copay
amount submitted and approved under Sec. 423.104, must represent the
copay of the tier for the most expensive Part D ingredient and a
coinsurance amount, submitted and approved under Sec. 423.104, must be
applied to the cost of all Part D ingredients of the Part D compound.
In either case, we are proposing to applying the cost sharing to the
whole amount of the claim, having selected the cost sharing amount
based on the tier of the most expensive ingredient. In the case of low
income subsidy (LIS) beneficiaries, the cost-sharing amount (either
copayment or coinsurance) is based on whether the most expensive Part D
component is a generic or brand drug (as described under Sec.
423.782). In the case of non-Part D components that could otherwise be
covered under a supplemental benefit for excluded drugs as described
under 423.104(f)(1)(ii)(A), we clarify that the sponsor may not apply
cost-sharing for these covered excluded drug components in addition to
the most expensive Part D components.
An underlying premise of our policy is that if a compound as a
whole is considered by a Part D sponsor to be on-formulary at the time
of adjudication, for the sake of consistency, then all Part D
components of that compound should be considered on-formulary, even if

[[Page 71241]]

individual Part D components would be considered nonformulary as a
single drug claim. Accordingly, we propose that if a Part D compound as
a whole is considered by a Part D sponsor to be on-formulary, the Part
D sponsor must adjudicate the Part D components as formulary drugs.
Alternatively, if a Part D compound as a whole is considered by the
Part D sponsor to be non-formulary, but is later approved for a
beneficiary under a coverage redetermination or appeal, we propose that
the Part D sponsor must apply CMS transition rules such that all Part D
components in the compound are covered in the event of a transition
fill under Sec. 423.120(b)(3) of the compound.
We note that while Part D sponsors may elect to contract with
pharmacies to pay the additional ingredient costs of Part D compounds
that are not Part D drugs and are not reimbursable by the government,
they are not required to do so. Thus, the majority of the compounded
ingredients may not be reimbursable to pharmacies in accordance with
payment terms between sponsors and pharmacies. We propose to clarify
that for a Part D compound otherwise determined to be payable under
Part D, the sponsor may either contract with the pharmacy to pay for
the non-Part D components without charging the beneficiary for these
amounts or reporting these costs to CMS; deny payment to the pharmacy
for any non-Part D components, but allow these components to be balance
billed by the pharmacy to the beneficiary; or deny payment to the
pharmacy for any non-Part D components and prohibit these components
from being balance billed by the pharmacy. In proposing these
requirements, we are considering whether the financial impact of
unreimbursed compound components may deter pharmacies from continuing
to provide compounding services, subsequently affecting beneficiary
access to drugs. We invite comment on whether this policy is
technically feasible at point-of-sale and/or otherwise appropriate.
We note that we will separately issue guidance on the treatment of
PDEs in light of Version D.0. We expect that, consistent with the
treatment of compounds under current guidance, Part D sponsors will
likely continue reporting the National Drug Code (NDC) and quantity
associated with the most expensive Part D ingredient on the PDE.
However, we envision that the total cost will represent the sum of the
individual Part D components that make up the compounded product.
Based on the preceding, we propose to add a new paragraph (d) to
Sec. 423.120 to clarify the aforesaid proposals effective January 1,
2012.
5. Denial of Applications Submitted by Part C and D Sponsors With Less
Than 14 Months Experience Operating their Medicare Contracts (Sec.
422.502 and Sec. 423.503)
Pursuant to Sec. 422.502(b) and Sec. 423.503(b) applicants with
current or prior contracts with CMS are subject to CMS denial of their
applications if they fail during the preceding 14 months to comply with
the requirements of the Part D program even if their applications
otherwise demonstrate that they meet all of the Part D sponsor
qualifications. In the final rule, entitled ``Policy and Technical
Changes to the Medicare Advantage and the Medicare Prescription Drug
Programs'' (75 FR 19678), that appeared in the April 15, 2010 Federal
Register, we modified existing provisions at Sec. 422.502(b) and Sec.
423.503(b) concerning our ability to deny an application for a Part C
or Part D contract or service area expansion based on the applicant's
failure to comply with the requirements of the Part C or Part D program
under any current or prior contract with CMS. The two modifications we
made to the prior language concerned: (1) Revising the language to
refer to ``any current or prior contract'' held by the organization,
instead of the former language referring to a ``previous year's
contract;'' and (2) clarifying that the period that will be examined
for past performance problems will be limited to those identified by us
during the 14 months prior to the date by which organizations must
submit contract qualification applications to CMS.
At this time, we are proposing to further refine our intended
approach to using past performance in making application
determinations. Specifically, we are concerned about entities
submitting applications to us where the entity has operated its
contract(s) with us for less than 14 months at the time it submits a
new application or service area expansion request. Practically
speaking, an entity contracting with us for the first time would have
merely 2 months experience before applications would be due for the
following contract year. Two months is an inadequate amount of time for
the entity to demonstrate its ability to comply with all Part C and/or
Part D requirements.
As such, we are faced with two options--either to assume full
compliance and exempt the entity from the past performance review, or
to deny additional applications from such entities until the applicant
has accumulated 14 months experience during which it complied fully
with the requirements of the Part C and/or Part D programs.
Our interest in protecting Medicare beneficiaries and limiting
program participants to the best performing organizations possible
strongly suggests that we take the latter approach. The practical
effect of denying applications from entities with less than 14 months
experience operating a Medicare contract is that new entrants to the
Part C or Part D programs would not be permitted to expand their
operations (either via a new contract or a service area expansion of an
existing contract) until the beginning of their third year of
experience with CMS. As an example, an entity that submits an
application for its first Part C or Part D contract in February 2010 is
approved and begins delivering Part C or D services on January 1, 2011.
Because 2012 applications would be due in February 2011, when the
applicant has only two months experience with the Part C or Part D
programs, its applications would be denied. The next opportunity to
submit a viable application would be in February 2012 for the 2013
contract year. At that point, the entity would have exactly 14 months
performance history for CMS to consider in making application
determinations.
By making this change, we will ensure that new entrants to the Part
C or Part D program can fully manage their current contracts and books
of business before further expanding. This change will also require
that entities rightfully focus their attention on launching their new
Medicare contracts in a compliant and responsible manner, rather than
focusing attention almost immediately on further expansions.
Therefore, we propose to modify Sec. 422.502(b) and Sec.
423.503(b) by adding additional language at Sec. 422.502(b)(2) and
Sec. 423.503(b)(2) that in the absence of 14 months performance
history, we may deny an application based on a lack of information
available to determine an applicant's capacity to comply with the
requirements of the Part C or Part D program, respectively.

F. Other Clarifications and Technical Changes

We propose seven technical changes in this section, affecting as
noted in Table 14 below, cost contract plans, MA plans, or Part D
plans.

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[GRAPHIC] [TIFF OMITTED] TP22NO10.011

1. Clarification of the Expiration of the Authority To Waive the State
Licensure Requirement for Provider-Sponsored Organizations (Sec.
422.4)
We propose to clarify in this section that we will no longer waive
the state licensure requirement for organizations seeking to offer a
provider-sponsored organization (PSO) because, under section
1855(a)(2)(A) of the Act and Sec. 422.370 of our regulations, we had
the authority to waive the state licensure requirement for PSOs only
for requests for waivers submitted prior to November 1, 2002. While we
currently contract with organizations that have previously met the
conditions for becoming a PSO and will continue to contract with these
organizations, organizations that do not meet state licensure
requirements can no longer offer new PSOs because waiver of state
licensure laws is necessary in order to offer a PSO.
Section 1851(a)(2)(A) of the Act allows for the participation of a
PSO in the MA program as a coordinated care plan. A PSO is defined in
section 1855(d) of the Act and codified in Sec. 422.350 as a public or
private entity that--
Is established or organized, and operated, by a provider
or group of affiliated providers;
Provides a substantial proportion (as defined in Sec.
422.352) of the health care services under the MA contract directly
through the provider or affiliated group of providers; and
When it is a group, is composed of affiliated providers
who share, directly or indirectly, substantial financial risk, as
determined under Sec. 422.356, for the provision of services that are
the obligation of the PSO under the MA contract, and have at least a
majority financial interest in the PSO.
As provided under Sec. 422.352, an organization is considered a
PSO for purposes of a MA contract if the organization--
Has obtained a waiver of State licensure as provided for
under Sec. 422.370;
Meets the definition of a PSO set forth in Sec. 422.350
and other applicable requirements of this subpart; and
Is effectively controlled by the provider or, in the case
of a group, by one or more of the affiliated providers that established
and operate the PSO.
Section 1855(a)(1) of the Act requires that MA organizations be
licensed as risk-bearing entities under the laws of the state, but
section 1855(a)(2)(A) of the Act establishes an exception to this
requirement by allowing PSOs to obtain a Federal waiver of the state
licensure requirement from the Secretary under certain circumstances.
Accordingly, we specified in Sec. 422.370 that CMS may waive the state
licensure requirement for PSOs if the organization requests a waiver no
later than November 1, 2002, and we determine there is a basis for a
waiver under Sec. 422.372.
Even though the authority to waive the state licensure requirement
for PSOs expired on November 1, 2002, and we have not granted waivers
of state licensure requirements since that time, we are taking the
opportunity to clarify this policy in this proposed rule because of
questions we have received. Accordingly, we propose to revise paragraph
(a) of Sec. 422.4 to clarify that we no longer have the authority to
waive the state licensure requirement for PSOs.
2. Cost Plan Enrollment Mechanisms (Sec. 417.430)
As part of the enrollment process, Sec. 417.430 requires that
application forms be submitted to an HMO or CMP and must include a
beneficiary's signature. The organization must provide the beneficiary
with written notice of acceptance or rejection of the application. We
are proposing changes to Sec. 417.430(a)(1) that would allow us to
approve other enrollment mechanisms for cost plans in addition to paper
forms, such as electronic enrollment.
We are also proposing to streamline Sec. 417.430(b)(3) and Sec.
417.430(b)(4)(i) to allow for notice delivery options other than the
traditional mailing of documents. These proposed changes take into
consideration the advancement of communication technology and comport
with revisions we made with respect to the MA program under Sec.
422.50(a)(5) and Sec. 422.60(e).

[[Page 71243]]

3. Fast-Track Appeals of Service Terminations to Independent Review
Entities (IREs) (Sec. 422.626)
To correct a typographical error in Sec. 422.626(f)(3), we propose
removing the word ``to'' before the word ``may.''
4. Part D Transition Requirements (Sec. 423.120)
Pursuant to our authority under section 1860D-11(d)(2)(B) of the
Act, we previously codified plan transition policies at Sec.
423.120(b)(3). For enrollees residing in a long-term care (LTC)
facility, a Part D sponsor is required to provide a LTC resident
enrolled in its Part D plan at least a 31 day supply of a prescription
when presenting in the first 90 days of enrollment (unless the
prescription is written for less) with refills provided, if needed, up
to a 93 day supply. As a result of section 3310 of the ACA and the
proposed rule at Sec. 423.154 for dispensing brand-name medications in
increments of 7 days or less, we are proposing to revise the existing
transition policy for LTC facilities to be more consistent with 7 day
or less dispensing. Consistent with our proposed rule that would
require Part D sponsors to require all pharmacies servicing LTC
facilities to dispense no more than a seven-day supply of brand-name
medication when dispensing covered Part D drugs to enrollees who reside
in LTC facilities, with certain exceptions for specific types of drugs
and certain waivers of the requirement for specific types of
pharmacies, we propose revising the transition fill supply from 93 days
to 91 days to accommodate multiple fillings of 7 days or less in the
LTC setting whenever Sec. 423.154 (a) applies to drugs dispensed in 7-
day-or-less supplies. The proposed change to a 91-day supply would
permit exactly 13 weeks of 7-day transition fills. Under this revised
requirement, a Part D sponsor would be required to provide a LTC
resident enrolled in its Part D plan a temporary supply of a
prescription when presenting in the first 90 days of enrollment up to a
91-day supply, with supply increments consistent with Sec. 423.154
(unless the prescription is written for less), with refills provided,
if needed.
We also propose to amend Sec. 423.120(b)(3)(iii) to clarify
transition notice requirements that must be sent to beneficiaries
within 3 business days of adjudication of a temporary fill. Upon review
of the regulatory language, we believe revisions are needed in the case
of multiple dispensing of 7 days or less of a single prescription.
While we continue to believe that written notice must be sent to each
affected enrollees, in the case of a LTC enrollee impacted by the 7-
day-or-less dispensing requirement, we believe that the written notice
should be sent within 3 business days after adjudication of the first
transition fill. Otherwise, we are persuaded based on feedback from the
LTC industry that beneficiaries may be confused when receiving multiple
transition notices within 7 to 10 days of each 7-day or-less
dispensing. We solicit comments on this proposed revision.
Accordingly, based on the preceding, we have proposed revisions to
423.120(b)(3)(iii)(B) and (iv) to be consistent with the proposed
requirements related to dispensing brand-name medications in 7-day-or-
less increments effective January 1, 2012.
5. Revision to Limitation on Charges to Enrollees for Emergency
Department Services (Sec. 422.113)
As provided under section 1852(d)(1) of the Act and codified at
Sec. 422.113(b)(2)(v), MA organizations are financially responsible
for emergency and urgently needed services, with a limit on charges to
enrollees for emergency department services of $50 or what an MA
organization would charge an enrollee if he or she obtained the
services through the MA organization, whichever is less. The limit on
cost sharing at the lesser of $50 or what the plan would charge the
enrollee if he or she obtained the services through the organization
was first included in the regulations at Sec. 422.112(b)(4) in the
June 26, 1998 interim final rule (63 FR 35081) as the cost sharing
limit for emergency services received out-of-network. Subsequently, new
section Sec. 422.113 was added to the regulations in the June 29, 2000
final rule (65 FR 40322) and required that same limit on cost sharing
for emergency services regardless of whether they were received in- or
out-of-network.
We are proposing to revise the regulations to remove the $50 cost
sharing amount for CY 2012 because we believe that it is outdated
considering the increasingly higher costs of emergency care during the
past decade. The relatively low cost-sharing limit for emergency
department services has constrained MA organizations' ability to
control unnecessary use of emergency departments. We believe that we
are in a position to evaluate the cost-sharing limit for emergency care
as part of our annual benefits review process to strike a balance
between reasonable cost-sharing amounts and MA organizations' ability
to appropriately control utilization and costs.
Therefore, we propose revising Sec. 422.113(b)(2)(v) to remove the
$50 amount and replace it with language indicating that we will
evaluate and determine the appropriate enrollee cost-sharing limit for
emergency department services. We would annually evaluate the emergency
department cost sharing limit and inform MA organizations of any
changes to the limit in annual guidance, such as the Call Letter.
6. Clarify Language Related to Submission of a Valid Application (Sec.
422.502 and Sec. 423.503)
Since the enactment of the MMA in 2005, we have adapted our
processes for reviewing applications for qualification for contracts to
operate as Medicare Part C or D sponsoring organizations to accommodate
the timely review of large numbers of applications each year. That
adaptation has included the establishment of strict deadlines for the
initial submission of applications and the resubmission of materials
needed to cure identified deficiencies. We do not review applications
that are submitted after the established deadline, meaning that an
organization that misses the deadline would not receive a Part C or D
sponsor contract for the following benefit year. Because we do not
review such applications, we do not provide a notice of intent to deny
under Sec. 422.502(c)(2) or Sec. 423.503(c)(2), nor is the
organization entitled to a hearing under Sec. 422.660 or Sec.
423.650.
To avoid the consequences of missing the initial submission
deadline, some organizations have submitted applications that we
considered so lacking in required information or correct detail as to
fail to constitute a valid, timely submission. We suspect that in many
instances, these organizations expected to take advantage of our policy
of affording applicants two later opportunities during the review
process (including the 10-day cure period following the issuance of a
notice of intent to deny an application issued under Sec.
422.502(c)(2) and Sec. 423.503(c)(2)) to make their applications
complete by providing information that had been omitted from the
initial submission. We established the submission deadline to ensure
that all organizations had the same amount of time in which to develop
their materials and that the agency could provide each applicant a fair
and timely review of its application. Our adoption of a policy of
strict enforcement of application submission deadlines is entirely
consistent with our regulatory authority, stated at Sec. 422.501(b)
and

[[Page 71244]]

Sec. 423.502(b), to require organizations to submit applications in a
form and manner required by CMS. Organizations that provide
substantially incomplete applications are effectively submitting
``placeholders'' designed to save their eligibility to participate in
the application review process until they can produce all the required
materials. We find this practice to be an abuse of the application
review process that defeats the purpose of the established deadline. As
a result, in the CY 2010 Call Letter, we informed all current and
potential Part C and D organizations that we would not review any
application for contract qualification that amounted to a
``placeholder'' application. We inadvertently stated in the Call Letter
that we would deny such applications pursuant to Sec. 423.503(c),
which could have been interpreted to mean that we were providing an
opportunity for an administrative appeal. This was not our intent as we
do not accept invalid applications, and where there is no valid
application, we have no obligation to issue a notice of intent to deny
or a right to appeal under Sec. 422.660 or Sec. 423.650.
In addition, we believe that confusion about our authority to
enforce the application deadline may be created by the provisions of
Sec. 422.502(c)(2)(i) and Sec. 423.503(c)(2)(i), which state that we
will provide an applicant a notice of intent to deny when the
organization ``has not provided enough information to evaluate the
application.'' We intended this language to afford an organization that
had made a good faith effort to complete a contract qualification
application the opportunity to provide the materials necessary to cure
a discrete application deficiency. It now appears that this language
could provide an unintended protection to an organization that
circumvented our established application deadline by submitting a
``placeholder'' application.
We believe that the language in Sec. 422.502(c)(2)(i) and Sec.
423.503(c)(2)(i), stating that the agency will issue a notice of intent
to deny if CMS finds that the applicant does not appear qualified to
contract as a Part C or D sponsor, combined with the language of Sec.
422.502(c)(2)(ii) and Sec. 423.503(c)(2)(ii) allowing the organization
to ``revise its application to remedy any defects CMS identified'' is
sufficient to authorize us to consider additional curing materials
submitted by a good faith applicant. Therefore, to remove all ambiguity
that may exist concerning our authority to decline to accept or review
substantially incomplete applications, we propose to revise the
provisions of Sec. 422.502(c)(2)(i) and Sec. 423.503(c)(2)(i) to
delete the phrase, ``and/or has not provided enough information to
evaluate the application.''
7. Modifying the Definition of Dispensing Fees (Sec. 423.100)
As stated in our August 3, 2004 proposed rule, MMA does not define
the term ``dispensing fee,'' although the terms ``dispensing fee'' and
``dispense'' appear several times throughout the Act. Because the
statute is ambiguous on the meaning of ``dispensing fee,'' in the
August 3, 2004 proposed rule we offered three options and sought
comments on the proposed definitions. ``Dispensing fees'' as defined in
our final rule, January 28, 2005, distinguished between pharmacies
owned and operated by a Part D plan itself and all other pharmacies.
``Dispensing fees,'' as defined in the final rule issued January
28, 2005, implied that the salaries of pharmacists and other pharmacy
workers were reasonable pharmacy costs only for pharmacies owned and
operated by a Part D plan itself. We propose to clarify that the
salaries of pharmacists and other pharmacy workers may be reasonable
pharmacy costs for any pharmacy. Consistent with that clarification, we
simplify the definition of ``dispensing fees'' and remove reference to
``pharmacies owned and operated by a Part D plan itself.''
We propose to modify the definition of ``dispensing fee'' under
Sec. 423.100 to include costs associated with the acquisition and
maintenance of technology to maintain reasonable pharmacy costs. We
also propose to add to the definition of ``dispensing fees'' a
restocking fee associated with return for credit and reuse in long-term
care pharmacies when return for credit and reuse is permitted under
state law and is allowed under the contract between the Part D sponsor
and the pharmacy. Although it is not our intent to include all
activities that are ``reasonable costs'' in the definition of
``dispensing fees,'' in light of the statutory requirements regarding
LTC pharmacy dispensing, we believe that it is particularly important
to highlight the potential pharmacy costs aimed at reducing waste and
increasing efficiency of dispensing. We also believe dispensing fees
should differentiate among the costs associated with different
dispensing methodologies and appropriately address costs that are
incurred to offset waste.
We now propose to simplify and clarify the definition of
``dispensing fees'' by modifying Sec. 423.100 and eliminating the
distinction between pharmacies owned and operated by a Part D plan
itself and all other pharmacies. We also propose modifying Sec.
423.100 by adding to the definition that dispensing fees should take
into consideration the number of dispensing events in a billing cycle,
the incremental costs associated with the type of dispensing
methodology, and with respect to Part D drugs dispensed in LTC
facilities, the techniques to minimize the dispensing of drugs that go
unused. Dispensing fees may also take into account restocking fees
associated with return for credit and reuse in long-term care
pharmacies, when return for credit and reuse is permitted under State
law and is allowed under the contract between the Part D sponsor and
the pharmacy.

III. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, 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 Paperwork Reduction Act
of 1995 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 sections of this document contain paperwork burden
but not all of them are subject to the information collection
requirements (ICRs) under the PRA for reasons noted.

A. ICRs Regarding Cost Sharing for Specified Services at Original
Medicare Levels (Sec. 417.101 and Sec. 422.100)

Under proposed Sec. 417.101(g) and Sec. 422.100(g) and (h), we
would clarify that MA organizations may not impose cost sharing that
exceeds that required under Original Medicare. We would evaluate the
following services annually to ensure that MA plans are charging cost
sharing in the upcoming contract year that does not exceed cost sharing
in Original Medicare. Specifically, chemotherapy administration
services that include chemotherapy drugs and radiation therapy integral
to the treatment regimen, renal dialysis as

[[Page 71245]]

defined at section 1881(b)(14)(B) of the Act, and skilled nursing care
defined as services provided during a covered stay in a skilled nursing
facility would be subject to this limitation. The burden associated
with this proposed requirement is the time and effort necessary for MA
organizations and section 1876 cost contracts to submit their benefit
designs, including cost-sharing amounts, via the Plan Benefit Package
(PBP) software. While this proposed requirement is subject to the PRA,
the burden associated with it is currently approved under OMB control
number (OCN) 0938-0763 with a May 31, 2011, expiration date.

B. ICRs Regarding SNP Provisions (Sec. 422.101, Sec. 422.107, and
Sec. 422.152)

1. Dual-Eligible SNP Contracts With State Medicaid Agencies (Sec.
422.107)
Proposed Sec. 422.107(d)(ii) would extend the time allowed for the
continuance of existing SNPs that do not have contracts with the State
Medicaid agencies in which they operate. For new and existing dual
eligible SNPs seeking to expand in contract years 2011 through 2013,
the burden associated with this requirement is the time and effort put
forth by each dual eligible SNP to confer and develop a contract with
the State Medicaid agency. While this requirement is subject to the
PRA, we do not expect the burden to change from the existing burden
estimate, as currently approved, under OCN 0938-0753, with a November
30, 2011, expiration date.
2. ICRs Regarding NCQA Approval of SNPs (Sec. 422.101 and Sec.
422.152)
Proposed Sec. 422.101 and Sec. 422.152 provide for the approval
of all SNPs, existing and new, by the National Commission for Quality
Assurance (NCQA) beginning in 2012. The burden associated with this
requirement is the time and effort put forth by MA organizations
offering SNPs to submit their overall quality improvement (QI) program
and the model of care (MOC) to CMS for NCQA evaluation and approval as
per CMS guidance. Although the submission of the MOC and the QI program
documents is already part of the application process, scrutiny of these
documents by NCQA for approval is a new requirement. Additionally, in
the past all SNPs were not required to complete the SNPs proposal
portion of the application each year, resulting now in all SNPs, (that
is, all of the SNP plans offered by an MA organization) being required
to complete the SNPs proposal within the application and possibly
provide documentation external to the existing electronic application
process. It is estimated that it will take each SNP plan 40 hours to
complete the annual application. Within those 40 hours, the SNP portion
of the burden is 6 hours. For the existing 544 SNPs, the burden
associated with completing the SNP section only is estimated to be
3,264 hours.
The number of new plans each year will vary and cannot easily be
predicted. However, based on the number of new plans that submitted SNP
Proposals during the application period in February 2010 for operation
in 2011, we estimate that approximately 15 new applications will be
submitted annually. Thus, for 15 new plans at 40 hours each, we
estimate the total annual burden hours to be 600. The burden associated
with the proposed requirement for the new plans is currently approved
under OCN 0938-0935 with a January 21, 2011 expiration date.

C. ICRs Regarding Voluntary De Minimis Policy for Subsidy Eligible
Individuals (Sec. 423.34 and Sec. 423.780)

Our proposed regulatory modifications pursuant to section 3303 of
the ACA ensure that our regulations reflect the new statutory
prohibition on reassigning low-income subsidy (LIS) beneficiaries from
Part D plans that waive a de minimis amount of their premium. Further,
the proposed regulatory modifications reflect statutory discretion for
us to autoenroll or reassign LIS beneficiaries to Part D plans that
waive the de minimis amount of the premium. The proposed modifications
to Sec. 423.34 do not by themselves impose any new information
collection requirements on any external entity.
However, related proposals to modify Sec. 423.780 do impose new
information collection requirements. Specifically, the proposed
modifications provide for the process for a Part D plan to volunteer to
waive a de minimis amount over the monthly beneficiary premium for
certain low income subsidy eligible (LIS) individuals. As specified in
proposed changes to Sec. 423.34, we are prohibited from reassigning
LIS beneficiaries from Part D plans that waive the de minimis amount of
the premium based on the fact that their premiums exceed the LIS
benchmark premium amount, and we may choose to autoenroll or reassign
LIS beneficiaries to such plans.
The burden associated with this requirement is the time and effort
necessary for a Part D plan to submit data to us indicating its
decision to volunteer to waive the de minimis amount. Since we will
collect this information as part of an already established system, we
estimate that annually, it will take an additional 10 minutes for plans
to read the instructions, select an online check box, and submit the
information. The de minimis amount will be established each year, and
the amount may vary among years. For purposes of estimating the burden,
we assume that the de minimis amount will be $1.00, and that all Part D
plans with premiums within the de minimis amount over the regional LIS
benchmark will volunteer to waive it. We estimate 150 Part D plans will
qualify for de minimis in a given fiscal year. For 150 plans at 10
minutes each fiscal year, we estimate the total annual burden hours to
be 25. We assume an hourly wage of $23.92 for a compliance officer,
resulting in a total annual labor cost of $598.

D. ICRs Regarding Increase in Part D Premiums Due to the Income Related
Monthly Adjustment Amount (D--IRMAA) (Sec. 423.44)

Proposed Sec. 423.44(e)(4) would require PDPs to provide Part D
enrollees with a notice of termination in a form and manner determined
by CMS. We estimate that approximately 1.05 million of the 29.2 million
Medicare beneficiaries enrolled in the Part D program will exceed the
minimum income threshold amount and will be assessed an income related
monthly adjustment amount. We also estimate that approximately 80,000
beneficiaries will be directly billed for the Part D--IRMAA because
they are not receiving monthly benefit payments from SSA, the Office of
Personnel Management, or the Railroad Retirement Board, or the monthly
benefit payment is not sufficient to have the Part D--IRMAA withheld.
Of the 80,000 Part D enrollees who will be directly billed for the
Part D--IRMAA, CMS cannot estimate how many might accrue Part D--IRMAA
arrearages and be subsequently terminated. However, in the event that
the 80,000 Part D enrollees who pay the Part D--IRMAA through direct
billing become delinquent, PDPs would be required to send all 118,000
enrollees a notice of termination in accordance with Sec.
423.44(e)(4), and the burden associated with this requirement would be
the time and effort that it takes a PDP to populate the notice with a
beneficiary's information. Termination notices are generally automated;
therefore, CMS estimates that it will take 1 minute to generate a
termination notice. As such, the total maximum

[[Page 71246]]

annual hourly burden associated with this requirement is 1,333 hours (1
minute multiplied by 80,000 enrollees, divided by 60 minutes). We
estimate that the hourly wage paid to an individual tasked with
generating the automated letters is $40 (based on U.S. Department of
Labor statistics for hourly wages for administrative support). The
associated burden amount for this work is $53,320. Additionally, Part D
plan sponsors will have to retain a copy of the notice in the
beneficiary's records. We estimate 5 minutes multiplied by 80,000
enrollees divided by 60 minutes. This equates to 6,666 hours at
approximately $40 an hour (based on U.S. Department of Labor statistics
for hourly wages for administrative support). This associated burden
amount is $266,640. We estimate the total maximum annual burden for all
Part D plan sponsors resulting from this proposed provision to be
$319,960.

E. ICRs Regarding Elimination of Medicare Part D Cost-Sharing for
Individuals Receiving Home and Community-Based Services (Sec. 423.772
and Sec. 423.782)

We proposed to amend Sec. 423.772 and Sec. 423.782 in accordance
with section 3309 of the ACA. Specifically, the proposed changes
provide for a definition of an individual receiving home and community
based services, and for zero cost-sharing for Medicare Part D
prescriptions filled by full-benefit dual eligible beneficiaries
receiving such services.
To carry out these provisions, we would require State Medicaid
Agencies to submit data at least monthly identifying these individuals.
There is an already established data exchange for States to identify
their dual eligible individuals to CMS at least monthly. We would
leverage that data exchange by adding a new value for the existing
institutional field, which also prompts CMS to set a zero copayment
liability for full benefit dual eligible beneficiaries. The estimated
size of the population to be reported as being full benefit dual
eligible and receiving home and community-based services is 600,000.
The burden associated with the requirement for States to provide
CMS with the specified information is estimated to include a one-time
development cost as well as ongoing annual costs. The startup
development effort is estimated at 20 hours per State, or an additional
1,020 hours for all 51 State Medicaid Agencies (50 states and the
District of Columbia), in the fiscal year prior to the effective date
of this provision. Assuming an hourly salary of $34.10 for computer
programmers, this results in a development cost of $34,782. Once
implemented, the information collection burden is estimated to be 1
hour each month, or 612 hours in each fiscal year for 51 State Medicaid
Agencies. Assuming an hourly salary of $34.10 for computer programmers,
we estimate an ongoing cost of $20,862 per fiscal year.

F. ICRs Regarding Appropriate Dispensing of Prescription Drugs in Long-
term Care Facilities under PDPs and MA-PD plans (Sec. 423.154) and
Dispensing Fees (Sec. 423.100)

Under Sec. 423.154(a), we propose to implement provisions of
section 3310 of the ACA, which require Part D sponsors to use specific,
uniform dispensing techniques such as weekly, daily, or automated dose
dispensing when dispensing covered Part D drugs to enrollees who reside
in long-term care facilities in order to reduce waste associated with
30-day fills. The collection burden associated with this proposed
provision is the reporting requirement and re-negotiation of contracts.
We are proposing a new requirement under Sec. 423.154(a)(3) for
Part D sponsors to collect and report to CMS the method of dispensing
technique used for each dispensing event described under Sec.
423.154(a). We anticipate a billing standard that incorporates the
collection of this information. While the requirements under this
proposed section are subject to the PRA, should the rule be finalized,
the reporting requirement will be proposed under currently approved OCN
0938-0992.
The proposed requirements will necessitate the renegotiation of
contracts between Part D sponsors and the pharmacies servicing LTC
facilities. We anticipate dispensing fees will increase, consistent
with our proposed change in the definition of dispensing fees (Sec.
423.100), with the relative investment in the dispensing technologies
and corresponding dispensing efficiencies associated with the
dispensing technologies used in Sec. 423.154.
We estimate that the total annual hourly burden for negotiating a
contract between the Part D sponsors and entity contracting with the
pharmacies servicing long-term care facilities (for example, PBM) to be
equal to the number of Part D sponsors (731) multiplied by the average
estimated hours per sponsor (10), equaling 7,310 hours. We estimate the
number of entities contracting with pharmacies servicing long-term care
facilities to be 40 (28 processors and 12 other entities). We estimate
the total annual hourly burden for negotiating a contract between the
entity described above and the pharmacies servicing long-term care
facilities to be the number of entities (40) multiplied by the average
estimated hours per entity (80), which is 3,200 hours. The total number
of hours for contract renegotiation is estimated to be 10,510 hours
(7,310 hours + 3,200 hours). The estimated hourly labor cost for
reporting is $150.20. The total estimated cost associated with these
requirements is $1,578,602. This is a one-time contract negotiation
cost.

G. ICRs Regarding Complaint System for Medicare Advantage Organizations
and PDPs (Sec. 422.504 and Sec. 423.505)

Under proposed Sec. 422.504(a) and Sec. 423.505(b) we would
require MA organization and Part D sponsors to address and resolve all
complaints in the CMS complaint tracking system and to include a link
to the electronic complaint form at http://www.medicare.gov on their
main Web page. This requirement would allow thorough monitoring of
complaints through the tracking system by identifying how plan sponsors
resolve and close complaints and allow members to access complaint
forms electronically on http://www.medicare.gov.
The burden associated with this proposed provision is the time and
effort of the MA organizations and Part D sponsors in recording
complaint closure documentation in the CTM and training staff, as well
as posting and maintaining a link from their Web site to the electronic
complaint form at the Medicare.gov Internet Web site. While this
requirement is subject to the PRA, we believe this burden is exempt as
defined in 5 CFR 1320.3(b)(2). That is, the time, effort, and financial
resources necessary to comply with the requirement would be incurred by
the Part D sponsors in the normal course of their business activities.

H. ICRs Regarding Uniform Exceptions and Appeals Process for
Prescription Drug Plans and MA-PD Plans (Sec. 423.128 and Sec.
423.562)

In accordance with the new section 1860D-4(b)(3)(H) of the Act, we
propose to revise Sec. 423.128 at paragraphs (b)(7) and (d) to
specifically provide three mechanisms that plan sponsors must have in
place in order to meet the uniform appeals requirements of 1860D-
4(b)(3)(H) of the Act.
At Sec. 423.128(b)(7), we proposed adding paragraph (i) to require
that plan sponsors make available standard forms to request coverage
determinations and

[[Page 71247]]

redeterminations (should this be determined feasible and to the extent
that standard request forms have been approved for use by CMS).
We also propose to add paragraph (ii) to Sec. 423.128(b)(7), which
would require sponsors to develop a Web-based electronic interface that
allows an enrollee (or an enrollee's prescriber or representative) to
immediately request a coverage determination or redetermination via a
plan's secure Web site. The interface would be the ``electronic
equivalent'' of the paper coverage determination and appeals forms
proposed at Sec. 423.128(b)(7)(i). Similarly, we propose to revise
Sec. 423.128(d) by requiring sponsors to provide a toll-free telephone
line for requesting coverage determinations and redeterminations. The
burden associated with these proposed requirements involves collecting
the coverage determination request information submitted through the
various proposed processes.
We estimate that all 731 plan sponsors will receive a total of
484,468 coverage determination requests submitted by mail, with some
using the standardized coverage determination request form if
available, and that it will take 10 minutes to enter the information
submitted from each request into a claims processing system, for a
potential total annual burden of 80,745 hours. We also estimate that
all plan sponsors will receive a total of 52,086 coverage determination
requests submitted through secure websites, but that this process will
not create an additional burden for plan sponsors beyond that required
for requests submitted by mail because enrollees will enter information
into a claims processing system themselves. Finally, we estimate that
all plan sponsors will receive a total of 690,064 coverage
determination requests submitted by telephone, and it will take 10
minutes to enter the information submitted by phone into the claims
processing system, for a total annual burden of 115,011 hours. The
burden associated with the redetermination process is exempt under 5
CFR 1320.4(a)(2) because a redetermination is an administrative action
and information collected when conducting an administrative action is
not subject to the PRA.
We also proposed to require Part D sponsors to modify their
electronic transactions to pharmacies so that they can transmit codes
instructing pharmacies to distribute notices at the point-of-sale
(POS). That is, pharmacies and processors will be required to program
their systems to relay the message at the pharmacy to distribute the
appeal notice. In cases when a prescription cannot be filled as
written, Part D sponsors are required under Sec. 423.562(a)(3) to
arrange with their network pharmacies to distribute a pharmacy notice
advising the enrollee of his or her right to contact the plan to
request a coverage determination. We estimate that the burden on
processors will be the programming to send the code or billing response
to the pharmacy, as well as revisions to the contract requirement with
the pharmacy. We estimate that the number of hours for each processor
(28 PBMs and 12 plan organizations) to perform these tasks will be 40
hours per processor, for a total one-time burden of 1,600 hours. The
estimated one-time cost associated with the processor tasks is $64,000
(1600 hours x $40). Each pharmacy will need to program to receive the
code and print the response. Programming by the pharmacies (40 pharmacy
software vendors) in order to receive the code by each pharmacy will be
10 hours, for a total of 400 hours. The estimated one-time cost
associated with the processor tasks is $16,000 (400 hours x $40).
We estimated that the average time to process a coverage
determination is 10 minutes (0.167 hours) and that the average number
of coverage determination requests received by mail or secure Web site
processed for each respondent (n=731) was 734. Requiring plan sponsors
to process the information submitted in standardized coverage
determination requests forms (Sec. 423.128(b)(7)(i)) is, therefore,
estimated to result in an annual burden of 89,605 hours (731 entities x
734 contracts per entity x .167 hours per contract to process). At an
estimated cost of $40.00 per hour, the estimated total annual cost of
this change is $3.2 million. We estimated that processing coverage
determination requests that are received by telephone (Sec.
423.128(d)) will take an average of 10 minutes (0.167 hours) per
request and that entities (n = 731) would process on average 944
coverage determination requests. This is estimated to result in an
annual burden of 115,240 hours (731 entities x 944 determination
requests per entity x 0.167 hours per determination request). At an
estimated cost of $40.00 per hour, the estimated total annual cost of
this change is $4.6 million (115,240 hours x $40.00 per hour). We
estimated that contacting entities (n = 731) would distribute an
average of 2,200 pharmacy notices.
Therefore, requiring plan sponsors to arrange with their network
pharmacies to distribute pharmacy notices at the point-of-sale when
prescriptions cannot be filled as written (Sec. 423.562(a)(3)) is
estimated to result in an annual burden of 53,071 hours (2 minutes or
0.033 hours at point-of-sale x 731 contracts x 2200 pharmacy notices
per contract). At an estimated cost of $40.00 per hour, the estimated
total annual cost of this change is $2.1228 million.

I. ICRs Regarding Including Costs Incurred by AIDS Drug Assistance
Programs and the Indian Health Service Toward the Annual Part D Out-of-
Pocket Threshold (Sec. 423.100 and Sec. 423.464)

Our revised definition of ``incurred cost'' at Sec. 423.100 to
include the costs associated with IHS/ADAPs as a cost that counts
towards TrOOP does not impose new information collection for CMS' COB
contractor or ADAPs. The COB contractor currently collects data-sharing
agreements from ADAPs under the MSP information collection process. The
burden associated with this collection is accounted for under OMB 0938-
0214.

J. ICRs Regarding Improvements to Medication Therapy Management
Programs (Sec. 423.153)

We propose to amend Sec. 423.153(vii) to require the Part D
sponsor use a standardized format for the action plan and summary
resulting from the annual comprehensive medication review, permit the
use of telehealth technology in the conduct of the CMR, and require
sponsors to contract with LTC facilities to utilize independent
consultant pharmacists to perform the targeted medication reviews that
are required at least quarterly.
The burden associated with a number of the new MTM program
requirements in the ACA, including the requirement for a written
summary of the CMR, was summarized in our April 2010 final rule (75 FR
19678 through 19826) and approved under OCN 0938-0964 with an
expiration date of September 30, 2012). We believe the burden
associated with requirement in Sec. 423.153(d)(1)(vii)(D) to provide
an action plan and summary in a standardized format is generally part
of that burden; therefore, no additional burden is estimated. Further,
since the use of telehealth technology to conduct the CMR is permitted
but not required, there is no burden associated with this change.
The proposed rule also requires Part D sponsors to coordinate MTM
program quarterly medication reviews with LTC consultant pharmacist
monitoring for Part D enrollees in LTC facilities. The ICR burden
associated with this requirement is related to developing and

[[Page 71248]]

executing contracts with all the LTC facilities in which Part D
enrollees reside to provide appropriate MTM services in coordination
with LTC consultant pharmacist evaluation and monitoring. Although all
Part D plan sponsors would need to contract with all the LTC facilities
in which their enrollees reside, for purposes of determining the ICR
burden, we assume that the contracts would be negotiated, drafted and
executed by the sponsors' parent organization on behalf of all the
parent's Part D contracts. In the absence of a parent organization, the
sponsor would undertake the contracting activity directly. We expect a
total of 240 parent organizations and sponsors would have a contract
with an average of 802 LTC facilities.
We expect that complying with this requirement would primarily
require the involvement of the parent organization's or the sponsor's
general counsel to negotiate, draft and execute the contract. We
estimate that complying with this requirement would require 4,812
burden hours (6 burden hours x 802 LTC facilities) for each parent
organization or sponsor to execute a contract with a average of 802 LTC
facilities at an estimated cost of $402,957 (4,812 burden hours x
$83.74 estimated hourly cost). Thus, it would require 1,154,880 hours
(4,812 burden hours per parent organization or sponsor x 240 parent
organizations or sponsors with Part D LTC residents) for all Part D
sponsors to comply with this requirement at an estimated cost of
$96,709,680 ($402,957 estimated cost per parent organization or sponsor
x 240 parent organizations or sponsors with Part D LTC residents).
After the first fiscal year, we estimate that continued compliance
with this requirement would require 1,604 burden hours in each fiscal
year (2 hours x 802 LTC facilities) per parent organization or sponsor
general counsel to review the contract and, if necessary, execute
updated contracts with the LTC facilities at an estimated cost of
$134,319 per parent organization or sponsor. Thus, it would require
384,960 burden hours per fiscal year (1,604 annual burden hours per
parent organization or sponsor x 240 parent organizations or sponsors
with Part D LTC residents) for all Part D sponsors with Part D LTC
residents to comply with this requirement at an estimated cost of
$32,236,560 ($134,319 estimated cost per parent organization or sponsor
x 240 parent organizations or sponsors with Part D LTC residents).

K. ICRs Regarding Changes To Close the Part D Coverage Gap (Sec.
423.104 and Sec. 423.884)

Proposed Sec. 423.104(d)(4) would require the approximately 40
pharmacy claims processors currently responsible for adjudication of
pharmacy benefits to identify the applicable Part D covered drugs in
their systems and apply a different cost-sharing percentage when
processed in the coverage gap than the percentage applied to non-
applicable drugs. We estimate a one-time burden to be 12,000 hours per
processor to make the initial coding changes necessary to implement
this requirement and an annual burden of 250 hours per processor to
perform periodic updates of the applicable drugs in their systems.
There are an estimated 40 processors. At an average labor cost of $105
per hour for a senior computer programmer, we estimate the first fiscal
year annual burden associated with this requirement to be 480,000 hours
(12,000 hours x 40 processors) at an estimated total cost of $50.4
million. After the first fiscal year, the estimated burden associated
with this requirement would be 10,000 hours (250 hours x 40 processors)
at an estimated total annual cost of $1,050,000.

L. ICRs Regarding Medicare Advantage Benchmark, Quality Bonus Payments,
and Rebate (Sec. 422.252, Sec. 422.258 and Sec. 422.266)

Under Sec. 422.258(d)(6) we propose to base the 5-star rating
system for quality bonus payments on a modified version of the plan
ratings published each fall on http://www.medicare.gov. The 5 star
rating system for quality bonus payment will require no additional
burden. The data collection for the 5 star rating is currently approved
under the following OCNs.

OCNs Associated With the 5-Star Rating System for Quality Bonus Payments
------------------------------------------------------------------------
OCN Expiration date
------------------------------------------------------------------------
0938-1028........................... November 30, 2011.
0938-0732........................... November 30, 2010.
0938-0701........................... August 31, 2010.
------------------------------------------------------------------------

We have also proposed new calculations for the benchmarks and rebates
in Sec. 422.252, Sec. 422.258, and Sec. 422.266. The burden
associated with the bid data used in these calculations is included in
the burden estimate associated with the Bid Pricing Tool which is
currently approved under OCN 0938-0944 with a May 31, 2011, expiration
date.

M. ICRs Regarding Quality Bonus Appeals Sec. 422.260

We propose to add a new Sec. 422.260 to state that each MA
organization is afforded the right to request an administrative review
of CMS' determination concerning the organization's qualification for a
quality bonus payment. The burden associated with this proposed
provision is the time and effort of the MA organizations in developing
and presenting their case to a CMS official and, ultimately, the CMS
Administrator, to demonstrate that they in fact should qualify for the
quality bonus payment. Eligibility for quality bonus payments will be
based largely on CMS' application of a publicized methodology for
assigning star ratings to MA organizations. These star ratings will be
calculated using a combination of the MA organization's performance
scores across a variety of quality assessment measures. MA
organizations will have the opportunity to challenge CMS' application
of the methodology to their performance.
We estimate that the total hourly burden in a fiscal year for
developing and presenting a case to us for review is equal to the
number of organizations likely to request an appeal multiplied by the
number of hours for the attorneys of each appealing MA organization to
research, draft, and submit their arguments to CMS. Based on the star
rating distributions of previous contract years, out of the
approximately 350 MA contracts that are subject to star rating analysis
(that is, those not excluded from analysis because of low enrollment,
contract type not required to report data, or new contract with no
performance history), approximately 250 may receive less than a four-
star rating. We estimate that 10 percent of those contracts (25) will
request an appeal of their rating under the proposed rule. We further
estimate that one attorney working for 8 hours could complete the
documentation to be submitted to CMS for each contract, resulting in a
total burden estimate of 200 hours (8 hours x 25 contracts = 200
hours). The estimated fiscal year cost to MA organizations associated
with this provision (assuming an attorney billing rate of $250 per
hour) is $50,000 (200 hours x $250).

N. ICRs Regarding Timely Transfer of Data and Files When CMS Terminates
a Contract With a Part D Sponsor (Sec. 423.509)

We propose to amend Sec. 423.509 to state when CMS terminates a
contract with a Part D plan sponsor, the Part D plan sponsor must
ensure the timely

[[Page 71249]]

transfer of any data or files. Our intent is to ensure that terminated
Part D plan sponsors transfer to CMS the necessary data to provide a
smooth transition for beneficiaries into a new Part D plan similar to
when the Part D sponsor terminates the contract or CMS and the Part D
plan sponsor mutually terminate the contract. The burden associated
with this proposed provision is the time and effort that Part D plan
sponsors must undertake to transfer the requisite data and files to
CMS. We have not developed a burden estimate for this requirement
because we do not believe that we will exceed the PRA threshold of 9
organizations per any 12-month period.

O. ICRs Regarding Compliance Officer Training (Sec. 422.503 and Sec.
423.504)

The proposed Sec. 422.503(b)(4)(vi)(B)(1)(b) and Sec.
423.504(b)(4)(vi)(B)(1)(b) regarding compliance officer training will
clarify existing requirements by providing additional guidance with
respect to the particular training requirements. The burden associated
with this requirement is the time and effort put forth by the plan
sponsor to train a compliance officer to meet the existing training
requirements of this section. The proposed clarification is related
only to the content and timing of the existing training requirement.
While these requirements are subject to the PRA, the burden associated
with them is currently approved under OCN 0938-1000 with an expiration
date of February 28, 2010.

P. ICRs Regarding Agent and Broker Training Requirements (Sec.
422.2274 and Sec. 423.2274)

Proposed Sec. 422.2274(b) and (c) and Sec. 423.2274(b) and (c)
would require MA organizations' and Part D sponsors' agents and brokers
to receive training and testing via a CMS endorsed or approved training
program. We are considering implementing this requirement through a
Request for Proposal (RFP) competitive process. The burden associated
with this requirement is the time and effort put forth by plan sponsors
and/or third party vendors to submit their proposals for CMS review. We
estimate that about 12 entities (plan sponsors and/or third party
vendors) will submit a proposal and the average estimated hours per
entity to complete the proposal is 100 hours. The total estimated
hourly burden associated with this requirement is equal to the
estimated number of entities (12) multiplied by the estimated hours per
entity (100) resulting in a total of 1200 hours. We estimate the hourly
labor cost for the preparer of the proposal will be $59.20 (based on
hourly wages for management analysts reported by the U.S. Department of
Labor Bureau of Labor Statistics). The total annual labor cost of this
proposal preparation is estimated to be $71,040 ($59.20 x 1200 hours)
per fiscal year.
Also at Sec. 422.2274 and Sec. 423.2274, we propose to clarify
that the annual agent and broker training requirements apply to all
agents and brokers selling Medicare products and not just independent
agents and brokers. The burden associated with this requirement is the
time and effort put forth by the MA organization or Part D sponsor to
ensure all agents and brokers selling Medicare products are trained and
tested training annually. While this requirement is subject to the PRA,
we burden is exempt as defined in 5 CFR 1320.3(b)(2). The time, effort,
and financial resources necessary to comply with the requirement would
be incurred by persons in the normal course of their business
activities.

Q. ICRs Regarding Call Center and Internet Web Site Requirements (Sec.
422.111 and Sec. 423.128)

We propose in Sec. 422.111(g)(1)(2)(3) to require MA organizations
to operate a toll-free customer call center that is open during usual
business hours and provides customer telephone service in accordance
with standard business practices, as well as to provide current and
prospective enrollees with information via an Internet Web site and in
writing (upon request). We propose in Sec. 422.111(g)(1)(iii) and
Sec. 423.128(d)(1)(iii) to codify provisions from the Medicare
Marketing Guidelines (August 15, 2005 version and all subsequent
versions) that require plan sponsors to provide call center
interpreters for non-English and limited English proficient (LEP)
beneficiaries. The burden associated with this proposed requirement is
the time and effort necessary to maintain a customer call center and
Internet Web site, to provide information to beneficiaries in writing
upon request, and to provide call center interpreters. While this
requirement is subject to the PRA, we believe this burden is exempt as
defined in 5 CFR 1320.3(b)(2). The time, effort, and financial
resources necessary to comply with the requirement would be incurred by
persons in the normal course of their business activities.

R. ICRs Regarding Requiring Plan Sponsors To Contact Beneficiaries To
Explain Enrollment by an Unqualified Agent/Broker (Sec. 422.2272 and
Sec. 423.2272)

Proposed Sec. 422.2272(e) and Sec. 423.2272(e) would require MA
organizations and Part D sponsors, respectively, to notify Medicare
beneficiaries upon discovery that they were enrolled in a plan by an
unqualified agent. While this requirement is subject to the PRA, we
burden is exempt as defined in 5 CFR 1320.3(b)(2). The time, effort,
and financial resources necessary to comply with the requirement would
be incurred by persons in the normal course of their business
activities.

S. ICRs Regarding Customized Enrollee Data (Sec. 422.111 and Sec.
423.128)

Proposed Sec. 422.111(b)(11) and Sec. 423.128(b)(12) would
require MA organizations and PDP sponsors to periodically provide each
enrollee with enrollee specific data to use to compare utilization and
out-of-pocket costs in the current plan year to projected utilization
and out-of-pocket costs for the following plan year. Plans would
disclose this information to plan enrollees in each year in which a
minimum enrollment period has been met, in conjunction with the annual
renewal materials (currently the ANOC and EOC).
Plan sponsors already collect enrollee utilization and cost-sharing
information as part of their claims processing operations. Therefore,
the burden associated with this proposed requirement is the time and
effort necessary for a plan sponsor to complete program development and
testing, and to disclose (print and mail) this information to each
beneficiary. We anticipate that it would take 30 hours per MA
organization and 20 hours per Part D sponsor to develop and submit the
required information. This includes 2 hours for reading CMS' published
instructions, 20 hours per MA organization and 10 hours per Part D
sponsor generating the document or documents, and 8 hours printing and
disclosing to beneficiary. We developed this burden estimate using our
burden estimates for the ANOC/EOC documents under OCN 0928-1051 as a
baseline, then expanding on that baseline, and factoring in expected
programming and development costs to provide beneficiary specific
information. We estimate 564 MA organizations and 85 Part D sponsors
would be affected annually by this requirement. The total annual burden
associated with this requirement is 18,620 hours in a fiscal

[[Page 71250]]

year. In subsequent years, the burden associated with this proposed
requirement is the time and effort necessary for a plan sponsor to
disclose (print and mail) this information to each beneficiary. We
anticipate that it would take 20 hours per MA organization and 15 hours
per Part D sponsor to develop and submit the required information. This
includes 1 hour for reading CMS' published instructions, 10 hours per
MA organization and 5 hours per Part D sponsor generating the document
or documents, and 6 hours printing and disclosing to beneficiary. We
estimate 564 MA organizations and 85 Part D sponsors would be affected
annually by this requirement. The total annual burden associated with
this requirement is 12,555 hours in a fiscal year (20 hours for each of
the 564 MA organizations + 15 hours for each of the 85 Part D
sponsors).

T. ICRs Regarding Extending the Mandatory Maximum Out-of-Pocket (MOOP)
Amount Requirements to Regional PPOs (Sec. 422.100(f) and Sec.
422.101(d))

We propose at Sec. 422.100(f) and Sec. 422.101(d) to extend the
mandatory MOOP and catastrophic limit requirements to RPPO plans. Each
RPPO plan would establish an annual MOOP limit on total enrollee cost
sharing liability for Parts A and B services, the dollar amount of
which would be set annually by CMS. All cost sharing (that is,
deductibles, coinsurance, and copayments) for Parts A and B services
would be included in RPPO plans' MOOPs. Our proposal would not result
in an additional data collection burden for RPPOs since they already
collect this data to establish their own in-network MOOP and
catastrophic limits under Sec. 422.101(d)(4). While this requirement
is subject to the PRA, the burden is exempt as defined in 5 CFR
1320.3(b)(2). The time, effort, and financial resources necessary to
comply with the requirement would be incurred by persons in the normal
course of their business activities.

U. ICRs Regarding Prohibition on Use of Tiered Cost Sharing by MA
Organizations (Sec. 422.100 and Sec. 422.262)

Under our proposed revision to Sec. 422.262, we would clarify that
MA organizations may not impose cost sharing that varies across
enrollees for any reason, including provider group, hospital network or
enrollees' utilization of services. The burden associated with this
proposed revision is the time and effort necessary for MA organizations
and section 1876 cost contracts to submit their benefit designs,
including cost-sharing amounts, via the Plan Benefit Package (PBP)
software. While this proposed requirement is subject to the PRA, the
burden associated with it is currently approved under OCN 0938-0763
with a May 31, 2011 expiration date.

V. ICRs Regarding Translated Marketing Materials (Sec. 422.2264 and
Sec. 423.2264)

This proposed clarification at Sec. 422.2264(e) and Sec.
423.2264(e) does not impose any additional burden upon MA organizations
because they have been required to provide translated marketing
materials pursuant to Sec. 422.2264(e) and Sec. 423.2264(e)
(previously numbered Sec. 422.80(c)(5) and Sec. 423.50(d)(5)). We
believe the burden associated with these proposed requirements is
exempt from the requirements of the Paperwork Reduction Act of 1995
(PRA) as defined in 5 CFR 1320.3(b)(2) because the time, effort, and
financial resources necessary to comply with the requirement would be
incurred by persons in the normal course of their activities.

W. ICRs Regarding Expanding Network Adequacy Requirements to Additional
MA Plan Types (Sec. 422.112)

Our proposed amendment to Sec. 422.112(a)(10) would ensure that
any MA plan that meets Medicare access and availability requirements
through direct contracting network providers does so consistent with
the requirements at Sec. 422.112(a)(10). We did not include MA MSAs in
Sec. 422.112(a)(10) because MSA plans historically have not had
networks and enrollees in MSA plans may see any provider. However, MSA
plans are not prohibited from having networks as long as enrollee
access is not restricted to network providers. While there are
currently no MA MSA network plans, we are aware of possible interest in
offering such plans.
The burden associated with this requirement is the time and effort
required by MA organizations to submit network adequacy data to CMS for
review and approval as part of the application process. This burden is
already accounted for under OCN 0938-0935. However, since this proposal
would extend the current network adequacy requirements only to Medicare
MSA plans and there is currently only one Medicare MSA contract (which
does not use a network of providers), we believe that fewer than 10
applications would be subject to this proposed requirement in each
fiscal year.

X. ICRs Regarding Maintaining a Fiscally Sound Operation (Sec. 422.2,
Sec. 422.504, Sec. 423.4, and Sec. 423.505)

Proposed Sec. 422.504(a) and Sec. 423.505(b) would add a contract
term under which an MA organization or PDP sponsor agrees to maintain a
fiscally sound operation by at least maintaining a positive net worth.
A determination of whether there is a positive net worth will be made
from the financial reports submitted under the current financial
reporting requirements. The burden associated with this proposed
requirement is the time and effort necessary to submit these financial
reports. While this proposed requirement is subject to the PRA, the
associated burden is currently approved under OCN 0938-0469 with an
expiration date of April 30, 2013.

Y. ICRs Regarding Release of Part C and Part D Payment Data (Parts 422
and 423, Subpart K)

This proposed rule would allow the Secretary to release Part C and
D summary payment data for research, analysis, and public information
functions. The Secretary believes these data should be made available
because other publicly available data are not, in and of themselves,
sufficient for the studies and operations that researchers want to
undertake to analyze the Medicare program and Federal expenditures, and
to inform the public on how their tax dollars are spent.
These data would be routinely released on an annual basis in the
year after the year for which payments were made. The data release
would occur after final risk adjustment reconciliation has been
completed for the payment year in question and, for Part D, after final
payment reconciliation of the various subsidies. Thus, we would release
data for payment year 2010 in the fall of 2011. This timeframe would
not apply to the release of RDS data, since we do not reconcile RDS
payment amounts until 15 months following the end of the plan year. The
majority of our sponsors provide retiree drug coverage on a yearly
basis. If an application plan year ended December 31, 2010, the payment
reconciliation is not due until March 31, 2012, which would be after
the fall 2011 target for other Part C and D payment data. We proposed
to release the most current RDS payment data available at the time Part
C and D payment reconciliation has been completed and those data are
compiled and released.
Since we are not seeking additional information from MA
organizations or from Part D sponsors, there are no PRA

[[Page 71251]]

implications. Payment data are quite different than the bid data plans
submit and for which we have existing OMB authority for collection (OCN
0938-0944). The gross payment data we are proposing to disclose are not
derived from information plans submitted to us, but rather are compiled
and derived solely from CMS internal payment files.

Z. ICRs Regarding Revision to Limitation on Charges to Enrollees for
Emergency Department Services (Sec. 422.113)

We are proposing at Sec. 422.113(b)(2)(v) to eliminate the current
$50 cost-sharing limit on emergency department services and, instead,
to require CMS to evaluate and determine the appropriate enrollee cost
sharing limit for emergency department services on an annual basis. The
burden associated with this proposed requirement is the time and effort
necessary to for MA organizations to submit their benefit designs,
including cost-sharing amounts, via the Plan Benefit Package (PBP)
software. While this proposed requirement is subject to the PRA, the
associated burden is currently approved under OCN 0938-0763 with an
expiration date of May 31, 2011.
BILLING CODE 4120-01-P

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[[Page 71253]]

[GRAPHIC] [TIFF OMITTED] TP22NO10.013

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BILLING CODE 4120-01-C

V. Regulatory Impact Analysis

A. Overall Impact

We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, section 202 of the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C.
804(2)).
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).
The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
governmental jurisdictions. The great majority of hospitals and most
other health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the SBA definition of a
small business (having revenues of less than $7.0 million to $34.5
million in any 1 year). Individuals and States are not included in the
definition of a small entity.
MA organizations and Part D sponsors, the entities that will
largely be affected by the provisions of this rule, are not generally
considered small business entities. They must follow minimum enrollment
requirements (5,000 in urban areas and 1,500 in nonurban areas) and
because of the revenue from such enrollments, these entities are
generally above the revenue threshold required for analysis under the
RFA. While a very small rural plan could fall below the threshold, we
do not believe that there are more than a handful of such plans. A
fraction of MA organizations and sponsors are considered small
businesses because of their non-profit status. HHS uses as its measure
of significant economic impact on a substantial number of small
entities, a change in revenue of more than 3 to 5 percent. We do not
believe that this threshold would be reached by the proposed
requirements in this proposed rule because this proposed rule will have
minimal impact on small entities. Therefore, an analysis for the RFA
will not be prepared because the Secretary has determined that this
proposed rule will not have a significant impact on a substantial
number of small entities.
In addition, section 1102(b) of the Act requires us to prepare an
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 the Secretary has 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 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year by
State, local, or tribal governments, in the aggregate, or by the
private sector of $100 million in 1995 dollars, updated annually for
inflation. In 2010, that threshold is approximately $135 million. This
proposed rule is expected to reach this spending threshold.
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. Based on CMS Office of the Actuary estimates, we do not
believe that this proposed rule imposes substantial direct requirement
costs on State and local governments, preempts State law, or otherwise
has Federalism implications. We note that we have estimated that our
proposal to eliminate, pursuant to section 3309 of the ACA, Medicare
Part D cost-sharing for full-benefit dual eligible individuals
receiving home and community based services at Sec. 423.772 and Sec.
423.782 will have a very small cost impact on States resulting from the
need to identify eligible individuals and provide data to CMS. As
discussed elsewhere in this RIA, we estimate the annual cost associated
with the requirement for States to provide CMS with this data to be
$34,782 in the first year and $20,869 for subsequent years.
The CMS Office of the Actuary has estimated savings and costs to
the Federal government as a result of various provisions of this
proposed rule. As detailed in Table 17, we expect savings to the
Federal government of approximately $83.75 billion for fiscal years
(FYs) 2011 through 2016 as a result of the implementation of the
following provisions:

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

------------------------------------------------------------------------
Payment Changes Related to MA $76.47 billion.
benchmarks, Quality Bonus Payments,
Rebates, and Application of Coding
Adjustment.
Increase in Part D premiums Due to $4.77 billion.
Income Related Monthly Adjustment
Amount (D--IRMAA).
Appropriate Dispensing of $2.33 billion.
Prescription Drugs in Long-term Care
Facilities under PDPs and MA-PD
plans and Dispensing Fees.
Elimination of the Stabilization Fund $181 million.
------------------------------------------------------------------------

In Table 16, we present Federal transfers, as well as total costs
to the States, Part D sponsors, MA organizations, and other private
sector entities, in the aggregate, as a result of various provisions of
this proposed rule. As detailed in Table 16, we expect costs of
approximately $5.57 billion for FYs 2011 through 2016 as a result of
the implementation of various additional provisions of this proposed
rule. Following are the provisions with the most significant costs
(that is, costs greater than $100 million between FY 2011 and FY 2016)
in this proposed rule:

[[Page 71255]]

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

------------------------------------------------------------------------
Changes to Close the Part D Coverage $3.67 billion.
Gap.
Determination of Part D Low-Income $770 million.
Benchmark Premium.
Including Costs Incurred by AIDS Drug $460 million.
Assistance Programs (ADAPs) and the
Indian Health Service (IHS) Toward
the Annual Part D Out-of-Pocket
Threshold.
Voluntary De Minimis Policy for $170 million.
Subsidy Eligible Individuals.
Cost-Sharing for Medicare Covered $148 million.
Preventive Services.
------------------------------------------------------------------------

Tables 17, 18, and 19 detail the breakdown of costs by cost-bearing
entity. Specifically, Table 17 describes costs and savings to the
Federal government, Table 18 describes estimated administrative costs
to MA organizations and/or PDP sponsors and third party entities, and
Table 19 describes costs to States.
Taking into account both costs and savings estimated in this RIA,
we estimate a net savings of $78.18 billion as a result of the
provisions in this proposed rule over FYs 2011 to 2016. Therefore, this
proposed rule is ''economically significant'' as measured by the $100
million threshold, and is a major rule under the Congressional Review
Act. Accordingly, we have prepared an RIA that details anticipated
effects (costs, savings, and expected benefits), and alternatives
considered by proposed requirement. For collection of information
burden associated with our proposed requirements and the bases for our
estimates, refer to of the collection of information section of this
proposed rule.

B. Anticipated Effects Associated With This Proposed Rule

1. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.101 and Sec. 422.100)
We estimate that our proposed implementation of section 3202 of the
ACA will result in minimal additional program costs. In addition to our
proposal to implement the ACA-required limits on cost sharing in MA
plans for chemotherapy services, renal dialysis services, and skilled
nursing facility care, we also are proposing to require the same cost
sharing limits for in-network home health services provided under MA
plans. We estimate that the Federal fiscal year 2012 (FY 2012) costs to
Medicare of limiting cost sharing in MA plans for the three service
categories specified in the ACA (that is, chemotherapy services, renal
dialysis, and skilled nursing facility care) will be zero because we
already require plans to charge in-network cost sharing for these three
service categories that reflects, or is equivalent to, cost sharing
under Original Medicare. In fact, we believe that Congressional intent
was to require that CMS maintain the limits on in-network cost sharing
that we had already implemented for SNF care, renal dialysis services,
and Part B chemotherapy services. Thus, we expect that there will be no
effect on plans or beneficiaries as a result of our proposed
implementation of the cost sharing limits specified in section 3202 of
the ACA.
We estimate that the cost of our proposal to also limit MA plan
cost sharing for in-network home health services so that it does not
exceed that required under Original Medicare will not be significant.
Cost sharing for home health services under Original Medicare is zero.
In previous years, we have allowed increased flexibility in benefit
package design for MA plans that establish a maximum out-of-pocket
limit on beneficiary cost sharing for Parts A and B services (for
example, $3,400 or less for contract year 2010). As a result, in
contract year 2010, of the 2535 MA plans, 167 charged some beneficiary
cost sharing (usually $15) for home health services. Those plans
enrolled less than 4 percent of all MA enrollees. Given that, on
average, home health visits account for less than 5 percent of total MA
expenditures, only a small share (about 0.2 percent) of MA expenditures
will be subject to the home health cost sharing prohibition.
For two reasons, we believe that the proposed home health policy
will have a negligible impact on MA plans. First, as mentioned above,
only a small share of expenditures will be subject to the cost sharing
prohibition so that any increase in plan costs related to this
provision can be absorbed through modest increases in cost sharing for
other services, administrative efficiencies, and/or small increases in
the plan premium. Also, as evidenced by the large proportion of plan
enrollees not subject to home health cost sharing in contract year
2010, MA organizations should be able to adequately manage the use of
home health services absent enrollee cost sharing.
To estimate the cost to the MA program for the loss of beneficiary
cost sharing for home health services, we assumed that the enrolled
beneficiaries' utilization of home health services is lower than that
of the Medicare population in general due to the required copayment,
and used $15 as the estimated copayment amount. Approximately 9 percent
of Original Medicare beneficiaries use home health services, and the
average number of visits per user is 37, resulting in 3.3 visits per
beneficiary per year. We assume that utilization of home health
services by enrollees in the MA plans that charge cost sharing is one-
third of that for beneficiaries under Original Medicare, or 1.1 visits
per MA enrollee. The resulting FY 2012 estimated cost to the MA program
is $6.8 million, which is derived using the assumptions of $15
copayment for the 1.1 visits per beneficiary for the 414,000 MA
enrollees subject to in-network home health cost sharing in contract
year 2010. However, we estimate that the impact of having to provide
home health services without cost sharing would be minimal because we
expect that the costs would be reallocated across other plan benefits.
We believe that the affected plans would accomplish that reallocation
without affecting their actuarial equivalence relative to Original
Medicare and that there would be no impact on these MA plans for FY
2012. Consequently, because we estimate that there would be only minor
reallocation of the costs and zero impact on MA plans for FY 2012, we
estimate zero impact for MA plans in all subsequent years.
2. Approval of SNPs by NCQA (Sec. 422.4, Sec. 422.101, and Sec.
422.152)
The burden associated with this requirement is the time and effort
put forth by MA organizations offering SNPs to submit their overall
quality improvement (QI) program and the model of care (MOC) to CMS for
NCQA evaluation and approval as per CMS guidance. Although the
submission of the MOC and the QI program documents is already part of
the application process, scrutiny of these documents by NCQA for
approval is a new requirement. This requirement is for all SNPs, new
and existing. We estimate that it will take each SNP plan 40 hours to
complete the annual application. Within, those 40 hours, we estimate
the SNP portion of the burden is 6 hours. Currently, there are 544
existing SNP plans. For the existing plans to complete the SNP sections
only, the burden associated with this new requirement is 3,264 hours.

[[Page 71256]]

The estimated costs associated with the burden hours are summarized
in Tables 16 through 18. The costs in Table 17 reflect the contract
award to NCQA for $1 million and a contract award at the level of
$500,000 for years 2012 to 2016. The additional costs incurred in this
table are for the Federal salaries for two GS-13 step 10 analysts and a
GS-15 manager. Table 18 contains the projected administrative costs to
the SNPs for preparing the SNP sections of the application. These costs
are primarily labor costs for staff employed by the plans to complete
the required materials. The salaries are proposed equivalent to that of
one GS-13 step-10 analyst at a salary of $55.46 an hour.
3. Determination of Part D Low-Income Benchmark Premium (Sec. 423.780)
Beginning in 2011, section 1860D-14(b)(3)(B)(iii) of the Act
requires CMS to calculate the LIS benchmarks using basic Part D
premiums before the application of Part C rebates each year. This
proposed rule would update our regulations at Sec.
423.780(b)(2)(ii)(C) to codify this provision. This provision will
decrease the number of reassignments of low-income beneficiaries from
plans that are above the low-income benchmark because it will increase
the benchmark, thereby producing more zero-premium plans. We believe
this proposal will lead to additional costs to the Federal government
of approximately $90 million for FY 2011. The estimated cost to the
Federal government between FY 2011 and FY 2016 is $770 million. The
year-by-year impacts in millions of dollars are shown in Tables 16
through 18. Table 17 shows that the bulk of this total cost is due to
increased Federal premium subsidy payments, which are the result of
generally increasing the low-income benchmarks. The higher benchmarks
allow a greater number of low-income beneficiaries to remain in their
current plan, rather than reassigning them to a lower cost plan. In
each region, the low-income benchmark essentially functions as a
ceiling for the Federal premium subsidy for low-income beneficiaries.
That is, the Federal premium subsidy covers the full cost of the plan's
basic Part D premium for a full-subsidy beneficiary, up to the low-
income benchmark amount.
This approach maintains a strong incentive to bid low to keep and
possibly add LIS beneficiaries. Absent the provision, there may be a
``winner take all'' outcome in certain regions with one organization
acquiring all of the LIS beneficiaries in the region. It is difficult
to predict what will happen in the absence of this provision, but we
expect some organizations will be induced to bid even lower, while
other organizations will give up on this population and bid higher.
We expect this rule will reduce the administrative costs for plan
sponsors associated with the reassignment of LIS beneficiaries. These
costs include the production of new member informational materials by
the new plan, increased staffing of call centers to field beneficiary
questions, and costs associated with implementing transition benefits
for new enrollees. The cost estimate for the LIS benchmark methodology
change in Table 16 does not include a projection for administrative
savings.
4. Voluntary De Minimis Policy for Subsidy Eligible Individuals (Sec.
423.34 and Sec. 423.780)
The proposed new voluntary de minimis provisions in Sec. 423.34(d)
and Sec. 423.780(f) would permit Part D plans to volunteer to waive a
de minimis amount of the Part D premium above the LIS benchmark. We
expect that the only Part D plans that will volunteer to do so would be
those PDPs that would otherwise lose LIS beneficiaries to reassignment.
We will establish a new de minimis amount in August of each year, and
the de minimis amount may vary by year. For purposes of illustration,
if the de minimis amount were $1.00, we would estimate 800,000 LIS
beneficiaries would have an average of $0.50 per month waived by Part D
plans, resulting in a total annual cost to all de minimis plans of $5
million per year. Table 18 shows that this would result in a total cost
of $30 million to PDPs during from FY 2011 to 2016. If the de minimis
amount were $2.00, we would estimate that 1,200,000 LIS beneficiaries
would have an average of $0.93 per month waived by Part D plans,
resulting in a total annual cost to all de minimis plans of $10 million
per year.
Our proposed voluntary de minimis provisions are estimated (based
on the assumption of a $1.00 de minimis amount) to cost the Medicare
Trust Fund $140 million over the 6-year period from FY 2011 to FY 2016.
Tables 17 and 18 illustrate how these costs are borne by the Federal
government and PDPs, respectively. PDPs that volunteer to waive a de
minimis amount will not have their LIS beneficiaries reassigned to a
zero premium plan. The additional costs are attributable to low-income
beneficiaries staying in higher cost plans. The result of staying in
higher cost plans is that Medicare's low-income cost-sharing subsidy
and reinsurance payments will be greater than would have been the case
if CMS reassigned these beneficiaries to lower-cost plans.
5. Increase In Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44)
Proposed Sec. 423.44(e)(3) would require PDPs to provide Part D
enrollees with a notice of disenrollment in a form and manner
determined by CMS. PDPs will provide disenrollment notices to enrollees
who were required to pay the Part D--IRMAA because their modified
adjusted gross income exceeded the income threshold amounts set forth
in 20 CFR 418, but failed to pay it after a grace period and
appropriate notice has been provided.
Consistent with data from individuals paying the Part B IRMAA (1.8
million) and enrolled in a Part D plan, we estimate that approximately
1.05 million of the 29.2 million Medicare beneficiaries enrolled in the
Part D program will exceed the minimum income threshold amount and will
be assessed an income related monthly adjustment amount. Out of the
1.05 million affected beneficiaries, we estimate that 0.22 million will
drop the Part D coverage in 2011. Under Part B, approximately 122,000
(14.8 percent) of the 1.8 million beneficiaries assessed an IRMAA are
billed directly. This constitutes 5.17 percent of the Medicare
population. We estimate that approximately 80,000 (7.6 percent) of the
1.05 million beneficiaries enrolled in Part D who must pay the Part D--
IRMAA will be directly billed for the Part D--IRMAA either because they
are not receiving monthly benefit payments from SSA, OPM, or the RRB,
or the monthly benefit payment is not sufficient to have the Part D--
IRMAA withheld.
Of the 80,000 Part D enrollees who will be directly billed for the
Part D--IRMAA, we cannot estimate how many might accrue Part D--IRMAA
arrearages and be subsequently terminated. However, in cases where the
PDP is required to send an enrollee a notice of termination in
accordance with Sec. 423.44(e)(4), and all 80,000 Part D enrollees
that have a Part D--IRMAA become delinquent, the burden associated with
this requirement would be the time and effort it takes the PDP to
populate the notice. Termination notices are generally automated;
therefore, we estimate 1 minute x 80,000 enrollees divided by 60
minutes. This equates to an annual burden for PDP sponsors of 1,333
hours at approximately $40/hour (based on U.S. Department of Labor
statistics for hourly

[[Page 71257]]

wages for administrative support). The associated burden amount for
this work is $53,320. Additionally, Part D plan sponsors would have to
retain a copy of the notice in the beneficiary's records. We estimate 5
minutes x 80,000 enrollees divided by 60 minutes. This equates to 6,666
hours at approximately $40/hour (based on U.S. Department of Labor
statistics for hourly wages for administrative support). This
associated burden amount is $266,640. We estimate the total maximum
annual burden for all Part D plan sponsors resulting from this proposed
provision to be $319,960. Therefore, as shown in Table 18, we estimate
this proposed provision to result in a maximum burden cost, to PDP
sponsors, in the amount of $1.92 million for FYs 2011 through 2016. We
believe this proposal will lead to Federal government savings of
approximately $4.77 billion from FY 2011 through FY 2016 from increased
premium payments by Medicare beneficiaries. We describe these savings
to the Federal government in Table 17. Also, because the income
thresholds do not increase between 2011 and 2019, we anticipate that
more beneficiaries will be affected by the IRMAA provision over time
and this, in turn, will produce significant growth in the savings
associated with this program.
6. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
We propose amending Sec. 423.772 and Sec. 423.782 pursuant to
section 3309 of the ACA. Specifically, the proposed changes provide for
a definition of an individual receiving home and community based
services, and for zero cost-sharing for Medicare Part D prescriptions
filled by full-benefit dual eligible beneficiaries receiving such
services. As illustrated in Table 18, this provision will not increase
administrative costs for MA organizations or PDP sponsors. The affected
beneficiaries already have LIS as full duals and are, therefore, low-
income individuals. Their Part D copayment level is likely to be low
prior to the elimination of copayments. The elimination of copayments
will allow them additional disposable income for other expenses. The
reduction in the copayments to zero will be fully offset by increasing
low income subsidy cost sharing subsidy payments we make to their Part
D plans. We believe the impact on the Federal government will be
minimal given that most of the impacted individuals are already at a
low copayment level and the shift from the low copayment level to zero
copayment is small.
This provision will impact States, as they will have to identify
eligible individuals and provide data to CMS. They will send the new
data on an existing monthly data exchange already used to identify dual
eligible beneficiaries. We estimate the cost for States to comply with
this requirement to include a one-time development cost of $34,782 in
FY 2011, and as well as an ongoing annual cost of $20,869 starting in
FY 2012.
7. Appropriate Dispensing of Prescription Drugs in Long-Term Care
Facilities Under PDPs and MA-PD Plans (Sec. 423.154) and Dispensing
Fees (Sec. 423.100)
In our discussions with the industry, we learned that 75 percent to
80 percent of the cost related to drug waste arises from 20 percent of
the drugs. That 20 percent is made up of brand name medications. In an
effort to target the drugs resulting in the most financial waste and to
lessen burden for facilities transitioning from 30-day supplies to 7-
day supplies, we propose initially limiting 7-day-or-less dispensing to
brand name drugs as defined in Sec. 423.4.
Pharmacies servicing LTC facilities may have the upfront costs
associated with software upgrades, packaging and hardware changes, and
ongoing costs of transaction fees, and additional deliveries. These
costs are not reflected in Table 16, and we are soliciting comment on
these costs. We expect some of these expenses to be offset by an
increase in dispensing fees consistent with Sec. 423.100. In addition,
a decrease in volume of drugs dispensed may result in lower revenues
and rebates.
We learned from the industry that many pharmacies already have 7-
day-or-less dispensing techniques in place for their Part A population.
Most pharmacies not already using a 7-day-or-less dispensing technique
will generally be converting from their existing 14- or 30-day
dispensing technique down to a 7-day-or-less dispensing technique.
Based on discussions with the industry, we expect most pharmacies to
initially convert from a 14- or 30-day punch card system to a 7-day
punch card system. Our conversations with manufacturers of the 30-day
punch card systems have indicated that there is minimal capital
investment conversion needed for the transition from 30-day to 7-day
packaging. We expect only a small number of pharmacies will convert to
an automated dose dispensing system in the short-term. The industry
tells us that the major barrier to adopting is automated dose
dispensing technologies cost approximately $100,000 to $150,000 in
capital acquisition costs per machine.
Regardless of the dispensing technique used, pharmacies will likely
have to change or update software. There will be a cost associated with
the change in software and training of pharmacy staff associated with
the change. We are soliciting comment on these costs.
We expect some pharmacies to incur a small additional expense
related to the number of deliveries required to service a facility with
a 7-day-or-less dispensing technique. However, given the existing
widespread agreements between pharmacies and skilled nursing facilities
to dispense in 7-day-or-less packages for Part A residents and the
pharmacy's responsibility to deliver at least 5 to 6 days a week to
accommodate new residents, emergency supplies and changes in therapy,
we expect only a small number of pharmacies to be adversely effected.
LTC facilities will need to accommodate 7-day-or-less dispensing
techniques for their Part D population. We anticipate LTC facilities
will be impacted by an increase in the number of medication check-ins
for those facilities and pharmacies not already using automated
dispensing technologies. Based on conversations with the industry, we
also anticipate that the LTC facility staff will require varying
amounts of additional training. Training time will vary based on the
extent to which the dispensing technique changes to accommodate 7-day-
or-less dispensing.
The costs associated with this proposed provision is the additional
costs of dispensing fees to account for software upgrades, packaging
and hardware changes, transaction fees, additional deliveries, and the
time and effort of Part D sponsors to re-contract with entities (for
example, pharmacy benefit managers) which contract with pharmacies
servicing LTC facilities.
We anticipate that dispensing fees will be developed to take into
account of the marginal costs associated with additional dispensing
events in a single billing cycle for a single prescription and consider
costs undertaken to acquire and maintain technology aimed at reducing
waste. Part D plans have the flexibility to vary the actual dispensing
fees paid to pharmacies. We project dispensing fees to pharmacies
servicing LTC facilities to be between 50 percent and 100 percent
higher for contract year 2012 than in previous contract years, with
increases in the lower end for the large majority of the claims. For

[[Page 71258]]

example, we would expect dispensing fees to be greater when a Part D
drug is dispensed using automated dose dispensing technology as opposed
to a Part D drug dispensed via a 7-day blister pack.
We estimate the total yearly burden for negotiating a contract
between the Part D sponsor and the entity (for example, PBM)
contracting with the pharmacies servicing LTC facilities to be equal to
the number of the Part D sponsors (731) x the average estimated hours
per sponsor (10). This equals 7,310 hours. We estimate the number of
entities contracting the pharmacies servicing LTC facilities to be 40
(28 processors and 12 sponsors). We estimate the total yearly hourly
burden for negotiating a contract between the entity described above
and the pharmacies servicing LTC facilities to be the number of
entities (40) x the average estimated hours per entity (80). This is
3200 hours. The total number of hours for contract negotiation is
estimated to be 10,510 hours. The estimated hourly labor cost for
reporting is $150.20. This estimate is a compilation of the hourly rate
for a lawyer and support staff from the Bureau of Labor Statistics. The
total estimated cost associated with these requirements is $1,578,602
($150.20 x (3,200 + 7,310 hours) = $1,578,602) and is described in
Table 18. This is a one-time contract negotiation cost.
We anticipate that the initial upfront costs to convert to a 7-day-
or-less dispensing technique will eventually be more than offset by the
savings to the Federal government associated with dispensing. Initial
industry estimates suggest that approximately 10 percent of the total
LTC drug costs could be avoided through the adoption of 7-day-or-less
dispensing methodologies. One 7-month analysis using data from 36
skilled nursing facilities suggested at least a 17 percent to 25
percent savings with 7-day dispensing and almost 26 percent savings
associated with automated dose dispensing when compared to 30-day
dispensing for Part D drugs.\4\ Given that we are not aware of
additional studies to determine the cost savings, we conservatively
estimate a 10 percent savings for overall costs, and therefore estimate
an overall savings associated with this provision (see Table 16 for
estimates of the year-by-year savings). We solicit comments on this
estimate.
---------------------------------------------------------------------------

\4\ James W. Moncrief, Advanced Pharmacy, data from a seven
month study of 36 LTC facilities presented at the NCPDP Dispensing
Meeting. Sheraton Hotel BWI, March 19, 2010.
---------------------------------------------------------------------------

8. Complaint System for Medicare Advantage Organizations and PDPs
(Sec. 422.504 and Sec. 423.505)
The burden associated with this proposed provision is the time and
effort of the MA organizations and Part D sponsors in training staff
and recording complaint closure documentation in the CTM, as well as
posting and maintenance of a link from their Web site to the electronic
complaint form at http://www.medicare.gov. We estimate that the total
annual hourly burden for training staff and recording complaint closure
in the CTM is equal to the average estimated hours per sponsor for
documentation for each complaint closure (.25) x the average number of
complaints per sponsor (102) plus the average estimated hours per
sponsor for training (8 hours), multiplied by the average cost of a
technical health care worker ($15) x the number of Part C and D
contracts (757). We also estimate that the total annual hourly burden
for posting and continued maintenance of a link is 20 hours x the
average cost of a Web site developer ($34) x the number of Part C and D
contracts (757). We estimate the annual burden associated with all
these changes equals 40,500 hours. The average cost per hour is
approximately $22.10. The estimated annual cost associated with these
requirements is $895,160.
9. Uniform Exceptions and Appeals Process for Prescription Drug Plans
and MA-PD Plans Sec. 423.128 and Sec. 423.562)
We expect that streamlining the appeals and exceptions process will
allow beneficiaries to access appeals more quickly and will ensure
beneficiaries have access to covered medications in a timely manner MA
organizations and Part D sponsors will be required to process coverage
determination requests submitted by mail or via an internet Web site
(Sec. 423.128(b)(7)(i) and (ii)), which is estimated to result in an
annual burden of 80,745 hours. At an estimated cost of $40.00 per hour,
the estimated total annual cost of this requirement is $3.23 million.
Also, processing coverage determination requests that are received by
telephone (Sec. 423.128(d)) is estimated to result in an annual burden
of 115,010 hours. At an estimated cost of $40.00 per hour, the
estimated total annual cost of this requirement is $4.6 million.
In cases when a prescription cannot be filled as written, Part D
sponsors are required under Sec. 423.562(a)(3) to arrange with their
network pharmacies to distribute a pharmacy notice advising the
enrollee of his or her right to contact the plan to request a coverage
determination. Under this proposal, Part D sponsors would be required
to modify their electronic transactions to pharmacies so that they can
transmit codes instructing pharmacies to distribute notices at the
point-of-sale (POS). That is, pharmacies and PBMs will be required to
program their systems to relay the message at the pharmacy to
distribute the appeal notice.
We estimate the burden on plan processors will be the programming
to send the code or billing response to the pharmacy, as well as
revising the terms of their contracts with pharmacies. We estimate that
the number of hours for each processor (28 PBMs and 12 plan
organizations) to perform these tasks will be 40 hours per processor,
for a total one-time burden of 1600 hours. The estimated one-time cost
associated with the processor tasks is $64,000 (1600 hours x $40). Each
pharmacy will need to program to receive the code and print the
response. Programming by the pharmacies (40 pharmacy software vendors)
in order to receive the code by each pharmacy will be 10 hours, for a
total of 400 hours. The estimated one-time cost associated with the
processor tasks is $16,000 (400 hours x $40).
We estimate that the 731 contracting entities would distribute an
average of 2,200 pharmacy notices. Therefore, requiring plan sponsors
to arrange with their network pharmacies to distribute pharmacy notices
at the point-of-sale when prescriptions cannot be filled as written
(Sec. 423.562(2)(3)) would result in an annual burden of 53,071 hours
(2 minutes or 0.033 hours at point-of-sale x 731 contractors x 2,200
pharmacy notices per contract). At an estimated cost of $40.00 per
hour, the estimated total annual cost of this change would be $2.14
million.
10. Including Costs Incurred by the AIDS Drug Assistance Program (ADAP)
and the Indian Health Services (IHS) Toward the Annual Part D Out-of-
Pocket Threshold (Sec. 423.100 and Sec. 423.464)
This proposed requirement would allow Part D sponsors to count ADAP
and IHS costs towards a beneficiary's TrOOP costs, allowing the
beneficiary to move through the coverage gap portion of the benefit and
into catastrophic coverage phase. There is no burden on IHS facilities
since claims will be identified as IHS provider claims by the National
Provider Identifier (NPI). However, ADAPs will be requested to submit
information to CMS Coordination of Benefits (COB) contractor via a
voluntary data sharing

[[Page 71259]]

agreement (VDSA), which will be sent to the TrOOP facilitator to ensure
proper calculation of the TrOOP amounts. Several ADAPs already
participate in the COB file exchange and have submitted their VDSAs.
The approximate cost associated with this submission is 30 minutes to
complete the VDSA per entity. We estimate a one-time annual cost of
$1,000 (50 entities (ADAPs that require VDSAs) x 5 hours x $40.00/hour
= $1,000.
The burden associated with this proposed provision is not expected
to impact sponsor organization costs, with the exception of up-front
programming costs, which we estimate will be 1 hour per sponsor for an
approximate cost of $40 per sponsor. Including these costs toward TrOOP
impacts how fast a beneficiary will reach the catastrophic limit, which
is largely funded by the Federal government, with the exception of
relevant beneficiary copays. Sponsors will not incur additional costs
due to this requirement. The Federal cost impact is estimated at $460
million from FY 2011 to FY 2016. The additional cost to the Federal
government (Medicare program) is due to more individuals reaching the
catastrophic coverage phase under the Part D benefit.
11. Cost Sharing for Medicare Covered Preventive Services (Sec.
417.101 and Sec. 422.100)
We estimate that our proposed implementation of sections 4103,
4104, and 4105 of the ACA will result in additional program costs as
beneficiaries will pay no portion of the costs for the Personalized
Prevention Plan Services, the Initial Preventive Physical Exam and
Medicare-covered preventive services for which cost sharing is waived
under Original Medicare (Sec. 417.101 and Sec. 422.100). We estimate
that the FY 2012 costs to Medicare for increasing access to clinical
preventive services in accord with sections 4103, 4104, and 4105 of ACA
will be $410 million.
Although slightly less than 30 percent of Medicare expenditures for
Parts A and B are for MA enrollees, we estimate that the cost to the MA
program of increasing access to clinical preventive services as
described by sections 4103, 4104, and 4105 of the ACA will be
significantly less than 30 percent of the estimated cost to the
Medicare program for implementation of these provisions. In contrast to
the Original Medicare program, most MA plans already provide some in-
network preventive services without charging beneficiary cost sharing.
In contract year 2010, at least 78 percent of plans provide many, or
all, of the Medicare-covered preventive services without charging
beneficiary cost sharing. In fact, almost all MA plans currently
provide a few of the Medicare-covered preventive benefits without cost
sharing. Therefore, we estimate that our proposal to require MA plans
to provide the Medicare-covered preventive services without beneficiary
cost sharing will not increase plan costs by a significant amount.
Based on our finding that 78 percent of plans provide some
preventive benefits without cost sharing in contract year 2010, we
estimate that for FY 2012 plans will incur approximately $27.1 million
in costs by providing in-network Medicare preventive services without
charging beneficiary cost sharing. Over time, we estimate that the
relative cost to the MA program for provision of improved access to
Medicare-covered preventive services will be consistent with the
estimated cost for Medicare, which increases with growth in the
Medicare population. We estimate the total cost of this provision to be
$147.9 million between FYs 2011 and 2016.
Further, although not included in our estimates, we believe that
the increased emphasis on provision of preventive services may also
result in improved beneficiary well-being and subsequently decrease
their need for, and utilization of, more costly medical and surgical
interventions and may decrease overall program costs.
12. Elimination of the Stabilization Fund (Sec. 422.458)
Section 10327(c) of the ACA repealed section 1858(e) of the ACA,
eliminating the stabilization fund. Therefore, we are proposing to
delete paragraph (f) from Sec. 422.458, since the statutory basis for
the Fund no longer exists. The elimination of the stabilization fund
will have the effect of savings for the Federal government, but will
also result in a loss of financial incentives for regional plans to
operate in regions with no or low MA penetration.
We expect the Federal government to save approximately $181.2
million for the fiscal years 2011 through 2016 from the implementation
of this provision. The savings are a result of the elimination of the
national bonus payment and recruitment and retention bonus payments to
MA plans that would operate in regions with no or low MA penetration.
The fund will no longer offer a financial incentive for regional
organizations to offer plans in regions with low or no MA penetration.
The funds have never been accessible, however, because, since the
fund's inception, payments have been delayed through legislation.
Therefore, the formal elimination of the fund will have little or no
impact on the current operation of the MA program.
13. Improvements to Medication Therapy Management Programs (Sec.
423.153)
We estimate first year costs associated with the requirement for
Part D sponsors to contract with all LTC facilities in which their Part
D enrollees reside to provide appropriate MTM services in coordination
with independent consultant pharmacist evaluation and monitoring is
$96,709,680 ($402,957 estimated cost per parent organization or sponsor
x 240 parent organizations or stand alone sponsors with Part D LTC
residents = $96,709,680 estimated cost). We estimate annual costs for
updating the contracts for subsequent years to be $32,236,560 ($134,319
estimated cost per parent organization or sponsor x 240 parent
organizations or sponsors with Part D LTC residents = $32,236,560
estimated cost).
We expect Part D beneficiaries meeting the target criteria for MTM
services will have improved access to these services both through the
use of telehealth technologies and for those beneficiaries who are also
LTC residents through the coordination of their MTM services with the
monthly drug regimen reviews.
14. Changes To Close the Part D Coverage Gap (Sec. 423.104 and Sec.
423.884)
With the implementation of proposals related to closing of the Part
D coverage gap, Medicare beneficiaries will have improved access to the
prescription drugs in the coverage gap and enter the catastrophic phase
of the benefit earlier in the benefit year as a result of our proposed
changes to close the Part D coverage gap. Beneficiary cost sharing in
the coverage gap would be determined on the basis of whether the
covered Part D drug is considered an applicable drug under the Medicare
coverage gap discount program. Different cost sharing levels will apply
during the coverage gap to the drugs that are applicable and not
applicable under the coverage gap discount program. In addition to the
cost sharing changes, the rate of growth of the annual Part D out-of-
pocket threshold would be reduced from FY 2014 to FY 2016. Further, in
attesting to the actuarial equivalence of qualified retiree
prescription drug plans to the standard Medicare Part D coverage,
sponsors would not take into account the value of any discount or
coverage provided during the coverage gap.

[[Page 71260]]

For changes associated with closing the Part D coverage gap, we
estimated a one-time total cost of $50,400,000 (12,000 burden hours for
each processor x 40 processors x $105 for the average labor cost of a
senior programmer based on data from the Bureau of Labor Statistics) in
the first year for the 40 pharmacy claims processors to implement
systems changes. In subsequent years, the estimated total annual cost
is $1,050,000 (250 burden hours per processor x 40 processors x $105
for the full cost of labor of a senior programmer) to identify changes
to the applicable drugs under the Medicare coverage gap discount
program and update systems with this information each month. The total
estimated costs to the Medicare program for the adjustments to
beneficiary cost sharing in the coverage gap are $130,400,000 in the
first year (FY 2011), increasing in subsequent years as the coverage
gap closes and the Part D enrollment increases. The estimated annual
cost to the Medicare program associated with decreasing the rate of
annual growth in the Part D out-of-pocket threshold is $40,000,000 in
FY 2014, increasing in subsequent years as the Medicare Part D
enrollment increases and the coverage gap closes.
15. Medicare Advantage Benchmark, Quality Bonus Payments, and Rebate
and Application of Coding Adjustment (Sec. 422.252, Sec. 422.258,
Sec. 422.266, and Sec. 422.308)
Prior to enactment of the ACA, MA payment benchmarks (county rates)
were established only partially in relationship to average fee-for-
service costs in a county. Section 1102 of reconciliation amendments
links all county benchmarks to FFS costs, effective 2012. As a
transition, the ACA sets the 2011 MA benchmarks equal to the benchmarks
for 2010; for subsequent years it specifies that, ultimately, the
benchmarks will be equal to a percentage (95, 100, 107.5, or 115
percent) of the fee-for-service rate in each county. During a
transition period, the benchmarks will be based on a blend of the pre-
ACA and post-ACA benchmarks. The phase-in schedule for the new
benchmarks will occur over 2 to 6 years, with the longer transitions
for counties with the larger benchmark decreases under the new method.
The ACA, as amended, also introduces MA bonuses and rebate levels
that are tied to the plans' quality ratings. Beginning in 2012,
benchmarks will be increased for plans that receive a 4-star or higher
rating on a 5-star quality rating system. The bonuses will be 1.5
percent in 2012, 3.0 percent in 2013, and 5.0 percent in 2014 and
later; these bonuses increase the new benchmark portion of the blended
benchmark until all transitions are complete. An additional county
bonus, which is equal to the plan bonus, will be provided on behalf of
beneficiaries residing in specified counties. The percentage of the
``benchmark minus bid'' savings provided as a rebate, which
historically has been 75 percent, will also be tied to a plan's quality
rating. In 2014, when the provision is fully phased in, the rebate
share will be 50 percent for plans with a quality rating of less than
3.5 stars; 65 percent for a quality rating of 3.5 to 4.49; and 70
percent for a quality rating of 4.5 or greater. This provision will
provide incentives for plan quality to increase. Plans will be paid
based on quality performance rather than just the specific services
they provide. However, the rules for determining quality bonus payments
for CY 2012 through 2014 will be modified under the terms of the
national quality bonus payment demonstration project.
The ACA amended the statutory provision that requires us to make an
adjustment to MA risk scores for differences in coding patterns between
MA and FFS. The ACA made four modifications to this requirement: The
analysis must be conducted annually; the data used in the analysis is
to be updated as appropriate; the results of the analysis are to be
incorporated into risk scores on a timely basis; and the application of
an adjustment for differences in coding patterns was extended past 2010
indefinitely. Further, the ACA provides for minimum adjustments for MA
coding in future years.
Our proposed changes to Sec. 422.252, Sec. 422.258, and Sec.
422.266 codify section 1102 of the ACA, which links county benchmarks
to FFS costs and provides eligible plans with a quality bonus. These
provisions will lower payments from us, bringing MA payments in line
with FFS payments. The new provisions will also generally reduce MA
rebates and benchmarks for plans and thereby result in less generous
benefit packages. We estimate that the Federal government will save
approximately $40.56 billion from FY 2011 to FY 2014. The Federal
government will save approximately $76.470 billion from FY 2011 to FY
2016. The year-by-year savings in millions of dollars are shown in
Table 16. We estimate that in 2017, when the MA provisions will be
fully phased in, enrollment in MA plans will be lower by about 50
percent (from its projected level of 14.8 million under the prior law
to 7.4 million under the new law).
16. Quality Bonus Appeals (Sec. 422.260)
We estimate a minimal overall impact as a result of this provision,
as we expect only a minority of MA organizations to take advantage of
the opportunity to appeal CMS' annual quality rating. Of those
organizations that do appeal their rating, a minimal number of
professional staff working over a short period of time would be
required to prepare and present an organization's appeal.
We estimate that the total annual hourly burden for developing and
presenting a case to us for review is equal to the number of
organizations likely to request an appeal multiplied by the number of
hours for the attorneys of each appealing MA organization to research,
draft, and submit their arguments to CMS. Based on the star rating
distributions of previous contract years, out of the approximately 350
MA contracts that are subject to star rating analysis (that is, those
not excluded from analysis because of low enrollment, contract type not
required to report data, or new contract with no performance history),
approximately 250 may receive less than a four-star rating. We estimate
that 10 percent of those contracts (25) will request an appeal of their
rating under the proposed rule. We further estimate that one attorney
working for eight hours could complete the documentation to be
submitted to us for each contract, resulting in a total burden estimate
of 200 hours (8 hours x 25 contracts = 200 hours). The estimated annual
cost to MA organizations associated with this provision (assuming an
attorney billing rate of $250 per hour) is $50,000 (200 hours x $250 =
$50,000).
17. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
We anticipate minimal financial impact from our proposal to require
terminated Part D plan sponsors to effectuate a smooth transition by
providing CMS with Medicare beneficiary data including information to
identify each affected beneficiary, pharmacy claims files, true out-of-
pocket (TrOOP) cost balances, and information concerning pending
grievances and appeals.
We estimate that the total annual burden for this proposal to be
the cost of maintaining sufficient staff to transfer the data required
under Sec. 423.509. As a result, we estimate the total annual burden
to be the number of Part D sponsors we anticipate terminating in a

[[Page 71261]]

contract year (2) x the hourly rate of staff to transfer the required
data ($75/hour) x the number of hours required to provide data to us
(20 hours). Therefore, the estimated annual cost associated with these
requirements is $3,000.
18. Review of Medical Necessity Decisions by a Physician or Other
Health Care Professional and the Employment of a Medical Director
(Sec. 422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
We estimate that 95 percent of MA organizations and Part D sponsors
already have a medical director overseeing decisions of medical
necessity. Therefore, we believe that there will be no increase in cost
for the majority of MA organizations and Part D sponsors. We anticipate
that 5 percent of MA organizations and Part D sponsors will incur a
financial impact as a result of this proposed provision.
Of the 5 percent of MA organization and Part D sponsors that do not
currently employ a medical director, we estimate that the total annual
burden for employing a medical director is equal to 5 percent of the
number of MA organization and Part D sponsors (757), which equals 38
organizations and sponsors, at a salary of $250,000 per year.
Therefore, the estimated annual cost associated with these requirements
is $9,500,000.
We believe our proposed provisions to require review of medical
necessity decisions by a physician or other health care professional
and the employment of a medical director will help to prevent: (1)
Failure to provide access to drugs for enrollees who are stable on a
protected class drug; (2) application of inappropriate prior
authorization and step therapy criteria when adjudicating
prescriptions; (3) issuance of denials based on a lack of medically
accepted indications when medically accepted indications are specified
in at least one of the applicable compendia; and (4) failure to provide
transition supplies for existing members who experience formulary
changes across plan years.
19. Compliance Officer Training (Sec. 422.503 and Sec. 423.504)
Starting in 2013 for existing sponsors and 2012 for new applicants,
we would require sponsors to annually pay for travel expenses and
training registration fees for each compliance officer associated with
a MA or Part D contract to attend compliance officer training offered
by an entity with expertise in Part D. With expected travel costs of
$1,000 and registration fees of $700, the increase in costs for a
single contract would be $1,700. In 2012, only new applicants would
have to train their compliance officers. The average number of new
applicants at the parent organization level over the past 2 years has
been 8. We have reason to believe there will be a similar number of new
applicants for 2012; therefore, we estimate the cost for compliance
officer training in 2012 would be $13,600. For 2013 and subsequent
years, based on the current 316 compliance officers associated with all
2010 contracts, we estimate the annual cost associated with this
requirement would be $537,200.
The anticipated effect of requiring annual compliance officer
training is that compliance officers will be more knowledgeable about
the MA and Part D programs which should translate into more efficient
internal plan oversight. As internal plan oversight increases, we
anticipate a decrease in the volume and severity of compliance issues
because compliance officers will be able to identify small problems
before they become large problems with significant beneficiary impact.
As a result, beneficiaries will be more likely to receive benefits
consistent with plan sponsors' bids and CMS requirements.
20. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
Proposed Sec. 422.2274(b) and (c) and Sec. 423.2274(b) and (c)
would require MA organizations' and Part D sponsors' agents and brokers
to receive training and testing via a CMS endorsed or approved training
program. We are considering implementing this requirement through a
Request for Proposal (RFP) competitive process. The burden associated
with this proposed requirement is the time and effort put forth by plan
sponsors and/or third party vendors to develop and submit their
proposals for CMS review. We estimate that about 12 entities (plan
sponsors and/or third party vendors) will submit a proposal annually
and that the average estimated hours per entity to complete the
proposal is 100 hours. The total estimated hourly burden associated
with this requirement is equal to the estimated number of entities (12)
x the estimated hours per entity (100) = 1,200 hours. We estimate the
hourly labor cost for the preparer of the proposal will be $59.20
(based on the U.S. Department of Labor statistics for hourly wages for
management analysts). The annual cost of proposal preparation is
estimated to be $71,040 ($59.20 x 1200 hours).
The anticipated effect of our proposed provision to require all
agents and brokers to receive training and testing via a CMS-endorsed
or approved training program would be beneficiary access to agents and
brokers who are thoroughly and consistently trained on the fundamentals
of Medicare regulations. We believe that such thorough and consistent
training will help ensure that beneficiaries receive accurate
information about their Medicare health care options.
21. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
We estimate the cost for our proposed call center requirements at
the parent organization level because most parent organizations have
one call center for all of their contracts. For the parent
organizations that currently and consistently provide interpreters,
their costs will not increase. Organizations that provide interpreters,
but not consistently, will need to train their CSRs on how to use the
interpreter service, which can be included in regularly scheduled
training meetings at no increased cost. Lastly, we expect the cost for
each of the two parent organizations that currently do not provide
interpreters to increase by $9,933 per year. This estimated cost is
based on 1-800-MEDICARE foreign language interpreter use, which is 4.5
percent of all calls. If 4.5 percent of calls could require an
interpreter over the course of a standard 12-hour call center day, this
would translate into using interpreter services for 33 minutes each
day. Over the course of a year for the 301 days a call center is
required to be open, and at a rate of $1.00 per minute, based on CMS
market research in for interpreter costs, the cost for each of the two
parent organizations would increase by $9,933 per year, which is
$19,866 for both in FY 2012.
22. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
Proposed Sec. 422.111(b)(11) and Sec. 423.128(b)(12) would
require MA organizations and PDP sponsors to periodically provide each
enrollee with enrollee-specific data to use to compare utilization and
out-of-pocket costs in the current plan year to projected utilization
and out-of-pocket costs for the following plan year. Plans would
disclose this information to plan enrollees in each year in which a
minimum enrollment period has been met, in conjunction with the annual
renewal materials (currently the annual notice of change and evidence
of coverage documents).
Plan sponsors already collect enrollee utilization and cost-sharing
information as part of their claims processing operations and for
calculating MOOP limits. Therefore, we estimate the initial year burden
associated with this

[[Page 71262]]

proposed requirement is the time and effort necessary for a plan
sponsor to complete program development and testing, and to disclose
(print and mail) this information to each beneficiary. We developed
this burden estimate using our experience with burden estimates for the
ANOC/EOC documents under OCN 0928-1051as a baseline, then expanding on
that baseline, and factoring in expected programming and development
costs to provide beneficiary specific information. We estimate the
total annual burden hours associated with this provision at 18,620
hours for the 564 MA organizations and 85 Part D sponsors that would be
affected annually by this requirement. Using the same wage/cost
estimate as the ANOC/EOC documents, we applied an hourly wage cost for
GS-10, step 1 analyst at an estimated cost of $27.24 per hour.
Therefore, the estimated total initial year cost of this proposed
requirement is approximately $507,208.00.
In subsequent years, the burden associated with this proposed
requirement is the time and effort necessary for a plan sponsor to
disclose (print and mail) this information to each beneficiary. We
estimate the total annual burden hours associated with this provision
at 12,555 hours for the 564 MA organizations and 85 Part D sponsors
that would be affected annually by this requirement. At an estimated
cost of $27.24 per hour, the estimated total initial year cost of this
proposed requirement is approximately $342,000.
The anticipated effect of our proposed provision to require MA
organizations and PDP sponsors to provide customized enrollee data
would be greater access to individualized information for beneficiaries
to use in making decisions about their enrollment and their health care
options. While this proposed new requirement would result in cost
burden for MA organizations and Part D sponsors to calculate, compile
and disclose beneficiary-specific data, plans should already have the
systems in place to collect the required information as part of their
claims processing operations and for calculating MOOP limits; over
time, therefore, we anticipate that plans would continue to refine and
work to make their processes for disclosing this information as well as
the annual notice of change, evidence of coverage, and other plan
documents more efficient, thereby mitigating the burden over time.
23. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
Proposed Sec. 422.100(f) and Sec. 422.101(d) would extend the
mandatory MOOP and catastrophic limit requirements to RPPO plans. Each
RPPO plan would establish an annual MOOP limit on total enrollee cost
sharing liability for Parts A and B services, the dollar amount of
which would be set annually by CMS. All cost sharing (that is,
deductibles, coinsurance, and copayments) for Parts A and B services
would be included in RPPO plans' MOOPs. In the April 15, 2010 final
rule implementing policy and technical changes to the Medicare
Advantage and prescription drug benefit programs (72 FR 19799 through
19800), we discussed the anticipated effects of our policy to require
local MA plans to have a MOOP limit on members' out-of-pocket cost
sharing. While this proposed change is significant in that it will help
beneficiaries to understand and anticipate their possible health care
expenditures, as with the requirement to establish a mandatory MOOP for
local MA plans, we do not believe that this proposed change would by
itself have a significant cost impact on RPPO plan participation or
plan costs.
We believe any impact on enrollee premiums will be very limited for
several reasons. First, since implementation of the MMA, RPPOs have
been required under section 1858(b)(2) of the Act to establish a MOOP
for in-network cost sharing and a catastrophic limit inclusive of both
in- and out-of-network cost sharing for Parts A and B services. The
MOOP amounts are currently at the discretion of MA organizations
offering RPPO plans. For FY 2011, we encouraged RPPO plans to adopt
either the mandatory or voluntary MOOPs established in CMS guidance.
For FY 2011, the voluntary MOOP limits for local PPO plans were set at
$3,400 in-network and $5,100 catastrophic (in- and out-of-network), and
the mandatory MOOP limits for local PPO plans were set for FY 2011 at
$6,700 in-network and $10,000 catastrophic (in- and out-of-network). In
guidance following publication of our April 15, 2010 final rule, we
stated that, to the extent an RPPO sets its MOOP and catastrophic
limits above the mandatory amounts set by us for other plan types, it
may be subject to additional CMS review of its proposed Parts A and B
services cost-sharing amounts. Based on data for FY 2011 submitted (but
not yet approved) bids, we have found that of the 78 regional PPO
plans, 25 (32 percent) met or exceeded the voluntary MOOP limits set by
us and 47 (60 percent) regional PPO plans met or exceeded the mandatory
maximum limits. Therefore, only five (8 percent) RPPO plans did not
submit an in-network or catastrophic maximum out-of-pocket limit did
not meet either the voluntary or mandatory limits for FY 2010. Based on
this information, it is our expectation that the impact on RPPO plans
would be very small.
Second, as we described in our April 15, 2010 final rule, it is our
intention to continue setting both the MOOP and Parts A and B cost-
sharing thresholds at levels that, while affording reasonable financial
protection for those beneficiaries with high health care needs, do not
result in significant new operating costs for MA plans or increased
out-of-pocket costs for beneficiaries to the extent that MA plans pass
along any increased costs to their enrollees in the form of premium
increases. Given a competitive marketplace and Medicare beneficiary
sensitivity to premium amounts, we believe that MA plans may choose
instead to modify their benefit packages to reduce costs elsewhere.
Furthermore, we estimate that beneficiaries in regional PPO plans that
currently offer the FY 2011 voluntary or mandatory MOOP limits (about
92 percent of RPPO plans) will experience no cost increases as a result
of these provisions. In our April 15, 2010 final rule, we estimated
that the maximum impact of these requirements on beneficiary premiums
for those plans that currently have no MOOP limit of any kind (8
percent of all prospective FY 2011 RPPO plans) would average $5 in the
absence of other adjustments to benefit packages to account for the
annual MOOP requirements. However, in this case, the RPPO plans offer
MOOP and catastrophic limits, so we believe any premium impact would be
less than $5.
Finally, we believe that the many advantages for beneficiaries as a
result of the new MOOP and cost-sharing threshold requirements will
outweigh any small premium increases that may result. All regional PPO
plan enrollees will be protected against high out of pocket costs, and
will be better able to compare plans by focusing on differences in
premium and plan quality. As we have explained previously, our goal is
to set cost-sharing limits at a level that should not result in
significant new costs for MA plans or beneficiaries.

[[Page 71263]]

24. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
Our proposed translated marketing materials requirements codify
existing subregulatory guidance, so the impact to plan sponsors (MA
organizations and PDP sponsors) depends upon whether they are currently
translating marketing materials, and if so, to what extent. For 2010,
there are 307 sponsors that need to provide translated marketing
materials. Our translated marketing material monitoring study, which
only has preliminary findings, revealed that some sponsors have
produced a few materials, but we do not know the numbers of sponsors
that are and are not providing all translated materials. In the event
sponsors are not translating materials, our research that indicates the
average translation cost is 20 cents per word. We estimate that for a
sponsor to produce all of the required plan materials in one language
for the first year would cost approximately $18,325 because there are
approximately 17 documents containing 91,623 words for translation. In
subsequent years, sponsors would only need to edit existing documents
with the new data and any changes required by CMS, which could result
in approximately 5 percent of the documents being changed. As a result,
after the first year of translating all required documents, plan
sponsors would need to spend $916 updating translated materials.
Because we do not have final data from our translated materials study,
we do not know what proportion of sponsors would need to translate for
the first year and what proportion would only need to update existing
documents. Not all required translated marketing materials are plan
benefit package (PBP) specific. Therefore, if a plan sponsor translates
the document for one PBP, it could use the document for all PBPs
offered that year. For the purpose of this analysis, we assumed that
all 307 sponsors would have to translate all materials for the first
year at a total cost of $5,625,775. In subsequent years, sponsors would
only need to edit existing translated documents, which would be a total
cost of $281,212 annually for all sponsors.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

C. Expected Benefits

1. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.101 and 422.100)
We believe that the addition of home health services to the list of
service categories for which MA plan cost sharing may not exceed that
required under Original Medicare will provide additional transparency
and predictability for beneficiaries as they evaluate their health plan
options, and also will strengthen the beneficiary protections against
discriminatory cost sharing and benefit designs. Even with the
additional restriction on cost sharing for home health services, we
believe MA organizations will continue to have adequate flexibility to
design plan benefits that are responsive to beneficiary needs and
preferences while providing access to high quality and affordable
health care.
2. Determination of Part D Low-Income Benchmark Premium (Sec. 423.780)
This proposed rule would have an effect on the number of
reassignments, and the number of zero-premium plans available to full-
subsidy eligible individuals in each region. This proposed rule would
reduce the number of reassignments and increase the number of zero
premium organizations available to beneficiaries. This is because,
under the higher benchmarks, more PDPs are likely to have premiums that
are equal to or less than the low-income benchmark and, as a result,
will be fully covered by the premium subsidy. Low-income subsidy
beneficiaries would be able to remain in these PDPs and would not be
reassigned to other lower-premium PDPs. Under the current framework we
would expect 1.9 million reassignments. Under the proposed formula for
calculating benchmarks we would expect 900,000 reassignments, or
approximately one million fewer reassignments. We expect the proposed
formula to increase the number of zero premium organizations available
to beneficiaries in 21 of the 34 PDP regions.
Although there is no quantifiable monetary value to CMS to reducing
reassignments, we believe this benefit is important as it will increase
program stability and continuity of care. This proposed rule supports
pharmacy and formulary consistency for the beneficiary. Particularly in
regions with high MA-PD penetration, this proposed rule would reduce
the year-to-year volatility in reassignments of LIS beneficiaries and
would help avoid the disruption that is inherent anytime a beneficiary
is switched from one plan to another.
3. Voluntary De Minimis Policy for Subsidy Eligible Individuals (Sec.
423.34 and Sec. 423.780)
The proposed voluntary de minimis provisions would permit Part D
plans to volunteer to waive a de minimis amount of the Part D premium
above the low income benchmark and, thus, avoid losing LIS
beneficiaries to reassignment. We perform reassignments to ensure that
beneficiaries whom we originally assigned to a zero premium plan will
not incur a new premium liability when their current plan's premium
goes above the LIS benchmark in the following year. The number of
reassignments has ranged between 1 and 2 million over each of the past
4 years. While reassignments are effective at avoiding new premium
liabilities, they can create confusion and disrupt continuity of care.
We expect reassignments will be reduced by the de minimis provisions in
the regulation.
4. Increase in Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44, Sec. 423.286, Sec.
423.293)
Beginning in CY 2011, we estimate that approximately 1.05 million
of the 29.2 million Medicare beneficiaries enrolled in the Part D
program will exceed the minimum income threshold amount and will be
assessed an income related monthly adjustment amount. During coverage
year 2011, we expect that implementation of the Part D--IRMAA
provisions, as proposed at Sec. 423.286(d)(4) and Sec. 423.293(d),
will increase the Medicare Trust Fund by $270 million, with a net
increase to the Medicare Trust Fund over a 5-year period from FY 2011
through FY 2016 of $4.77 billion.
5. Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
The expected benefit of the elimination of the Medicare Part D
cost-sharing for individuals receiving home and community based
services provision is greater access to prescription drug coverage for
a population that traditionally has high medical needs. These
individuals are already eligible for the full low income subsidy, and
likely qualify for the $1.10/$3.30 copayment level now. The elimination
of the copayment will provide financial relief for those who are able
to pay at that level and greater access for those who are not.
6. Appropriate Dispensing of Prescription Drugs in Long-Term Care
Facilities Under PDPs and MA-PD Plans (Sec. 423.154) and Dispensing
Fees (Sec. 423.100)
This provision is expected to lead to a reduction in Part D program
expense, pharmaceutical waste, environmental disposal costs impact, and
the risk of pharmaceutical diversion associated with unused drugs in
30-day fills.
7. Complaint System for Medicare Advantage Organizations and PDPs
(Sec. 422.504(a) and Sec. 423.505(b))
This provision is expected to reduce the volume of calls using 1-
800-MEDICARE as members will have online access to the complaint
tracking system to file complaints regarding their prescription benefit
plan.
8. Uniform Exceptions and Appeals Process for Prescription Drug Plans
and MA-PD Plans (Sec. 423.128, and Sec. 423.562)
We expect that as a result of implementation of this provision,
beneficiaries and the healthcare providers or representatives that
assist them will benefit from a more streamlined approach to the
exceptions and appeals process than what is in place currently. They
will have access to the appeals process via a Web site or a customer
call center, if their plan sponsor has not already adopted this
approach. Furthermore, a standard appeals form will be utilized by all
Part D sponsors.
9. Including Costs Incurred by the AIDS Drug Assistance Program (ADAP)
and the Indian Health Services (IHS) Toward the Annual Part D Out-of-
Pocket Threshold (Sec. 423.100 and Sec. 423.464)
This provision is expected to reduce the costs to ADAPs and IHS,
since beneficiaries will be able to reach the catastrophic limit and
relieve the ADAPs and IHS from incurring excessive prescription costs
because beneficiaries in both programs had difficulty reaching the
catastrophic phase of the Part D benefit.
10. Cost Sharing for Medicare Covered Preventive Service (Sec. 417.101
and Sec. 422.100)
We believe that our proposal to require MA organizations and
section 1876 cost plans to provide in-network Medicare-covered
preventive benefits at zero cost sharing puts MA enrollees on a level
playing field with enrollees in Original Medicare. Furthermore, we
believe that the increased emphasis on provision of preventives
services will result in improved beneficiary well-being and
subsequently decrease their

[[Page 71272]]

need for, and utilization of, more costly medical and surgical
interventions, and possibly in decreased overall program costs.
11. Elimination of the Stabilization Fund (Sec. 422.458)
As discussed elsewhere in this RIA, the elimination of the
stabilization fund is expected to result in savings to the Federal
government.
12. Improvements to Medication Therapy Management Programs (Sec.
423.153)
Under this proposed provision, beneficiaries receiving the
standardized Comprehensive Medication Review documents would have a
better understanding of the review findings and recommendations. The
opportunity for sponsors to use telehealth technology would improve
access to MTM services for beneficiaries, particularly those in remote
locations or unable to travel. The proposed change requiring
coordination of MTM services with LTC consultant pharmacist services
would enable beneficiaries to receive the full benefits of the
sponsor's MTM program and the coordinated assessments would more likely
uncover evidence of adverse side effects and medication overuse.
13. Changes To Close the Part D Coverage Gap (Sec. 423.104 and Sec.
423.884)
Under these proposed provisions to close the Part D coverage gap,
beneficiaries would pay less for drugs in the coverage gap, and would
reach the out-of-pocket threshold earlier in the benefit year. We
expect that, because beneficiaries should find their prescription drugs
more affordable, there would be greater adherence to drug therapies and
fewer instances of adverse health outcomes arising from failure to take
medications as prescribed.
14. Medicare Advantage Benchmark, Quality Bonus Payments, and Rebate
and Application of Coding Adjustment (Sec. 422.252, Sec. 422.258 and
Sec. 422.266, and Sec. 422.308)
Our proposed revisions will result in government savings and will
bring MA payments in line with FFS payments. The MA benchmarks, which
are the ceiling for per member per month MA payment to a plan before
risk adjustment, will now be linked to FFS costs. These provisions also
provide incentives for MA organizations to maintain or increase the
quality of their plans, as organizations with 4 stars or more will
receive a quality bonus.
15. Quality Bonus Appeals (Sec. 422.260)
Our intent in implementing this provision is to ensure that MA
organizations are afforded the benefit of reasonable opportunity to
challenge CMS determinations that ultimately affect an organization's
payments from the Medicare Trust Fund. Granting organizations an avenue
to challenge CMS' determinations will enhance the transparency and
credibility of the process CMS uses to determine the recipients of
quality bonus payments.
16. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
Our intent in implementing this provision is to ensure that
terminated Part D plan sponsors transfer to CMS the necessary data to
provide a smooth transition for beneficiaries into a new Part D plan
similar to when the Part D sponsor terminates the contract or CMS and
the Part D plan sponsor mutually terminate the contract. We do not
anticipate a financial benefit to the terminated Part D sponsor.
17. Review of Medical Necessity Decisions by a Physician or Other
Health Care Professional and the Employment of a Medical Director
(Sec. 422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
By requiring that all organization determinations, coverage
determinations, and plan reconsiderations and redeterminations
involving medical necessity be reviewed by a medical professional with
expertise in the field of medicine appropriate for the services at
issue, enrolled beneficiaries would be assured of consistent and
medically accurate decisions by Part C organizations and Part D
sponsors. We believe that the proposal to require plans to employ a
medical director to ensure the clinical accuracy of such decisions
strikes the appropriate balance between our interest in ensuring that
plans are properly administering the Part C and Part D benefit, and the
plans' interest in minimizing their administrative burden.
18. Compliance Officer Training (Sec. 422.503 and Sec. 423.503)
The benefit to requiring annual compliance officer training is that
beneficiaries will be more likely to receive benefits consistent with
plan sponsors' bids and CMS requirements. Compliance officers will be
more knowledgeable about the MA and Part D programs which should
translate into more efficient internal plan oversight. As internal plan
oversight increases, CMS anticipates a decrease in the volume and
severity of compliance issues because compliance officers will be able
to identify small problems before they become large problems with
significant beneficiary impact.
19. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
Requiring all agents and brokers to receive training and testing
via a CMS endorsed or approved training program will further ensure
that beneficiaries are educated about Medicare health plan options by
plan agents and brokers who are thoroughly and consistently trained on
the fundamentals of Medicare regulations. Furthermore, this proposal
would reduce or eliminate the duplication of training and testing
requirements for agents and brokers who contract with multiple plans
with different training and testing requirements.
20. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
The expected benefit of our proposed call center interpreter
requirements is that all beneficiaries, regardless of language spoken,
will have access to all the information they need to make appropriate
decisions about their health care to utilize their Medicare benefits
most effectively.
21. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
We believe that our proposed requirement that plans provide
customized enrollee data to plan enrollees at least annually after
initial enrollment in conjunction with the annual renewal materials
(currently the annual notice of change and evidence of coverage
documents) would enable plan members to better understand their
utilization and out-of-pocket costs during a period of time, as well as
how the costs of their plan are changing in the upcoming contract year
and what that means for them if they remain in the plan and use similar
services. We intend for any EOB or customized out-of-pocket cost
statement to provide personal information to beneficiaries that would
help them consider using other tools and resources, including MOC and
the MPDPF, to determine whether to select a new plan.
22. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
We believe extending the mandatory MOOP requirement to RPPOs will
provide significant protection for MA enrollees from out of pocket
costs so

[[Page 71273]]

that beneficiaries will better understand and anticipate their out-of-
pocket expenditures. We set the parameters for the annual mandatory
MOOP limit, and this should make it easier for plans to compete on a
level playing field, as well as increase transparency for
beneficiaries. This proposed requirement would ensure all regional PPO
plan enrollees are protected against high out of pocket costs and are
better able to compare plans by focusing on differences in premium and
plan quality.
23. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
The expected benefit of our proposed requirement to codify existing
subregulatory guidance with respect to translated marketing materials
is that all beneficiaries, regardless of language spoken and national
origin, will have access to all the information they need to make
appropriate decisions about their health care to utilize their Medicare
benefits most effectively.

D. Alternatives Considered

We did not consider alternatives for the following provisions, as
their implementation was mandated by the ACA:

Approval of SNPs by NCQA (Sec. 422.4, Sec. 422.101, and
Sec. 422.152)
Determination of Part D Low-Income Benchmark Premium (Sec.
423.780)
Voluntary De Minimis Policy for Subsidy Eligible Individuals
(Sec. 423.34 and Sec. 423.780)
Increase in Part D Premiums Due to the Income Related Monthly
Adjustment Amount (D--IRMAA) (Sec. 423.44, Sec. 423.286, and Sec.
423.293)
Elimination of Medicare Part D Cost-Sharing for Individuals
Receiving Home and Community-Based Services (Sec. 423.772 and Sec.
423.782)
Appropriate Dispensing of Prescription Drugs in Long-Term Care
Facilities Under PDPs and MA-PD plans (Sec. 423.154) and Dispensing
Fees (Sec. 423.100)
Complaint System for MA Organizations and PDPs (Sec.
422.504(a) and Sec. 423.505(b))
Uniform Exceptions and Appeals Process for Prescription Drug
Plans and MA-PD Plans (Sec. 423.128(b)(7)(i), Sec. 423.128(d), and
Sec. 423.562(a)(3))
Including Costs Incurred by the AIDS Drug Assistance Program
(ADAP) and the IHS Toward the Annual Part D Out-of-Pocket Threshold
(Sec. 423.100, and Sec. 423.464)
Elimination of the Stabilization Fund (Sec. 422.458)
Improvements to Medication Therapy Management Programs (153)
Changes To Close the Part D Coverage Gap (Sec. 423.104 and
Sec. 423.884)
MA Benchmark, Quality Bonus Payments, and Rebate and
Application of Coding Adjustment (Sec. 422.252, Sec. 422.258, Sec.
422.266, and Sec. 422.308)

Alternatives considered for other proposals are summarized below.
1. Cost Sharing for Specified Services at Original Medicare Levels
(Sec. 417.101 and Sec. 422.100)
We considered implementing the provisions of section 3202 to limit
cost sharing under MA plans to that required under Original Medicare
without using our authority, granted by this same section of the ACA,
to also limit cost sharing for any additional service categories. We
believe it is preferable to restrict our implementation of section 3202
to the specified service categories, allowing ourselves time to
evaluate the effects of those provisions, as well as other recently-
established policy changes before adopting the cost sharing limits on
an expanded list of service categories.
We believe that the addition of home health services to the list of
service categories subject to cost sharing levels that may not exceed
those required under Original Medicare was an appropriate additional
service category as described in the ACA for the reasons specified
elsewhere in this preamble and that adding those services would enhance
beneficiary protections and would not impose a significant cost burden
on the MA program.
2. Cost Sharing for Medicare-Covered Preventive Services (Sec. 417.101
and Sec. 422.100)
We are proposing to implement regulations to require MA
organizations and 1876 cost plans to provide in-network Medicare-
covered preventive benefits at zero cost sharing, consistent with the
new regulations for Original Medicare-covered preventive benefits. More
specifically, we propose requiring that all MA organizations provide
Medicare-covered preventive services, as specified by CMS, without
enrollee cost sharing charges.
We considered allowing plans to charge cost sharing for Medicare-
covered preventive services or to voluntarily adopt zero cost sharing
for preventive services. We determined that in light of the importance
of preventive services in managed and coordinated care, and the
requirements at section 1852(a)(1)(A) of the Act (except as provided in
section 1859(b)(3) of the Act for MSA plans and in section 1852(a)(6)
of the Act for MA regional plans) that each MA plan must provide to its
members all Parts A and B benefits included under the Original Medicare
fee-for-service program as defined at section 1852(a)(1)(B) of the Act,
that requiring the same level of cost sharing for enrollees of Medicare
health plans as required under Original Medicare would be the more
appropriate policy.
3. Quality Bonus Appeals (Sec. 422.260)
We considered not affording bonus payment appeal rights to MA
organizations. We rejected this option partly in recognition of the
obligation the law generally imposes on us to afford entities affected
by CMS determinations concerning contract performance or payment to
have an opportunity to challenge such determinations. We also believe,
as noted above, that the appeals process promotes fairness in and
enhances the credibility of the bonus payment determination process.
4. Timely Transfer of Data and Files When CMS Terminates a Contract
With a Part D Sponsor (Sec. 423.509)
We did not consider alternatives to our proposal regarding the
timely transfer of data and files following the CMS termination of a
Part D sponsor's contract. These data are necessary for the proper
adjudication of all Part D benefits when a beneficiary changes plans,
such as calculating the true out-of-pocket cost and determining whether
the beneficiary has any outstanding claims for which the terminating
contract is responsible. Because of these important beneficiary
protections we did not consider alternatives to these proposed
requirements.
5. Review of Medical Necessity Decisions by a Physician or Other Health
Care Professional and the Employment of a Medical Director (Sec.
422.562, Sec. 422.566, Sec. 423.562, and Sec. 423.566)
We did not consider alternatives to our proposals regarding review
of medical necessity decisions by a physician or other health care
professional and employment of a medical director, as a majority of MA
organizations and Part D sponsors already employ a medical director to
overseeing decisions of medical necessity.
6. Compliance Officer Training (Sec. 422.503 and Sec. 423.504)
We considered requiring compliance officers to become certified
through an existing or CMS-developed certification process. However,
because training opportunities, especially the possibility

[[Page 71274]]

of free training opportunities offered by CMS, are available outside of
a certification process, we chose only to propose requiring training.
In the event that requiring annual compliance officer training does not
result in the expected increase in knowledge and decrease in compliance
issues, we will reevaluate whether compliance officer certification may
be necessary. In contrast to training, requiring compliance officer
certification would likely cost more; therefore, we chose to test the
less costly option first.
7. Agent and Broker Training Requirements (Sec. 422.2274 and Sec.
423.2274)
Proposed Sec. 422.2274(b) and (c) and Sec. 423.2274(b) and (c)
would require MA organizations' and Part D sponsors' agents and brokers
to receive training and testing via a CMS-endorsed or -approved
training program. The alternative we considered to this proposal was to
continue to allow plans to conduct training and testing on their own or
through third party vendor(s) and for CMS to continue to review some of
these training programs upon request by third party vendors for
comprehensiveness and accuracy. However, we believe that it is in the
best interest of beneficiaries who are educated about Medicare health
plan options by plan agents and brokers that those agents and brokers
be consistently and thoroughly trained on the fundamentals of Medicare
regulations. We believe the best method to achieve this end is to
require agents and brokers to receive training and testing through one
or more CMS-endorsed or -approved training programs.
8. Call Center Interpreter Requirements (Sec. 422.111 and Sec.
423.128)
Compliance with Title VI of the Civil Rights Act of 1964 to serve
all individuals regardless of national origin is a contractual
requirement for MA and Part D sponsors; therefore, we did not consider
any other alternatives to our proposed call center interpreter
requirements.
9. Customized Enrollee Data (Sec. 422.111 and Sec. 423.128)
The alternative considered to our proposed provision to require
provision of customized enrollee data was for MA organizations and Part
D sponsors to continue to provide beneficiaries with the information
already required by regulation through the ANOC and EOC documents,
which must be furnished to all plan enrollees at least 15 days before
the annual open election period. Beneficiaries would also continue to
have access to information through tools such as Medicare Options
Compare (MOC) and the Medicare Prescription Drug Plan Finder (MPDPF),
which provide more general information about plan costs. We did not
choose this option because we are concerned that the current available
options alone may not be enough to prompt enrollees to actively
evaluate their plans annually with respect to plan costs, benefits, and
overall value. Therefore, we expect that this customized enrollee data
will be another more specific tool for beneficiaries to use, in
addition to the general tools already in place, for enrollees to
understand their utilization and out-of-pocket costs during a period of
time, as well as how they may be affected by specific plan changes, and
to assist them in evaluating their options for the future.
10. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount
Requirements to Regional PPOs (Sec. 422.100 and Sec. 422.101)
The alternative we considered to this proposal was not extending
the mandatory MOOP and catastrophic limit requirements to RPPO plans,
but instead to permit plans to continue to establish their own in-
network MOOP and catastrophic limits without a maximum limit set by CMS
while encouraging them to adopt either the mandatory or voluntary MOOPs
established in CMS guidance. However, as we discussed in our April 15,
2010 final rule, (75 FR 19711), we believe RPPOs should be subject to
the same requirements with respect to a MOOP as local PPO plans. As
discussed elsewhere in this preamble, we believe that the alternative
chosen will make it easier for beneficiaries to understand and compare
MA plans and will provide significant protection for MA enrollees from
out of pocket costs.
11. Translated Marketing Materials (Sec. 422.2264 and Sec. 423.2264)
Compliance with Title VI of the Civil Rights Act of 1964 to serve
all individuals regardless of national origin is a contractual
requirement for MA and Part D sponsors. Therefore, we did not consider
any other alternatives to our proposed translated marketing materials
requirements.
12. Increases to the Applicable Percentage for Quality (Sec.
422.258(d))
The legislation requires a 5 star rating system. We considered
whether the 5 star rating system should be consistent with the current
5 star rating system in place for beneficiary choice or should be a
separate system. We believe that plans should be rated the same for
consumer choice and payment. There should not be two different systems
to rate the quality and performance of MA plans. Thus, the plan ratings
are the basis for the star rating system for quality bonus payments.

E. Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf ), in Table 20, we have
prepared an accounting statement showing the classification of the
costs and benefits associated with the provisions of this proposed
rule. The accounting statement is based on estimates provided in Tables
16, 17, 18, and 19 (our best estimate of the costs and savings as a
result of the changes) and discounted at 7 percent and 3 percent for
the time period of FY 2011 through FY 2016.

Table 20--Accounting Statement: Classification of Estimated Costs and Savings, From FY 2011 to FY 2016
[$ in Millions]
----------------------------------------------------------------------------------------------------------------
Units discount rate
Category Year dollar ------------------------------------ Period covered
7% 3%
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Tranfers. 2010 -$12,544.46 -$12,858.60 FYs 2011-2016
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?............ Federal Government to MA organizations and Part D Sponsors.
----------------------------------------------------------------------------------------------------------------

[[Page 71275]]

Costs (All other provisions)
----------------------------------------------------------------------------------------------------------------
Annualized Costs to MA 2010 $72.88 $72.24 FYs 2011-2016
organizations and Part D
Sponsors.
Annualized Costs to States.... 2010 $0.02 $0.02 FYs 2011-2016
----------------------------------------------------------------------------------------------------------------

In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 417

Administrative practice and procedure, Grant programs--health,
Health care, Health insurance, Health maintenance organizations (HMO),
Loan programs--health, Medicare, and Reporting and recordkeeping
requirements.

42 CFR Part 422

Administrative practice and procedure, Health facilities, Health
maintenance organizations (HMO), Medicare, Penalties, Privacy, and
Reporting and recordkeeping requirements.

42 CFR Part 423

Administrative practice and procedure, Emergency medical services,
Health facilities, Health maintenance organizations (HMO), Health
professionals, Medicare, Penalties, Privacy, and Reporting and
recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth
below:

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL
PLANS, AND HEALTH CARE PREPAYMENT PLANS

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

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public
Health Service Act (42 U.S.C., 300e, 300e-5, and 300e-9), and 31
U.S.C. 9701.

Subpart B--Qualified Health Maintenance Organizations; Services

2. Section 417.101 is amended by adding new paragraphs (f) and (g)
to read as follows:

Sec. 417.101 Health benefits plan: Basic health services.

* * * * *
(f) An HMO may not charge deductibles, copayments, or coinsurance
for in-network Medicare-covered preventive services as specified by CMS
annually.
(g) Services for which cost sharing may not exceed cost sharing
under Original Medicare. On an annual basis, CMS will evaluate whether
there are service categories for which MA plan's cost sharing may not
exceed that required under Original Medicare and specify in regulation
which services are subject to that cost sharing limit. The following
services are subject to this limit on cost sharing:
(1) Chemotherapy administration services to include chemotherapy
drugs and radiation therapy integral to the treatment regimen.
(2) Renal dialysis services as defined at section 1881(b)(14)(B) of
the Act.
(3) Skilled nursing care defined as services provided during a
covered stay in a skilled nursing facility during the period for which
cost sharing would apply under Original Medicare.
(4) Home health services provided in accordance with Sec. 424.22.

Subpart J--Qualifying Conditions for Medicare Contracts

3. Section 417.402 is amended by revising paragraph (c)
introductory text to read as follows:

Sec. 417.402 Effective date of initial regulations.

* * * * *
(c) Mandatory HMO or CMP and contract non-renewal or service area
reduction. CMS will non-renew all or a portion of an HMO's or CMP's
contracted service area using procedures in Sec. 417.492(b) and Sec.
417.494(a) for any period beginning on or after January 1, 2013,
where--
* * * * *

Subpart K--Enrollment, Entitlement, and Disenrollment Under
Medicare Contract

4. Section 417.430 is amended as follows:
A. Revising the paragraph heading for paragraph (a).
B. Revising paragraphs (a)(1), (b)(3), and (b)(4).

Sec. 417.430 Application procedures.

(a) Application forms and other enrollment mechanisms. (1) The
application form must comply with CMS instructions regarding content
and format and be approved by CMS. The application must be completed by
an HMO or CMP eligible (or soon to become eligible) individual and
include authorization for disclosure between the HHS and its designees
and the HMO or CMP.
* * * * *
(b) * * *
(3) The HMO or CMP gives the beneficiary prompt notice of
acceptance or denial in a format specified by CMS.
(4) The notice of acceptance. If the HMO or CMP is currently
enrolled to capacity, explains the procedures that will be followed
when vacancies occur.
* * * * *

PART 422--MEDICARE ADVANTAGE PROGRAM

5. 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

6. Section 422.2 is amended by adding in alphabetical order the
definitions of ``fiscally sound operation,'' ``fully integrated dual-
eligible special needs plan,'' and ``senior housing facility plan'' in
alphabetical order to read as follows:

Sec. 422.2 Definitions.

* * * * *
Fiscally sound operation means an operation which at least
maintains a

[[Page 71276]]

positive net worth (total assets exceed total liabilities).
* * * * *
Fully integrated dual eligible special needs plan means a CMS
approved MA-PD dual-eligible special needs plan that--
(1) Provides dual-eligible beneficiaries access to Medicare and
Medicaid benefits under a single managed care organization;
(2) Has a capitated contract with a State Medicaid agency that
includes coverage of specified primary, acute, and long-term care
benefits and services, consistent with State policy;
(3) Coordinates the delivery of covered Medicare and Medicaid
health and long-term care services using aligned care management and
specialty care network methods for high-risk beneficiaries; and
(4) Employs policies and procedures approved by CMS and the State
to coordinate or integrate member materials, including enrollment,
communications, grievance and appeals, and quality assurance.
* * * * *
Senior housing facility plan means an MA coordinated care plan
that--
(1) Restricts enrollment to individuals who reside in a continuing
care retirement community as defined in Sec. 422.133(b)(2);
(2) Provides primary care services onsite and has a ratio of
accessible physicians to beneficiaries that CMS determines is adequate
consistent with prevailing patterns of community health care referenced
at Sec. 422.112(a)(10);
(3) Provides transportation services for beneficiaries to specialty
providers outside of the facility; and
(4) Was participating as of December 31, 2009 in a demonstration
established by CMS for not less than 1 year.
* * * * *
7. Section 422.4 is amended by:
A. Revising paragraphs (a)(1)(iii) and (a)(1)(iv).
B. Adding paragraph (a)(1)(vi).
The revisions and additions read as follows:

Sec. 422.4 Types of MA plans.

* * * * *
(a) * * *
(1) * * *
(iii) Coordinated care plans include plans offered by any of the
following:
(A) Health maintenance organizations (HMOs);
(B) Provider-sponsored organizations (PSOs), subject to paragraph
(a)(1)(vi) of this section.
(C) Regional or local preferred provider organizations (PPOs) as
specified in paragraph (a)(1)(v) of this section.
(D) Other network plans (except PFFS plans).
(iv) A specialized MA plan for special needs individuals (SNP)
includes any type of coordinated care plan that meets CMS's SNP
requirements and exclusively enrolls special needs individuals as
defined by Sec. 422.2 of this subpart. All MA plans wishing to offer a
SNP will be required to be approved by the National Commission on
Quality Assurance (NCQA) effective January 1, 2012. This approval
process applies to existing SNPs as well as new SNPs joining the
program. All SNPs must submit their overall quality improvement (QI)
program and the model of care (MOC) to CMS for NCQA evaluation and
approval as per CMS guidance.
* * * * *
(vi) In accordance with Sec. 422.370, CMS does not waive the State
licensure requirement for organizations seeking to offer a PSO.
* * * * *

Subpart B--Eligibility, Election, and Enrollment

8. Add Sec. 422.53 to read as follows:

Sec. 422.53 Eligibility to elect an MA plan for senior housing
facility residents.

(a) Basic eligibility requirements. To be eligible to elect an MA
senior housing facility plan, the individual must meet both of the
following:
(1) Be a resident of an MA senior housing facility defined in Sec.
422.2; and
(2) Be eligible to elect an MA plan under Sec. 422.50.
(b) Restricting enrollment. An MA senior housing facility plan must
restrict enrollment to only those individuals who reside in a
continuing care retirement community as defined at Sec. 422.133(b)(2).
(c) Establishing eligibility for enrollment. An MA senior housing
facility plan must verify the eligibility of each individual enrolling
in its plan using a CMS approved process.
9. Section 422.62 is amended by:
A. Revising paragraphs (a)(2)(i), (iii), and (iv), and (a)(5).
B. Add new paragraph (a)(7).
The revisions and addition read as follows:

Sec. 422.62 Election of coverage under an MA plan.

(a) * * *
(2) Annual coordinated election period. (i) For 2002 through 2010,
except for 2006, the annual coordinated election period for the
following calendar year is November 15 through December 31.
(ii) * * *
(iii) Beginning in 2011, the annual coordinated election period for
the following calendar year is October 15 through December 7.
(iv) During the annual coordinated election period, an individual
eligible to enroll in an MA plan may change his or her election from an
MA plan to Original Medicare or to a different MA plan, or from
Original Medicare to an MA plan. If an individual changes his or her
election to Original Medicare, he or she may also elect a PDP.
* * * * *
(5) Open enrollment and disenrollment from 2007 through 2010. (i)
Open enrollment period. For 2007 through 2010, except as provided in
paragraphs (a)(5)(ii), (a)(5)(iii), and (a)(6) of this section, an
individual who is not enrolled in an MA plan but is eligible to elect
an MA plan may make an election into an MA plan once during the first 3
months of the year.
(ii) Newly eligible MA individual. An individual who becomes MA
eligible in 2007 through 2010 may elect an MA plan or change his or her
election once during the period that begins the month the individual is
entitled to both Part A and Part B and ends on the last day of the
third month of the entitlement, or on December 31, whichever is
earlier, subject to the limitations in paragraphs (a)(5)(i)(A) and
(a)(5)(i)(B) of this section.
(iii) Single election limitation. The limitation to one election or
change in paragraphs (a)(5)(i) and (a)(5)(ii) of this section does not
apply to elections or changes made during the annual coordinated
election period specified in paragraph (a)(2) of this section, or
during a special election period specified in paragraph (b) of this
section.
* * * * *
(7) Annual 45-day period for disenrollment from MA plans to
Original Medicare. For 2011 and subsequent years, at any time from
January 1 through February 14, an individual who is enrolled in an MA
plan may elect Original Medicare once during this 45-day period. An
individual who chooses to exercise this election may also make a
coordinating election to enroll in a PDP as specified in Sec.
423.38(d).
* * * * *
10. Section 422.68 is amended by adding paragraph (f) to read as
follows:

Sec. 422.68 Effective dates of coverage and change from coverage.

* * * * *

[[Page 71277]]

(f) Annual 45-day period for disenrollment from MA plans to
Original Medicare. Beginning in 2011, an election made from January 1
through February 14 to disenroll from an MA plan to Original Medicare,
as described in Sec. 422.62(a)(7), is effective the first day of the
first month following the month in which the election is made.
11. Section 422.74 is amended by adding paragraphs (d)(1)(v) and
(vi) to read as follows:

Sec. 422.74 Disenrollment by the MA organization.

* * * * *
(d) * * *
(1) * * *
(v) Extension of grace period for good cause and reinstatement.
When an individual is disenrolled for failure to pay the plan premium,
CMS may reinstate enrollment in the MA plan, without interruption of
coverage, if the individual shows good cause for failure to pay within
the initial grace period, and pays all overdue premiums within 3
calendar months after the disenrollment date. The individual must
establish by a credible statement that failure to pay premiums within
the initial grace period was due to circumstances for which the
individual had no control, or which the individual could not reasonably
have been expected to foresee.
(vi) No extension of grace period. A beneficiary's enrollment in
the MA plan may not be reinstated if the only basis for such
reinstatement is a change in the individual's circumstances subsequent
to the involuntary disenrollment for non-payment of premiums.
* * * * *

Subpart C--Benefits and Beneficiary Protections

12. Section 422.100 is amended by:
A. Revising paragraph (d)(2).
B. Adding new paragraphs (j) and (k).
The revision and additions read as follows.

Sec. 422.100 General requirements.

* * * * *
(d) * * *
(2) At a uniform premium, with uniform benefits and level of in-
network cost-sharing throughout the plan's service area, or segment of
service area as provided in Sec. 422.262(c)(2).
* * * * *
(j) Services for which cost sharing may not exceed cost sharing
under Original Medicare. On an annual basis, CMS will evaluate whether
there are service categories for which MA plans' cost sharing may not
exceed that required under Original Medicare and specify in regulation
which services are subject to that cost sharing limit. The following
services are subject to this limit on cost sharing:
(1) Chemotherapy administration services to include chemotherapy
drugs and radiation therapy integral to the treatment regimen.
(2) Renal dialysis services as defined at section 1881(b)(14)(B) of
the Act.
(3) Skilled nursing care defined as services provided during a
covered stay in a skilled nursing facility during the period for which
cost sharing would apply under Original Medicare.
(4) Home health services provided in accordance with Sec. 424.22.
(k) Cost sharing for in-network preventive services. MA
organizations may not charge deductibles, copayments, or coinsurance
for in-network Medicare-covered preventive services, as specified by
CMS annually.
13. Section 422.101 is amended by:
A. Revising paragraphs (d)(2) and (3).
B. Adding a new paragraph (f)(2)(vi).
The revisions and addition read as follows.

Sec. 422.101 Requirements relating to basic benefits.

* * * * *
(d) * * *
(2) Catastrophic limit. MA regional plans are required to provide
for a catastrophic limit on beneficiary out-of-pocket expenditures for
in-network benefits under the Original Medicare fee-for-service program
(Part A and Part B benefits) that is no greater than the annual limit
set by CMS.
(3) Total catastrophic limit. MA regional plans are required to
provide a total catastrophic limit on beneficiary out-of-pocket
expenditures for in-network and out-of-network benefits under the
Original Medicare fee-for-service program. This total out-of-pocket
catastrophic limit, which would apply to both in-network and out-of-
network benefits under Original Medicare, may be higher than the in-
network catastrophic limit in paragraph (d)(2) of this section, but may
not increase the limit described in paragraph (d)(2) of this section
and may be no greater than the annual limit set by CMS.
* * * * *
(f) * * *
(2) * * *
(vi) All MAOs wishing to offer or continue to offer a SNP will be
required to be approved by the National Committee for Quality Assurance
(NCQA) effective January 1, 2012 and subsequent years. All SNPs must
submit their overall quality improvement (QI) program and the model of
care (MOC) to CMS for NCQA evaluation and approval in accordance with
CMS guidance.
14. Section 422.106 is amended by:
A. Revising paragraph (d)(1).
B. Adding paragraphs (d)(4) through (6).
The revision and additions read as follows.

Sec. 422.106 Coordination of benefits with employer or union group
health plans and Medicaid.

* * * * *
(d) * * *
(1) CMS may waive or modify any requirement in this part or Part D
that hinders the design of, the offering of, or the enrollment in, an
employer-sponsored group MA plan (including an MA-PD plan) offered by
one or more employers, labor organizations, or the trustees of a fund
established by one or more employers or labor organizations (or
combination thereof), or that is offered, sponsored or administered by
an entity on behalf of one or more employers or labor organizations, to
furnish benefits to the employers' employees, former employees (or
combination thereof) or members or former members (or combination
thereof) of the labor organizations. Any entity seeking to offer,
sponsor, or administer such an MA plan described in this paragraph may
request, in writing, from CMS, a waiver or modification of requirements
in this part that hinder the design of, the offering of, or the
enrollment in, such MA plan.
* * * * *
(4) An employer-sponsored group MA plan means MA coverage offered
to retirees who are Medicare eligible individuals under employment-
based retiree health coverage, as defined in paragraph (d)(5) of this
section, approved by CMS as an MA plan.
(5) Employment-based retiree coverage means coverage of health care
costs under a group health plan, as defined in paragraph (d)(6) of this
section, based on an individual's status as a retired participant in
the plan, or as the spouse or dependent of a retired participant. The
term includes coverage provided by voluntary insurance coverage, or
coverage as a result of a statutory or contractual obligation.
(6) Group health plans include plans as defined in section 607(1)
of ERISA, (29 U.S.C. 1167(1)). They also include the following plans:
(i) A Federal or State governmental plan, which is a plan providing
medical care that is established or maintained for its employees by the
Government of

[[Page 71278]]

the United States, by the government of any State or political
subdivision of a State (including a county or local government), or by
any agency or instrumentality or any of the foregoing, including a
health benefits plan offered under 5 U.S.C. 89 (the Federal Employee
Health Benefit Plan (FEHBP)).
(ii) A collectively bargained plan, which is a plan providing
medical care that is established or maintained under or by one or more
collective bargaining agreements.
(iii) A church plan, which is a plan providing medical care that is
established and maintained for its employees or their beneficiaries by
a church or by a convention or association of churches that is exempt
from tax under section 501 of the Internal Revenue Code of 1986 (26
U.S.C. 501).
(iv) Any of the following plans:
(A) An account-based medical plan such as a Health Reimbursement
Arrangement (HRA) as defined in Internal Revenue Service Notice 2002-
45, 2002-28 I.R.B. 93.
(B) A health Flexible Spending Arrangement (FSA) as defined in
Internal Revenue Code (Code) section 106(c)(2).
(C) A health savings account (HSA) as defined in Code section 223.
(D) An Archer MSA as defined in Code section 220, to the extent
they are subject to ERISA as employee welfare benefit plans providing
medical care (or would be subject to ERISA but for the exclusion in
ERISA section 4(b), 29 U.S.C. 1003(b), for governmental plans or church
plans).
15. Section 422.107 is amended by revising paragraph (d)(1)(ii) to
read as follows:

Sec. 422.107 Special needs plans and dual-eligibles: Contract with
State Medicaid Agency.

* * * * *
(d) * * *
(1) * * *
(ii) Existing dual-eligible SNPs that do not have a State Medicaid
agency contract--
(A) May continue to operate through the 2012 contract year provided
they meet all other statutory and regulatory requirements.
(B) May not expand their service areas during contract years 2010
through 2012.
* * * * *
16. Amend Sec. 422.111 by:
A. Adding a new paragraph (b)(12).
B. Removing paragraph (f)(12).
C. Adding paragraph (h).
The additions read as follows.

Sec. 422.111 Disclosure requirements.

* * * * *
(b) * * *
(12) Customized out-of-pocket cost statement. CMS may require an MA
organization to annually disclose to each enrollee a customized
statement of the beneficiary's potential future out-of-pocket costs.
This notice will be provided in each year, in which a minimum
enrollment period has been met, in conjunction with the annual plan
description described in paragraphs (b)(1) through (11) of this
section.
* * * * *
(h) Provision of specific information. Each MA organization must
have mechanisms for providing specific information on a timely basis to
current and prospective enrollees upon request. These mechanisms must
include all of the following:
(1) A toll-free customer service call center that meets all of the
following:
(i) Is open during usual business hours.
(ii) Provides customer telephone service in accordance with
standard business practices.
(iii) Provides interpreters for all non-English speaking and
limited English proficient (LEP) individuals.
(2) An Internet Web site that includes, at a minimum the following:
(i) The information required in paragraph (b) of this section.
(ii) Copies of its evidence of coverage, summary of benefits, and
information (names, addresses, phone numbers, and specialty) on the
network of contracted providers. Such posting does not relieve the MA
organization of its responsibility under Sec. 422.111(a) to provide
hard copies to enrollees.
(3) The provision of information in writing, upon request.
17. Section 422.112 is amended by revising paragraph (a)(10)
introductory text to read as follows:

Sec. 422.112 Access to services.

(a) * * *
(10) Prevailing patterns of community health care delivery. MA
plans that meet Medicare access and availability requirements through
direct contracting network providers must do so consistent with the
prevailing community pattern of health care delivery in the areas where
the network is being offered. Factors making up community patterns of
health care delivery that CMS will use as a benchmark in evaluating a
proposed MA plan health care delivery network include, but are not
limited to the following:
* * * * *
18. Amend Sec. 422.113 by revising paragraph (b)(2)(v) as follows:

Sec. 422.113 Special rules for ambulance services, emergency and
urgently needed services, and maintenance and post-stabilization care
services.

* * * * *
(b) * * *
(2) * * *
(v) With a limit on charges to enrollees for emergency department
services that CMS will determine annually, or what it would charge the
enrollee if he or she obtained the services through the MA
organization, whichever is less.
* * * * *

Subpart D--Quality Improvement

19. Amend Sec. 422.152 by revising paragraph (g) introductory text
to read as follows:

Sec. 422.152 Quality improvement program.

* * * * *
(g) Special requirements for specialized MA plans for special needs
individuals. All special needs plans (SNPs) must be approved by the
National Committee for Quality Assurance (NCQA) effective January 1,
2012 and subsequent years. SNPs must submit their overall quality
improvement (QI) program and model of care (MOC) to CMS for NCQA
evaluation and approval, in accordance with CMS guidance. A SNP must
conduct a quality improvement program that--
* * * * *
20. Amend Sec. 422.156 by revising paragraph (b)(1) to read as
follows:

Sec. 422.156 Compliance deemed on the basis of accreditation.

* * * * *
(b) * * *
(1) Quality improvement. The deeming process should focus on
evaluating and assessing the overall quality improvement (QI) program.
However, the quality improvement projects (QIPs) and the chronic care
improvement programs (CCIPs) will be excluded from the deeming process.
* * * * *

Subpart E--Relationships With Providers

21. Amend Sec. 422.214 by adding paragraphs (c) and (d) to read as
follows:

Sec. 422.214 Special rules for services furnished by noncontract
providers.

* * * * *
(c) Deemed request for Medicare payment rate. A noncontract section
1861(u) of the Act provider of services that furnishes services to MA
enrollees and submits the same information that

[[Page 71279]]

it would submit for payment under Original Medicare is deemed to be
seeking to be paid the amount it would be paid under Original Medicare
unless the provider expressly notifies the MA organization in writing
that it is billing an amount less than such amount.
(d) Regional PPO payments in non-network areas. An MA Regional PPO
must pay non-contract providers the Original Medicare payment rate in
those portions of its service area where it is providing access to
services by non-network means under Sec. 422.111(b)(3)(ii) of this
part.

Subpart F--Submission of Bids, Premiums, and Related Information
and Plan Approval

22. Section 422.252 is amended by:
A. Adding in alphabetical order the definitions ``low enrollment
contract'' and ``new MA plan.''
B. Revising the definition of ``unadjusted MA area-specific non-
drug monthly benchmark amount.''
The additions and revision read as follows:

Sec. 422.252 Terminology.

* * * * *
Low enrollment contract means a contract that could not undertake
Healthcare Effectiveness Data and Information Set (HEDIS) and Health
Outcome Survey (HOS) data collections because of a lack of a sufficient
number of enrollees to reliably measure the performance of the health
plan.
* * * * *
New MA plan means a MA contract offered by a parent organization
that has not had another MA contract in the previous 3 years.
* * * * *
Unadjusted MA area-specific non-drug monthly benchmark amount
means, for local MA plans serving one county, the county capitation
rate CMS publishes annually that reflects the nationally average risk
profile for the risk factors CMS applies to payment calculations as set
forth at Sec. 422.308(c) of this part, (that is, a standardized
benchmark). For local MA plans serving multiple counties it is the
weighted average of county rates in a plan's service area, weighted by
the plan's projected enrollment per county. The rules for determining
county capitation rates are specific to a time period, as set forth at
Sec. 422.258(a). Effective 2012, the MA area-specific non-drug monthly
benchmark amount is called the blended benchmark amount, and is
determined according to the rules set forth under Sec. 422.258(d) of
this part.
* * * * *
23. Section 422.254 is amended by adding paragraph (a)(5) to read
as follows:

Sec. 422.254 Submission of bids.

(a) * * *
(5) CMS may decline to accept any or every otherwise qualified bid
submitted by an MA organization or potential MA organization.
* * * * *
24. Section 422.256 is amended by revising paragraph (a) to read as
follows:

Sec. 422.256 Review, negotiation, and approval of bids.

(a) Authority. Subject to paragraphs (a)(2), (d), and (e) of this
section, CMS has the authority to review the aggregate bid amounts
submitted under Sec. 422.252 and conduct negotiations with MA
organizations regarding these bids (including the supplemental
benefits) and the proportions of the aggregate bid attributable to
basic benefits, supplemental benefits, and prescription drug benefits
and may decline to approve a bid if the plan sponsor proposes
significant increases in cost sharing or decreases in benefits offered
under the plan.
* * * * *
25. Section 422.258 is amended by:
A. Revising paragraphs (a)(1) and (2).
B. In paragraph (c)(3)(i), removing the phrase ``county capitation
rate'' and adding in its place the phrase ``amount determined under
paragraph (a) of this section for the year''.
C. Adding a new paragraph (d).
The revisions and additions read as follows:

Sec. 422.258 Calculation of benchmarks.

(a) * * *
(1) For MA local plans with service areas entirely within a single
MA local area:
(i) For years before 2007, one-twelfth of the annual MA capitation
rate (described at Sec. 422.306) for the area, adjusted as appropriate
for the purpose of risk adjustment.
(ii) For years 2007 through 2010, one-twelfth of the applicable
amount determined under section 1853(k)(1) of the Act for the area for
the year, adjusted as appropriate for the purpose of risk adjustment.
(iii) For 2011, one-twelfth of the applicable amount determined
under 1853(k)(1) for the area for 2010.
(iv) Beginning with 2012, one-twelfth of the blended benchmark
amount described in paragraph (d) of this section, subject to paragraph
(d)(8) of this section and adjusted as appropriate for the purpose of
risk adjustment.
(2) For MA local plans with service areas including more than one
MA local area, an amount equal to the weighted average of amounts
described in paragraph (a)(1) of this section for the year for each
local area (county) in the plan's service area, using as weights the
projected number of enrollees in each MA local area that the plan used
to calculate the bid amount, and adjusted as appropriate for the
purpose of risk adjustment.
* * * * *
(d) Determination of the blended benchmark amount. (1) For the
purpose of paragraphs (a) and (b) of this section, the term blended
benchmark amount for an area for a year means the sum of two
components: The applicable amount determined under section 1853(k)(1)
of the Act and the specified amount determined under section 1853(n)(2)
of Act. The weights for each component are based on the phase-in period
assigned each area, as described in paragraphs (d)(8) and (d)(9) of
this section. At the conclusion of an area's phase-in period, the
blended benchmark for an area for a year equals the section 1853(n)(2)
of the Act specified amount described in paragraph (d)(2) of this
section. However, blended benchmark amount for an area for a year
(which takes into account paragraph (d)(8) of this section), cannot
exceed the applicable amount described in paragraph (d)(2) of this
section that would be in effect but for the application of this
paragraph.
(2) For the purpose of paragraphs (a) and (b) of this section, the
applicable amount determined under section 1853(k)(1) of the Act for a
year is--
(i) In a rebasing year (described at Sec. 422.306(b)(2), an amount
equal to the greater of the average FFS expenditure amount at Sec.
422.306(b)(2) for an area and the minimum percentage increase rate at
Sec. 422.306(a) for an area.
(ii) In a year when the amounts at Sec. 422.306(b)(2) are not
rebased, the minimum percentage increase rate at Sec. 422.306(a) for
the area for the year.
(iii) In no case the blended benchmark amount for an area for a
year, determined taking into account paragraph (d)(8) of this section,
be greater than the applicable amount at paragraph (d)(2) of this
section for an area for a year.
(iv) Paragraph (d) of this section does not apply to the PACE
program under section 1894 of Act.
(3) For the purpose of paragraphs (a) and (b) of this section, the
specified amount under section 1853(n)(2) of the Act is the product of
the base payment amount for an area for a year (adjusted as required
under Sec. 422.306(c) multiplied by the applicable percentage

[[Page 71280]]

described in paragraph (d)(5) of this section for an area for a year.
(4) The base payment amount is as follows:
(i) For 2012, the average FFS expenditure amount specified in Sec.
422.306(b)(2), determined for 2012.
(ii) For subsequent years, the average FFS expenditure amount
specified in Sec. 422.306(b)(2).
(5) Applicable percentage. Subject to paragraph (d)(7) of this
section, the applicable percentage is one of four values assigned to an
area based on Secretary's determination of the quartile ranking of the
area's average FFS expenditure amount (described at Sec. 422.306(b)(2)
and adjusted as required at Sec. 422.306(c)), relative to this amount
for all areas.
(i) For the 50 States or the District of Columbia, a county with an
average FFS expenditure amount adjusted under Sec. 422.306(c) that
falls in the--
(A) Highest quartile of such rates for all areas for the previous
year receives an applicable percentage of 95 percent.
(B) Second highest quartile of such rates for all areas for the
previous year receives an applicable percentage of 100 percent.
(C) Third highest quartile of such rates for all areas for the
previous year receives an applicable percentage of 107.5 percent.
(D) Lowest quartile of such rates for all areas for the previous
year receives an applicable percentage of 115 percent.
(ii) To determine the applicable percentages for a territory, the
Secretary ranks such areas for a year based on the level of the area's
Sec. 422.306(b)(2) amount adjusted under Sec. 422.306(c), relative to
the quartile rankings computed under paragraph (d)(5)(i) of this
section.
(6) Additional rules for determining the applicable percentage. (i)
In a contract year when the average FFS expenditure amounts from the
previous year were rebased (according to the periodic rebasing
requirement at Sec. 422.306(b)(2)), the Secretary must determine an
area's applicable percentage based on a quartile ranking of the
previous year's rebased FFS amounts adjusted under Sec. 422.306(c).
(ii) If, for a year after 2012, there is a change in the quartile
in which an area is ranked compared to the previous year's ranking, the
applicable percentage for the area in the year must be the average of
the applicable percentage for the previous year and the applicable
percentage that would otherwise apply for the area for the year in the
absence of this transitional provision.
(7) Increases to the applicable percentage for quality. Beginning
with 2012, the blended benchmark under paragraphs (a) and (b) of this
section will reflect the level of quality rating at the plan or
contract level, as determined by the Secretary. The quality rating for
a plan is determined by the Secretary according to a 5-star rating
system (based on the data collected under section 1852(e) of the Act).
Specifically, the applicable percentage under paragraph (d)(5) of this
section must be increased according to criteria in paragraphs (d)(7)(i)
through (v) of this section if the plan or contract is determined to be
a qualifying plan or a qualifying plan in a qualifying county for the
year.
(i) Qualifying plan. Beginning with 2012, a qualifying plan means a
plan that had a quality rating of 4 stars or higher based on the most
recent data available for such year. For a qualifying plan, the
applicable percentage at paragraph (d)(5) of this section must be
increased as follows:
(A) For 2012, by 1.5 percentage points.
(B) For 2013, by 3.0 percentage points.
(C) For 2014 and subsequent years, by 5.0 percentage points.
(ii) Qualifying county. (A) A qualifying county means a county that
meets the following three criteria:
(1) Has an MA capitation rate that, in 2004, was based on the
amount specified in section 1853(c)(1)(B) of the Act for a Metropolitan
Statistical Area with a population of more than 250,000.
(2) Of the MA-eligible individuals residing in the county, at least
25 percent of such individuals were enrolled in MA plans as of December
2009.
(3) Has per capita fee-for-service spending that is lower than the
national monthly per capita cost for expenditures for individuals
enrolled under the Original Medicare fee-for-service program for the
year.
(B) Beginning with 2012, for a qualifying plan serving a qualifying
county, the increase to the applicable percentage described at
paragraph (d)(7)(i) of this section must be doubled for the qualifying
county.
(iii) MA organizations that fail to report data as required by the
Secretary must be counted as having a rating of fewer than 3.5 stars at
the plan or contract level, as determined by the Secretary.
(iv) Application of applicable percentage increases to low
enrollment plans. (A) For 2012, for an MA plan that the Secretary
determines is unable to have a quality rating because of low
enrollment, the Secretary treats this plan as a qualifying plan under
paragraph (d)(7)(i) of this section.
(B) For 2013 and subsequent years, the Secretary develops a
methodology to apply to MA plans with low enrollment (as defined by the
Secretary) to determine whether a low enrollment plan is a qualifying
plan.
(v) Application of increases in applicable percentage to new MA
plans. A new MA plan (as defined at Sec. 422.252) that meets criteria
specified by the Secretary must be treated as a qualifying plan under
paragraph (d)(7)(i) of this section, except that the applicable
percentage must be increased as follows:
(A) For 2012, by 1.5 percentage points.
(B) For 2013, by 2.5 percentage points.
(C) For 2014 and subsequent years, by 3.5 percentage points.
(8) Determination of phase-in period for the blended benchmark
amount. For 2012 through 2016, the blended benchmark amount for an area
for a year depends on the phase-in period assigned to that area. The
Secretary assigns one of three phase-in periods to each area: 2-year,
4-year, or 6-year. The phase-in period assigned to an area is based on
the size of the difference between the 2010 applicable amount at
paragraph (d)(2) of this section and the projected 2010 benchmark
amount defined at paragraph (d)(8)(i) of this section.
(i) The projected 2010 benchmark amount is calculated once for the
purpose of determining the phase-in period for an area. It is equal to
one-half of the 2010 applicable amount at paragraph (d)(2) of this
section and one-half of the specified amount at paragraph (d)(3)
modified to apply to 2010 (as described in (d)(8)(ii) of this section).
(ii) To assign a phase-in period to an area, the specified amount
is modified as if it applies to 2010, and is the product of--
(A) The 2010 base payment amount adjusted as required under Sec.
422.306(c) of this part; and
(B) The applicable percentage determined as if the reference to the
``previous year'' at paragraph (d)(5) of this section were deemed a
reference to 2010 and increased as follows:
(1) The increase at paragraph (d)(7)(i) of this section for a
qualifying plan in the area is applied as if the reference to a
qualifying plan for 2012 were deemed a reference for 2010; and
(2) The increase at paragraph (d)(7)(ii) of this section is applied
as if the determination of a qualifying county were made for 2010.

[[Page 71281]]

(iii) Two-year phase-in. An area is assigned the 2-year phase-in
period if the difference between the applicable amount at paragraph
(d)(2) of this section and the projected 2010 benchmark amount at
paragraph (d)(8)(i) of this section is less than $30.
(iv) Four-year phase-in. An area is assigned the 4-year phase-in
period if the difference between the applicable amount at paragraph
(d)(2) of this section and the projected 2010 benchmark amount at
paragraph (d)(8)(i) of this section is at least $30 but less than $50.
(v) Six-year phase-in. An area is assigned the 6-year phase-in
period if the difference between the applicable amount at paragraph
(d)(2) of this section and the projected 2010 benchmark amount at
paragraph (d)(8)(i) of this section is at least $50.
(9) Impact of phase-in period on calculation of the blended
benchmark amount. (i) Weighting for the 2-year phase-in. (A) For 2012,
the blended benchmark is the sum of one-half of the applicable amount
at paragraph (d)(2) of this section and one-half of the specified
amount at paragraph (d)(3) of this section.
(B) For 2013 and subsequent years, the blended benchmark equals the
specified amount.
(ii) Weighting for the 4-year phase-in. The blended benchmark is
the sum of the applicable amount at paragraph (d)(2) of this section
and the specified amount at paragraph (d)(2) of this section in the
following proportions:
(A) For 2012, three-fourths of the applicable amount for the area
for the year and one-fourth of the specified amount for the area and
year.
(B) For 2013, one-half of the applicable amount for the area for
the year and one-half of the specified amount for the area and year.
(C) For 2014, one-fourth of the applicable amount for the area for
the year and three-fourths of the specified amount for the area and
year.
(D) For 2015 and subsequent years, the blended benchmark equals the
specified amount for the area and year.
(iii) Weighting for the 6-year phase-in. The blended benchmark is
the sum of the applicable amount at paragraph (d)(2) and the specified
amount at paragraph (d)(3) of this section in the following
proportions:
(A) For 2012, five-sixths of the applicable amount for the area and
year and one-sixth of the specified amount for the area and year.
(B) For 2013, two-thirds of the applicable amount for the area and
year and one-third of the specified amount for the area and year.
(C) For 2014, one-half of the applicable amount for the area and
year and one-half of the specified amount for the area and year.
(D) For 2015, one-third of the applicable amount for the area and
year and two-thirds of the specified amount for the area and year.
(E) For 2016, one-sixth of the applicable amount for the area and
year and five-sixths of the specified amount for the area and year.
(F) For 2017 and subsequent years, the blended benchmark equals the
specified amount for the area and year.
25. Add Sec. 422.260 to read as follows:

Sec. 422.260 Appeals of quality bonus payment determinations.

(a) Scope. The provisions of this section pertain to appeals of
quality bonus payment status determinations based on section 1853(o) of
the Act.
(b) Definitions. The following definitions apply to this section:
Quality bonus payment (QBP) means--(i) Enhanced CMS payments to MA
organizations based on the organization's demonstrated quality of its
Medicare contract operations; or
(ii) Increased beneficiary rebate retention allowances based on the
organization's demonstrated quality of its Medicare contract
operations.
Quality bonus payment (QBP) determination methodology means the
formula CMS adopts for evaluating whether MA organizations qualify for
an QBP.
Quality bonus payment (QBP) status means an MA organization's
standing with respect to its qualification to--
(i) Receive a quality bonus payment, as determined by CMS; or
(ii) Retain a portion of its beneficiary rebates based on its
quality rating, as determined by CMS.
(c) Technical report on QBP status. An MA organization may request
a technical report from CMS which details the performance data and
performance measures that CMS relied on in applying the quality bonus
payment determination methodology and how CMS applied the methodology
to such performance data.
(1) The MA organization must request a technical report concerning
its QBP status within 5 days of CMS' issuance of notice of the QBP
status determination.
(2) The technical report must be prepared by an independent
contractor engaged by CMS to review the application of CMS' QBP payment
determination methodology to the organization's performance for the
most recent evaluation period.
(3) Within 30 days of CMS' receipt of the MA organization request,
the independent contractor must issue the technical report to the MA
organization and CMS in writing and by electronic mail.
(4) The independent contractor will not accept or consider
materials submitted by the MA organization in advance of the technical
report.
(d) QBP status appeal process. (1) Hearing request. An MA
organization may request an appeal of its QBP status.
(i) The MA organization seeking an appeal of their QBP status must
do so by providing written notice to CMS within 7 days of the issuance
of the QBP technical report. The notice must specify the errors the MA
organization asserts that CMS made in making the QBP determination and
how correction of those errors would result in the organization's
qualification for a QBP.
(ii) The MA organization may not request an appeal of its QBP
status unless it has already requested and received a technical report
in accordance with paragraph (c) of this section.
(2) Designation of a hearing officer. CMS designates a hearing
officer to conduct the appeal of the QBP status. The officer must be an
individual who did not directly participate in the initial QBP
determination.
(3) Hearing officer's review. The hearing officer reviews the
application of CMS' QBP determination methodology to the determination
of the MA organization's QBP status.
(i) The hearing officer must consider whether CMS correctly applied
its QBP determination methodology to the MA organization's performance,
but may not consider the validity of the determination methodology
itself.
(ii) The hearing officer may also consider the accuracy of the data
related to individual performance measures used to arrive at a QBP
determination where those performance measures have not been subject to
an independent audit.
(iii) The hearing officer may not consider the accuracy of data
related to individual performance measures which were subject to an
independent audit prior to their use in arriving at the QBP
determination.
(iv) The hearing is conducted by a CMS hearing officer on the
record, unless the parties requested, subject to the hearing officer's
discretion, a live or telephonic hearing.
(v) The hearing officer receives no testimony, but may accept
written statements with exhibits from each party in support of their
position in the matter.
(4) Hearing officer's decision. The hearing officer issues a
decision on or

[[Page 71282]]

before May 15 of the year preceding the year in which the plans for
which the QBP is to be applied will be offered. The hearing officer
issues the decision by electronic mail to the MA organization and to
CMS.
(5) Effect of the hearing officer's decision. The hearing officer's
decision is final and binding.
(e) Reopening of QBP determinations. CMS may, on its own
initiative, revise an MA organization's QBP status at any time after
the initial release of the QBP determinations through April 1 of each
year. CMS may take this action on the basis of any credible
information, including the technical report issued in accordance with
paragraph (c) of this section that demonstrates that the initial QBP
determination was incorrect.
26. Amend Sec. 422.262 by revising paragraph (c)(1) to read as
follows:

Sec. 422.262 Beneficiary premiums.

* * * * *
(c) * * *
(1) General rule. (i) Except as permitted for supplemental premiums
under Sec. 422.106(d), for MA contracts with employers and labor
organizations, the MA monthly bid amount submitted under Sec. 422.254,
the MA monthly basic beneficiary premium, the MA monthly supplemental
beneficiary premium, the MA monthly prescription drug premium, and the
monthly MSA premium of an MA organization may not vary among
individuals enrolled in an MA plan (or segment of the plan as provided
for local MA plans under paragraph (c)(2) of this section).
(ii) The MA organization cannot vary the level of cost-sharing
charged for basic benefits or supplemental benefits (if any) among
individuals enrolled in an MA plan (or segment of the plan). Cost
sharing cannot vary across enrollees of a plan for any reason,
including that based upon primary care provider group, specialist,
hospital network or an enrollee's utilization of health care services.
* * * * *
27. Amend Sec. 422.266 by revising paragraph (a) to read as
follows:

Sec. 422.266 Beneficiary rebates.

(a) Calculation of rebate. (1) For 2006 through 2011, an MA
organization must provide to the enrollee a monthly rebate equal to 75
percent of the average per capita savings (if any) described in Sec.
422.264(b) for MA local plans and Sec. 422.264(d) for MA regional
plans.
(2) For 2012 and subsequent years, an MA organization must provide
to the enrollee a monthly rebate equal to a specified percentage of the
average per capita savings (if any) at Sec. 422.264(b) for MA local
plans and Sec. 422.264(d) for MA regional plans. For 2012 and 2013,
this percentage is based on a combination of the (a)(1) rule of 75
percent and the (a)(2)(ii) rules that set the percentage based on the
plan's quality rating under a 5 star rating system, as determined by
the Secretary under Sec. 422.258(d)(6). For 2014 and subsequent years,
this percentage is determined based only on the paragraph (a)(2)(ii) of
this section rules.
(i) Applicable rebate percentage for 2012 and 2013. Subject to
paragraphs (a)(2)(iii) and (iv) of this section, the transitional
applicable rebate percentage is, for a year, the sum of two amounts as
follows:
(A) For 2012. Two-thirds of the old proportion of 75 percent of the
average per capita savings; and one-third of the new proportion
assigned the plan under paragraph (a)(2)(ii) of this section, based on
the quality rating specified in Sec. 422.258(d)(7).
(B) For 2013. One-third of the old proportion of 75 percent of the
average per capita savings; and two-thirds of the new proportion
assigned the plan under paragraph (d)(2)(ii) of this section, based on
the quality rating at Sec. 422.258(d)(7).
(ii) Final applicable rebate percentage. For 2014 and subsequent
years, and subject to paragraphs (d)(2)(iii) and (iv) of this section,
the final applicable rebate percentage is as follows:
(A) In the case of a plan with a quality rating under such system
of at least 4.5 stars, 70 percent of the average per capita savings;
(B) In the case of a plan with a quality rating under such system
of at least 3.5 stars and less than 4.5 stars, 65 percent of the
average per capita savings.
(C) In the case of a plan with a quality rating under such system
of less than 3.5 stars, 50 percent of the average per capita savings.
(iii) Treatment of low enrollment plans. For 2012, in the case of a
plan described at Sec. 422.258(d)(7)(iv), the plan must be treated as
having a rating of 4.5 stars for the purpose of determining the
beneficiary rebate amount.
(iv) Treatment of new MA plans. For 2012 or a subsequent year, a
new MA plan defined at Sec. 422.252 that meets the criteria specified
by the Secretary for purposes of Sec. 422.258(d)(7)(v) must be treated
as a qualifying plan under Sec. 422.258(d)(7)(i), except that plan
must be treated as having a rating of 3.5 stars for purposes of
determining the beneficiary rebate amount.
* * * * *

Subpart G--Payments to Medicare Advantage Organizations

28. Amend Sec. 422.308 by adding paragraphs (c)(4) through (6) to
read as follows:

Sec. 422.308 Adjustments to capitation rates, benchmarks, bids, and
payments.

* * * * *
(c) * * *
(4) Authority to apply frailty adjustment under PACE payment rules
for certain specialized MA plans for special needs individuals. (i) For
plan year 2011 and subsequent plan years, in the case of a plan
described in paragraph (c)(4)(ii) of this section, the Secretary may
apply the payment rules under section 1894(d) of the Act (other than
paragraph (3) of such section) rather than the payment rules that would
otherwise apply under this part, but only to the extent necessary to
reflect the costs of treating high concentrations of frail individuals.
(ii) Plan described. A plan described in this paragraph is a fully
integrated dual-eligible special needs plan, as defined at Sec. 422.2,
and has a similar average level of frailty (as determined by the
Secretary) as the PACE program.
(5) Application of coding adjustment. (i) In applying the
adjustment under paragraph (c)(1) of this section for health status to
payment amounts, the Secretary ensures that such adjustment reflects
changes in treatment and coding practices in the fee-for-service sector
and reflects differences in coding patterns between MA plans and
providers under Part A and B to the extent that the Secretary has
identified such differences.
(ii) In order to ensure payment accuracy, the Secretary annually
conducts an analysis of the differences described in paragraph
(c)(5)(i) of this section.
(A) The Secretary completes such analysis by a date necessary to
ensure that the results of such analysis are incorporated on a timely
basis into the risk scores for 2008 and subsequent years.
(B) In conducting such analysis, the Secretary uses data submitted
with respect to 2004 and subsequent years, as available and updated as
appropriate.
(iii) In calculating each year's adjustment, the adjustment factor
is as follows:
(A) For 2014, not less than the adjustment factor applied for 2010,
plus 1.3 percentage points.
(B) For each of the years 2015 through 2018, not less than the
adjustment factor applied for the previous year, plus 0.25 percentage
points.

[[Page 71283]]

(C) For 2019 and each subsequent year, not less than 5.7 percent.
(iv) Such adjustment is applied to risk scores until the Secretary
implements risk adjustment using MA diagnostic, cost, and use data.
(6) Improvements to risk adjustment for special needs individuals
with chronic health conditions. (i) General rule. For 2011 and
subsequent years, for purposes of the adjustment under paragraph (c)(1)
of this section with respect to individuals described in paragraph
(c)(6)(ii) of the section, the Secretary uses a risk score that
reflects the known underlying risk profile and chronic health status of
similar individuals. Such risk score is used instead of the default
risk score for new enrollees in MA plans that are not specialized MA
plans for special needs individuals (as defined in section 1859(b)(6)
of the Act).
(ii) Individuals described. An individual described in this clause
is a special needs individual described in section 1859(b)(6)(B)(iii)
of the Act who enrolls in a specialized MA plan for special needs
individuals on or after January 1, 2011.
(iii) Evaluation. For 2011 and periodically thereafter, the
Secretary evaluates and revises the risk adjustment system under this
paragraph in order to, as accurately as possible, account for--
(A) Higher medical and care coordination costs associated with
frailty, individuals with multiple, comorbid chronic conditions, and
individuals with a diagnosis of mental illness; and
(B) Costs that may be associated with higher concentrations of
beneficiaries with the conditions specified in paragraph (c)(6)(iii)(A)
of this section.
(iv) Publication of evaluation and revisions. The Secretary
publishes, as part of an announcement under section 1853(b) of the Act,
a description of any evaluation conducted under paragraph (c)(6)(iii)
of this section during the preceding year and any revisions made under
paragraph (c)(6)(iii) of this section as a result of such evaluation.
* * * * *

Subpart J--Special Rules for MA Regional Plans

Sec. 422.458 [Amended]

29. In Sec. 422.458, paragraph (f) is removed.

Subpart K--Application Procedures and Contracts for Medicare
Advantage Organizations

30. Amend Sec. 422.502 by:
A. Redesignating paragraph (b) as paragraph (b)(1).
B. Adding paragraph (b)(2).
C. Revising paragraph (c)(2)(i).
The revisions read as follows:

Sec. 422.502 Evaluation and determination procedures.

* * * * *
(b) * * *
(2) In the absence of 14 months of performance history, CMS may
deny an application based on a lack of information available to
determine an applicant's capacity to comply with the requirements of
the MA program.
(c) * * *
(2) * * *
(i) If CMS finds that the applicant does not appear to be able to
meet the requirements for an MA organization, CMS gives the applicant
notice of intent to deny the application and a summary of the basis for
this preliminary finding.
* * * * *
31. Amend Sec. 422.503 by:
A. Redesignating paragraph (b)(4)(vi)(B)(1) as paragraph
(b)(4)(vi)(B)(1)(i).
B. Adding paragraph (b)(4)(vi)(B)(1)(ii).
The addition reads as follows.

Sec. 422.503 General provisions.

* * * * *
(b) * * *
(4) * * *
(vi) * * *
(B) * * *
(ii) Beginning in 2013, the compliance officer will complete annual
MA compliance training offered by an entity with expertise in MA. New
applicants must complete training by the last Friday in August prior to
the start of the contract year.
* * * * *
32. Amend Sec. 422.504 by:
A. Redesignating paragraph (a)(14) as paragraph (a)(16) and
revising it.
B. Adding new paragraphs (a)(14) and (a)(15).
The additions and revision read as follows.

Sec. 422.504 Contract provisions.

(a) * * *
(14) Maintain a fiscally sound operation by at least maintaining a
positive net worth (total assets exceed total liabilities).
(15) Address complaints received by CMS against the MAO by--
(i) Addressing and resolving complaints in the CMS complaint
tracking system.
(ii) Displaying a link to the electronic complaint form on the
Medicare.gov Internet Web site on the MA plan's main Web page.
(16) An MA organization's compliance with paragraphs (a)(1) through
(15) and (c) of this section is material to performance of the
contract.
* * * * *
33. Amend Sec. 422.506 by adding paragraph (a)(5) to read as
follows:

Sec. 422.506 Nonrenewal of contract.

(a) * * *
(5) During the same 2-year period as specified in paragraph (a)(4)
of this section, CMS will not contract with an organization whose
covered persons also served as covered persons for the non-renewing
sponsor. A ``covered person'' as used in this paragraph means one of
the following:
(i) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who--
(A) Have an ownership interest of more than 5 percent; and
(B) Acquired the ownership through public trading.
(ii) An owner in whole or part interest in any mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property assists thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property,
and assets of the organization.
(iii) An officer or member of the board of directors or board of
trustees of the entity, if the organization is organized as a
corporation.
* * * * *
34. Amend Sec. 422.508 by adding paragraph (d) to read as follows:

Sec. 422.508 Modification or termination of contract by mutual
consent.

* * * * *
(d) Prohibition against Part C program participation by
organizations whose owners, directors, or management employees served
in a similar capacity with another organization that mutually
terminated its Medicare contract within the previous 2 years. During
the same 2-year period, CMS will not contract with an organization
whose covered persons also served as covered persons for the mutually
terminating sponsor. A ``covered person'' as used in this paragraph
means one of the following:
(1) All owners of nonrenewal or terminated organizations who are
natural persons, other than shareholders who--
(i) Have an ownership interest of more than 5 percent; and
(ii) Acquired the ownership through public trading.
(2) An owner in whole or part interest in any mortgage, deed of
trust, note or other obligation secured (in whole or in

[[Page 71284]]

part) by the organization, or any of the property assists thereof,
which whole or part interest is equal to or exceeds 5 percent of the
total property, and assets of the organization.
(3) An officer or member of the board of directors of the entity,
if the organization is organized as a corporation.
35. Amend Sec. 422.512(e) by:
A. Redesignating paragraph (e) as (e)(1).
B. Adding paragraph (e)(2) to read as follows:

Sec. 422.512 Termination of contract by the MA organization.

* * * * *
(e) * * *
(2) During the same 2-year period specified in paragraph (e)(1) of
this section, CMS will not contract with an organization whose covered
persons also served as covered persons for the terminating sponsor. A
``covered person'' as used in this paragraph means one of the
following:
(i) All owners of nonrenewal or terminated organizations who are
natural persons, other than shareholders who--
(A) Have an ownership interest of more than 5 percent; and
(B) Acquired the ownership through public trading.
(ii) An owner in whole or part interest in any mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property assists thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property,
and assets of the organization.
(iii) An officer or member of the board of directors of the entity,
if the organization is organized as a corporation.

Subpart M--Grievances, Organization Determinations, and Appeals

36. Amend Sec. 422.562 by adding paragraph (a)(4) to read as
follows:

Sec. 422.562 General provisions.

(a) * * *
(4) An MA organization must employ a medical director who is
responsible for ensuring the clinical accuracy of all organization
determinations and reconsiderations involving medical necessity. The
medical director must be a physician with a current and unrestricted
license to practice medicine in a State, Territory, Commonwealth of the
United States (that is, Puerto Rico), or the District of Columbia.
* * * * *
37. Amend Sec. 422.566 by adding paragraph (d) to read as follows:

Sec. 422.566 Organization determinations.

* * * * *
(d) Who must review organization determinations. When the issue
involves medical necessity (or any substantively equivalent term used
to describe the concept of medical necessity), the organization
determination must be reviewed by a physician or other appropriate
health care professional with sufficient medical and other expertise,
including knowledge of the Medicare program. The physician or other
health care professional must have a current and unrestricted license
to practice within the scope of his or her profession in a State,
Territory, Commonwealth of the United States (that is, Puerto Rico), or
the District of Columbia.
38. Amend Sec. 422.626 by revising paragraph (g)(3) to read as
follows:

Sec. 422.626 Fast-track appeals of service terminations to
independent review entities (IREs).

* * * * *
(g) * * *
(3) If the IRE reaffirms its decision, in whole or in part, the
enrollee may appeal the IRE's reconsidered determination to an ALJ, the
MAC, or a Federal court, as provided for under this subpart.
* * * * *

Subpart V--Medicare Advantage Marketing Requirements

39. Amend Sec. 422.2264 by revising paragraph (e) to read as
follows:

Sec. 422.2264 Guidelines for CMS review.

* * * * *
(e) For markets with a significant non-English speaking population,
provide materials in the language of these individuals. Specifically,
MA organizations must provide translated marketing materials in any
language that is spoken by more than 10 percent of the general
population in a plan benefit package (PBP) service area.
40. Amend Sec. 422.2272 by adding paragraph (e) to read as
follows:

Sec. 422.2272 Licensing of marketing representatives and confirmation
of marketing resources.

* * * * *
(e) Terminate upon discovery any unlicensed agent or broker
employed as a marketing representative and notify any beneficiaries
enrolled by the unlicensed agent or broker of the agent's or broker's
unlicensed status and of their options to confirm enrollment or make a
plan change (including a special election period, as described in Sec.
422.62(b)(3)(ii)).
41. Amend Sec. 422.2274 by revising the introductory text and
paragraphs (b) and (c) to read as follows:

Sec. 422.2274 Broker and agent requirements.

For purposes of this section ``compensation'' includes pecuniary or
nonpecuniary remuneration of any kind relating to the sale or renewal
of a policy including, but not limited to, commissions, bonuses, gifts,
prizes, awards, and finder's fees. ``Compensation'' does not include
the payment of fees to comply with State appointment laws, training,
certification, and testing costs; reimbursement for mileage to, and
from, appointments with beneficiaries; or reimbursement for actual
costs associated with beneficiary sales appointments such as venue
rent, snacks, and materials. If a Medicare Advantage organization
markets through independent (that is, non-employee) brokers or agents,
the requirements in paragraph (a) of this section must be met. The
requirements in paragraphs (b) through (e) of this section must be met
if a MA organization markets through any broker or agent, whether
independent (that is, non-employee) or employed.
* * * * *
(b) It must ensure that all agents selling Medicare products are
trained annually through a CMS endorsed or approved training program or
as specified by CMS, on Medicare rules and regulations specific to the
plan products they intend to sell.
(c) It must ensure agents selling Medicare products are tested
annually by CMS endorsed or approved training program or as specified
by CMS.
* * * * *

PART 423--MEDICARE PROGRAM; MEDICARE PRESCRIPTION DRUG PROGRAM

42. The authority citation for part 423 continues to read as
follows:

Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of
the Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-
152, and 1395hh).

Subpart A--General Provisions

43. Amend Sec. 423.4 by adding in alphabetical order the
definitions of ``fiscally sound operation'' and ``pharmacist'' to read
as follows:

Sec. 423.4 Definitions.

* * * * *

[[Page 71285]]

Fiscally sound operation means an operation which at least
maintains a positive net worth (total assets exceed total liabilities).
* * * * *
Pharmacist means any individual who holds a current valid license
to practice pharmacy in a State or territory of the United States or
the District of Columbia.
* * * * *

Subpart B--Eligibility and Enrollment

44. Amend Sec. 423.34 by:
A. Revising paragraphs (c) and (d)(1).
B. Adding paragraph (d)(4).
The revisions and addition read as follows:

Sec. 423.34 Enrollment of low income subsidy eligible individuals.

* * * * *
(c) Reassigning low income subsidy eligible individuals. (1)
General rule. Notwithstanding Sec. 423.32(e) of this subpart, during
the annual coordinated election period, CMS may reassign certain low
income subsidy eligible individuals in another PDP if CMS determines
that the further enrollment is warranted, except as specified in
paragraph (c)(2) of this section.
(2) Part D prescription drug plans that waive a de minimis premium
amount. If a Part D plan offering basic prescription drug coverage in
the area where the beneficiary resides has a monthly beneficiary
premium amount that exceeds the low-income subsidy amount by a de
minimis amount, and the Part D plan volunteers to waive that de minimis
amount in accordance with Sec. 423.780, then CMS does not reassign low
income subsidy individuals who would otherwise be enrolled under
paragraph (d)(1) of this section. A Part D plan that volunteers to
waive such a de minimis amount agrees to do so for each month during
the contract year for which a beneficiary qualifies for 100 percent
low-income premium subsidy as provided in Sec. 423.780(f).
(d) Automatic enrollment rules. (1) General rule. Except for low
income subsidy eligible individuals who are qualifying covered retirees
with a group health plan sponsor, as specified in paragraph (d)(3) of
this section, CMS enrolls those individuals who fail to enroll in a
Part D plan into a PDP offering basic prescription drug coverage in the
area where the beneficiary resides that has a monthly beneficiary
premium amount that does not exceed the low income subsidy amount (as
defined in Sec. 423.780(b) of this part). In the event that there is
more than one PDP in an area with a monthly beneficiary premium at or
below the low income premium subsidy amount, individuals are enrolled
in such PDPs on a random basis.
* * * * *
(4) Enrollment in PDP plans that voluntarily waive a de minimis
premium amount. CMS may include in the process specified in paragraph
(d)(1) MA-PDs and PDPs that voluntarily waive a de minimis amount as
specified in Sec. 423.780, if CMS determines that such inclusion is
warranted.
* * * * *
45. Amend Sec. 423.38 by:
A. Revising paragraph (b).
B. Adding a new paragraph (d).
The revision and addition read as follows:

Sec. 423.38 Enrollment periods.

* * * * *
(b) Annual coordinated election period. (1) For 2006. This period
begins on November 15, 2005 and ends on May 15, 2006.
(2) For 2007 through 2010. The annual coordinated election period
for the following calendar year is November 15 through December 31.
(3) For 2011 and subsequent years. Beginning with 2011, the annual
coordinated election period for the following calendar year is October
15 through December 7.
* * * * *
(d) Enrollment period to coordinate with MA annual 45-day
disenrollment period. Beginning in 2011, an individual enrolled in an
MA plan who elects Original Medicare from January 1 through February
14, as described in Sec. 422.62(a)(7), may also elect a PDP during
this time.
46. Amend Sec. 423.40 by adding paragraph (d) to read as follows:

Sec. 423.40 Effective dates.

* * * * *
(d) PDP enrollment period to coordinate with the MA annual
disenrollment period. Beginning in 2011, an enrollment made from
January 1 through February 14 by an individual who has disenrolled from
an MA plan as described in Sec. 422.62(a)(7) will be effective the
first day of the month following the month in which the enrollment in
the PDP is made.
47. Amend Sec. 423.44 by revising the section heading and adding
paragraphs (d)(1)(vi), (d)(1)(vii), and (e) to read as follows:

Sec. 423.44 Involuntary disenrollment from Part D coverage.

* * * * *
(d) * * *
(1) * * *
(iv) Extension of grace period for good cause and reinstatement.
When an individual is disenrolled for failure to pay the plan premium,
CMS may reinstate enrollment in the PDP, without interruption of
coverage, if the individual shows good cause for failure to pay within
the initial grace period, and pays all overdue premiums within 3
calendar months after the disenrollment date. The individual must
establish by a credible statement that failure to pay premiums within
the initial grace period was due to circumstances for which the
individual had no control, or which the individual could not reasonably
have been expected to foresee.
(v) No extension of grace period. A beneficiary's enrollment in the
PDP may not be reinstated if the only basis for such reinstatement is a
change in the individual's circumstances subsequent to the involuntary
disenrollment for non-payment of premiums.
* * * * *
(e) Involuntary disenrollment by CMS. (1) General rule. CMS will
disenroll individuals who fail to pay the Part D income related monthly
adjustment amount (Part D--IRMAA) specified in Sec. 423.286(d)(4) and
Sec. 423.293(d) of this part.
(2) Initial grace period. For all Part D--IRMAA amounts directly
billed to an enrollee in accordance with Sec. 423.293(d)(2), the grace
period ends with the last day of the third month after the billing
month.
(3) Extension of grace period for good cause and reinstatement.
When an individual is disenrolled for failing to pay the Part D--IRMAA
within the initial grace period specified in paragraph (e)(2) of this
section, CMS (or an entity acting on behalf of CMS) may reinstate
enrollment in the PDP, without interruption of coverage, if the
individual shows good cause as specified in Sec. 423.44(d)(1)(iv),
pays all Part D--income related monthly adjustment amount arrearages,
and any overdue premiums due the Part D plan sponsor within three
calendar months after the disenrollment date.
(4) Notice of termination. Where CMS has disenrolled an individual
in accordance with paragraph (e)(1) of this section, the Part D plan
sponsor must provide notice of termination in a form and manner
determined by CMS.
(5) Effective date of disenrollment. After a grace period and
notice of termination has been provided in accordance with paragraphs
(e)(2) and (4) of this section, the effective date of disenrollment is
the first day following the last day of the initial grace period.

[[Page 71286]]

Subpart C--Benefits and Beneficiary Protections

48. Amend Sec. 423.100 by:
A. Adding in alphabetical order the definitions of ``Applicable
beneficiary,'' ``Applicable drug under the Medicare coverage gap
discount program,'' and ``Coverage gap.''
B. Revising ``paragraph (2) of the definition of Dispensing fees''
and paragraph (2)(ii) of the definition of ``incurred costs.''
The additions and revisions read as follows:

Sec. 423.100 Definitions.

* * * * *
Applicable beneficiary means an individual who, on the date of
dispensing a covered Part D drug--
(1) Is enrolled in a prescription drug plan or an MA-PD plan;
(2) Is not enrolled in a qualified retiree prescription drug plan;
(3) Is not entitled to an income-related subsidy under section
1860D-14(a) of the Act;
(4) Has reached or exceeded the initial coverage limit under
section 1860D-2(b)(3) of the Act during the year; and
(5) Has not incurred costs for covered part D drugs in the year
equal to the annual out-of-pocket threshold specified in section 1860D-
2(b)(4)(B) of the Act.
(6) Has a claim that--
(i) Straddles the initial coverage period and the coverage gap;
(ii) Straddles the coverage gap and the annual out-of-pocket
threshold; or
(iii) Spans the coverage gap from the initial coverage period and
exceeds the annual out-of-pocket threshold.
Applicable drug means a Part D drug that is--
(1)(i) Approved under a new drug application under section 505(b)
of the Federal Food, Drug, and Cosmetic Act (FDCA), including
authorized generics (as defined in 100.5 of this guidance); or
(ii) In the case of a biological product, licensed under section
351 of the Public Health Service Act (other than a product licensed
under subsection (k) of such section 351); and
(2)(i) If the PDP sponsor of the prescription drug plan or the MA
organization offering the MA-PD plan uses a formulary, which is on the
formulary of the prescription drug plan or MA-PD plan that the
applicable beneficiary is enrolled in;
(ii) If the PDP sponsor of the prescription drug plan or the MA
organization offering the MA-PD plan does not use a formulary, for
which benefits are available under the prescription drug plan or MA-PD
plan that the applicable beneficiary is enrolled in; or
(iii) Is provided through an exception or appeal.
* * * * *
Coverage gap means the period in prescription drug coverage that
occurs between the initial coverage limit and the out-of-pocket
threshold. For purposes of applying the initial coverage limit, Part D
sponsors must apply their plan specific initial coverage limit under
basic alternative or actuarially equivalent Part D benefit designs.
* * * * *
Dispensing fees * * *
(2) Include only pharmacy costs associated with ensuring that
possession of the appropriate covered Part D drug is transferred to a
Part D enrollee. Pharmacy costs include, but are not limited to, any
reasonable costs associated with a pharmacist's time in checking the
computer for information about an individual's coverage, performing
quality assurance activities consistent with Sec. 423.153(c)(2),
measurement or mixing of the covered Part D drug, filling the
container, physically providing the completed prescription to the Part
D enrollee, delivery, special packaging, and salaries of pharmacists
and other pharmacy workers as well as the costs associated with
maintaining the pharmacy facility and acquiring and maintaining
technology and equipment necessary to operate the pharmacy. Dispensing
fees should take into consideration the number of dispensing events in
a billing cycle, the incremental costs associated with the type of
dispensing methodology, and with respect to Part D drugs dispensed in
LTC facilities, the techniques to minimize the dispensing of unused
drugs. Dispensing fees may also take into account restocking fees
associated with return for credit and reuse in long-term care
pharmacies, when return for credit and reuse is permitted under the
state in law and is allowed under the contract between the Part D
sponsor and the pharmacy.
* * * * *
Incurred costs * * *
(2) * * *
(ii) Under a State Pharmaceutical Assistance Program (as defined in
Sec. 423.464); by the Indian Health Service (as defined in section 4
of the Indian Health Care Improvement Act), an Indian tribe or tribal
organization, or an urban Indian organization (referred to as I/T/U
pharmacy in Sec. 423.464) or under an AIDS Drug Assistance Program (as
defined in part B of title XXVI of the Public Health Service); or
* * * * *
49. Amend Sec. 423.104 by:
A. Revising paragraphs (d)(2)(i) introductory text, (d)(2)(ii),
(d)(3) introductory text, and (d)(4).
B. Redesignating paragraph (d)(5)(iii)(B) as (d)(5)(iii)(F).
C. Adding new paragraphs (d) (5)(iii)(B) through (d)(5)(iii)(E).
D. Revising newly redesignated paragraph (d)(5)(iii)(F).
E. Adding a new paragraph (d)(5)(v).
The additions and revisions read as follows:

Sec. 423.104 Requirements related to qualified prescription drug
coverage.

* * * * *
(d) * * *
(2) * * *
(i) Subject to paragraph (d)(4) of this section, coinsurance for
actual costs for covered Part D drugs covered under the Part D plan
above the annual deductible specified in paragraph (d)(1) of this
section, and up to the initial coverage limit under paragraph (d)(3) of
this section, that is--
* * * * *
(ii) Tiered copayments. A Part D plan providing actuarially
equivalent standard coverage may apply tiered copayments, provided that
any tiered copayments are consistent with paragraphs (d)(2)(i)(B) and
(d)(4) of this section and are approved as described in Sec.
423.272(b)(2).
(3) Initial coverage limit. Except as provided in paragraphs (d)(4)
and (d)(5) of this section, the initial coverage limit is equal to--
* * * * *
(4) Cost-sharing in the coverage gap. (i) Coinsurance in the
coverage gap (as defined in Sec. 423.100) for costs for covered Part D
drugs that are not applicable drugs (as defined in Sec. 423.100) under
the Medicare coverage gap discount program that is--
(A) Equal to the generic gap coinsurance percentage described in
paragraph (d)(4)(iii) of this section; or
(B) Actuarially equivalent to an average expected coinsurance for
covered Part D drugs that are not applicable drugs under the Medicare
coverage gap discount program, as determined through processes and
methods established under Sec. 423.265(c) and (d).
(ii) Coinsurance in the coverage gap for the actual cost minus
dispensing fee for covered Part D drugs that are applicable drugs under
the Medicare coverage gap discount program that is--
(A) Equal to the difference between the applicable gap coinsurance
percentage described in paragraph (d)(4)(iv) of this section and the
discount percentage determined under

[[Page 71287]]

the Medicare coverage gap discount program; or
(B) Actuarially equivalent to an average expected coinsurance for
covered Part D drugs that are applicable drugs under the Medicare
coverage gap discount program, as determined through processes and
methods established under Sec. 423.265(c) and (d).
(iii) Generic gap coinsurance percentage. The generic gap
coinsurance percentage is equal to--
(A) For 2011, 93 percent.
(B) For years 2012 through 2019, the amount specified in this
paragraph for the previous year, decreased by 7 percentage points.
(C) For 2020 and each subsequent year, 25 percent.
(iv) Applicable gap coinsurance percentage. The applicable gap
coinsurance percentage is equal to--
(A) For 2013 and 2014, 97.5 percent.
(B) For 2015 and 2016, 95 percent.
(C) For 2017, 90 percent.
(D) For 2018, 85 percent.
(E) For 2019, 80 percent.
(F) For 2020 and subsequent years, 75 percent.
(5) * * *
(iii) * * *
(B) For each year 2007 through 2013. The amount specified in this
paragraph for the previous year, increased by the annual percentage
increase specified in paragraph (d)(5)(iv) of this section, and rounded
to the nearest multiple of $50.
(C) For years 2014 and 2015. The amount specified in this paragraph
for the previous year, increased by the annual percentage increase
specified in paragraph (d)(5)(iv) of this section, minus 0.25
percentage point.
(D) For each year 2016 through 2019. The amount specified in this
paragraph for the previous year, increased by the lesser of--
(1) The annual percentage increase specified in (d)(5)(v) of this
section plus 2 percentage points; or
(2) The annual percentage increase specified in (d)(5)(iv) of this
section.
(E) For 2020. The amount specified in this paragraph for 2013
increased by the annual percentage increases specified in paragraph
(d)(5)(iv) of this section for 2014 through 2020, and rounded to the
nearest $50.
(F) For 2021 and subsequent years. The amount specified in this
paragraph for the previous year, increased by the annual percentage
increase specified in paragraph (d)(5)(iv) of this section, and rounded
to the nearest $50.
* * * * *
(v) Additional annual percentage increase. The annual percentage
increase for each year is equal to the annual percentage increase in
the consumer price index for all urban consumers (United States city
average) for the 12-month period ending in July of the previous year.
* * * * *
50. Section 423.120 is amended by:
A. Revising paragraphs (b)(3)(iii)(B) and (b)(3)(iv).
B. Adding paragraph (d).
The revisions and addition read as follows.

Sec. 423.120 Access to covered Part D drugs.

* * * * *
(b) * * *
(3) * * *
(iii) * * *
(B) In the long-term care setting, the temporary supply of
nonformulary Part D drugs (including Part D drugs that are on a
sponsor's formulary but require prior authorization or step therapy
under a sponsor's utilization management rules) must be for up to 91
days in 7-day-or-less supply increments whenever Sec. 423.154(a)
applies and up to 93 days in 31 day supply increments whenever Sec.
423.154(a) does not apply, with refills provided, if needed, unless a
lesser amount is actually prescribed by the prescriber.
(iv) Ensure written notice is provided to each affected enrollee
within 3 business days after adjudication of the temporary fill. For
LTC residents dispensed multiple supplies of a Part D drug, in
increments of 7 days or less, consistent with the requirements under
Sec. 423.154, the written notice must be provided within 3 business
days after adjudication of the first temporary fill.
* * * * *
(d) Treatment of compounded drug products. With respect to multi-
ingredient compounds, a Part D sponsor must--
(1) Make a determination as to whether the compound is covered
under Part D.
(i) A compound that contains at least one ingredient covered under
Part B is considered a Part B compound, regardless of whether other
ingredients in the compound are covered under Part B.
(ii) Only compounds that contain at least one ingredient that
independently meets the definition of a Part D drug, and that do not
meet the criteria under paragraph (d)(1)(i) of this section may be
covered under Part D. For purposes of this section these compounds are
referred to as Part D compounds.
(iii) For a Part D compound that is considered to be on-formulary,
all ingredients that independently meet the definition of a Part D drug
must be considered on-formulary (even if the particular Part D drug
would be considered non-formulary if it were provided separately--that
is, not as part of the Part D compound).
(iv) For a compound that is considered off-formulary--
(A) Transition rules apply such that all ingredients in the Part D
compound that independently meet the definition of a Part D drug must
become payable in the event of a transition fill under Sec.
423.120(b)(3); and
(B) All ingredients that independently meet the definition of a
Part D drug must be covered if an exception under Sec. 423.578(b) is
approved for coverage of the compound.
(2) Establish consistent rules for beneficiary payment liabilities
for both ingredients of the Part D compound that independently meet the
definition of a Part D drug and non-Part D ingredients.
(i) For ingredients of the Part D compound that independently meet
the definition of a Part D drug, the copayment amount submitted and
approved under Sec. 423.104(d) must equal the copayment for the tier
of the most expensive of such ingredients, except in the case of low
income subsidy beneficiaries where the copayment amount is based on
whether the most expensive ingredient that independently meets the
definition of a Part D drug in the Part D compound is a generic or
brand drug (as described under Sec. 423.782).
(ii) For ingredients of the Part D compound that independently meet
the definition of a Part D drug, the coinsurance submitted and approved
under Sec. 423.104(d) must be applied to the cost of all such
ingredients, except in the case of full subsidy eligible individuals
(as defined in Sec. 423.783(b)) where the copayment amount is based on
whether the most expensive ingredient that independently meets the
definition of a Part D drug in the Part D compound is a generic or
brand drug (as described under Sec. 423.782).
(iii) For any non-Part D ingredient of the Part D compound
(including drugs described under Sec. 423.104(f)(1)(ii)(A)), the Part
D sponsor may either contract with the pharmacy to--
(A) Make payment without charging the beneficiary for these amounts
or reporting these costs to CMS;
(B) Deny payment, but allow the pharmacy to balance bill the
beneficiary for the cost of these ingredients; or
(C) Deny payment and prohibit the pharmacy to balance bill the
beneficiary for the cost of these ingredients.
51. Amend Sec. 423.128 by:
A. Revising paragraph (b)(7).

[[Page 71288]]

B. Adding new paragraphs (b)(11), (d)(1)(iii), and (d)(1)(iv).
The revision and additions read as follows:

Sec. 423.128 Dissemination of Part D plan information.

* * * * *
(b) * * *
(7) Grievance, coverage determination, and appeal procedures. All
grievance, coverage determination, and appeal rights and procedures
required under Sec. 423.562 et seq., including--
(i) Access to a standard form used to request a coverage
determination under Sec. 423.568 or Sec. 423.570, and a standard form
used to request a redetermination under Sec. 423.582 or Sec. 423.584,
to the extent such standard coverage determination and redetermination
request forms have been approved for use by CMS;
(ii) Immediate access to the coverage determination and
redetermination processes via an Internet Web site; and
(iii) A system that transmits codes to network pharmacies so that
the network pharmacy is notified to populate and/or provide a printed
notice at the point-of-sale to an enrollee explaining how the enrollee
can request a coverage determination by contacting the plan sponsor's
toll free customer service line or by accessing the plan sponsor's
internet Web site.
* * * * *
(11) Customized out-of-pocket cost statement. CMS may require a
Part D sponsor to annually disclose to each enrollee a customized
statement of the beneficiary's potential future out-of-pocket costs.
This notice will be provided in each year in which a minimum enrollment
period has been met, in conjunction with the annual plan description
described in paragraphs (b)(1) through (10) of this section.
* * * * *
(d) * * *
(1) * * *
(iii) Provides interpreters for all non-English speaking and
limited English proficient (LEP) individuals.
(iv) Provides immediate access to the coverage determination and
redetermination processes.
* * * * *

Subpart D--Cost Control and Quality Improvement Requirements

52. Amend Sec. 423.150 by:
A. Redesignating paragraphs (b) through (g) as paragraphs (c)
through (h).
B. Adding a new paragraph (b) to read as follows:

Sec. 423.150 Scope.

* * * * *
(b) Appropriate dispensing of outpatient prescription drugs in
long-term care facilities under PDPs and MA-PD plans.
* * * * *
53. Amending Sec. 423.153 by:
A. Revising paragraph (d)(1)(vii)(B).
B. Adding paragraph (d)(1)(vii)(D).
C. Redesignating paragraph (d)(5) as (d)(7).
D. Adding a new paragraph (d)(5).
The revision and additions read as follows:

Sec. 423.153 Drug utilization management, quality assurance, and
medication therapy management programs (MTMPs).

* * * * *
(d) * * *
(1) * * *
(vii) * * *
(B) Annual comprehensive medication reviews with written summaries.
The comprehensive medication review must include an interactive,
person-to-person, or telehealth consultation performed by a pharmacist
or other qualified provider unless the beneficiary is in a long-term
care setting and may result in a recommended medication action plan.
* * * * *
(D) Standardized action plans and summaries that comply with
requirements as specified by CMS for the standardized format.
* * * * *
(5) Coordination with long term care consultant pharmacist
monitoring. Part D sponsors must contract with all long term care
facilities in which their Part D enrollees reside to provide
appropriate MTM services in coordination with consultant pharmacist
evaluation and monitoring.
* * * * *
54. Add Sec. 423.154 to read as follows:

Sec. 423.154 Appropriate dispensing of prescription drugs in long-
term care facilities under PDPs and MA-PD plans.

(a) In general. Except as provided in paragraphs (b) and (e) of
this section, when dispensing covered Part D drugs to enrollees who
reside in long-term care facilities, a Part D sponsor must--
(1) Require all pharmacies servicing long-term care facilities as
defined in Sec. 423.100 to--
(i) Dispense brand-name medications, as defined in Sec. 423.4, to
enrollees in such facilities in no greater than 7-day increments at a
time;
(ii) Permit the use of uniform dispensing techniques for Part D
drugs dispensed to enrollees in long-term care facilities under
paragraph (a)(1)(i) of this section as defined by each of the long-term
care facilities in which such enrollees reside; and
(2) Collect and report information, in a form and manner specified
by CMS, on the dispensing methodology used for each dispensing event
described by paragraph (a)(1) of this section, and on the nature and
quantity of unused drugs returned to the pharmacy as required under
paragraph (f) of this section.
(b) Exclusions. CMS excludes from the requirements under paragraph
(a) of this section:
(1) Drugs difficult to dispense in supply increments of 7-day or
less, such as drugs that must be dispensed in the original packaging
including, but not limited to eye drops, nasal sprays, inhalational
products, ear drops, reconstituted antibiotics and, in general, drugs
with a parenteral route of administration, and topical preparations; or
(2) Drugs dispensed for acute illnesses including, but not limited
to a 10- or 14-day course of antibiotics.
(c) Waivers. CMS waives the requirements under paragraph (a) of
this section for pharmacies when they service intermediate care
facilities for the mental retarded and developmentally disabled
(ICFMRDD) and institutes for mental disease (IMDs) as defined in Sec.
435.1010.
(d) Effective date. Except as provided in paragraph (e) of this
section, the effective date for this section is January 1, 2012.
Nothing precludes a Part D sponsor and network long-term care pharmacy
from mutually agreeing to an earlier implementation date.
(e) Extension. A Part D sponsor may allow an independent community
pharmacy that also contracts as a long-term care pharmacy to dispense
up to a 14-day supply through December 31, 2012 if the following
conditions are met:
(1) The independent community pharmacy is the primary provider of
Part D drugs to one or more long-term care facilities with less than 80
beds; and
(2) The independent community pharmacy in its capacity as a long-
term care pharmacy primarily services long-term care facilities in
rural areas as defined by the Bureau of the Census.
(f) Unused drugs returned to the pharmacy. A Part D sponsor must
include terms in its long-term care pharmacy contracts that--
(1) Require any unused drugs originally dispensed to its enrollees
to be returned to the pharmacy and reported to the sponsor.
(2) Address contractual obligations for disposal in accordance with
Federal and State regulations, as well as whether

[[Page 71289]]

return for credit and reuse is authorized where permitted under State
law.

Subpart F--Submission of Bids and Monthly Beneficiary Premiums;
Plan Approval

55. Amend Sec. 423.265 by adding paragraph (b)(3) to read as
follows:

Sec. 423.265 Submission of bids and related information.

* * * * *
(b) * * *
(3) CMS may decline to accept any or every bid submitted by a Part
D sponsor or potential Part D sponsor.
* * * * *
56. Amend Sec. 423.272 by adding paragraph (b)(4) to read as
follows:

Sec. 423.272 Review and negotiation of bid and approval of plans
submitted by potential Part D sponsors.

* * * * *
(b) * * *
(4) CMS may decline to approve a bid if the Part D sponsor proposes
significant increases in cost sharing or decreases in benefits offered
under the plan.
* * * * *
57. Amend Sec. 423.286 by:
A. Revising paragraph (a).
B. Adding paragraph (d)(4).
The revision and addition read as follows:

Sec. 423.286 Rules regarding premiums.

(a) General rule. Except as provided in paragraphs (d)(3), (d)(4),
and (e) of this section, and with regard to employer group waivers, the
monthly beneficiary premium for a Part D plan in a PDP region is the
same for all Part D eligible individuals enrolled in the plan. The
monthly beneficiary premium for a Part D plan is the base beneficiary
premium, as determined in paragraph (c) of this section, adjusted as
described in paragraph (d) of this section for the difference between
the bid and the national average monthly bid amount, any supplemental
benefits and for any late enrollment penalties.
* * * * *
(d) * * *
(4) Increase for income-related monthly adjustment amount (Part D--
IRMAA). Beginning January 1, 2011, Medicare beneficiaries enrolled in a
Medicare prescription drug plan must pay an income-related monthly
adjustment amount in addition to the Part D premium as determined under
paragraph (c) of this section and adjusted under paragraph (d) of this
section, if the enrollee's modified adjusted gross income exceeds the
threshold amounts specified in 20 CFR 418.1115.
(i) Social Security Administration determination. (A) SSA
determines which Part D enrollees are subject to the Part D--IRMAA and
the amount each enrollee will have to pay.
(B) If an individual disagrees with SSA's determination that such
individual is subject to the Part D--IRMAA, or about the amount the
individual must pay, an individual may file an appeal or request a new
initial determination consistent with 20 CFR part 418.
(ii) Calculating the income-related monthly adjustment amount. The
income related monthly adjustment is equal to the product of the
quotient obtained by dividing the applicable premium percentage
specified in Sec. 418.1120 (35, 50, 65, or 80 percent) that is based
on the level of the Part D enrollee's modified adjusted gross income
for the calendar year reduced by 25.5 percent; by 25.5 percent; and the
base beneficiary premium as determined under paragraph (c) of this
section.
* * * * *
58. Amend Sec. 423.293 by:
A. Redesignating paragraphs (d) and (e) as (e) and (f),
respectively.
B. Adding new paragraph (d).

Sec. 423.293 Collection of monthly beneficiary premium.

* * * * *
(d) Collection of the income related monthly adjustment amount
(Part D--IRMAA). (1) Collection through withholding. Where the Social
Security Administration has determined the income-related monthly
adjustment amount for an individual whose income exceeds the income
threshold amounts specified at 20 CFR 418.1115, the Part D--IRMAA must
be paid through withholding from the enrollee's Social Security benefit
payments, or benefit payments by the Railroad Retirement Board (RRB) or
the Office of Personnel Management (OPM) in the manner that the Part B
premium is withheld.
(2) Collection through direct billing. In cases where an enrollee's
benefit payment check is not sufficient to have the Part D--IRMAA
withheld, or if an enrollee is not receiving such benefits, the
beneficiary must be billed directly for the Part D--IRMAA. The
beneficiary will have the option of paying the amount through an
electronic funds transfer mechanism (such as automatic charges of an
account at a financial institution or a credit or debit card account)
or according to other means that CMS may specify.
(3) Failure to pay the income-related monthly adjustment amount:
General rule. CMS will terminate Part D coverage for any individual who
fails to pay the Part D--IRMAA as determined by the Social Security
Administration. CMS will terminate an enrollee's Part D coverage as
specified in Sec. 423.44(e).
* * * * *

Subpart J--Coordination Under Part D Plan With Other Prescription
Drug Coverage

59. Amend Sec. 423.464 by revising paragraph (f)(2) to read as
follows:

Sec. 423.464 Coordination of benefits with other providers of
prescription drug coverage.

* * * * *
(f) * * *
(2) Treatment under out-of-pocket rule. (i) For purposes of
determining whether a Part D plan enrollee has satisfied the out-of-
pocket threshold provided under Sec. 423.104(d)(5)(iii), a Part D plan
must--
(A) Include the enrollee's incurred costs (as defined in Sec.
423.100); and
(B) Exclude expenditures for covered Part D drugs made by insurance
or otherwise, a group health plan, or other third party payment
arrangements, including expenditures by plans offering other
prescription drug coverage. Excluded expenditures do not include
payments made by the Indian Health Service (as defined in section 4 of
the Indian Health Care Improvement Act), an Indian tribe or tribal
organization, or an urban Indian organization (referred to as I/T/U
pharmacy in Sec. 423.464) or an AIDS Drug Assistance Program (as
defined in part B of title XXVI of the Public Health Service).
(ii) A Part D enrollee must disclose all these expenditures to a
Part D plan in accordance with requirements under Sec. 423.32(b)(ii).
* * * * *

Subpart K--Application Procedures and Contracts With PDP Sponsors

60. Amend Sec. 423.503 by:
A. Redesignating paragraph (b) as paragraph (b)(1).
B. Adding paragraph (b)(2).
C. Revising paragraph (c)(2)(i).
The revisions and addition read as follows:

Sec. 423.503 Evaluation and determination procedures for applications
to be determined qualified to act as a sponsor.

* * * * *
(b) * * *
(2) In the absence of 14 months of performance history, CMS may
deny an application based on a lack of

[[Page 71290]]

information available to determine an applicant's capacity to comply
with the requirements of the Part D program.
(c) * * *
(2) * * *
(i) If CMS finds that the applicant does not appear qualified to
contract as a Part D sponsor, it gives the applicant notice of intent
to deny the application and a summary of the basis for this preliminary
finding.
* * * * *
61. Amend Sec. 423.504 as follows:
A. Redesignating paragraph (b)(4)(vi)(B)(1) as paragraph
(b)(4)(vi)(B)(1)(i).
B. Adding paragraph (b)(4)(vi)(B)(1)(ii).
The revisions read as follows.

Sec. 423.504 General provisions.

(b) * * *
(4) * * *
(vi) * * *
(B) * * *
(ii) Beginning in 2013, the compliance officer will complete annual
Part D compliance training offered by an entity with expertise in Part
D. New applicants must complete training by the last Friday in August
prior to the start of the contract year.
* * * * *
62. Amend Sec. 423.505 by adding paragraphs (b)(22) and (23) to
read as follows:

Sec. 423.505 Contract provisions.

* * * * *
(b) * * *
(22) Address complaints received by CMS against the Part D sponsor
by--
(i) Addressing and resolving complaints in the CMS complaint
tracking system.
(ii) Displaying a link to the electronic complaint form on the
Medicare.gov Internet Web site on the Part D plan's main Web page.
(23) Maintain a fiscally sound operation by at least maintaining a
positive net worth (total assets exceed total liabilities).
* * * * *
63. Amend Sec. 423.507(a) by:
A. Redesignating paragraph (a)(4) as paragraph (a)(5).
B. Adding a new paragraph (a)(4) to read as follows:

Sec. 423.507 Nonrenewal of contract.

(a) * * *
(4) During the same 2-year period specified under paragraph (a)(3)
of this section, CMS will not contract with an organization whose
covered persons also served as covered persons for the non-renewing
sponsor. A ``covered person'' as used in this paragraph means one of
the following:
(i) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who--
(A) Have an ownership interest of less than 5 percent; and
(B) Acquired the ownership through public trading.
(ii) An owner of a whole or part interest in a mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or by any of the property or assets thereof, which whole
or part interest is equal to or exceeds 5 percent of the total property
and assets of the organization.
(iii) An officer or member of the board of directors or board of
trustees of the entity, if the organization is organized as a
corporation;
* * * * *
64. Amend Sec. 423.508 by adding paragraph (f) to read as follows:

Sec. 423.508 Modification or termination of contract by mutual
consent.

* * * * *
(f) Prohibition against Part D program participation by
organizations whose owners, directors, or management employees served
in a similar capacity with another organization that mutually
terminated its Medicare contract within the previous 2 years. During
the 2-year period specified in paragraph (e) of this section, CMS will
not contract with an organization whose covered persons also served as
covered persons for the mutually terminating sponsor. A ``covered
person'' as used in this paragraph means one of the following:
(1) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who--
(i) Have an ownership interest of less than 5 percent; and
(ii) Acquired the ownership through public trading.
(2) An owner of a whole or part interest in a mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property or assets thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property,
and assets of the organization.
(3) An officer or member of the board of directors or board of
trustees of the entity, if the organization is organized as a
corporation;
65. Amend Sec. 423.509 by adding paragraph (e) to read as follows:

Sec. 423.509 Termination of contract by CMS.

* * * * *
(e) Timely transfer of data and files. If a contract is terminated
under paragraph (a) of this section, the Part D plan sponsor must
ensure the timely transfer of any data or files.
66. Amend Sec. 423.510 by:
A. Redesignating paragraph (e) as (e)(1).
B. Adding paragraph (e)(2).
The addition reads as follows:

Sec. 423.510 Termination of contract by Part D sponsor.

* * * * *
(e) * * *
(2) During the same 2-year period specified in (e)(1) of this
section, CMS will not contract with an organization whose covered
persons also served as covered persons for the terminating sponsor. A
``covered person'' as used in this paragraph means one of the
following:
(i) All owners of nonrenewed or terminated organizations who are
natural persons, other than shareholders who--
(A) Have an ownership interest of less than 5 percent; and
(B) Acquired the ownership through public trading.
(ii) An owner of a whole or part interest in a mortgage, deed of
trust, note or other obligation secured (in whole or in part) by the
organization, or any of the property or assets thereof, which whole or
part interest is equal to or exceeds 5 percent of the total property,
and assets of the organization.
(iii) An officer or member of the board of directors or board of
trustees of the entity, if the organization is organized as a
corporation.
* * * * *

Subpart M--Grievances, Coverage Determinations, and Appeals

67. Amend Sec. 423.562 by:
A. Redesignating paragraphs (a)(1)(ii) and (iii) as paragraphs
(a)(1)(iii) and (iv), respectively.
B. Adding new paragraph (a)(1)(ii).
C. Revising paragraph (a)(3).
D. Adding a new paragraph (a)(5).
The revision and additions read as follows:

Sec. 423.562 General provisions.

(a) * * *
(1) * * *
(ii) Use a single, uniform exceptions and appeals process which
includes, procedures for accepting oral and written requests for
coverage determinations and redeterminations that are in accordance
with Sec. 423.128 (b)(7) and (d)(1)(iii).
* * * * *
(3) A Part D plan sponsor must arrange with its network pharmacies
to distribute notices instructing enrollees

[[Page 71291]]

how to contact their plans to obtain a coverage determination or
request an exception if they disagree with the information provided by
the pharmacist. These notices must comply with the standards
established in Sec. 423.128(b)(7)(iii).
* * * * *
(5) A Part D plan sponsor must employ a Medical Director who is
responsible for ensuring the clinical accuracy of all coverage
determinations and redeterminations involving medical necessity. The
Medical Director must be a physician with a current and unrestricted
license to practice medicine in a State, Territory, Commonwealth of the
United States (that is, Puerto Rico), or the District of Columbia.
* * * * *
68. Amend Sec. 423.566 by adding paragraph (d) to read as follows:

Sec. 423.566 Coverage determinations.

* * * * *
(d) Who must review coverage determinations. When the issue
involves medical necessity (or any substantively equivalent term used
to describe the concept of medical necessity), the coverage
determination must be reviewed by a physician or other appropriate
health care professional with sufficient medical and other expertise,
including knowledge of the Medicare program. The physician or other
health care professional must have a current and unrestricted license
to practice within the scope of his or her profession in a State,
Territory, Commonwealth of the United States (that is, Puerto Rico), or
the District of Columbia.
69. Amend Sec. 423.568 by revising paragraph (f) to read as
follows:

Sec. 423.568 Standard timeframe and notice requirements for coverage
determinations.

* * * * *
(f) Written notice for denials by a Part D plan sponsor. If a Part
D plan sponsor decides to deny a drug benefit, in whole or in part, it
must give the enrollee written notice of the determination. The initial
notice may be provided orally, so long as a written follow-up notice is
mailed to the enrollee within 3 calendar days of the oral notification.
* * * * *

Subpart P--Premium and Cost-Sharing Subsidies for Low-Income
Individuals

70. Section 423.772 is amended by adding in alphabetical order the
definition of ``Individual receiving home and community-based
services'' to read as follows:

Sec. 423.772 Definitions.

* * * * *
Individual receiving home and community-based services means a
full-benefit dual-eligible individual who is receiving services under a
home and community-based program authorized for a State in accordance
with one of the following:
(1) Section 1115 of the Act.
(2) Section 1915(c) or (d) of the Act.
(3) State plan amendment under section 1915(i) of the Act.
(4) Services are provided through enrollment in a Medicaid managed
care organization with a contract under section 1903(m) of the Act or
section 1932 of the Act.
* * * * *
71. Amend Sec. 423.780 by:
A. Revising paragraph (b)(2)(ii)(C).
B. Adding paragraph (f).
The revision and addition read as follows:

Sec. 423.780 Premium subsidy.

* * * * *
(b) * * *
(2) * * *
(ii) * * *
(C) The MA monthly prescription drug beneficiary premium (as
defined under section 1854(b)(2)(B) of the Act) for a MA-PD plan and
determined before the application of the monthly rebate computed under
section 1854(b)(1)(C)(i) of the Act for that plan and year involved.
* * * * *
(f) Waiver of de minimis premium amounts. CMS will permit a Part D
plan to waive a de minimis amount that is above the monthly beneficiary
premium defined in Sec. 423.780(b)(2)(ii)(A) or (B) for full subsidy
individuals as defined in Sec. 423.780(a) or Sec. 423.780(d)(1),
provided waiving the de minimis amount results in a monthly beneficiary
premium that is equal to the established low income benchmark as
defined in Sec. 423.780(b)(2).
72. Amend Sec. 423.782 by revising paragraph (a)(2)(ii) to read as
follows:

Sec. 423.782 Cost-sharing subsidy.

(a) * * *
(2) * * *
(ii) Full-benefit dual-eligible individuals who are
institutionalized or who are receiving home and community-based
services have no cost-sharing for Part D drugs covered under their PDP
or MA-PD plans.
* * * * *

Subpart R--Payments to Sponsors of Retiree Prescription Drug Plans

73. Amend Sec. 423.884 by revising paragraphs (d)(1)(i),
(d)(1)(ii), and (d)(5)(iii)(C) to read as follows:

Sec. 423.884 Requirements for qualified retiree prescription drug
plans.

* * * * *
(d) Actuarial attestation-general. The sponsor of the plan must
provide to CMS an attestation in a form and manner specified by CMS
that the actuarial value of the retiree prescription drug coverage
under the plan is at least equal to the actuarial value of the defined
standard prescription coverage (as defined at Sec. 423.100), not
taking into account the value of any discount or coverage provided
during the coverage gap (as defined at Sec. 423.100). The attestation
must meet all of the following standards:
(1) * * *
(i) The actuarial gross value of the retiree prescription drug
coverage under the plan for the plan year is at least equal to the
actuarial gross value of the defined standard prescription drug
coverage under Part D for the plan year in question, not taking into
account the value of any discount or coverage provided during the
coverage gap.
(ii) The actuarial net value of the retiree prescription drug
coverage under the plan for that plan year is at least equal to the
actuarial net value of the defined standard prescription drug coverage
under Part D for that plan year in question, not taking into account
the value of any discount or coverage provided during the coverage gap.
* * * * *
(5) * * *
(iii) * * *
(C) The valuation of defined standard prescription drug coverage
for a given plan year is based on the initial coverage limit cost-
sharing and out-of-pocket threshold for defined standard prescription
drug coverage under Part D in effect at the start of such plan year,
not taking into account the value of any discount or coverage provided
during the coverage gap.
* * * * *

Subpart V--Part D Marketing Requirements

74. Amend Sec. 423.2264 by revising paragraph (e) to read as
follows:

Sec. 423.2264 Guidelines for CMS review.

* * * * *
(e) For markets with a significant non-English speaking population,
provide materials in the language of these

[[Page 71292]]

individuals. Specifically, Part D plan sponsors must provide translated
marketing materials in any language that is spoken by more than 10
percent of the general population in a plan benefit package (PBP)
service area.
75. Amend Sec. 423.2272 by adding paragraph (e) to read as
follows:

Sec. 423.2272 Licensing of marketing representatives and confirmation
of marketing resources.

* * * * *
(e) Terminate upon discovery any unlicensed agent or broker
employed as a marketing representative and notify any beneficiaries
enrolled by the unlicensed agent or broker of the agent's or broker's
unlicensed status and of their options to confirm enrollment or make a
plan change (including a special election period, as described in Sec.
423.38(c)(8)(i)(C)).
76. Amend Sec. 423.2274 by revising the introductory text and
paragraphs (b) and (c) to read as follows:

Sec. 423.2274 Broker and agent requirements.

For purposes of this section ``compensation'' includes pecuniary or
nonpecuniary remuneration of any kind relating to the sale or renewal
of a policy including, but not limited to, commissions, bonuses, gifts,
prizes, awards, and finder's fees. ``Compensation'' does not include
the payment of fees to comply with State appointment laws, training,
certification, and testing costs; reimbursement for mileage to, and
from, appointments with beneficiaries; or reimbursement for actual
costs associated with beneficiary sales appointments such as venue
rent, snacks, and materials. If a Part D sponsor markets through
independent (that is, non-employee) brokers or agents, the requirements
in paragraph (a) of this section must be met. The requirements in
paragraphs (b) through (e) of this section must be met if a Part D
sponsor markets through any broker or agent, whether independent (that
is, non-employee) or employed.
* * * * *
(b) It must ensure that all agents selling Medicare products are
trained annually, through a CMS endorsed or approved training program
or as specified by CMS, on Medicare rules and regulations specific to
the plan products they intend to sell.
(c) It must ensure agents selling Medicare products are tested
annually by CMS endorsed or approved training program or as specified
by CMS.
* * * * *

Authority: (Catalog of Federal Domestic Assistance Program No.
93.773, Medicare--Hospital Insurance; and Program No. 93.774,
Medicare--Supplementary Medical Insurance Program).

Dated: July 29, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Approved: November 9, 2010.
Kathleen Sebelius,
Secretary.
[FR Doc. 2010-28774 Filed 11-10-10; 4:45 pm]
BILLING CODE 4120-01-P