[Federal Register: December 8, 2006 (Volume 71, Number 236)] [Rules and Regulations] [Page 71243-71337] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr08de06-16] [[Page 71243]] ----------------------------------------------------------------------- Part II Department of Health and Human Services ----------------------------------------------------------------------- Centers for Medicare & Medicaid Services ----------------------------------------------------------------------- 42 CFR Parts 460, 462, 466, 473 and 476 Medicare and Medicaid Programs; Programs of All-Inclusive Care for the Elderly (PACE); Program Revisions; Final Rule [[Page 71244]] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 460, 462, 466, 473 and 476 [CMS-1201-F] RIN 0938-AN83 Medicare and Medicaid Programs; Programs of All-Inclusive Care for the Elderly (PACE); Program Revisions AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: This rule finalizes the interim final rule with comment period published in the Federal Register November 24, 1999 (64 FR 66234) and the interim final rule with comment period published in the Federal Register on October 1, 2002 (67 FR 61496). The November 1999 interim final rule implemented sections 4801 through 4803 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and established requirements for Programs of All-inclusive Care for the Elderly (PACE) under the Medicare and Medicaid programs. The interim final rule with comment period published on October 1, 2002 (67 FR 61496) implemented section 903 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554). DATES: Effective Date: These regulations are effective on January 8, 2007. FOR FURTHER INFORMATION CONTACT: Jana Petze, (410) 786-4533, or Carrie Smith, for State technical assistance, (410) 786-4485. SUPPLEMENTARY INFORMATION: Table of Contents I. Background A. Program Description B. Legislative History 1. Demonstration Project 2. Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33) a. Use of the PACE Protocol b. Consultation With States c. Consultation With State Agency on Aging d. State Medicaid Plan Requirement e. Interaction with Medicare + Choice (Now Medicare Advantage) f. Flexibility Under the BBA 3. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) a. Background b. Contracting for IDT Members and Administrative Staff c. Contracting With Another Entity to Furnish PACE Center Services d. Oversight of Direct Patient Care Services e. Waiver Process 4. Medicare Prescription Drug Improvement and Modernization Act of 2003, (MMA) II. Analysis of Public Comments A. Summary of Comments on the 1999 Interim Final Rule B. Summary of Comments on the 2002 Interim Final Rule III. Provisions of the 1999 Interim Final Rule With Comment and the 2002 Interim Final Rule With Comment, Analysis of and Response to Public Comments and Final Rule Actions IV. Provisions of the Final Rule V. Collection of Information Requirements VI. Regulatory Impact Statement Regulation Text Addendum--PACE Protocol (1999) ACRONYMS for the PACE Final Rule ADLs Activities of Daily Living BBA Balanced Budget Act of 1997 BIPA Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 CAP Corrective Action Plan CBRR Consumer Bill of Rights and Responsibilities CMS Centers for Medicare & Medicaid Services COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 COP Condition of Participation CHSPR Center for Health Services and Policy Research CMS-HCC CMS Hierarchical Conditions Category ESRD End-Stage Renal Disease FFP Federal Financial Participation HOS Health Outcomes Survey HPMS Health Plan Management System IDT Interdisciplinary Team IRE Independent Review Entity LCS Life Safety Code MA Medicare Advantage (formerly Medicare + Choice(M + C)) MA-PDP Medicare Advantage--Prescription Drug Plan M + C Medicare + Choice (now Medicare Advantage (MA)) MMA Medicare Prescription Drug[fxsp0]Improvement and[fxsp0]Modernization Act of 2003 NF Nursing Facility NPA National PACE Association OBCQI Outcome-Based Continuous Quality Improvement PACE Programs of All-inclusive Care for the Elderly PCA Personal Care Attendant PCP Primary Care Physician PHS PACE Health Survey PO PACE Organization QAPI Quality Assessment and Performance Improvement RAI Request for Additional Information SAA State Administering Agency SFH State Fair Hearing SPA State Plan Amendment SSA Social Security Administration Requirements for Issuance of Regulations Section 902 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173 enacted on December 8, 2003, amended section 1871(a) of the Social Security Act (the Act)) requires the Secretary, in consultation with the Director of the Office of Management and Budget, to establish and publish timelines for the publication of Medicare final regulations based on the previous publication of a Medicare proposed or interim final regulation. Section 902 of the MMA states that the timelines for these regulations may vary among different regulations but shall not exceed 3 years after publication of the preceding proposed or interim final regulation except under exceptional circumstances. Section 902 also directs the Secretary to establish an appropriate period for finalizing those interim final regulations that were published before the enactment of MMA on December 8, 2003. Pursuant to this requirement, we published a notice in the Federal Register (69 FR 78442) establishing a publication deadline of 3 years from MMA enactment, that is December 8, 2006, for finalizing interim final rules published prior to MMA enactment. This final rule finalizes provisions set forth in the November 24, 1999 and October 1, 2002 interim final rules with comment. These interim final regulations will be finalized within the 3-year period after MMA enactment that was established under section of the MMA 902. Therefore, we believe that this final rule is in accordance with the Congress' intent to ensure timely publication of final regulations. I. Background A. Program Description The Program of All-inclusive Care for the Elderly (PACE) program is a unique model of managed care service delivery for the frail community-dwelling elderly, most of whom are dually eligible for Medicare and Medicaid benefits, and all of whom are assessed as being eligible for nursing home placement according to the standards established by their respective States. B. Legislative History 1. Demonstration Project Section 603(c) of the Social Security Amendments of 1983 (Pub. L. 98-21), as extended by section 9220 of the Consolidated Omnibus Budget [[Page 71245]] Reconciliation Act of 1985 (COBRA) (Pub. L. 99-272) authorized the original demonstration PACE program for On Lok Senior Health Services (On Lok) in San Francisco. Section 9412(b) of Pub. L. 99-509, the Omnibus Budget Reconciliation Act of 1986 (OBRA, 1986), authorized us to conduct a PACE demonstration program to determine whether the model of care developed by On Lok could be replicated across the country. The number of sites was originally limited to 10, but the Omnibus Budget Reconciliation Act of l990 (Pub. L. 101-508) authorized an increase to 15 PACE demonstration programs. The PACE model of care includes as core services the provision of adult day health care and interdisciplinary team (IDT) care management, through which access to and allocation of all health services is managed. Physician, therapeutic, ancillary, and social support services are furnished in the participant's residence or on-site at a PACE center. Hospital, nursing home, home health, and other specialized services are generally furnished under contract. Financing of the PACE demonstration model was accomplished through prospective capitation of both Medicare and Medicaid. PACE demonstration programs had been permitted by section 4118(g) of Pub. L. 100-203 (OBRA 1987) to assume full financial risk progressively over the initial three years. As such authority was removed by section 4803(b)(1)(B) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), PACE demonstration programs approved after August 5, 1997 had to assume full financial risk at start-up. The PACE demonstration program was operated under a Protocol established and published by On Lok, Inc. on April 4, 1995. 2. Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) The BBA built on the success of the PACE demonstration program. Section 4801 of the BBA, authorized coverage of PACE under the Medicare program. It amended title XVIII of the Act by adding section 1894, which addresses Medicare payments and coverage of benefits under PACE. Section 4802 of the BBA authorized the establishment of PACE as a State option under Medicaid. It amended title XIX of the Act by adding section 1934, which directly parallels the provisions of section 1894. Section 4803 of the BBA addresses implementation of PACE under both Medicare and Medicaid, the effective date, timely issuance of regulations, priority and special consideration in processing applications, and transition from PACE demonstration program status. As directed by section 4803 of BBA, we published an interim final rule on November 24, 1999, permitting entities to establish and operate PACE programs under section 1894 and 1934 of the Act (64 FR 66234). The 1999 interim final rule was a comprehensive rule that addressed eligibility, administrative requirements, application procedures, services, payment, participant rights, and quality assurance. a. Use of the PACE Protocol Throughout the 1999 interim final rule, when we referred to ``the Protocol'' we meant the PACE Protocol, as published by On Lok, Inc., the parent company of On Lok Senior Health Services. A copy of the Protocol was included as an attachment to the 1999 interim final rule with comment period. We were directed by sections 1894(f)(2) and 1934(f)(2) of the Act to incorporate into regulation the requirements applied to PACE demonstration programs under the Protocol, to the extent consistent with the provisions of sections 1894 and 1934 of the Act. We also were authorized to modify or waive certain provisions of the Protocol in the development of the regulation, if the modification or waiver were not inconsistent with and would not impair the essential elements, objectives, and requirements of sections 1894 and 1934 of the Act. b. Consultation With States Sections 4801 and 4802 of Pub. L. 105-33 clearly dictate a cooperative relationship between the Secretary and the States in the development, implementation and administration of the PACE program. In order to fulfill these requirements, we utilized the American Public Human Services (formerly, the American Public Welfare Association) as the conduit to solicit States for volunteers to consult with CMS staff. The participating State staff members represented States with a range of PACE experience. Each State staff volunteer selected a specific target area to provide information. In order to efficiently and effectively obtain a large amount of feedback in a short period of time, CMS staff arranged a series of conference calls to discuss a wide range of issues pertaining to PACE including requirements on the application process, enrollment, and payment and related financial data collection. Each subject area discussion included CMS staff and two to three State representatives. The feedback obtained during these meetings was an invaluable source of information in understanding State operational concerns and in constructing the regulation. We believed that this approach would minimize operational barriers that are frequently inherent when new programs are initiated. For this reason, CMS continues to regularly consult and receive feedback from States regarding PACE policy by means of teleconferences and forums. c. Consultation With State Agency on Aging Under the Older Americans Act, State Agencies on Aging were charged with the responsibility of promoting comprehensive and coordinated service systems for older persons in their States. Consistent with this responsibility, State Agencies on Aging oversee important programs for home and community-based services which are funded through title III of the Older Americans Act, State revenues, and the Medicaid home and community-based waiver program. The State agencies also implement and oversee important planning, referral, case management, and quality assurance functions. In addition, State agencies are responsible for administering the State Long Term Care Ombudsman Program through which service quality in nursing homes and board and care homes are monitored in every State. Each State agency that administers the PACE program should regularly consult with their respective State Agency on Aging in order to avoid service duplication in the PACE service areas and to assure the delivery and quality of services to PACE participants. In our 1999 interim final rule, we indicated we were considering the extent to which the State Long Term Care Ombudsman Program would be useful in promoting the rights of PACE participants and in monitoring the quality of care provided by PACE organizations (POs). We received a number of comments on this issue that we discuss in Subpart G ``Participant Rights'' of this final rule. d. State Medicaid Plan Requirement The State Medicaid plan is a comprehensive written statement submitted by the State and approved by CMS describing the nature and scope of the Medicaid program and giving assurance that the Medicaid program will be administered according to Federal law and policy. The State plan preprint sets forth the scope of the Medicaid program, including groups covered, services furnished, and [[Page 71246]] payment policy. When a State completes a new State plan preprint page because of changes in its Medicaid program (called a ``State plan amendment (SPA)''), the preprint page must be approved by CMS in order for the State to receive Federal matching funds. Section 1905(a)(26) of the Act, as added by section 4802(a)(1) of the BBA, provided authority for States to elect PACE as an optional Medicaid benefit. The State plan electing the optional PACE program must be approved before CMS and the State enter into a program agreement with a PO. To aid States in modifying their State plans, the CMS Center for Medicaid and State Operations developed an interim State plan preprint for PACE. A State Medicaid letter dated March 23, 1998, provided information and guidance to State Medicaid agencies on how to satisfy the State plan amendment requirement. Additional directions for completing the State plan amendment were provided in a State Medicaid Director letter that was issued November 9, 2000. The most current version of the State Plan preprint is available on the CMS PACE homepage, http://www.cms.hhs.gov/PACE/04_InformationforStateAgencies.asp . e. Interaction With Medicare+Choice (Now Medicare Advantage) The BBA also established the Medicare+Choice (M+C) program, which expanded the health care options available to Medicare beneficiaries. Under the M+C program, beneficiaries could elect to receive Medicare benefits through enrollment in one of several private health plan choices beyond the original (fee-for-service) Medicare program or choose a plan previously available through managed care organizations under section 1876 of the Act. The BBA set forth the requirements for M+C organizations in a new Part C of title XVIII of the Act. The interim final rule that implemented the M+C program was published June 26, 1998 (63 FR 34968). The final regulation addressing comments was published on February 17, 1999 (64 FR 7968). Significant changes were made to the M+C program by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December 8, 2003). The two final regulations that implemented the MMA were published January 28, 2005 (70 FR 4194 and 4588). The first regulation established the Medicare Prescription Drug Benefit or Medicare Part D and the second regulation established the Medicare Advantage (MA) program which replaced the M+C program. In this final rule, we are finalizing our regulations that implement the PACE provisions of the BBA and BIPA statutes. We are limiting our discussion of the effects of MMA provisions to those issues that have been addressed in other MMA rulemaking. We think our regulations on Part D and MA provide sufficient and appropriate guidance to all affected entities, including POs. However, we believe it is essential to highlight the impact of MMA, particularly with respect to how Medicare Part D relates to a PO. Specifically, the MMA provides that POs electing to provide Part D coverage to their enrollees shall be treated in a manner similar to Medicare Advantage Prescription Drug Plans (MA-PDPs). A more detailed discussion of the relevant MMA provisions is provided later in this section. Although the PACE program has certain fundamental similarities to M+C (now MA), PACE is not a M+C plan. The BBA established separate and distinct requirements for the PACE program. PACE is similar to some M+C options in these ways: it is capitated; it is risk-based; it provides managed care; and it is an elective option. However, PACE differs significantly from M+C plans in other ways such as: it is not available nationwide (only in a limited number of sites); statutory waivers expand the scope of Medicare covered services; it is not available to all beneficiaries (only to a defined subset of frail elderly); and it is a joint Medicare/Medicaid program. However, the BBA directed us to consider some of the requirements established for the M+C program as we developed regulations for POs in certain areas common to both programs, for example, beneficiary protections, payment rates, and sanctions. f. Flexibility Under the BBA As noted above, the PACE demonstration program was operated pursuant to a Protocol developed by On Lok, Inc. The Protocol provided authority for CMS and the State Administering Agency (SAA) (that is, the State Agency designated to administer the PACE program) to waive specific requirements of the Protocol, if, in their judgment, the following criteria were met: The intent of the requirements was met by the proposed alternative and Safe and quality care would be provided. In addition, written requests for waivers were required to be approved by CMS and the SAA before implementation of the proposed alternative. Flexibility was limited to the requirements in the section on service coverage and arrangement. That section includes the following requirements: POs must provide all Medicare and Medicaid services and provide care 7 days per week, 365 days per year; A listing of required and excluded services and minimum services; Each participant be assigned to an IDT; The composition and duties of the IDT; The assessment and reassessment requirements. Flexibility was not authorized for other sections of the Protocol, such as participant rights, enrollment and disenrollment, and administration. Sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act give the Secretary the authority to waive regulatory provisions as follows: In order to provide for reasonable flexibility in adapting the PACE service delivery model to the needs of particular organizations (such as those in rural areas or those that may determine it appropriate to use non-staff physicians according to State licensing law requirements) * * * the Secretary (in close consultation with State administering agencies) may modify or waive provisions of the PACE protocol as long as the modification or waiver is consistent with and would not impair the essential elements, objectives, and requirements of this section * * *. The statute also specifies the following essential elements that may not be waived: The focus on frail elderly qualifying individuals who require the level of care provided in a nursing facility. The delivery of comprehensive, integrated acute and long- term care services. The multidisciplinary team approach to care management and service delivery. Capitated, integrated financing that allows the provider to pool payments received from public and private programs and individuals. The assumption by the provider of full financial risk. To implement sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act, in the 1999 interim final rule, we identified specific waivers that were intended to encourage the development of PACE programs in rural and Tribal areas. The waivers included the following three requirements: A prohibition on members of the governing body and their family members from having a direct or indirect interest in contracts with the organization (see Sec. 460.68(c)); [[Page 71247]] A requirement that members of the IDT primarily serve PACE participants (see Sec. 460.102(g)); and A requirement that the primary care physician (PCP) must be employed by the PO (see Sec. 460.102(g)). The regulation included specific criteria for each waiver related to whether the PO's service area is rural or Tribal, the accessibility of individuals who meet the three regulatory requirements listed above, and a requirement that the proposed alternative does not adversely affect the availability or quality of care furnished to PACE participants. Our rationale for this initial, limited view of the flexibility provision was based on our belief that all PACE demonstration programs were in compliance with the Protocol, necessitating only minor changes in their operations to meet the PACE regulatory requirements. Our intention was to allow some flexibility to promote PACE in rural and Tribal areas while maintaining consistency of the requirements for other PACE programs. We intended to provide more flexibility to all POs once we had gained sufficient experience in administering the PACE program. However, after publication of the 1999 interim final rule, we learned that although the early PACE demonstration programs initially complied with the Protocol, most of them modified the Protocol requirements as they expanded, using the flexibility authorized in the Protocol. While many of these modifications were related to the allowable areas of service coverage and arrangement provisions, many others were not authorized by the flexibility clause in the Protocol. Furthermore, many of the later PACE demonstration programs also inappropriately exercised the flexibility clause in the Protocol, especially with regard to direct employment of staff. Finally, very few of the waivers were requested in writing or approved by CMS or the SAA before implementation. We subsequently revised our regulations on the waiver process in response to comments on the 1999 interim final rule and in accordance with the requirements of section 903 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554, enacted on December 21, 2000), as discussed below. A detailed discussion of waivers and the waiver process is located in section III, subpart B of this final rule. 3. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) a. Background BIPA modified the PACE program in the following three ways: Section 901 extended the transition period for the PACE demonstration programs to allow an additional year for these organizations to transition to the permanent PACE program. Section 902 gave the Secretary the authority to grandfather in the modifications these programs had implemented as of July 1, 2000. This provision allowed the PACE demonstration programs to continue program modifications they had implemented and avoid disruptions in participant care where these modifications were determined to be consistent with the PACE model. These sections were implemented administratively. Section 903 specifically addressed flexibility in exercising the waiver authority provided under sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act. It authorized CMS to modify or waive PACE regulatory provisions in a manner that responds promptly to the needs of POs relating to the areas of employment and the use of community- based PCPs. Section 903 of BIPA also established a 90-day review period for waiver requests. As the flexibility language is part of the statutory section dealing with regulations (sections 1894(f) and 1934(f) of the Act), we believed it was intended that waiver requirements be incorporated into the PACE regulations. In order to implement section 903 of BIPA, we published the 2002 PACE interim final rule. b. Contracting for IDT Members and Administrative Staff In the 2002 interim final rule, we amended the PACE regulations to replace the term ``multidisciplinary'' with ``interdisciplinary'' to more accurately reflect the interactive and collaborative approach of the PACE care team. In the 2002 interim final rule, we responded to public comments regarding flexibility, including comments on Sec. 460.102(f) of the 1999 interim final rule, which required that the PACE IDT members be employees of the PO or PACE center. In the 2002 interim final rule, we deleted Sec. 460.102(f) and revised Sec. 460.60 to allow the PO to employ or contract with the program director and the medical director. We also added requirements at Sec. 460.70 that must be met when the PO is contracting for services. A more detailed discussion of Sec. 460.60 and Sec. 460.70 is located in section III, subpart E of this final rule. c. Contracting With Another Entity To Furnish PACE Center Services After publication of the 1999 interim final rule, we learned that in 1995, On Lok, Inc. had changed the Protocol to reflect a contractual arrangement they entered into with another organization to provide all PACE center services. Under this arrangement, the IDT was employed and managed by the contracting organization but On Lok retained responsibility for all care provided to and all risk entailed in meeting the healthcare needs of the participants attending the center. Through this contractual relationship, On Lok was able to expand PACE services within their service area. As this approach was reflected in the PACE Protocol, we amended the PACE regulations in the 2002 interim final rule to allow POs to provide PACE center services through contractual arrangements. We also revised Sec. 460.70 to identify the criteria that a PO must meet to contract out PACE center services. A more detailed discussion of Sec. 460.70 is located in section at IV.B. of this final rule. d. Oversight of Direct Patient Care Services As discussed above, in the 2002 interim final rule, we revised the requirements of the 1999 interim final rule to allow for the contracting of IDT members, program director, medical director, and all PACE center services. For this reason, we believed it was essential to establish oversight criteria that POs must implement for all employees and contracted staff who furnish direct patient care. This was accomplished with the addition of Sec. 460.71. A more detailed description of Sec. 460.71 is located in section IV, subpart E of this final rule. e. Waiver Process To implement section 903 of BIPA, we established a process for submission and approval of waiver requests. The 2002 interim final rule amended the 1999 interim final rule by adding Sec. 460.26, which specifies the requirements for submission and evaluation of waiver requests and Sec. 460.28, which addresses requirements related to CMS review of waiver requests. In the 2002 interim final rule, we also removed the restrictive waiver provisions for rural and Tribal [[Page 71248]] organizations that were included in the 1999 interim final rule. A more detailed description of Sec. 460.26 and Sec. 460.28 is located in section III, subpart B of this final rule. 4. Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) On December 8, 2003, the Congress enacted the MMA of 2003 (Pub. L. 108-173). Several sections of the MMA impact POs. Most notably, section 101 of the MMA affected the way in which POs are paid for providing certain outpatient prescription drugs to any Part D eligible participant. As specified in sections 1894 and 1934 of the Act, POs shall provide all medically necessary services including prescription drugs, without any limitation or condition as to amount, duration, or scope and without application of deductibles, co-payments, coinsurance, or other cost sharing that would otherwise apply under Medicare or Medicaid. Up until January 1, 2006, payment for drugs covered under Medicare parts A and B was included in the monthly Medicare capitation rate paid to POs for Medicare beneficiaries, while payment for outpatient prescription drugs was included in the monthly Medicaid capitation rate paid to POs for Medicaid recipients, or as a portion of the amount equal to the Medicaid premium paid by non-Medicaid recipients. Consequently, in order for POs to continue to meet the statutory requirement of providing prescription drug coverage to their enrollees, and to ensure that they receive adequate payment for the provision of Part D drugs, beginning January 1, 2006, POs could begin to offer qualified prescription drug coverage to their enrollees who are Part D eligible individuals. The MMA did not impact the manner in which POs are paid for the provision of outpatient prescription drugs to non-part D eligible PACE participants. Section 1860D-21(f) of the Act, added by section 101 of the MMA, provides that POs may elect to provide qualified prescription drug coverage to enrollees who are Part D eligible individuals. This section also provides that in the case of a PACE program that elects to provide qualified Part D prescription drug coverage, the requirements under Part D apply to the provision of such coverage in a manner that is similar to the manner in which those requirements apply to the provision of such coverage under an MA-PD local plan. However, because we did not believe that Congress intended for the MMA to alter the way in which PACE services, including outpatient prescription drugs are provided to PACE enrollees, we indicated in the final rule that implements Part D (70 FR 4194) that POs would not be deemed to be MA-PD local plans, but rather, would be treated in a manner similar to an MA- PD local plan for purposes of payment under Part D. We stated that this approach is consistent with section 1894(d)(1) of the Act, which provides that payments will be made to POs ``in the same manner and from the same sources'' as payments are made to a MA organization. The MMA allows CMS the flexibility to deem POs as MA-PD plans or to treat POs that elect to provide qualified drug coverage in a manner similar to MA-PD plans. Due to inconsistencies in the PACE and MMA statutes, we chose to treat POs in a similar manner as MA-PD plans avoiding conflicting requirements. The requirements that apply to POs that elect to provide qualified prescription drug coverage to Part D eligible enrollees are set forth in subpart T of the preamble to the Part D final rule (70 FR 4194). To the extent that we need to address additional issues regarding Part D as it applies to POs, we will do so in a future rulemaking. In addition, section 236 of the MMA amended the Act to extend to POs the existing statutory Medicare and Medicaid balance billing protections that had previously applied to POs under PACE demonstration program authority. Specifically, provisions of the Act that limit balance billing against MA organizations by non-contract physicians, providers of service, and other entities with respect to services covered under title XVIII now include PACE providers. Similarly, Medicaid billing limitations specified in the Act now apply to providers participating under the State plan under title XIX that do not have a contract or other agreement with a PACE provider. Both MMA provisions apply to services furnished on or after January 1, 2004. Section 301 of the MMA amends the Medicare Secondary Payer (MSP) provisions in section 1862(b) of the Act. These amendments clarify the obligations of primary plans and primary payers, the nature of the insurance arrangements subject to the MSP rules, the circumstances under which Medicare may make conditional payments, and the obligations of primary payers to reimburse Medicare. To implement section 301 of the MMA, we issued an interim final rule with comment period (71 FR 9466), published on February 24, 2006, revising our MSP regulations at part 411. Our PACE regulations at Sec. 460.180(d) specify that Medicare does not pay for PACE services to the extent that Medicare is not the primary payer under part 411. The MSP interim final rule establishes our current policies regarding the obligations of other payers. If there are any provisions specific to PACE organizations that result from issuance of the final MSP rule, we will address those provisions in a future PACE rulemaking. Finally, as discussed above, under the rulemaking requirements of section 902 of the MMA and our notice in the Federal Register on December 30, 2004 (69 FR 78442), interim final regulations issued before enactment of MMA on December 8, 2003 must be finalized within 3 years of the date of enactment or the regulations shall not continue in effect. This rule finalizes both the PACE interim final rule with comment period published in the Federal Register November 24, 1999 (64 FR 66234) and the PACE interim final rule with comment period published in the Federal Register on October 1, 2002 (67 FR 61496). II. Analysis of and Response to Public Comments This final rule responds to public comments received on both the November 24, 1999 interim final rule with comment (64 FR 66234) and the October 1, 2002 interim final rule with comment (67 FR 61496). A. Summary of Comments on the 1999 Interim Final Rule We received 34 items of correspondence containing more than 500 specific comments on the 1999 interim final rule. In this document, we will refer to this regulation as the 1999 interim final rule. Commenters included representatives of professional associations, State and county governments, PACE demonstration programs, potential PACE programs, various health care providers, and advocacy organizations. Consistent with the scope of the 1999 interim final rule, most of the commenters addressed multiple issues, often in great detail. Some commenters expressed concerns about Medicare and Medicaid issues that do not pertain to the PACE program. Numerous commenters disapproved of the limited flexibility provided in the regulation, stating that the regulation restricts programs from developing innovatively and responsively to participant preferences, community needs, and the healthcare marketplace. They asked for operational and service delivery flexibility, while permitting [[Page 71249]] liberal exceptions for established programs that have proven success in furnishing the PACE benefit. Commenters also noted the regulatory language was too prescriptive in several key areas (personnel qualifications) and too vague in others (Medicare rate-setting), saying that prescriptive language also reduces flexibility in organizational design and limits innovative strategies for service delivery. Commenters indicated that the application of M+C requirements was often made without considering the differences between the PACE program and M+C plans and that the differences between PACE and nursing facilities should be recognized in the final requirements. In addition, commenters indicated that the numerous written notices required by the 1999 interim final rule were unduly burdensome. Comments also indicated that in some instances requirements from other programs (for example, the Outcome Assessment Information Set (OASIS) for home health agencies) have been applied to PACE, thereby disregarding the differences between the programs and adding the burden of information collection. Finally, commenters opposed the prescriptive language that they thought limited State discretion and usurped traditional State regulatory activities rather than optimizing the opportunity to encourage cooperation with the States. We respond to the particular comments as they relate to specific provisions discussed in section III of this final rule. Listed below are the six areas of the 1999 interim final rule that generated the most concern: Subpart D: Sanctions, Enforcement Actions and Termination including civil money penalties; Subpart E: PACE Administrative Requirements including organizational structure, personnel qualifications, contracted services and marketing; Subpart F: PACE Services including the interdisciplinary team and participant assessment; Subpart G: Participant Rights including the appeals process; Subpart I: Participant Enrollment and Disenrollment which includes eligibility to enroll, enrollment process, continuation of enrollment, and involuntary disenrollment; Subpart J: Payment including Medicare payment. B. Summary of Comments on the 2002 Interim Final Rule We received 4 letters of public comment on the October 1, 2002 interim final rule (67 FR 61496) containing more than 17 specific comments. Commenters included representatives of professional associations, a State government, and an advocacy organization. In this document, we will refer to this regulation as the 2002 interim final rule. Commenters expressed opposing opinions on the flexibility permitted in the 2002 interim final rule. In general, commenters expressed concerns about flexibility related to all aspects of the program, including waivers and the waiver process, contracted services including staff and contractors, and oversight of direct participant care. Listed below are the three areas that generated the most concern: Subpart B: PO Application and Waiver Process; Subpart D: Sanctions, Enforcement Actions and Termination; Subpart E: Administrative Requirements. III. Provisions of the 1999 Interim Final Rule With Comment and the 2002 Interim Final Rule With Comment, Analysis of and Responses to Comments and Final Rule Actions The purpose of this final rule is to respond to public comments and finalize the regulations established in the 1999 and 2002 interim final rules. Below we will list each PACE regulation, note any comments and responses, and then note our final action. Subpart A--Basis, Scope, and Purpose This subpart provides the basis for this regulation, the scope and purpose, and defines terms specific to the PACE benefit. Section 460.2 Basis As stated in the 1999 interim final rule, the regulations set forth in 42 CFR part 460 are based on Sections 1894, 1905(a), and 1934 of the Act. Section 1894 of the Act authorizes Medicare payments to and coverage of benefits under PACE. Sections 1905(a) and 1934 of the Act authorize the establishment of PACE as an option under the State Medicaid plan to provide for Medicaid coverage of services furnished by the PACE program. No comments were received on this section. Final rule actions: This final rule will finalize Sec. 460.2 as published in the 1999 interim final rule. Section 460.4 Scope and Purpose We stated in the 1999 interim final rule that the purpose of the regulation was to set forth the requirements that an entity must meet in order to be approved as a PO under Medicare and Medicaid. It also sets forth how individuals may qualify to enroll in PACE, how Medicare and Medicaid payment will be made for PACE services, provisions for Federal and State monitoring of PACE programs, and procedures for sanctions and termination. We stated the purpose of a PACE program is to provide pre-paid, capitated, comprehensive health care services that are designed to: Enhance the quality of life and autonomy for frail, older adults; Maximize dignity of and respect for older adults; Enable frail, older adults to live in their homes and in the community as long as medically and socially feasible; and Preserve and support the older adult's family unit. This philosophy is based on Part I, section A, of the Protocol. Adopting a mission or philosophy statement that includes these elements indicates that an entity is guided by a set of values that influence its structure, planning, and day-to-day operations that is consistent with the purpose of PACE. No comments were received on this section. Final rule actions: This final rule will finalize Sec. 460.4 as published in the 1999 interim final rule. Section 460.6 Definitions This section of the 1999 interim final rule included the following definitions based on those in sections 1894(a) and 1934(a) of the Act and other terms determined necessary by CMS. Contract year means the term of a PACE program agreement, which is a calendar year, except that a PO's initial contract year may be from 12 to 23 months, as determined by CMS. Medicare beneficiary means an individual who is entitled to Medicare Part A benefits or enrolled under Medicare Part B, or both. Medicaid participant means an individual determined eligible for Medicaid who is enrolled in a PACE program. Medicare participant means a Medicare beneficiary who is enrolled in a PACE program. PACE stands for Programs of All-inclusive Care for the Elderly. PACE center means a facility operated by a PO where primary care is furnished to participants. [[Page 71250]] PACE organization (PO) means an entity that has in effect a PACE program agreement to operate a PACE program under this part. PACE program agreement means an agreement between a PO, CMS, and the State administering agency for the operation of a PACE program. Participant means an individual who is enrolled in a PACE program. Services include both items and services. State administering agency means the State agency responsible for administering the PACE program agreement. Trial period means the first 3 contract years in which a PO operates under a PACE program agreement, including any contract year during which the entity operated under a PACE demonstration program. In developing the definition of PACE organization, we explained in the 1999 interim final rule that sections 1894(a)(3) and 1934(a)(3) of the Act defined a ``PACE provider.'' We changed that term to ``PACE organization'' (PO) because we believed that the term ``PACE provider'' would be confusing. Medicare regulations (at 42 CFR 400.202) and Medicaid regulations (at 42 CFR 400.203) define the word ``provider,'' but the definitions are different and neither applies to entities that operate PACE programs. Those definitions denote individual providers of individual services under conventional fee-for-service systems. We selected the alternative term, PO, since ``organization'' is a term used in both titles XVIII and XIX when referring to managed care organizations, which are more similar to entities under PACE. In the few places where we use the term ``provider'' in this regulation, we are using it in the broad generic sense to refer to an individual or an entity that furnishes health care services. Our use of the term is not limited to the narrower Medicare definition in Sec. 400.202. Also, in defining contract year, we explained that a PO's initial (start-up) contract year may be from 12 to 23 months, as determined by CMS, to enable us to adjust the length of the initial (start-up) contract year so that subsequent years are on a standard annual calendar year cycle. Comment: One commenter suggested that we clarify the term ``center'' by replacing it with the term ``PACE center.'' Response: We agree and have replaced the term ``center'' with ``PACE center'' throughout the regulation. Comment: We received several comments requesting that we clearly define PACE, what constitutes a PO, and what constitutes a PACE center including clarification that a PACE provider is considered a PACE program and may have more than one center. It was also recommended that we adopt the definition of PACE center as contained in the Protocol, which explicitly addresses the full range of services and benefits available at the PACE center. Response: In response to these comments, in this final rule, we are redefining ``PACE center'' to be more consistent with the definition provided in the Protocol and the statute by defining it as a facility which includes a primary care clinic, areas for therapeutic recreation, restorative therapies, socialization, personal care, and dining, and which serves as the focal point for coordination and provision of most PACE services. In addition, as noted below we are adding a definition of ``PACE program''. However, we disagree with the commenter who requested that we adopt the definition of ``PACE center'' as contained in the Protocol which explicitly identifies the full range of services and benefits available at the PACE center. We believe that our modification is more appropriate and less cumbersome than including every required service in the definition. We also believe that by expanding the definition of ``PACE center'' that was published in the 1999 interim final rule, we are clarifying that a PACE center is a facility where most PACE services are provided, not just primary care. As noted earlier in this section, in the 1999 interim final rule, we defined PACE center as ``a facility operated by a PO where primary care is furnished to participants.'' This definition was based on section IV. B. 2 of the Protocol, which states: ``The PACE center is the focal point for coordination and provision of most PACE services. The PACE center is a facility which includes a primary care clinic, and areas for therapeutic recreation, restorative therapies, socialization, personal care and dining.'' The Protocol identified other requirements for a PACE center, which were included in other sections of the 1999 interim final rule. Those requirements are included in the following sections: The list of required services is at Sec. 460.98; the requirement that POs operate at least one PACE center is in Sec. 460.98(d)(1); the requirement that the frequency of attendance is determined by the IDT based on each participant's needs is at Sec. 460.98(e); and the requirement that the PACE center is designed, equipped, and maintained to provide for the physical safety of participants, personnel, or visitors and to ensure a safe and sanitary environment is at Sec. 460.72. We believe the list of explicit services and benefits belongs in Sec. 460.98 which relates to ``Service delivery,'' and in Sec. 460.72, which relates to ``Physical environment.'' Comment: A commenter requested that we add a definition of a ``PACE program'' and use the following language ``all centers and service provision by an approved PACE provider in an approved service area.'' Response: ``PACE program'' is defined in the Act at sections 1894(a)(2) and 1934(a)(2) as an entity that meets the statutory requirements to be a PACE provider and provides comprehensive health care services to PACE program eligible individuals in accordance with the PACE program agreement and regulations. We have not included a definition for ``PACE program'' in our regulations at Sec. 460.6. However, we agree with the commenter that doing so would help to clarify and standardize PACE terminology. As noted above, we changed the term ``PACE provider'' to ``PACE organization'' and defined that term in the 1999 interim final rule. Based on sections 1894(a)(2) and 1934(a)(2) of the Act, we are defining a PACE program as a program of all-inclusive care for the elderly that is operated by an approved PACE organization and that provides comprehensive health care services to PACE enrollees in accordance with a PACE program agreement. As noted above, we are defining a PACE center as a facility which includes a primary care clinic, areas for therapeutic recreation, restorative therapies, socialization, personal care, and dining, and which serves as the focal point for coordination and provision of most PACE services. We do not think the commenter's language would be needed to ensure that PACE centers are included within the definition of a PACE program. Final rule actions: In this final rule we are: Replacing the term ``center'' with the term ``PACE center'' throughout the regulation. Redefining the term ``PACE center'' as ``a facility which includes a primary care clinic, areas for therapeutic recreation, restorative therapies, socialization, personal care, and dining, and which serves as the focal point for coordination and provision of most PACE services.'' Defining ``PACE program'' to mean a program of all- inclusive care for the elderly that is operated by an approved PACE organization and that provides [[Page 71251]] comprehensive health care services to PACE enrollees in accordance with a PACE program agreement. Subpart B--PO Application and Waiver Process Section 460.10 Purpose We established in the 1999 interim final rule, that this subpart sets forth application requirements for an entity that seeks approval from CMS as a PO. In the 2002 interim final rule, we amended Sec. 460.10 to clarify that subpart B also establishes a process by which a PO may request a waiver of certain regulatory requirements in order to provide for reasonable flexibility in adapting the PACE service delivery model to the needs of particular organizations (such as those in rural areas). PACE Under Both Medicare and Medicaid We require that each PO must enter into a program agreement under both sections 1894 and 1934 of the Act, that is, that each organization participate in both Medicare and Medicaid. Most of the text in those two sections is identical and our analysis indicates that key language contemplates entities acting as POs under both programs. Sections 1894(f)(2) and 1934(f)(2) of the Act require that we incorporate in our regulations the requirements applied to PACE demonstration programs under the PACE Protocol, to the extent consistent with the provisions of sections 1894 and 1934 of the Act. Under the Protocol, PACE demonstration programs operated under both Medicare and Medicaid. We believe that the directive to incorporate the requirements in the Protocol reflected an expectation by the Congress that all POs would participate in both Medicare and Medicaid. This view is reinforced by paragraph (f)(2)(B) of these sections, which permits us to modify or waive provisions of the PACE Protocol ``so long as such modification or waiver is not inconsistent with and would not impair the essential elements, objectives, and requirements'' of sections 1894 and 1934 of the Act, but which forbids modifying or waiving, among others, the following provisions: Capitated, integrated financing that allows the organization to pool payments received from public and private programs and individuals; and The assumption by the organization of full financial risk. We concluded that both of these provisions preclude the possibility of a Medicare-only or Medicaid-only PACE program. For example, if a program could collect capitation payments from Medicare but bill fee- for-service under Medicaid, not all financing would be capitated, nor would financing be integrated, nor would the organization assume full financial risk. However, the law does not require that States offer the PACE benefit under Medicaid. As indicated by its title, section 4802 of BBA provides for the ``Establishment of PACE Program as Medicaid State Option.'' If an entity attempted to become a PO under Medicare in a State which has not included PACE program services as an option under its Medicaid program, it would not be possible for that entity to be both a Medicare and a Medicaid PO. While this would curtail the availability of PACE programs in those States, we have concluded that this result was intended because a Medicare-only program could not meet the fundamental concept of an all-inclusive, integrated, capitated, full-risk program. Moreover, both sections 1894 and 1934 of the Act contemplate the active collaboration of Federal and State governments in the administration of PACE. Each State must have a SAA that is responsible for administering PACE program agreements in their State under sections 1894 and 1934 of the Act. The SAA closely cooperates with CMS in establishing procedures for entering into, extending, and terminating PACE program agreements. The SAA cooperates with CMS and the PO in the development of participant health status and quality of life outcome measures. The SAA also cooperates with us in conducting oversight reviews of PACE programs and has the authority to terminate a PACE program agreement for cause. If Medicare-only programs had been contemplated in a State that does not elect the PACE option, there would have been no reason to assign such a significant role to an SAA. We believe that a State which has not chosen PACE as an optional service would be ill-prepared or unable to perform this role. As mentioned earlier, most of the text of section 1894 of the Act is identical to text in section 1934 of the Act. Portions of both text reflect the concept of entities acting as POs under both programs. The scope of Medicare PACE program benefits includes ``all items and services covered under this title (for individuals enrolled under this section [section 1894]) and all items and services covered under title XIX.'' Similarly, section 1934 of the Act, defines the Medicaid benefit package as ``all items and services covered under title XVIII (for individuals enrolled under section 1894) and all items and services covered under this title.'' In addition, to be eligible for PACE, an individual must require the nursing facility (NF) level of care covered under the State Medicaid plan. Section 1894(e) of the Act provides that ``CMS, in close cooperation with the SAA'' will establish program agreements for ``entities that meet the requirements for a PO under this section, section 1934, and regulations.'' A corresponding provision is found at section 1934(e) of the Act, referring to ``entities that meet the requirements for a PO under this section, section 1894, and regulations.'' We believe that the use of the correlative ``and'' indicates that PACE entities would have to meet all three sets of requirements. A parallel provision provides for termination of PACE program agreements (see paragraphs (e)(5) of sections 1894 and 1934 of the Act). Termination of an agreement under both sections 1894 and 1934 of the Act may be accomplished by either ``CMS or a SAA.'' Nonetheless, it is highly unlikely that any entity could be a viable PO without approval under both Medicare and Medicaid. The majority of potential participants are Medicare beneficiaries who also are eligible for Medicaid. Those who are not currently Medicaid- eligible may eventually exhaust their financial resources and become eligible. Medicare participants who are not enrolled in PACE under Medicaid must pay premiums equal to the Medicaid capitation rate. Aside from the technicality that there would not be an established Medicaid capitation rate in a State that does not elect the PACE option, most of these participants would lack the ability to pay these significant premiums. As the above citations illustrate, some provisions of the law are conflicting and thus ambiguous. We therefore interpreted them to give effect to many of the provisions and policy objectives that they advance. Furthermore, in keeping with the congressional intent that the Protocol guide our implementation of the PACE program, we determined that POs must be approved under both Medicare and Medicaid. Based on this interpretation, if a State should choose not to amend its State Medicaid plan to adopt PACE as an optional Medicaid service, we would not accept PACE applications from entities in that State. Also, if a State has elected the optional benefit but declines to recommend a particular entity as a PO, we would not accept an application from that entity. [[Page 71252]] We stated in the 2002 interim final rule that to implement section 903 of BIPA, we amended the PACE regulation by adding Sec. 460.26 and Sec. 460.28 to establish a process for a PO to request waiver of regulatory requirements. This process allows for variations while achieving the intent of the regulatory provision and responding to the needs of POs to develop and expand within their States' long-term care delivery system. Waivers will be discussed in detail under Sec. 460.26 and Sec. 460.28. Comment: Another commenter recommended that social support services and participant care be more clearly defined so beneficiaries and caregivers may make informed decisions about the type and level of care to be provided. Response: In response to the comment regarding a more defined regulation where social services and participant care is concerned, we disagree with this commenter, as required services are participant specific. After the IDT determines a participant requires a service and it is included in their plan of care, those services become required for that participant for that specific need. Therefore, it would not truly represent the PACE model to constrain the benefit by defining it in regulatory language. Final rule actions: This final rule will finalize Sec. 460.10, as published in the 2002 interim final rule. Section 460.12 Application Requirements We established Sec. 460.12 to set forth the application requirements for the PACE program. In order for CMS to determine whether an entity qualifies as a PO, an individual authorized to act for the entity must submit an application that describes thoroughly how the entity meets all the requirements specified in this regulation. In recognition of the 90-day review timeframe specified in the statute and described below and the numerical limit on the number of PACE program agreements, we will review and take action to approve, deny, or request additional information only on complete applications; those applications that address all elements of the PACE program agreement. We will send a letter to each applicant indicating whether or not the application is complete and specifying when the 90-day review period ends. We require in Sec. 460.12(b) that applications for PO status be accompanied by an assurance from the SAA indicating that it considers the entity to be qualified to be a PO and that the State is willing to enter into a PACE program agreement with the entity. We will not accept applications from entities that have not obtained these assurances. To enable a SAA to make these assurances, an entity would have established to the satisfaction of the State that it is committed to the PACE model of care, that there is sufficient funding for program development and facilities, that there is adequate demand for PACE services as shown by demographic analysis. Entities that are interested in developing a PACE program agreement should contact their SAA to determine whether the State has submitted or plans to submit a SPA to elect PACE as an optional benefit under its State Medicaid plan and if the State has established additional requirements for POs. Section 1905(a)(26) of the Act provides authority for States to elect PACE as an optional Medicaid benefit. The State plan electing the optional PACE program must be approved before we can approve an application for a PO in that State. We received three comments related to application requirements. Comment: Commenters questioned the requirement that POs must be approved by their SAA. Further, they requested that we specify an absolute role for SAA, and revise the regulatory language to reflect the SAAs' responsibility to submit the program application and the States' role in the application process. Response: As we explained in the 1999 interim final rule, States have played a significant role in the development of the PACE demonstration program as well as other community-based alternatives to institutionalization. Most States have implemented home and community based programs that provide comprehensive coordinated services to various groups of Medicaid recipients. As a result, States have gained extensive experience in demographic analysis and contracting with entities that are capable of delivering a specified range of services. Although the PACE statute does not specify the States' role in the application approval process, many aspects of implementing PACE in Medicare and Medicaid will necessitate extensive involvement of the SAAs and the State Medicaid Agencies. The State must elect to provide PACE services as an option under the Medicaid State plan and PACE applications must be accompanied by an assurance from the SAA that the State considers the entity to be qualified to be a PO and is willing to enter into a program agreement with them. With regard to applications, we continue to believe the States are in the best position to work with potential organizations to develop programs that meet our requirements and are integrated into the States' overall long-term care delivery system. Comment: One commenter asked us to clarify the regulatory provision related to the hiring requirements of non-operational programs before submission of their program application. The commenter stated that it is unreasonable to expect the applicant would have hired core staff before application submission. Response: Although hiring requirements for non-operational PACE programs do not appear in our regulations at Sec. 460.12, we addressed these requirements in the preamble of the 1999 interim final rule (64 FR 66238). We stated, ``To enable a State to make such assurances, an entity would have established to the satisfaction of the State that it is committed to the PACE model of care, that there is sufficient funding for program development and facilities, that there is adequate demand for PACE services as shown by demographic analysis, and that the entity has hired core PACE staff and has developed contracts for referral arrangements and other program services that the site will not furnish directly.'' When the 1999 interim final rule was developed, there were several PACE demonstration programs that needed to transition to permanent provider status. As they were operational and had key staff members in place before submitting their PACE provider applications, this requirement was not an issue. However, as all PACE demonstration programs have transitioned to permanent provider status, applications will now be primarily from non- operational providers. We acknowledge that start-up costs are extensive and paying salaries for top management staff without a revenue stream is unrealistic. We do not believe that it is appropriate to hold non- operational applicants to the same standard as POs that had been fully operational under the PACE demonstration program. Therefore, we are not requiring that core staff be hired before application approval. However, at the time of an organization's Readiness Review, we do expect documentation that core staff have been chosen and accepted those specific key positions. Language related to staff contracts of non-operational organizations has been included on page ix of the Provider Application, which [[Page 71253]] can be found on the PACE Web site under Provider Application and Appendices at http://www.cms.hhs.gov/pace/. This signed certification guarantees us, among other things, that the SAA will verify that the PO has qualified staff employed or under contract before furnishing services. This document must be signed by the SAA and included as part the PACE provider application. In the 2002 interim final rule, we revised Sec. 460.12 by removing and reserving paragraph (a)(2) to clarify that although we may begin review of PO applications, we may sign a program agreement only with a PO located in a State with an approved SPA electing PACE as an optional benefit under its Medicaid State plan. We are finalizing this provision by deleting Sec. 460.12(a)(2) entirely. For the sake of continuity we are redesignating Sec. 460.12(a)(3) as Sec. 460.12(a)(2). Final rule actions: In this final rule we are redesignating Sec. 460.12(a)(3) to Sec. 460.12(a)(2). Section 460.14 Priority Consideration Section 4803(c) of the BBA directed us to give priority in processing applications, during the 3-year period following enactment of the BBA on August 5, 1997, to PACE demonstration programs and then to entities which had applied to operate a PACE demonstration program as of May 1, 1997. In the 1999 interim final rule, we establi