Medicare Program; Revisions to the Medicare Advantage and Prescription Drug Benefit Programs, 54226-54254 [E8-21686]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 73, Number 182 (Thursday, September 18, 2008)]
[Rules and Regulations]
[Pages 54226-54254]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-21686]



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Part III





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; Revisions to the Medicare Advantage and Prescription 
Drug Benefit Programs; Final Rule

Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422 and 423

[CMS 4138-IFC]
RIN 0938-AP52


Medicare Program; Revisions to the Medicare Advantage and 
Prescription Drug Benefit Programs

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period (IFC) revises the 
regulations governing the Medicare Advantage (MA) program (Part C), 
prescription drug benefit program (Part D) and section 1876 cost plans. 
This IFC makes conforming changes to the MA regulations to reflect new 
statutory requirements regarding special needs plans (SNP), private-
fee-for-service plans (PFFS), regional preferred provider organizations 
(RPPO) plans, Medicare medical savings accounts (MSA) plans, and new 
statutory provisions governing cost-sharing for dual-eligible enrollees 
in the MA program prescription drug pricing, coverage, and payment 
processes in the Part D program. In addition, this IFC sets forth new 
requirements governing the marketing of Part C and Part D plans which 
by statute must be in place at a date specified by the Secretary, but 
no later than November 15, 2008. Both the conforming changes to the 
regulations to reflect new statutory provisions and the new marketing 
requirements are based on provisions in the Medicare Improvements for 
Patients and Providers Act (MIPPA), which became law on July 15, 2008.

DATES: Effective Date: September 18, 2008.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on November 17, 2008.

ADDRESSES: In commenting, please refer to file code CMS-4138-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.regulations.gov. Follow the 
instructions for ``Comment or Submission'' and enter the filecode to 
find the document accepting comments.
    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-4138-IFC, P.O. Box 8016, Baltimore, MD 21244-8016.
    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-4138-IFC, 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 either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201;
    (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.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
Private-Fee-For-Service Plans--Sabrina Ahmed, 410-786-7499.
Special Needs Plans--LaVern Baty, 410-786-5480.
Cost Plans--Chris McClintick, 410-786-4682.
Medicare Medical Savings Account Plans--Anne Manley, 410-786-1096.
Enrollment--Lynn Orlosky, 410-786-9064.
Payment--Frank Szeflinski, 303-844-7119.
Marketing--Camille Brown, 410-786-0274, or Chevell Thomas, 410-786-
1387.
Contract provision relating to Part D drug benefit--Vanessa Duran, 410-
786-8697, or Deborah Larwood, 410-786-9500.
Low-income subsidy and late enrollment penalties--Deondra Moseley, 
(410) 786-4577 or Meghan Elrington, (410) 786-8675.

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

I. Background

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

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

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    The MMA also directed implementation of the prescription drug 
benefit and revised MA program provisions by January 1, 2006. The final 
rules for the MA and Part D prescription drug programs appeared in the 
Federal Register on January 28, 2005 (70 FR 4588 and 70 FR 4194, 
respectively). Many of the provisions relating to applications, 
marketing, contracts, and the new bidding process, for the MA program, 
became effective on March 22, 2005, 60 days after publication of the 
rule, so that the requirements for both programs could be implemented 
by January 1, 2006. All of the provisions regarding the new Part D 
prescription drug program became effective on March 22, 2005.
    As we gained more experience with the MA program and the 
prescription drug benefit program, we proposed to revise areas of both 
programs and issued a proposed rule on May 16, 2008 (73 FR 28556) that 
would have clarified existing policies or codified current guidance for 
both programs. Several of these proposed regulatory revisions have been 
overtaken by statutory provisions enacted in the Medicare Improvements 
for Patients and Providers Act (MIPPA) (Pub. L. 110-275), enacted on 
July 15, 2008. These MIPPA provisions directly address in statute 
several issues we proposed to address through rulemaking, and thus 
supersedes our rulemaking in these areas. Comments on our proposals in 
these areas thus are no longer relevant, as we have no authority to 
depart from the statutory requirements Congress has enacted (these 
requirements largely track the regulatory proposals in the May 16 
proposed rule). Because the law has changed in these areas, however, 
conforming changes must be made to the relevant sections of the Code of 
Federal Regulations in order for the regulations to accurately reflect 
the new state of the law under MIPPA. This interim final rule with 
comment period (IFC) makes these changes.
    MIPPA also called upon the Secretary to revise the marketing 
requirements for Part C and Part D plans in several areas specified in 
MIPPA. With the exceptions noted in this interim final rule, these new 
rules are to take effect at a date specified by the Secretary, but no 
later than November 15, 2008. This IFC contains provisions that 
implement these latter MIPPA requirements. Some provisions in our May 
16 proposed rule addressed issues in areas in which MIPAA required that 
we establish marketing limits no later than November 15th. As a result, 
to the extent our policies were informed by these comments, we will 
address them in our discussion of the marketing provisions we have 
developed in implementing these provisions of MIPPA. In addition we 
will publish in the near future, a separate final rule responding to 
public comments on those provisions of the May 16, 2008 proposed rule 
that were not addressed in MIPPA. Because MIPPA and the May 16, 2008 
proposed rule often specified requirements in the same general areas, 
we are publishing separate regulations in order to clearly distinguish 
between provisions which are statutory and those provisions which we 
proposed to promulgate through rulemaking and will be finalizing based 
on public notice and comment.

B. Relevant Legislative History and Overview

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established 
a new ``Part C'' in the Medicare statute (sections 1851 through 1859 of 
the Social Security Act (the Act)) which provided for a Medicare+Choice 
(M+C) program. Under section 1851(a)(1) of the Act, every individual 
entitled to Medicare Part A and enrolled under Medicare Part B, except 
for most individuals with end-stage renal disease (ESRD), could elect 
to receive benefits either through the original Medicare program or an 
M+C plan, if one was offered where he or she lived.
    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA), Public Law 106-111, amended the M+C provisions of the BBA. 
Further amendments were made to the M+C program by the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554), enacted December 21, 2000.
    As noted above, the MMA was enacted on December 8, 2003. Title I of 
the MMA added a new ``Part D'' to the Medicare statute (sections 1860D-
1 through 1860D-42) creating the Medicare Prescription Drug Benefit 
Program, the most significant change to the Medicare program since its 
inception in 1965.
    Sections 201 through 241 of title II of the MMA made significant 
changes to the Part C program. Title II of the MMA renamed the M+C 
program the MA program and included new payment and bidding provisions, 
new regional MA plans and special needs plans, reestablished authority 
for medical savings account (MSA) plans that had been provided in the 
BBA on a temporary basis, and made other changes. Title I of the MMA 
created prescription drug benefits under Medicare Part D, and a new 
retiree drug subsidy program.
    Both the MA and prescription drug benefit regulations were 
published separately, as proposed and final rules, though their 
development and publication were closely coordinated. On August 3, 
2004, we published in the Federal Register proposed rules for the MA 
program (69 FR 46866) and the prescription drug benefit program (69 FR 
46632). In response to public comments on the proposed rules, we made 
several revisions to the proposed policies for both programs. For 
further discussion of these revisions, see the respective final rules 
(70 FR 4588) and (70 FR 4194).
    On July 15, 2008, the Medicare Improvements for Patients and 
Providers Act became law, leading to the revisions to the MA and Part D 
prescription drug benefit programs discussed in Section II, Provisions 
of the Interim Final Rule.

II. Provisions of the Interim Final Rule

    In the sections that follow, we discuss the revisions made in this 
IFC to final provisions to the regulations in 42 CFR 417, 422 and 423 
governing, respectively, section 1876 cost plans, and the MA and 
prescription drug benefit programs. Several of the final provisions 
affect both the MA and Part D programs. In our discussion, we note when 
a provision affects both the MA and prescription drug benefit and 
include in section II C, a table comparing the proposed Part C and Part 
D program changes by specifying each issue and the sections of the Code 
of Federal Regulations that we are revising for both programs.

A. Changes to the Regulations in Part 422--Medicare Advantage Program

1. Special Needs Plans
    The Congress first authorized special needs plans (SNP) to 
exclusively or disproportionately serve individuals with special needs. 
The three types of special needs individuals eligible for enrollment 
identified by the Congress include (1) institutionalized individuals 
(defined in Sec.  422.2 as an individual residing or expecting to 
reside for 90 days or longer in a long term care facility), (2) 
individuals entitled to medical assistance under a State plan under 
title XIX, and (3) other individuals with severe or disabling chronic 
conditions that would benefit from enrollment in a SNP.
    The number of SNPs approved as of January 2008, is 787. This figure 
includes 442 dual-eligible SNPs, 256

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chronic care SNPs, and 89 institutional SNPs.
a. Model of Care (Sec.  422.101(f))
    Section 164 of MIPPA adds care management requirements for all SNPs 
effective January 1, 2010, as set forth in section 1859(f)(5) of the 
Act (42 U.S.C. 1395w-28(f)). The new mandate requires dual-eligible, 
institutional, and chronic condition SNPs to implement care management 
requirements having two explicit components. While our revisions 
specifically reflect the MIPPA provisions, it should be noted that in 
our May 16, 2008 proposed rule, we proposed other, related provisions 
which we will finalize, based on public notice and comments, in a final 
rule to be published soon after this IFC.
    The first component is an evidence-based model of care with an 
appropriate network of providers and specialists to meet the 
specialized needs of the SNP target population. We do not endorse any 
particular set of evidence-based guidelines or protocols but expect 
that SNPs will develop such guidelines and protocols through sources 
such as the Agency for Healthcare Research and Quality (https://
www.ahrq.gov/). The AHRQ does not endorse any particular set of 
evidence-based guidelines or protocols but its Web site includes access 
to nationally-recognized evidence-based practices. The second component 
is a battery of care management services that includes (1) a 
comprehensive initial assessment and annual reassessments of the 
individual's physical, psychosocial, and functional needs, (2) an 
individualized plan of care having goals and measurable outcomes, 
including specific services and benefits to be provided, and (3) an 
interdisciplinary team to manage care. In addition, MIPPA mandates the 
periodic audit of SNPs to ensure that plans meet the model of care 
requirements.
    In this IFC, we are revising Sec.  422.101(f), effective January 1, 
2010, to reflect the new MIPPA provisions requiring a SNP model of 
care. Specifically, we are revising the regulation to reflect the 
statutory components described in the preceding paragraph. We also 
issued guidance on the SNP model of care in our 2008 and 2009 Call 
Letters. Care coordination and a provider network comprised of clinical 
experts pertinent to the target population have been the cornerstones 
of the SNP model of care.
    We expect that MA organizations having the commitment and resources 
to serve vulnerable special needs beneficiaries through SNPs will 
perpetually evaluate their own model of care by collecting and 
analyzing performance data to continually improve their model of care. 
Through the analysis of SNP performance data and monitoring visits, the 
review of scientific research on the efficacy of other care models, and 
feedback from beneficiaries, advocacy groups, and healthcare 
professionals, we will continue to evaluate models of care. As we look 
longitudinally at evidence-based advancements in care coordination, we 
will also issue guidance through our Call Letters and informational 
memoranda to share innovations and facilitate improvement in the SNP 
model of care framework.
b. Dual-Eligible SNPs and Contracts With States (Sec.  422.107)
    In the May 16, 2008 proposed rule, we proposed in new section Sec.  
422.107 to require, effective January 1, 2010, that MA organizations 
offering a dual-eligible SNP have a documented relationship with the 
State Medicaid agency, and that the arrangements, at a minimum, include 
a means to (1) verify enrollees' eligibility for both Medicare and 
Medicaid, (2) identify and share information on Medicaid provider 
participation, and (3) identify Medicaid benefits which are not covered 
by Medicare.
    CMS' proposed Sec.  422.107, which sought to require a documented 
relationship between MA organizations and State Medicaid agencies for 
dual-eligible SNPs, has been superseded by Section 164 of MIPPA. 
Section 164 of MIPPA adds new requirements to section 1859(f) of the 
Act for dual-eligible SNPs. Beginning on January 1, 2010, MA 
organizations offering new dual-eligible SNPs must have a contract with 
the State Medicaid agency to provide benefits, or arrange for benefits 
to be provided, for individuals entitled to receive medical assistance 
under title XIX. In order to implement the MIPPA requirement for a 
contract, we are specifying in this IFC that the contract with the 
state Medicaid agency include the category(ies) of eligibility covered 
under the SNP, the service area covered under the SNP, and the contract 
period for the SNP. We also specify that MA organizations with existing 
dual-eligible SNPs may continue to operate through 2010 without a State 
contract provided they meet all other statutory requirements, that is, 
care management and quality improvement program requirements. It should 
also be noted that under MIPPA, States are not required to enter into 
written contracts with plans, and plans that do not establish contracts 
with States in 2010 cannot expand their service areas.
    We are incorporating the above MIPPA requirements in a revised 
version of our proposed Sec.  422.107, with an effective date of 
January 1, 2010.
c. SNPs and Quality Improvement Program (Sec.  422.152)
    Section 164 of MIPPA adds a new clause (ii) to section 
1852(e)(3)(A) of the Act and a new paragraph (6) to section 1857(d) of 
the Act. Section 1852(e)(3)(A)(ii) of the Act now mandates that, 
beginning on a date specified by the Secretary (but in no case later 
than January 1, 2010), data collected, analyzed, and reported as part 
of the plan's quality improvement program must measure health outcomes 
and other indices of quality at the plan level with respect to the 
model of care as required in section 1859(f)(2-5). As a Medicare 
Advantage plan, each SNP must implement a documented quality 
improvement program for which all information is available for 
submission to CMS or for review during monitoring visits. The focus of 
the SNP quality improvement program should be the monitoring and 
evaluation of the performance of its model of care (see Sec.  
422.101(f)). The program should be executed as a three-tier system of 
performance improvement. The first tier consists of data on quality and 
outcomes that is collected and analyzed to enable beneficiaries to 
compare and select from among health coverage options. In calendar year 
(CY) 2008, CMS required the submission of thirteen HEDIS measures and 
three structure and process measures to pilot the development of 
comparative measures to facilitate beneficiary choice. We continue to 
work on this initiative and will issue guidance to SNPs on collecting 
comparative measures for submission using CMS required tools in CY 
2009.
    The second tier of the quality improvement program for SNPs, 
effective January 1, 2010 replaces the requirements in Sec.  422.152(b) 
with requirements in a new Sec.  422.152(g) that reflects the new 
statutory requirement that SNPs collect, analyze, and report data that 
measures the performance of their plan-specific model of care (section 
1852(e)(3)(A)(ii) of the Act). This new rule establishes CMS 
requirements for measuring essential components of the model of care 
using a variety of plan-determined methodologies such as claims data, 
record reviews, administrative data, clinical outcomes, and other 
existing valid and reliable measures (ACOVE, MDS, HEDIS, CAHPS, HOS, 
OASIS, etc.) at the plan level to evaluate the effectiveness of the 
process of care and

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clinical outcomes. Specifically, each SNP should collect, analyze, and 
be prepared to report data for its performance on: Access to care; 
improvement in beneficiary health status; care management through its 
staffing structure and processes; assessment and stratification of 
health risk; care management through an individualized plan of care; 
provision of specialized clinical expertise targeting its special needs 
population; the coordination and delivery of services and benefits 
through transitions across settings and providers; the coordination and 
delivery of extra services and benefits that meet the needs of the most 
vulnerable beneficiaries; the use of evidence-based practices and/or 
nationally recognized clinical protocols; and the application of 
integrated systems of communication. Each SNP must coordinate the 
systematic collection of data using indicators that are objective, 
clearly defined, and based on measures having established validity and 
reliability. Indicators should be selected from a variety of quality 
and outcome measurement domains such as functional status, care 
transitioning, disease management, behavioral health, medication 
management, personal and environmental safety, beneficiary involvement 
and satisfaction, and family and caregiver support. SNPs must document 
all aspects of the quality improvement program including data 
collection and analysis, actions taken to improve the performance of 
the model of care, and the participation of the interdisciplinary team 
members and network providers in quality improvement activities.
    We are developing the third tier of the quality improvement program 
which is the required reporting of monitoring data. The monitoring data 
will consist of a prescribed sample of data that SNPs will already be 
collecting in tier two to measure the performance of their model of 
care. We will draw from a pool of measures across several service 
delivery domains, and, whenever possible, use valid measures that SNPs 
have reported they currently collect. We are also soliciting comments 
from the public regarding the types of monitoring data that we should 
require SNPs to submit. We will issue guidance on the requirement to 
report monitoring data and the collection methodology after reviewing 
the public comments and completing development of the initiative for 
implementation in calendar year 2010.
    Section 1857(d)(6) stipulates that CMS will conduct reviews of the 
SNP model of care in conjunction with the periodic audits of the MA 
organizations. As of January 1, 2010, these reviews will focus on how 
the SNPs have operationalized their models of care and how their 
quality improvement programs have affected their care management as 
structured by the model of care.
d. Special Needs Plans and Other MA Plans With Dual-Eligibles: 
Responsibility for Cost-Sharing (Sec.  422.504(g)(1))
    Section 165 of MIPPA, which revised section 1852(a) of the Act, 
provides that for those persons who are full benefit dual-eligible 
individuals or a qualified Medicare beneficiary enrolled in a dual-
eligible special needs plan, as described in section 1859(b)(6)(B)(ii) 
of the Act, the plan may not impose cost-sharing that exceeds the 
amount of cost-sharing that would be permitted if the individual were 
under title XIX and were not enrolled in a special needs plan. The 
effective date of this provision is January 1, 2010. In order to 
reflect this provision, we are updating our regulations by updating 
part 42 by adding new paragraph (g)(1)(iii) to Sec.  422.504(g).
    Additionally, section 164 of MIPPA requires that the plan provide 
each prospective enrollee, prior to enrollment, a comprehensive written 
statement, describing the benefits and cost-sharing protections for 
which the individual would be entitled under title XIX as well as the 
MA plan.
    We are reflecting these statutory requirements in the regulations 
at Sec.  422.504(g)(1), effective January 1, 2010.
    While our revisions specifically reflect the MIPPA provisions, it 
should be noted that in our May 16, 2008 proposed rule, we proposed 
other, related provisions which we will finalize, based on public 
notice and comments, in a final rule to be published soon after this 
IFC.
2. Revisions to Requirements for MA PFFS Plans (Sec.  422.114)
    Section 162 of MIPPA revised the requirements for PFFS plans in a 
number of significant ways that will affect how employer and non-
employer PFFS plans can meet access requirements. Below we describe 
each of the changes to PFFS plans as a result of MIPPA.

    Note: See also section A.3., Revision to Quality Improvement 
Programs, for discussion of new requirements related to PFFS plans 
and quality improvement features.

a. Changes in Access Requirements for PFFS Plans
    Section 162(a)(3) of MIPPA amended section 1852(d)(4)(B) of the Act 
to require, effective January 1, 2010, that PFFS plans meeting access 
standards based on signed contracts meet access standards with respect 
to a particular category of provider by establishing contracts or 
agreements with a sufficient number and range of providers to meet the 
access and availability standards described in section 1852(d)(1) of 
the Act. Section 1852(d)(1) of the Act describes the requirements that 
MA organizations offering a ``network'' MA plan must satisfy when 
selecting providers to furnish benefits covered under the plan.
    We are revising Sec.  422.114(a)(2)(ii) to reflect this new 
statutory requirement.
b. Requirement for Certain Non-Employer PFFS Plans To Use Contract 
Providers
    Prior to MIPPA, section 1852(d)(4) of the Act and Sec.  422.114(a) 
described how an MA organization that offers an MA PFFS plan must 
demonstrate to CMS that it can provide sufficient access to services 
covered under the plan. An MA organization was permitted to meet access 
requirements if, with respect to a particular category of providers, 
the plan has met one of the conditions in Sec.  422.114(a)(2). That is, 
the plan has--
     Payment rates that are not less than the rates that apply 
under Original Medicare for the provider in question;
     Contracts or agreements with a sufficient number and range 
of providers to furnish the services covered under the MA private fee-
for-service plan; or
     A combination of the above.
    Section 1852(j)(6) of the Act and Sec.  422.216(f) provide that if 
a provider who does not have a contract or agreement with a PFFS plan 
furnishes services to an enrollee of that plan that are not considered 
emergency services, the provider is deemed to have a contract with the 
PFFS plan if the following conditions are met:
    (1) The provider is aware, in advance of furnishing health care 
services, that the patient is enrolled in a PFFS plan.
    (2) The provider has reasonable access to the plan's terms and 
conditions of payment.
    (3) The provider furnishes services that are covered by the plan.
    Section 162(a)(1) of MIPPA added a new paragraph (5) to section 
1852(d) of the Act. The new paragraph creates a requirement for certain 
non-employer MA PFFS plans to establish contracts

[[Page 54230]]

with providers. Specifically, for plan year 2011 and subsequent plan 
years, MIPPA requires that non-employer/union MA PFFS plans (employer/
union sponsored PFFS plans are addressed in a separate provision of 
MIPPA) that are operating in a network area (as defined in section 
1852(d)(5)(B) of the Act) must meet the access standards described in 
section 1852(d)(4). As noted above, in order to meet the access 
standards in section 1852(d)(4), PFFS plans must have contracts with a 
sufficient number and range of providers to meet the access and 
availability standards described in section 1852(d)(1) of the Act. 
These PFFS plans may no longer meet the access standards by paying not 
less than the original Medicare payment rate and having providers 
deemed to be contracted, as provided under Sec.  422.216(f). Section 
162(a)(1) of MIPPA is reflected in regulations at 42 CFR 422.114(a)(3).
    ``Network area'' is defined in section 1852(d)(5)(B) of the Act, 
for a given plan year, as the area that the Secretary identifies (in 
the announcement of the risk and other factors to be used in adjusting 
MA capitation rates for each MA payment area for the previous plan 
year) as having at least two network-based plans (as defined in section 
1852(d)(5)(C) of the Act) with enrollment as of the first day of the 
year in which the announcement is made. For plan year 2011, we will 
inform PFFS plans of their network areas in the announcement of CY 2010 
MA capitation rates, which will be published on the first Monday of 
April, 2009. We will use enrollment data for January 1, 2009 to 
identify the location of network areas.
    ``Network-based plan'' is defined in section 1852(d)(5)(C) of the 
Act as (1) an MA plan that is a coordinated care plan as described in 
section 1851(a)(2)(A)(i) of the Act, excluding non-network regional 
PPOs; (2) a network-based MSA plan; or (3) a section 1876 cost plan. 
Types of coordinated care plans that meet the definition of a 
``network-based plan'' are HMOs, PSOs, local PPOs, as well as regional 
PPOs with respect to portions of their service area in which access 
standards are met through establishing written contracts or agreements 
with providers. MIPPA specifies that the term ``network-based plan'' 
excludes a regional PPO that meets access requirements in its service 
area substantially through the authority of Sec.  422.112(a)(1)(ii), 
rather than through written contracts. Section 422.112(a)(1)(ii) 
permits regional PPOs to meet access requirements using methods other 
than written agreements with providers (that is, allowing members to 
see non-contract providers at in-network cost sharing in areas where 
the plan does not have established a network of contracted providers).
    For purposes of determining the network area of a PFFS plan, we 
will determine whether any network-based plans with enrollment exist in 
each of the counties located within the PFFS plan's service area. 
Beginning in plan year 2011, in counties where there is availability of 
two or more network-based plans (such as an HMO plan, a PSO plan, a 
local PPO plan, a network regional PPO plan, a network-based MSA plan, 
or a section 1876 cost plan), a PFFS plan operating in these counties 
must establish a network of contracted providers to furnish services in 
these counties in accordance with the amended section 1852(d)(4)(B) of 
the Act. In such counties, a PFFS plan would no longer be able to meet 
access requirements through providers deemed to have a contract with 
the plan at the point of service in these counties. In counties where 
there are no network-based plan options, or only one other network-
based plan, the statute allows PFFS plans to continue to meet access 
requirements in accordance with section 1852(d)(4) of the Act and Sec.  
422.114(a)(2). Regardless of whether a PFFS plan meets access 
requirements through deeming or is subject to the requirement that it 
establish a network of providers with signed contracts, providers who 
do not have a contract with the PFFS plan may continue to be deemed to 
have a contract with the plan if the deeming conditions described in 
Sec.  422.216(f) are met.
    An existing PFFS plan may have some counties in its current service 
area that meet the definition of a network area and other counties that 
do not. In order to operationalize section 162(a)(1) of MIPPA, CMS will 
not permit a PFFS plan to operate a mixed model where some counties in 
the plan's service area are considered network areas and other counties 
that are non-network areas. Beginning in plan year 2011, an MA 
organization offering a PFFS plan will be required to create separate 
plans within its existing service areas where it is offering PFFS plans 
based on whether the counties located in those service areas are 
considered network areas or not. For example, if an existing PFFS plan 
has some counties in its current service area that are network areas 
and other counties that are non-network areas, then in order to operate 
in this service area in plan year 2011 and subsequent plan years, the 
MA organization must establish a unique plan with service area 
consisting of the counties that are network areas and another plan with 
service area consisting of the counties that are non-network areas. 
Consequently, the PFFS plan operating in the counties that are network 
areas must establish a network of contracted providers in these 
counties in accordance with section 1852(d)(4)(B) of the Act in order 
to meet access requirements. The PFFS plan operating in the counties 
that are not network areas can continue to meet access requirements 
under Sec.  422.114(a)(2) by paying rates at least as high as rates 
under Medicare Part A or Part B to providers deemed to have a contract 
with the plan if the conditions described in Sec.  422.216(f) are met. 
The MA organization must file separate plan benefit packages for the 
PFFS plan that will operate in network areas and the plan that will 
operate in non-network areas. We recognize that the creation of unique 
plans based on network and non-network areas will potentially create an 
artificial increase in the total number of PFFS plans offered in plan 
year 2011 and subsequent plan years; this would not reflect an actual 
increase in PFFS plan offerings, but rather a change in how these PFFS 
offerings are structured and identified.
    For purposes of making the judgment of provider network adequacy 
for PFFS plans that will be required to operate using a network of 
contracted providers in plan year 2011 and afterwards, we will apply 
the same standards for PFFS plans that we apply to coordinated care 
plans. To determine where a PFFS plan's proposed network meets access 
and availability standards, we will follow the procedure described in 
the section above on ``changes in access requirements for PFFS plans.''
    We are revising Sec.  422.114(a)(3) to reflect the requirements in 
section 162(a)(1) of MIPPA.
c. Requirement for All Employer/Union Sponsored PFFS Plans To Use 
Contracts With Providers
    Section 162(a)(2) of MIPPA amended section 1852(d) of the Act by 
adding a new requirement for employer/union sponsored PFFS plans. For 
plan year 2011 and subsequent plan years, MIPPA requires that all 
employer/union sponsored PFFS plans under section 1857(i) of the Act 
meet the access standards described in section 1852(d)(4) of the Act 
only through entering into written contracts or agreements in 
accordance with section 1852(d)(4)(B) of the Act, and not, in whole or 
in part, through establishing payment rates meeting the requirements 
under section 1852(d)(4)(A) of the Act.

[[Page 54231]]

    We are revising Sec.  422.114(a) to reflect this statutory change. 
Specifically, Sec.  422.114(a) now sets forth how an MA organization 
that offers a PFFS plan must demonstrate to CMS that it can provide 
sufficient access to services covered under the plan. In order to meet 
the access requirements beginning plan year 2011, an employer/union 
sponsored PFFS plan must establish written contracts or agreements with 
a sufficient number and range of health care providers in its service 
area for all categories of services in accordance with the access and 
availability requirements described in section 1852(d)(1) of the Act. 
An employer/union sponsored PFFS plan will not be allowed to meet 
access requirements by establishing payment rates for a particular 
category of provider that are at least as high as rates under Medicare 
Part A or Part B. While an employer/union-sponsored PFFS plan must meet 
access standards through signed contracts with providers, providers 
that have not signed contracts can still be deemed to be contractors 
under the deeming procedures in section 1852(j)(6) that currently 
apply.
    We are adding paragraph (a)(4) to Sec.  422.114 in order to reflect 
this new statutory requirement for employer/union sponsored PFFS plans.
d. Variation in Payment Rates to Providers
    Section 162(b) of MIPPA added a clarification to the definition of 
an MA PFFS plan found at section 1859(b)(2) of the Act. Prior to MIPPA, 
the statute defined an MA PFFS plan as an MA plan that pays providers 
at a rate determined by the plan on a fee-for-service basis without 
placing the provider at financial risk; does not vary the rates for a 
provider based on the utilization of that provider's services; and does 
not restrict enrollees' choice among providers who are lawfully 
authorized to provide covered services and agree to accept the plan's 
terms and conditions of payment. Section 162(b) of MIPPA added that 
although payment rates cannot vary based solely on utilization of 
services by a provider, an MA PFFS plan is permitted to vary the 
payment rates for a provider based on the specialty of the provider, 
the location of the provider, or other factors related to the provider 
that are not related to utilization.
    Furthermore, this section of MIPPA also allows MA PFFS plans to 
increase payment rates for a provider based on increased utilization of 
specified preventive or screening services. Section 162(b) of MIPPA is 
effective at the time of publication of this rule.
    We are revising paragraph (a)(3)(ii) of Sec.  422.4 and paragraph 
(a) of Sec.  422.216 to add the clarifications in Section 162(b) of 
MIPPA.
3. Revisions to Quality Improvement Programs Sec.  422.152
a. Requirement for MA PFFS and MSA Plans To Have a Quality Improvement 
Program
    Section 163(a) of MIPPA repeals, effective January 1, 2010, the 
current statutory exemption found at section 1852(e)(1) of the Act for 
MA PFFS plans and MSA plans from the requirement that MA plans have 
quality improvement programs meeting specified statutory requirements. 
Beginning plan year 2010, each MA PFFS and MSA plan must have an 
ongoing quality improvement program that meets the requirements under 
Sec.  422.152(a).
    We are revising Sec.  422.152(a) to delete language exempting PFFS 
and MSA plans from having quality improvement programs.
b. Data Collection Requirements for MA PFFS and MSA Plans
    Section 1852(e)(3)(A)(i) of the Act amended by Section 163(b)(1) of 
MIPPA by adding that MA PFFS and MSA plans must provide for the 
collection, analysis, and reporting of data that permits the 
measurement of health outcomes and other indices of quality, but these 
requirements for PFFS and MSA plans can not exceed the requirements 
established for MA local plans that are PPO plans beginning in plan 
year 2011 and are subject to an exception for plan year 2010 (as 
discussed below). We interpret this to mean that for plan year 2011 and 
subsequent plan years, similar to MA local plans that are PPO plans, 
PFFS, and MSA plans are required to collect, analyze, and report health 
outcomes and quality data only to the extent that data are furnished by 
providers who have a contract with the PFFS or MSA plan. For plan year 
2011 and subsequent plan years, we are requiring that the data 
collection requirements for MA PFFS and MSA plans are not subject to 
requirements that exceed the requirements specified in Sec.  422.152(e) 
for MA local plans that are PPO plans.
    The statute provides for a special rule that applies for plan year 
2010, when MA PFFS and MSA plan quality requirements are not restricted 
to the data collection requirements established for MA local plans that 
are PPO plans under Sec.  422.152(e). Instead, they must, for 2010 
only, meet the data collection requirements with respect to 
administrative claims data, as specified in CMS guidance. We interpret 
this exception to mean that for plan year 2010, MA PFFS and MSA plans 
are required to report quality data based on administrative claims data 
from all providers that include contract, deemed (applicable to PFFS 
plans only), and non-contract providers.
c. Data Collection Requirements for MA Regional Plans
    Section 163(b)(2) deleted clause (ii) of Section 1852(e)(3)(A) of 
the Act. Section 1852(e)(3)(A)(ii) had provided for CMS to establish 
separate regulatory requirements for MA regional plans relating to the 
collection, analysis, and reporting of data that permit the measurement 
of health outcomes and other indices of quality and also provided that 
these requirements for MA regional plans could not exceed the 
requirements established for MA local plans that are PPO plans. 
Furthermore, section 163(b)(3) amended Section 1852(e)(3)(iii) of the 
Act by adding that MA regional plans are subject to the data collection 
requirements under Section 1852(e)(3)(A)(i) of the Act only to the 
extent that data are furnished by providers who have a contract with 
the MA regional plan. This provision is effective for plan years 
beginning on or after 2010 and allows for consistent data collection 
requirements between MA local plans that are PPO plans and MA regional 
plans.
    No change to regulatory text is needed since existing language in 
Sec.  422.152(e) describes the requirements for MA local plans that are 
PPO plans as well as MA regional plans.
4. Phase-Out of Indirect Medical Education Component of MA Capitation 
Rate (422.306)
    Section 161 of MIPPA adds a new paragraph (4) to Sec.  1853(k) of 
the Act. The new paragraph directs the Secretary to phase-out indirect 
medical education (IME) amounts from MA capitation rates. The maximum 
adjustment percentage per year is .60. Implementation of the IME 
payment phase-out begins in plan year 2010. Each year after 2010 the 
maximum adjustment percentage will increase up to an additional .60 
percent until the entire IME portion of the MA capitation rate in an 
area is reduced to zero. PACE programs are excluded from the IME 
payment phase-out. Payment to teaching facilities for indirect medical 
education expenses for MA plan enrollees will continue to be made under 
Sec.  1886(d)(11) of the Act by original Medicare.

[[Page 54232]]

    We are adding a new paragraph (c) to Sec.  422.306 to reflect this 
statutory IME phase-out.

B. Changes to the Part D Prescription Drug Benefit Program

1. Use of Prescription Drug Event Data for Purposes of Section 1848(m) 
(423.322(b))
    Section 132 of MIPPA revises section 1848(m) of the Act, as added 
and amended by section 131 of MIPPA, to provide incentive payments to 
eligible professionals for successful electronic prescribing. A 
successful electronic prescriber for a reporting period is one who 
meets the requirements for submitting data on electronic prescribing 
quality measures or, if the Secretary determines appropriate, submitted 
a sufficient number (as determined by the Secretary) of prescriptions 
under Part D during the reporting period. Congress added paragraph 
(3)(iv) to section 1848(m) to permit the Secretary to use the data 
regarding drug claims (prescription drug event data) submitted for 
payment purposes under the authority of section 1860D-15 of the Act as 
necessary for purposes of carrying out section 1848(m), notwithstanding 
the limitations set forth under section 1860D-15(d)(2)(B) and (f)(2) of 
the Act.
    Consistent with the authority granted to the Secretary regarding 
the use of the prescription drug event data for purposes of section 
1848(m), we have revised Sec.  423.322(b) to remove the restriction 
placed on officers, employees and contractors of the Department of 
Health Human Services when using these data in accordance with section 
1848(m).
2. Elimination of Medicare Part D Late Enrollment Penalties Paid by 
Subsidy Eligible Individuals (Sec. Sec.  423.46 and 423.780)
    Each year since the beginning of the Medicare prescription drug 
program, CMS has conducted a Medicare payment demonstration entitled 
``Elimination of the 2006 Late Enrollment Penalty,'' such that Medicare 
beneficiaries who qualify for the low-income subsidy for Medicare 
prescription drug coverage were able to enroll in a Medicare 
prescription drug with no penalty. The demonstration has tested the 
number and characteristics of the beneficiaries that benefited from the 
waiver of the LEP, and the cost of the waiver to Medicare. Originally, 
this payment demonstration, as announced on June 14, 2006, allowed 
certain Medicare beneficiaries to enroll in a Medicare prescription 
drug plan through December 31, 2006 with no late enrollment penalty. 
Specifically, CMS did not collect the late enrollment penalty from 
beneficiaries who enrolled in Medicare Part D in 2006 and were either 
eligible for the low-income subsidy or lived in an area affected by 
Hurricane Katrina. This payment demonstration was amended to include 
beneficiaries who were eligible for the low-income subsidy and enrolled 
in Medicare Part D in 2007 and 2008.
    Section 114 of MIPPA revises the statute to incorporate the terms 
of the demonstration into the Part D program. We accordingly are 
revising section 423.780(e) in order to reflect this MIPPA change. 
Under the revised regulation, CMS will not charge subsidy eligible 
individuals (defined in 423.773) a late enrollment penalty. This 
provision will become effective January 1, 2009 when the current 
demonstration that is supplanted by section 114 of MIPPA ends. We also 
are making a conforming change to Sec.  423.46(a) to reflect the fact 
that subsidy eligible individuals may enroll in Medicare prescription 
drug plan with no penalty.
3. Prompt Payment of Clean Claims (Sec.  423.505 and Sec.  423.520)
    Section 171 of MIPPA amended sections 1860-12(b) and 1857(f) of the 
Act by adding provisions with regard to prompt payment by prescription 
drug plans (PDPs) and Medicare Advantage prescription drug (MA-PD) 
plans, both of which are Part D sponsors as defined in Sec.  423.4. We 
have codified these new requirements in Sec.  423.505 and Sec.  423.520 
of this IFC.
    In accordance with the new sections 1860D-12(b)(4) and 
1857(f)(3)(A) of the Act, and as codified in Sec.  423.520 of this IFC, 
effective January 1, 2010, CMS' contract with Part D sponsors must 
include a provision requiring sponsors to issue, mail, or otherwise 
transmit payment for all clean claims submitted by network pharmacies--
except for mail-order and long-term care pharmacies--within specified 
timeframes for electronic and all other (non-electronically submitted) 
claims.
    Consistent with section 1860D-12(b)(4)(A)(ii) of the Act, a clean 
claim is defined in Sec.  423.520(b) of this IFC as a claim that has no 
defect or impropriety--including any lack of any required 
substantiating documentation--or particular circumstance requiring 
special treatment that prevents timely payment of the claim from being 
made under the requirements of Sec.  423.520 of this IFC. We note that 
this definition is consistent with the clean claim definitions under 
Parts A, B, and C of Medicare, as required under sections 
1816(c)(2)(B), 1842(c)(2)(B), and 1857(f)(1) of the Act, respectively.
    As provided in section 1860D-12(b)(4)(B) of the Act and codified in 
Sec. Sec.  423.520(a)(1)(i) and (ii) of this IFC, Part D sponsors must 
make payment for clean claims within 14 days of the date on which an 
electronic claim is received and within 30 days of the date on which 
non-electronically submitted claims are received. Consistent with 
MIPPA, sections 423.520(a)(2)(i) and (ii) of this IFC define receipt of 
an electronic claim as the date on which the claim is transferred, and 
receipt of a non-electronically submitted claim as the 5th day after 
the postmark day of the claim or the date specified in the time stamp 
of the transmission, whichever is sooner.
    Additionally, as provided in section 1860D-12(b)(4)(D)(i) of the 
Act and as codified in Sec.  423.520(c)(1) of this IFC, a claim will be 
deemed to be a clean claim to the extent that the Part D sponsor that 
receives the claim does not issue notice to the submitting network 
pharmacy of any deficiency in the claim within 10 days after an 
electronic claim is received and within 15 days after a non-
electronically submitted claim is received. A claim deemed to be a 
clean claim must be paid by the sponsor within 14 days (for an 
electronic claim) or 30 days (for a non-electronic claim) of the date 
on which the claim is received, as provided in Sec. Sec.  
423.520(a)(1)(i) and (ii) of this IFC.
    Under section 1860D-12(b)(4)(D)(ii) of the Act and in Sec.  
423.520(c)(2) of this IFC, if the Part D sponsor determines that a 
submitted claim is not a clean claim, it is required to notify the 
submitting pharmacy that the claim has been determined not to be clean, 
specify all the defects or improprieties rendering the claim not a 
clean claim, and list all additional information necessary for the 
sponsor to properly process and pay the claim. This notification must 
be provided within 10 days after an electronic claim is received for an 
electronic claim, and within 15 days after a non-electronically 
submitted claim is received.
    Once the submitting pharmacy resubmits the original claim with the 
additional information specified by the Part D sponsor as necessary for 
properly processing and paying the claim, the sponsor has 10 days, 
consistent with section 1860D-12(b)(4)(D)(iii) of the Act, and, as 
specified in Sec.  423.520(c)(3) of this IFC to provide notice to the 
submitting pharmacy of any defect or impropriety in the resubmitted 
claim. If the sponsor does not provide notice to the submitting 
pharmacy of any defect

[[Page 54233]]

or impropriety in the resubmitted claim within 10 days of the sponsor's 
receipt of such claim, the resubmitted claim is deemed to be a clean 
claim and must be paid consistent with the timeframes specified in 
Sec.  423.520(a)(1) of this IFC (within 14 days of the date on which a 
resubmitted electronic claim is received and within 30 days of the date 
on which a non-electronically resubmitted claim is received).
    To clarify these requirements, we provide the following example. 
Assume a Part D sponsor receives an electronic claim on January 1, 
2010. If the sponsor were to find a defect or impropriety in that 
claim, it would be required to communicate that defect or impropriety 
to the submitting pharmacy no later than January 11, 2010 (within the 
10-day window established in Sec.  423.520(c)(1)(i) of this IFC). If 
the sponsor received a resubmitted claim on January 12, 2010, it would 
then be required to either deem the claim to be clean or else provide 
notice to the submitting pharmacy of any defect or impropriety with the 
resubmitted claim no later than January 22, 2010 (within the 10-day 
window established in Sec.  423.520(c)(2)(ii) of this IFC). Assuming 
the resubmitted claim contains all additional information necessary for 
the sponsor to properly process and pay the claim, the sponsor would be 
required to pay the resubmitted claim within 14 days of receiving it--
in this case, not later than February 5, 2010.
    In accordance with section 1860D-12(b)(4)(D)(iv) of the Act, Sec.  
423.520(d) this IFC specifies that payment for a clean claim is 
considered to have been made on the date payment for an electronic 
claim is transferred and on the date a non-electronic claim is 
submitted to the United States Postal Service or common carrier, 
respectively. To the extent that a Part D sponsor does not issue, mail, 
or otherwise transmit payment for a clean claim within 14 days of the 
date on which an electronic claim is received and within 30 days of the 
date on which a non-electronically submitted claim is received, as 
specified in Sec.  423.520(a)(1) of this IFC, section 1860D-12(b)(4)(C) 
of the Act requires that the sponsor pay interest to the submitting 
pharmacy. As required under section 1860D-12(b)(4)(C)(i) of the Act, 
and as codified in Sec.  423.520(e)(1) of this IFC, the Part D sponsor 
must pay such interest at a rate equal to the weighted average of 
interest on 3-month marketable Treasury securities determined for such 
period, increased by 0.1 percentage point for the period beginning on 
the day after the required payment date and ending on the date on which 
the payment is made under Sec.  423.520(d) of this IFC. For purposes of 
CMS payments to Part D sponsors for qualified prescription drug 
coverage, any interest amounts paid under Sec.  423.520(e)(1) of this 
IFC do not count against the Part D sponsor's administrative costs, nor 
are they treated as allowable risk corridor costs, under Sec.  423.308. 
In other words, the Part D sponsor is fully liable for any interest 
payments for claims not paid timely, consistent with Sec.  423.520(d) 
of this IFC. In accordance with section 1860D-12(b)(4)(C)(ii) of the 
Act and as codified in Sec.  423.520(e)(2) of this IFC, CMS may 
determine that a Part D sponsor will not be charged interest under 
Sec.  423.520(e)(1) as appropriate, including in exigent circumstances 
such as natural disasters and other similar unique and unexpected 
events that prevent timely claims processing. CMS will make such 
determinations on a case-by-case basis at the sponsor's request.
    Section 1860D-12(b)(4)(E) of the Act and Sec.  423.520(f) of this 
IFC require that a Part D sponsor pay all electronically submitted 
clean claims by electronic funds transfer (EFT) if the submitting 
network pharmacy requests payment via EFT or has previously requested 
payment via EFT. For ease of sponsor execution, the requirement that 
payment be provided via EFT if a sponsor has previously requested EFT 
payment means that any such previous request must have occurred during 
the current contract year. This requirement also means that all Part D 
sponsors must have the capacity to pay via EFT so that they may pay via 
EFT any of their network pharmacies requesting payment for submitted 
claims in this manner. In addition, under Sec.  423.520(f), for any 
payment made via EFT, the Part D sponsor may also make remittance 
electronically.
    In accordance with section 1860D-12(b)(4)(F)(i) of the Act and as 
codified in Sec.  423.520(g)(1) of this IFC, the requirements in Sec.  
423.520 do not in any way prohibit or limit a claim or action that any 
individual or organization may have against a pharmacy, provider, or 
Part D sponsor that is unrelated to the new requirements in Sec.  
423.520. Further, as provided under section 1860D-12(b)(4)(F)(ii) of 
the Act and Sec.  423.520(g)(2) of this IFC, consistent with any 
applicable Federal or State law, a Part D sponsor may not retaliate 
against an individual, provider, or pharmacy for any such claim or 
action. Finally, as provided under section 1860d-12(b)(4)(G) of the Act 
and codified in Sec.  423.520(h), any determination that a claim 
submitted by a network pharmacy is a clean claim as defined in Sec.  
423.520(b) of this IFC shall not be construed as a positive 
determination regarding the claim's eligibility for payment under Title 
XVIII of the Act. In addition, any determination that a claim is a 
clean claim as defined in Sec.  423.520(b) of the Act is not an 
indication that the government approves, or acquiesces regarding the 
submitted claim and does not relieve any party of civil or criminal 
liability, nor offer defense to any administrative, civil, or criminal 
action, with respect to the submitted claim.
    In addition to adding a new Sec.  423.520 to reflect the prompt 
payment requirements of section 1860D-12(b)(4) of the Act, we are 
amending Sec.  423.505(b) to include the prompt payment provisions as 
one of the required elements of the contract between CMS and the Part D 
sponsor. Therefore, Sec.  423.505(b)(19) of this IFC requires that, 
effective contract year 2010, the contract between CMS and the Part D 
sponsor must include the prompt payment provisions at Sec.  423.520 of 
this IFC.
    We are also amending Sec.  423.505(i)(3) with respect to contracts 
or written arrangements between Part D sponsors and pharmacies or other 
providers, first tier, downstream and related entities to ensure that 
Part D sponsors' contracts with these entities include prompt payment 
provisions consistent with Sec.  423.520. Section 423.505(i)(3)(vi) 
thus requires that sponsors' pharmacy contracts include the prompt 
payment provisions of Sec.  423.520. We intend to review pharmacy 
contract templates (except for mail-order and LTC pharmacy templates) 
for new applicants to ensure the addition of these prompt payment 
provisions.
    We are aware that some pharmacies, particularly independent 
pharmacies, work with agents for purposes of negotiating and/or signing 
contracts with Part D sponsor, and that these agents may receive claim 
payments from Part D sponsors on their participating pharmacies' 
behalf. To the extent that such agents are authorized to receive 
payment on behalf of a participating pharmacy for claims submitted to a 
Part D sponsor, there is no distinction between a pharmacy and its 
agent for purposes of the prompt payment provisions at Sec.  423.520. 
Thus, the prompt payment provisions at Sec.  423.520 extend to an agent 
authorized to receive payment for claims submitted to a Part D sponsor, 
as long as it is in compliance with all Federal and State laws.
    The revisions to the regulations reflecting the above-described 
MIPPA prompt payment provisions are all effective on January 1, 2010.

[[Page 54234]]

4. Submission of Claims by LTC Pharmacies (Sec.  423.505)
    Section 172 of MIPPA amended sections 1860D-12(b) and 1857(f)(3) of 
the Act to add a provision on the submission of claims by pharmacies 
located in or having a contract with a long-term care facility. 
Effective January 1, 2010, new sections 1860D-12(b)(5) and 
1867(f)(3)(B) of the Act direct us to incorporate into each contract 
CMS enters into with a Part D sponsor a provision addressing the 
submission of claims by long-term care pharmacies. Specifically, CMS 
contracts with Part D sponsors must provide that long-term care 
pharmacies must have not less than 30 days, nor more than 90 days, to 
submit claims to the sponsor for reimbursement under the plan. We are 
codifying this new statutory contract requirement at Sec.  
423.505(b)(20). Effective January 1, 2010, this provision will apply to 
any claim submitted by a long-term care pharmacy, as defined in Sec.  
423.100.
    It is important to note that this new requirement does not 
eliminate the requirement, specified in a CMS policy memorandum dated 
May 25, 2007 (available at insert URL) for Part D sponsors to provide a 
new timely claims filing period for claims incurred by dual-eligible 
beneficiaries during a period of retroactive Part D enrollment. The CMS 
memorandum, entitled ``Special Transition Period for Retroactive 
Enrollment,'' requires that in retroactive enrollment situations Part D 
sponsors must use the date of Medicaid notification to establish a new 
timely claims filing period to ensure that dual-eligible beneficiaries 
and other parties, including pharmacies, have the opportunity to 
request reimbursement for claims incurred during the retroactive 
period. Therefore, consistent with this policy, sponsors must provide a 
new period, as specified in Sec.  423.505(b)(20), for long-term care 
pharmacies to submit claims for reimbursement.
    Effective contract year 2010, new sections 1860D-12(b)(5) and 
1867(f)(3)(B) of the Act require that CMS contracts with Part D 
sponsors include a provision requiring sponsors to provide long-term 
care pharmacies (as defined in Sec.  423.100) not less than 30 days, 
nor more than 90 days, to submit claims for reimbursement under the 
plan. In addition to adding this requirement to the contract provisions 
specified in Sec.  423.505(b), we are amending Sec.  423.505(i) to 
specify that timeframes for submission of claims by long-term care 
pharmacies must be contained in Part D sponsor contracts with the long-
term care pharmacies. As provided in Sec.  423.505(i)(3)(vii), all 
sponsor contracts with long-term care pharmacies must contain a 
provision that establishes timeframes, consistent with Sec.  
423.505(b)(20), for the submission to the sponsor of claims for 
reimbursement.
5. Regular Update of Prescription Drug Pricing Standard (Sec.  423.505)
    Section 173 of MIPPA amended sections 1860D-12(b) and 1857(f)(3) of 
the Act, effective January 1, 2009, to add a provision on the regular 
updating of prescription drug pricing standards. In accordance with new 
sections 1860D-12(b)(6) and 1857(f)(3)(C) of the Act, which we are 
codifying in Sec.  423.505(b)(21) of this IFC effective January 1, 
2009, CMS' contracts with Part D sponsors must include a provision 
requiring sponsors to regularly update any prescription drug pricing 
standard they use to reimburse network pharmacies based on the cost of 
the drug (for example, average wholesale price, wholesale average cost, 
average manufacturer price, average sales price). As codified in 
Sec. Sec.  423.505(b)(21)(i) and (ii), these updates, if applicable, 
must occur on January 1 of each contract year and not less frequently 
than every 7 days thereafter.
    We are also amending Sec.  423.505(i)(3) with respect to contracts 
or written arrangements between Part D sponsors and pharmacies or other 
providers, first tier, downstream and related entities to ensure that 
Part D sponsors' contracts with these entities include provisions for 
regularly updating any prescription drug pricing standard used by 
sponsors to reimburse their network pharmacies, as provided in Sec.  
423.505(b)(21) of this IFC. Specifically, section 423.505(i)(3)(vi)(A) 
of this IFC requires that sponsors' pharmacy contracts include the 
pricing standard update requirements at Sec.  423.505(b)(21) of this 
IFC, if applicable.
    Implicit in the statutory requirement that pricing standards be 
updated is the fact that such standards are being used. This 
information is also necessary in order to monitor for compliance with 
MIPPA updating requirement. Accordingly, Sec.  423.505(i)(3)(viii)(B) 
of this IFC specifies that a Part D sponsor's pharmacy contract must 
indicate the source used by the Part D sponsor for making such pricing 
updates.
    Given the applicability of the pricing standard update provisions 
beginning in contract year 2009, Part D sponsors must ensure that they 
amend their current pharmacy contracts consistent with Sec.  
423.505(i)(3)(viii) of this IFC. CMS will review pharmacy contract 
templates (except for mail-order and LTC pharmacy templates) for new 
applicants beginning for contract year 2010 to ensure the addition of 
this p