Medicare Program; Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, 54634-54737 [E9-24756]

Agencies

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

[Federal Register Volume 74, Number 203 (Thursday, October 22, 2009)]
[Proposed Rules]
[Pages 54634-54737]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-24756]



[[Page 54633]]

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

Part II





Department of Health and Human Services





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



Centers for Medicare & Medicaid Services



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



42 CFR Parts 417, 422, 423 et al.



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

Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / 
Proposed Rules

[[Page 54634]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, 423, and 480

[CMS-4085-P]
RIN 0938-AP77


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

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

ACTION: Proposed rule.

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

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

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

ADDRESSES: In commenting, please refer to file code CMS-4085-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-4085-P, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-4085-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses: a. For delivery in Washington, 
DC--Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
    Alissa Deboy, (410) 786-6041, General information and Part D 
issues.
    Sabrina Ahmed, (410) 786-7499, Part C issues.
    Chris Eisenberg, (410) 786-5509, Risk adjustment data validation 
issues.
    Terry Lied, (410) 786-8973, Collection of information requirements 
and regulatory impact analysis issues.
    Kristy Nishimoto, (410) 786-8517, Part C and D enrollment and 
appeals issues.
    Christine Reinhard, (410) 786-2987, Part C and D compliance and 
sanction issues.
    Frank Szeflinski, (303) 844-7119, Part C payment issues.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: https://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Overview of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003
    B. History and Overview
II. Provisions of the Proposed Regulation
    A. Changes To Strengthen Our Ability To Distinguish for Approval 
Stronger Applicants for Part C and D Program Participation and To 
Remove Consistently Poor Performers
    1. Require Notice of Intent To Apply Under Part C and D Within 
the Application Requirements (Sec.  422.501 and Sec.  423.502)
    2. Application Requirements (Sec.  422.501(c) and Sec.  
423.502(c)) and Evaluation and Determination Procedures for 
Determining Whether Applicants Are Qualified for a Contract Under 
Parts C and D (Sec.  422.502 and Sec.  423.503)
    3. Deny Contract Qualification Applications Based on Past 
Contract Performance (Sec.  423.750 and Sec.  422.750)
    4. Use of Data To Evaluate Continued Ability To Act as a 
Qualified Sponsoring Organization Under Parts C and D (Sec.  
422.504, and Sec.  423.505)
    5. Compliance Programs Under Part C and D (Sec.  
422.503(b)(4)(vi) and Sec.  423.504(b)(4)(vi))
    6. Network Adequacy of Coordinated Care and Network-Based 
Private Fee-for-Service Plans Under Part C (Sec.  422.112)
    7. Deemable Program Requirements Under Parts C and D (Sec.  
422.156(b)(7), Sec.  422.156(f), Sec.  423.165(b), and Sec.  
423.165(f))
    8. Modify the Corrective Action Plan (CAP) Process as It Relates 
to Procedures for Termination and Nonrenewal of a Part C or D 
Contract by CMS (Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  
423.507(b)(3), and Sec.  423.509(c)(1))

[[Page 54635]]

    9. Procedures for Imposing Intermediate Sanctions and Civil 
Money Penalties Under Part C and D (Sec.  422.756 and 423.756)
    10. Termination of Contracts Under Parts C and D (Sec.  
422.510(a) and Sec.  423.509(a))
    11. Request for Hearing Under Parts C and D (Sec.  422.662 and 
Sec.  423.651)
    12. Burden of Proof, Standard of Proof, Standard of Review and 
Conduct of Hearing (Sec.  422.660, Sec.  423.650, Sec.  422.676 and 
Sec.  423.658)
    13. Expedited Contract Terminations Procedures (Sec.  422.510, 
Sec.  423.509, Sec.  422.664, Sec.  423.652, Sec.  422.644, and 
Sec.  423.642) Under Parts C and D
    14. Time and Place of Hearing Under Parts C and D (Sec.  422.670 
and Sec.  423.655)
    15. Discovery Under Parts C and D (Sec.  422.682 and Sec.  
423.661)
    16. Review by the Administrator Under Parts C and D Sec.  
422.692(a) and Sec.  423.666(a))
    17. Reopening of an Initial Contract Determination or Decision 
of a Hearing Officer or the Administrator Under Parts C and D (Sec.  
422.696 and Sec.  423.668)
    18. Prohibition of MA and Part D Applications for 2 Years After 
a Mutual Termination Sec.  422.503(b)(6) and Sec.  423.504(b)(5))
    B. Changes To Strengthen Beneficiary Protections
    1. Broker and Agent Requirements Under Parts C and D
    2. Beneficiary Communications Materials Under Parts C and D 
(Sec.  422.2260, Sec.  423.2262, Sec.  423.2260, and Sec.  423.2262)
    3. Required Use of Standardized Model Materials Under Parts C 
and D (Sec.  422.2262, and Sec.  423.2262)
    4. Involuntary Disenrollment for Failure To Pay Plan Premiums 
Under Parts C and D (Sec.  422.74 and Sec.  423.44)
    5. Maximum Allowable Out-of-Pocket Cost Amount for Medicare 
Parts A and B Services (Sec.  422.100)
    6. Maximum Allowable Cost Sharing Amount for Medicare Parts A 
and B Services and Prescription Drugs (Sec.  422.100 and Sec.  
423.104)
    7. Prohibition on Prior Notification by PPO, PFFS, and MSA Plans 
Under Part C (Sec.  422.2, Sec.  422.4, and Sec.  422.105)
    8. Requirements for LIS Eligibility Under Part D (Sec.  423.773)
    9. Enrollment of Full Subsidy Eligible Individuals and Other 
Subsidy Eligible Individuals Under Part D (Sec.  423.34)
    10. Special Enrollment Periods Under Part D (Sec.  423.380)
    11. Transition Process Under Part D (Sec.  423.120(b)(3))
    12. Part D Sponsor Responsibility for Retroactive Claims 
Adjustment Reimbursements and Recoveries Under Part D (Sec.  
423.464)
    13. Time Limits for Coordination of Benefits (Sec.  423.466)
    14. Use of Standardized Technology Under Part D (Sec.  423.120)
    15. Absence From Service Area for More Than 12 Months Under Part 
D (Sec.  423.44)
    16. Prohibition of Mid Year Mass Enrollment Changes by SPAPS 
Under Part D (Sec.  423.464(e))
    17. Non-renewal Beneficiary Notification Requirement Under Parts 
C and D (Sec.  422.506 and Sec.  423.507)
    18. Notice of Alternative Medicare Plans Available To Replace 
Non-renewing Plans Under Parts C and D (Sec.  422.506(a)(2)(ii) and 
Sec.  423.507(a)(2)(ii))
    19. Timeframes and Responsibilities for Making Redeterminations 
Under Part D (Sec.  423.590)
    20. Requirements for Requesting Organization Determinations 
Under Part C (Sec.  422.568)
    21. Organization Determinations Under Part C (Sec.  422.566 and 
Sec.  422.568)
    22. Representatives (Sec.  422.561, Sec.  422.574 and Sec.  
422.624)
    23. Disclosure Requirements Under Parts C and D (Sec.  
422.111(g) and Sec.  423.128(f))
    24. Definition of MA Plan Service Area (Sec.  422.2)
    C. Changes To Provide Plan Offerings With Meaningful Differences
    1. Bid Submissions--Ensuring Significant Differences (Sec.  
422.254 and Sec.  423.265)
    2. Bid Review Process (Sec.  422.256 and Sec.  423.272)
    3. Transition Process in Cases of Acquisitions and Mergers 
(Sec.  422.256 and Sec.  423.272)
    4. Non-renewing Low-enrollment Plans (Sec.  422.506(b)(1)(iv) 
and Sec.  423.507(b)(1)(iii))
    D. Changes To Improve Payment Rules and Processes
    1. Risk Adjustment Data Validation Appeals (Sec.  422.310)
    a. Background
    b. Risk Adjustment Data Validation Initiatives
    c. RADV Error Rate Calculation Disputes and Reconsiderations
    d. Proposed Addition of Medicare Advantage Organization Risk 
Adjustment Data Validation-Dispute and Appeals Procedures
    2. Payments to Medicare Advantage Organizations--Actuarial 
Valuation (Sec.  422.254)
    3. Determination of Acceptable Administrative Cost by Cost 
Contract and Health Care Prepayment Plans (Sec.  417.564)
    4. Calculation of the Minimum Percentage Increase Under Part C 
(Sec.  422.306)
    E. Changes To Improve Data Collection for Oversight and Quality 
Assessment
    1. Requirements for Quality Improvement Programs Under Part C 
(Sec.  422.152, Sec.  422.153, and Sec.  480.140)
    a. Quality Improvement Programs
    b. New Quality Measures
    c. Use of Quality Improvement Organization Review Information
    2. CAHPS Survey Administration Under Parts C and D (Sec.  
417.472, Sec.  422.152 and Sec.  423.156)
    3. Validation of Part C and Part D Reporting Requirements (Sec.  
422.516 and Sec.  423.514)
    4. Collection of Additional Part D Claims' Elements for 
Nonpayment-Related Purposes (Sec.  423.505)
    F. Changes To Implement New Policy
    1. Protected Classes of Concern Under Part D (Sec.  
423.120(b)(2)(v))
    2. Pro-rating the Plan Deductible for Part C MSA Enrollments 
Occurring During an Initial Coverage Election Period (Sec.  422.103)
    G. Changes To Clarify Various Program Participation Requirements
    1. Uniform Benefits Under Parts C and D (Sec.  422.100(d) and 
Sec.  423.104))
    2. Ensuring the Security of Personal Health Information and 
Other Personally Identifiable Information (Sec.  422.504 and Sec.  
423.505)
    3. Requirement for Sponsoring Organizations Under Parts C and D 
To Report Other Payer Information to the Coordination of Benefits 
Contractor (Sec.  422.108 and Sec.  423.464)
    4. Visitor/Traveler Benefit Under Part C for the Purpose of 
Extending Enrollment Up to 12 Months (Sec.  422.74)
    5. Medication Therapy Management Programs Under Part D (Sec.  
423.153(d))
    6. Formulary Requirements-Development and Revision by a Pharmacy 
and Therapeutics Committee (Sec.  423.120)
    7. Generic Equivalent Disclosure Under Part D (Sec.  423.132)
    8. Access to Covered Part D Drugs (Sec.  423.120)
    9. Standard Timeframe and Notice Requirements for Coverage 
Determinations Under Part D (Sec.  423.568)
    10. Expediting Certain Coverage Determinations (Sec.  423.570)
    11. Timeframes and Notice Requirements for Expedited Coverage 
Determinations (Sec.  423.572)
    12. Clarify Novation Agreements Under Part D (Sec.  423.551)
    13. Cost Contract Program Revisions: Appeals and Marketing 
Requirements (Sec.  417.428, Sec.  417.494, Sec.  417.500, and Sec.  
417.640)
    14. Appeals Processes for Contract Determinations, Intermediate 
Sanctions, and Civil Money Penalties
    a. Contract Determinations (Sec.  417.492 and 417.494)
    b. Civil Money Penalties (Sec.  417.500)
    c. Intermediate Sanctions (Sec.  417.500)
    15. Extending MA Marketing Requirements to Cost Program Plans 
(Sec.  417.428)
    a. Definitions Concerning Marketing Materials (Sec.  422.2260)
    b. Review and Distribution of Marketing Materials (Sec.  
422.2262)
    c. Guidelines for CMS Review (Sec.  422.2264)
    d. Deemed Approval (Sec.  422.2266)
    e. Standards for MA Organization Marketing (Sec.  422.2268)
    f. Licensing of Marketing Representatives and Confirmation of 
Marketing Resources (Sec.  422.2272)
    g. Broker and Agent Requirements (Sec.  422.2274)
    H. Changes To Implement Corrections and Other Technical Changes
    1. Application of Subpart M to Health Care Prepayment Plans 
(Sec.  417.840)
    2. Generic Notice Delivery Requirements (Sec.  422.622 and 
422.626)
    3. Revision to Definition of Gross Covered Prescription Drug 
Costs (Sec.  423.308)
    4. Application Evaluation Procedures (Sec.  422.502(c and d) and 
Sec.  423.503(c and d))

[[Page 54636]]

    5. Intermediate Sanctions (Sec.  422.750(a) and Sec.  
423.750(a))
    6. Basis for Imposing Intermediate Sanctions and Civil Money 
Penalties (Sec.  422.752 and Sec.  423.752)
III. Collection of Information Requirements
    A. ICRs Regarding Basic Contract Requirements (Sec.  417.472)
    B. ICRs Regarding Apportionment and Allocation of Administrative 
and General Costs (Sec.  417.564)
    C. ICRs Regarding Medicare Secondary Payer (MSP) Procedure 
(Sec.  422.108 and Sec.  423.462)
    D. ICRs Regarding Disclosure Requirements (Sec.  422.111)
    E. ICRs Regarding Quality Improvement Program (Sec.  422.152)
    F. ICRs Regarding RADV Audit Dispute and Appeal Processes (Sec.  
422.311)
    G. ICRs Regarding Application Requirements (Sec.  422.501 and 
Sec.  423.502)
    H. ICRs Regarding General Provisions (Sec.  422.503 and Sec.  
423.504)
    I. ICRs Regarding Contract Provisions (Sec.  422.504 and 
423.505)
    J. ICRs Regarding Nonrenewal of Contract (Sec.  422.506 and 
Sec.  423.507)
    K. ICRs Regarding Request for Hearing (Sec.  422.662 and Sec.  
423.651)
    L. ICRs Regarding Time and Place of Hearing (Sec.  422.670 and 
Sec.  423.655)
    M. ICRs Regarding Review by the Administrator (Sec.  422.692 and 
Sec.  423.666)
    N. ICRs Regarding Procedures for Imposing Intermediate Sanctions 
and Civil Monetary Penalties (Sec.  422.756 and Sec.  423.756)
    O. ICRs Regarding Disclosure of Part D Plan Information (Sec.  
423.128)
    P. ICRs Regarding Consumer Satisfaction Surveys (Sec.  423.156)
    Q. ICRs Regarding Validation of Part C and Part D Reporting 
Requirements (Sec.  422.516 and Sec.  423.514)
    R. ICRs Regarding Drug Utilization Management, Quality 
Assurance, and Medication Therapy Management Programs (MTMPs) (Sec.  
423.153)
    S. ICRs Regarding Timeframes and Notice Requirements for 
Standard Coverage Determinations (Sec.  423.568)
    T. ICRs Regarding Timeframes and Notice Requirements for 
Expedited Coverage Determinations (Sec.  423.572)
    U. ICRs Regarding Access to Covered Part D Drugs (Sec.  423.120)
    V. ICRs Regarding Timeframes and Responsibility for Making 
Redeterminations (Sec.  423.590)
    W. Annual Information Collection Burden
IV. Response to Public Comments
V. Regulatory Impact Analysis
    A. Overall Impact
    B. Increase in Costs to MA Organizations and Part D Sponsors
    C. Expected Benefits
    D. Analysis by Provision
    E. Anticipated Effects
    1. Effects of Cap on Out-of-Pocket Costs and Cost Sharing 
Amounts
    2. Alternatives Considered
    a. Strengthening CMS' Ability To Take Timely, Effective Contract 
Determinations or Intermediate Sanctions (Part C & D)
    b. Changing the Standards of Review, Clarifying the Standard of 
Proof and Burden of Proof for Appeals, and Modifying the Conduct of 
Hearing for Contract Decisions (Including Denials of Initial 
Applications to Contract, Service Area Expansions for Existing 
Contracts, Contract Non-Renewals and Terminations, and Intermediate 
Sanctions)
    c. Clarify That CMS May Require a ``Test Period'' During an 
Enrollment/Marketing Sanction
    d. Right for CMS To Require an Independent Audit of Sponsoring 
Organizations Under Intermediate Sanction
    e. The Ability for CMS To Require Sponsors To Disclose to 
Current and Potential Enrollees Compliance and Performance 
Deficiencies
    f. Section 176 of MIPPA--Formulary and Protected Classes 
Requirements (Part D)
    g. Reducing Duplicative and Low Enrollment Plans (Parts C & D)
    h. Validation of Part C and Part D Reporting Requirements
    F. Accounting Statement
    G. Conclusion
Regulations Text

Acronyms

AO Accrediting Organization
ADS Automatic Dispensing System
AEP Annual Enrollment Period
AHFS-DI American Hospital Formulary Service
AHFS-DI American Hospital Formulary Service-Drug Information
AHRQ Agency for Health Care Research and Quality
ALJ Administrative Law Judge
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA [Medicare, Medicaid and State Child Health Insurance Program] 
Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection 
Act of 2000 (Pub. L. 106-554)
CAHPS Consumer Assessment Health Providers Survey
CAP Corrective Action Plan
CCIP Chronic Care Improvement Program
CMR Comprehensive Medical Review
CMP Civil Money Penalties
CMR Comprehensive Medical Review
CMS Centers for Medicare & Medicaid Services
CMS-HCC CMS Hierarchal Condition Category
CTM Complaints Tracking Module
COB Coordination of Benefits
CORF Comprehensive Outpatient Rehabilitation Facility
CY Calendar year
DOL U.S. Department of Labor
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)
EGWP Employer Group/Union-Sponsored Waiver Plan
EOB Explanation of Benefits
ESRD End-stage renal disease
FACA Federal Advisory Committee Act
FDA Food and Drug Administration (HHS)
FEHBP Federal Employees Health Benefits Plan
FFS Fee-For-Service
FY Fiscal year
GAO Government Accountability Office
HCPP Health Care Prepayment Plans
HEDIS HealthCare Effectiveness Data and Information Set
HHS [U.S. Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HMO Health Maintenance Organization
HOS Health Outcome Survey
HPMS Health Plan Management System
ICD-9-CM Internal Classification of Disease, 9th, Clinical 
Modification Guidelines
ICEP Initial Coverage Enrollment Period
ICL Initial Coverage Limit
ICR Information Collection Requirement
LEP Late Enrollment Penalty
LIS Low Income Subsidy
LTC Long Term Care
LTCF Long Term Care Facility
MA Medicare Advantage
MAAA American Academy of Actuaries
MAO Medicare Advantage Operations
MA-PD Medicare Advantage-Prescription Drug Plans
M+C Medicare+Choice program
MPDPF Medicare Prescription Drug Plan Finder
MIPPA Medicare Improvements for Patients and Providers Act of 2008
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MSA Metropolitan Statistical Area
MSAs Medical Savings Accounts
MSP Medicare Secondary Payer
MTM Medication Therapy Management
MTMP Medication Therapy Management Programs
NAIC National Association Insurance Commissioners
NCPDP National Council for Prescription Drug Programs
NGC National Guideline Clearinghouse
NIH National Institutes of Health
NOMNC Notice of Medicare Non-coverage
OEP Open Enrollment Period
OIG Office of Inspector General
OMB Office of Management and Budget
OPM Office of Personnel Management
OTC Over the Counter
PART C Medicare Advantage
PART D Medicare Prescription Drug Benefit Programs
PBM Pharmacy Benefit Manager
PDE Prescription Drug Event
PDP Prescription drug plan
PFFS Private Fee For Service Plan
POS Point of Service
PPO Preferred Provider Organization
PPS Prospective Payment System
P&T Pharmacy & Therapeutics
QIO Quality Improvement Organization
QRS Quality Review Study
PACE Programs of All Inclusive Care for the Elderly
RAPS Risk Adjustment Payment System
RADV Risk Adjustment Data Validation
SCHIP State Children's Health Insurance Programs

[[Page 54637]]

SEP Special Enrollment Periods
SHIP State Health Insurance Assistance Programs
SNF Skilled Nursing Facility
SNP Special Needs Plan
SPAP State Pharmaceutical Assistance Programs
SSI Supplemental Security Income
TrOOP True Out Of Pocket
U&C Usual and Customary
USP U.S. Pharmacopoeia

I. Background

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

    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) (Pub. L. 108-173) was enacted on December 8, 2003. The 
MMA established the Part D program and made revisions to the provisions 
in Part C of the Medicare statute governing the Medicare Advantage (MA) 
program. The MMA directed that important aspects of the new Medicare 
prescription drug benefit program under Part D be similar to and 
coordinated with regulations for the MA program.
    The MMA also directed implementation of the prescription drug 
benefit and revised MA program provisions effective January 1, 2006. 
The final rules for the MA and Part D prescription drug programs 
appeared in the Federal Register on January 28, 2005 (70 FR 4588-4741 
and 70 FR 4194-4585, respectively). Many of the provisions relating to 
applications, marketing, contracts, and the new bidding process for the 
MA program became effective on March 22, 2005, 60 days after 
publication of the rule, so that the requirements for both programs 
could be implemented by January 1, 2006. All of the provisions 
regarding the new Part D prescription drug program became effective on 
March 22, 2005.
    As we have gained more experience with the MA program and the 
prescription drug benefit program, we have revised the Part C and D 
regulations to continue to improve or clarify existing policies and/or 
codify current guidance for both programs. For example, in December 
2007, we published a final rule with comment on contract determinations 
involving Medicare Advantage (MA) organizations and Medicare Part D 
prescription drug plan sponsors (72 FR 68700). In April 2008, we 
published a final rule to address policy and technical changes to the 
Part D program (73 FR 20486). In September 2008 and January 2009, we 
finalized revisions to both the Medicare Advantage and prescription 
drug benefit programs (73 FR 54226 and 74 FR 1494, respectively) to 
implement provisions in the Medicare Improvement for Patients and 
Providers Act (MIPPA) (Pub. L.110-275), which contained provisions 
impacting both the Medicare Part C and D programs, and make other 
policy clarifications based on experience with both programs (73 FR 
54208, 73 FR 54226, and 74 FR 2881).
    Under this proposed rule, we have identified additional 
programmatic and operational changes (outlined below) that we believe 
are needed in order to further improve our oversight and management of 
the Part C and D programs and to further improve beneficiary experience 
under MA or Part D plans.

B. History and Overview

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established 
a new ``Part C'' in the Medicare statute (sections 1851 through 1859 of 
the Social Security Act (the Act)) which provided for what was then 
called the Medicare+Choice (M+C) program. Under section 1851(a)(1) of 
the Act, every individual entitled to Medicare Part A and enrolled 
under Medicare Part B, except for most individuals with end-stage renal 
disease (ESRD), could elect to receive benefits either through the 
original Medicare program or an M+C plan, if one was offered where he 
or she lived. The primary goal of the M+C program was to provide 
Medicare beneficiaries with a wider range of health plan choices. The 
M+C provisions in Part C were amended by the Medicare, Medicaid, and 
SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-111), 
and further amended by the Medicare, Medicaid, and State Children's 
Health Insurance Program (SCHIP) Benefits Improvement Act of 2000 
(BIPA) (Pub. L. 106-554).
    As noted previously, the MMA was enacted on December 8, 2003. Title 
I of the MMA added a new ``Part D'' to the Medicare statute (sections 
1860D-1 through 42 of the Act) creating the Medicare Prescription Drug 
Benefit Program, one of the most significant changes to the Medicare 
program since its inception in 1965. Sections 201 through 241 of Title 
II of the MMA made significant changes to the M+C program. Title II of 
the MMA renamed the M+C program as the MA program and included new 
payment and bidding provisions, new regional MA plans and special needs 
plans, reestablished authority for medical savings account (MSA) plans 
that had been provided in the BBA on a temporary basis, addressed 
private fee-for-service plans, and made other changes. Title I of the 
MMA created prescription drug benefits under Medicare Part D, and a new 
retiree drug subsidy program.
    Both the MA and prescription drug benefit regulations were 
published separately, as proposed and final rules, though their 
development and publication were closely coordinated. On August 3, 
2004, we published in the Federal Register proposed rules for the MA 
program (69 FR 46866 through 46977) and the prescription drug benefit 
program (69 FR 46632 through 46863). In response to public comments on 
the proposed rules, we made several revisions to the proposed policies 
for both programs. For further discussion of these revisions, see the 
respective final rules (70 FR 4588 through 4741) and (70 FR 4194 
through 4585).
    Also as noted above, MIPPA was enacted on July 15, 2008, which 
addressed a number of provisions impacting the Part C and D programs, 
including provisions impacting marketing under both programs. In the 
September 18, 2008 Federal Register (73 FR 54208), we published a final 
rule that finalized certain marketing provisions, effective October 1, 
2008, that paralleled provisions in MIPPA. In the same issue of the 
Federal Register (73 FR 54226), we published a separate interim final 
rule that addressed the other provisions of MIPPA affecting the MA and 
Part D programs. We also clarified the MIPPA marketing provisions in a 
November 2008 interim final rule (73 FR 67407 and issued a separate 
interim final rule in January 2009 to address MIPPA provisions related 
to Part D plan formularies (74 FR 2881).
    Now, with almost four years' experience behind us, we are proposing 
further revisions to these programs affecting both beneficiaries and 
sponsoring organizations.
    When the MMA required that the Part D benefit afford each enrollee 
a minimum of two choices in each plan region, few if any envisioned the 
overwhelming response from the healthcare industry would result in most 
beneficiaries choosing among dozens of plans with various benefit 
packages. In the first few years of the Part D benefit, we believed 
this was on the whole a great success. More plans means more variation, 
competition and lower prices for Medicare beneficiaries choosing to 
enroll in a stand-alone prescription drug plan (PDP), or Medicare 
Advantage prescription drug plan (MA-PD). However, with so many plans 
to choose from many beneficiaries reportedly find the annual task of 
selecting one plan from so many overwhelming, and confusing. Moreover, 
we have found that, as

[[Page 54638]]

overseers of the Part C and D programs, organizations submitting bids 
to offer multiple plans have not consistently submitted plan benefit 
designs that were significantly different from each other, which can 
add to beneficiary confusion.
    Since its inception in 2006, the Medicare Part D program has 
improved access to drug coverage for elderly and offered beneficiaries 
a wide range of plans from which to choose. At the same time, some have 
suggested that significant numbers of beneficiaries are confused by the 
array of choices and find it difficult to make enrollment decisions 
that are best for them. Many do not enroll in necessarily the lowest 
cost plan and many eligible individuals are not enrolled in the low-
income subsidy program. Finally, once beneficiaries have chosen a plan 
and enrolled in it, they tend to remain in those plans, despite changes 
in medication use or premium increases.
    We remain committed to considering changes in the way we administer 
the Part C and D programs to enable Medicare beneficiaries to choose 
the plan that best suits their needs. Among other proposals, we making 
following three specific proposals to simplify the program for 
beneficiaries:
     First, we propose to require sponsors to ensure that when 
they provide multiple plan offerings, those offerings sufficiently 
differ and thereby provide beneficiaries meaningful options (see 
section II. of this proposed rule);
     Second, we propose to eliminate plans with persistently 
low enrollments, since these can add complexity to choices without 
adding value (see section II.D. of this proposed rule);
     Third, we propose to require sponsors to use standardized 
``templates'' in their beneficiary communication materials (for 
example, the Annual Notice of Changes (ANOC) and the Evidence of 
Coverage (EOC) notices), so that seniors can better understand how 
their current benefits and cost-sharing requirements will be changing 
and more easily compare their current plan with other plan options (see 
section II.B.3 of this proposed rule).
    We believe that more can be done to structure choices for seniors 
to aid them in making better plan choices.1 2 For example, 
studies have suggested that providing personalized drug utilization and 
cost information to beneficiaries can encourage seniors to switch to 
plans that better meet their medication needs while reducing their 
overall costs.\3\ Some have urged that the agency can do more to 
provide improved individual drug utilization and cost information to 
beneficiaries to encourage seniors to switch to lower-cost plans. Other 
studies have found that some beneficiaries are not fully aware of the 
financial implications of deferring enrollment in drug plans,\4\ a 
finding that suggests that we could do more to make those implications 
more salient to beneficiaries. We invite comments on these 
possibilities and other improvements the agency can make, to help 
beneficiaries choose the plans that best suit their needs. We also 
invite comment on the type of research that might be undertaken to help 
inform future regulatory and programmatic improvements and how we can 
best support our partners, such as states, to assist them in helping 
beneficiaries enroll in the best possible plans. For example, we are 
interested in assessing the impacts of random auto-assignments on low-
income beneficiaries. To the extent that States are interested in 
exploring non-random assignment methods, we invite comment on what type 
of information States would find most beneficial, including the types 
of data analyses we could potentially undertake with the data we 
already have from States who utilize non-random assignment methods.
---------------------------------------------------------------------------

    \1\ McFadden D (2006). Free Markets and Fettered Consumers. The 
American Economic Review 96(1), 5-29
    \2\ Hanock Y, Rice T, Cummings J, Wood S (2009). How Much Choice 
is Too Much? The Case of the Medicare Prescription Drug Benefit. 
Health Services Research 44:4; 1157-1168.
    \3\ See, for example, Wrobel MV, Kling J, Mullainathan S, Shafir 
E, Vermeulen L (2009). A Shot in the Arm for Medicare Part D: Four 
Ways for the Government to Boost its Customer Communications. https://www.brookings.edu/papers/2008//media/Files/rc/papers/2008/1120_medicare_kling/1120_medicare_kling.pdf.
    \4\ Hargrave E, Piya B, Hoadley J, Summer L, Thompson J (2008). 
Experiences Obtaining Drugs under Part D: Focus Groups with 
Beneficiaries, Physicians, and Pharmacists. Final Report Submitted 
to the Medicare Payment Advisory Commission. National Opinion 
Research Center.
---------------------------------------------------------------------------

    We also have found that in certain cases, we have been limited by 
existing program rules and regulations to implement actions that would 
improve sponsoring organization performance. Toward this end, we 
propose provisions that would limit the number of plan offerings by 
eliminating duplicative bids, and strengthen our program participation 
requirements.
    We are proposing a number of additional provisions aimed at 
strengthening existing beneficiary protections. For example, we propose 
to strengthen plan transition process requirements to ensure maximum 
transparency regarding our expectations of Part D plans with respect to 
enrollees transitioning to the plan from other drug coverage and to 
ensure that current subregulatory practices are codified in regulation.
    We are also proposing another set of provisions that are aimed at 
improving payment rules and processes, and improving data collection 
for oversight and quality assessment. For example, we are proposing to 
expand the collection of prescription drug event data that we currently 
collect for research and other non-payment related purposes. Collecting 
these additional data, which are currently collected for payment 
purposes, would provide us additional information to conduct analyses 
that may be used to improve policies and assist in monitoring of Part D 
plan sponsors.
    In addition, we are proposing significant new Part D policy in this 
rule. For example, in the area of Part D formulary policy, we propose a 
regulatory interpretation of MIPPA protected drug categories and 
classes provision in section 176 of MIPPA (Pub. L. 110-275) that we 
previously addressed in a January 19, 2009 interim final rule with 
comment period (IFC). Based on comments received in response to that 
IFC, we believe that interpretation of statutory terms is needed. In 
addition, we believe that additional clarification is needed relative 
to the process that we intend to utilize to identify the protected 
categories and classes of drugs that must be listed on all Part D plan 
formularies.
    Finally, we propose other provisions that are aimed at further 
clarifying existing policy and we make technical corrections where 
needed. For example, in some cases, we are addressing topic areas that 
were included in our 2010 call letter to Part C and D plans, the 
document that outlines policy clarifications and reminders for plans 
bidding on plan offerings in the coming contract cycle. In the spirit 
of transparency, we have outlined some of these clarifications within 
this rule so to ensure the public has a full opportunity to comment on 
our policies.

II. Provisions of the Proposed Regulations

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

[[Page 54639]]

     Strengthening our ability to distinguish for approval 
strong applicants for MMA participation and remove consistently poor 
performers.
     Strengthening beneficiary protections.
     Providing plan offerings with sufficient enrollment and 
meaningful differences.
     Improving payment rules and processes.
     Improving data collection for oversight and quality 
assessment.
     Implementing other new policies.
     Clarifying various sponsor program participation 
requirements.
     Implementing corrections and other technical changes.
    Several of the proposed revisions and clarifications affect both 
programs. Within each section, we have provided a chart listing all 
subject areas that contain provisions affecting the Part C and D 
programs and the associated regulatory citations that would be revised. 
Please note that in our discussion of these provisions, we often refer 
to ``sponsoring organizations'' to refer to both Medicare Advantage 
organizations (MAOs) and Part D sponsors.

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

    This section addresses a number of proposals designed to strengthen 
our ability to approve strong applicants and remove poor performers in 
the Part C and D programs. Since the implementation of revisions to the 
MA and initial implementation of the prescription drug programs in 
January 2006, we have steadily enhanced our ability to measure MAO and 
PDP sponsor performance through efforts such as the analysis of data 
provided routinely by sponsors and by our contractors, regular review 
of beneficiary complaints, marketing surveillance activities, and 
routine audits. This information, combined with feedback we have 
received from beneficiary satisfaction surveys, HEDIS data, and 
information from MAOs and PDP sponsors themselves, has enabled us to 
develop a clearer sense of what constitutes a successful Medicare 
organization capable of providing quality Part C and D services to 
beneficiaries. This information has also allowed us to identify and 
take appropriate action against organizations that are not meeting 
program requirements and not meeting the needs of beneficiaries.
    As our understanding of Part C and D program operations has 
deepened over the past 4 years, our use of our authority to determine 
which organizations are qualified to offer MA and PDP sponsor 
contracts, evaluate their compliance with Part C and D requirements, 
and make determinations concerning intermediate sanctions, contract 
nonrenewals and contract terminations has evolved as well. As set forth 
below, we are proposing changes and clarifications to our regulations 
to make certain that all current and potential MAOs and PDP sponsors 
clearly understand and can reasonably anticipate how we measure sponsor 
performance, determine when there is noncompliance, and when 
enforcement actions are warranted. While we are pleased that so many 
organizations have elected to participate in the Part C and D programs, 
we have an obligation to ensure that only appropriate organizations are 
given the responsibility for providing quality medical care and drug 
coverage to Medicare beneficiaries.
    Each year, since contract year 2006, we have solicited applications 
from organizations seeking to become qualified to enter into Part C or 
D sponsor contracts. We received hundreds of applications in each of 
those years. To properly manage a workload of that size, and to ensure 
that we conduct a fair review of every application, we have adopted an 
increasingly standardized, computer-based application submission 
process. At the same time, we have also become increasingly strict in 
the application of our regulatory authority to limit the number and 
timing of opportunities for applicants to resubmit materials to cure 
applications that do not initially demonstrate that the applicant meets 
Part C or D requirements.
    Until 2 years ago, applicants may have found that we would accept 
as many corrected submissions as the applicants needed to make their 
materials (usually documents concerning provider/pharmacy networks, 
subcontracting arrangements, or risk-bearing licenses) consistent with 
Part C or D requirements. We recognized that this was an inefficient 
process that afforded some applicants the opportunity to make more re-
submissions than others and arguably enabled less well-prepared and 
qualified applicants to enter the program. To improve the fairness of 
the application process, and to reduce the burden it imposes on 
applicants and CMS alike, we have, through our application instructions 
issued over the last 3 years, clarified to all applicants that we will 
only provide three opportunities to submit an approvable contract 
qualification application to CMS: The initial solicitation response, 
one courtesy opportunity to correct any identified deficiencies, and a 
final opportunity during the 10-day cure period provided for 
specifically in the regulations.
    Some organizations have expressed surprise during the last 2 years 
at our use of our authority to impose strict deadlines and standards of 
review on applications for qualification as an MAO or PDP sponsor. To 
reduce the opportunity for confusion about the application process, we 
are proposing some regulatory clarifications in furtherance of our goal 
of using a fair and efficient process for ensuring that only truly 
qualified organizations are offered Part C or D organization contracts. 
These provisions, described in greater detail below, include requiring 
applicants to demonstrate that they meet all (not a substantial number) 
of the Part C and D program requirements, prohibiting applicants from 
submitting additional curing materials after the expiration of the ten-
day period following their receipt of a notice of intent to deny their 
application, and requiring applicants to submit a nonbinding notice of 
intent to apply for a Part C or D contract.
    Organizations should be aware that we will continue to exercise our 
authority to consider an organization's past Part C or D contract 
performance in evaluating whether it should be afforded the opportunity 
to obtain additional contracts or to serve a larger portion of the 
Medicare beneficiary population. Additionally, sponsoring organizations 
should be aware that we rely on data to evaluate compliance with 
program requirements in a number of ways. For example, we use data to 
evaluate adherence to requirements in the MMA statute or the Part C and 
D regulations (for example, retail pharmacy access). We also use data 
to evaluate adherence to the requirements outlined in our manual 
chapters and other guidance (for example, customer and provider call 
center performance standards). Finally, we conduct outlier analysis by 
comparing the performance across all organizations on a particular Part 
C or D requirement to identify organizations that appear to be poor 
performers. The most notable example of this kind of analysis is 
reflected in our performance metrics (that is, the Medicare Part D Plan 
Ratings). These ratings represent an effort to make additional 
information available to the public regarding the price and quality of 
services for which Medicare makes payments. The Plan

[[Page 54640]]

Ratings are located on the Medicare Prescription Drug Plan Finder 
(MPDPF) Tool at (https://www.Medicare.gov) and are designed to provide a 
clear differentiation of the various Plan offerings to beneficiaries. 
Organizations receiving less than ``good'' ratings in any category 
should anticipate communication from us. Another example is our review 
of data in the Complaints Tracking Module (CTM), which can be a 
particularly strong indicator of a sponsor's inability to perform a 
required Part C or D function. An abnormally high complaint rate for a 
particular sponsor will likely prompt us to investigate other sources 
of information to determine whether the organization is complying with 
specific Part C or D requirements.
    Our efforts are aimed at making certain that we have well-
functioning MAOs and PDP sponsors administering Part C and D benefits 
on our behalf. Just as we have become more sophisticated in our 
analysis of sponsor applications and compliance, we also continue to 
review our sanction and contract termination authority to ensure that 
we pursue actions when there is sufficient basis to support them. For 
example, we have developed an annual process for analyzing sponsor 
performance during the preceding contract year. We review each 
sponsor's compliance history, including CMS-issued compliance notices, 
audit results, and performance ratings (for example, star ratings) to 
develop a full picture of that sponsor's ability to deliver Part C and 
D services to its members. If that picture indicates that a particular 
sponsor has a significant pattern of poor performance or even isolated 
incidences of noncompliance with crucial operational requirements (for 
example, enrollment processing), we will consider termination or 
nonrenewal of the contract of that sponsor.
    With the clarifications we are proposing to the Part C and D 
regulations through this proposed rule and the background provided in 
this preamble section, MAOs and PDP sponsors should now be fully aware 
that we will continue to apply stricter scrutiny to sponsor 
qualifications and contract performance as our analytical capabilities 
and understanding of industry best practices improves. As the Part C 
and D programs have now reached a certain level of maturity and 
organizations' strong interest in participating in the programs has 
been established, it is appropriate for us to use the authority and 
evidence at our disposal to make certain that beneficiary plan choices 
are characterized more by their quality than their quantity. These 
provisions are described in detail in Table 1.

         Table 1--Provisions Strengthening Our Ability To Distinguish for Approval Strong Applicants and To Remove Consistently Poor Performers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Part 422                                                  Part 423
              Provision              -------------------------------------------------------------------------------------------------------------------
                                              Subpart                  Section                  Subpart                          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notice of Intent to Apply...........  Subpart K..............  Sec.   422.501.........  Subpart K.............  Sec.   423.502.
Application Standards...............  Subpart K..............  Sec.   422.502.........  Subpart K.............  Sec.   423.503.
Compliance Measures/Analysis........  Subpart K..............  Sec.   422.502.........  Subpart K.............  Sec.   423.503.
Compliance Programs.................  Subpart K..............  Sec.                     Subpart K.............  Sec.   423.504(b)(4)(vi).
                                                                422.503(b)(4)(vi).
Network Adequacy of Coordinated Care  Subpart C..............  Sec.   422.112.........  N/A...................  N/A.
 and Network-Based Private-Fee-For-
 Service plans under Part C.
Clarify programmatic elements that    Subpart D..............  Sec.   422.156(b)(7),    Subpart D.............  Sec.   423.165(b), Sec.   423.165(f).
 are ``deemable''.                                              Sec.   422.156(f).
Procedures for termination and        Subpart K..............  Sec.   422.510(c)(1),    Subpart K.............  Sec.   423.509(c)(1), Sec.
 Nonrenewals: Part C and D.                                     Sec.   422.506(b)(3).                            423.507(b)(3).
Intermediate Sanctions: Procedures    Subpart O..............  Sec.   422.756.........  Subpart O.............  Sec.   423.756.
 for imposing civil and money
 penalties.
Contract Termination................  Subpart K..............  Sec.   422.510(a)......  Subpart K.............  Sec.   423.509(a).
Proper request for hearings.........  Subpart N..............  Sec.   422.662.........  Subpart N.............  Sec.   423.651.
Burden of Proof, Standard of Proof,   Subpart N..............  Sec.   422.660, Sec.     Subpart N.............  Sec.   423.650, Sec.   423.658(d).
 Standard of Review and Conduct of                              422.676(d).
 Hearing.
Postponement of effective date of     Subpart N..............  Sec.   422.664.........  Subpart N.............  Sec.   423.652.
 determination when a request is
 being filed.
Extending timeframe for contract      Subpart N..............  Sec.   422.670.........  Subpart N.............  Sec.   423.655.
 determination hearings.
Appeal times: Require each party      Subpart N..............  Sec.   422.682.........  Subpart N.............  Sec.   423.661.
 provide witness list and documents
 5 calendar days before hearing.
Appeal times: Require request for a   Subpart N..............  Sec.   422.692(a)......  Subpart N.............  Sec.   423.666(a).
 review by the administrator must be
 received with 15 days after receipt
 of hearing decision.
Contract redeterminations and         Subpart N..............  Sec.   422.696.........  Subpart N.............  Sec.   423.668.
 reopening.
Mutual termination of contract......  Subpart K..............  Sec.   422.503(b)(6)...  Subpart K.............  Sec.   423.504(b)(5).
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Require Notice of Intent To Apply Under Part C and D Within the 
Application Requirements (Sec.  422.501 and Sec.  423.502)
    Subpart K of part 422 and subpart K of part 423 set forth the 
requirements for contracts with MA Organizations and Part D sponsors 
including application procedures. Section 1871(a)(1) of the Act 
authorizes us to prescribe such regulations as may be necessary to 
carry out the administration of the Medicare program. We propose using 
that authority to establish an administrative requirement for both the 
Part C and D programs related to the submission to us of applications 
to qualify as MA and PDP sponsor contractors.
    Beginning with the applications for the 2009 contract year, the 
Medicare Advantage, Part D Prescription Drug benefit, and Employer/
Union-Only Group Waiver Plan (Direct Contract or ``800 Series'') 
sponsor applications are

[[Page 54641]]

submitted via a paperless process. Each application is completed 
through the CMS Health Plan Management System (HPMS). As a result of 
the fully electronic submission process and restrictions on access to 
HPMS, every applicant must complete a Notice of Intent to Apply as 
described in the HPMS memo dated October 10, 2008. This includes 
current contractors seeking to expand their organization's service 
area, and current contractors adding a Special Needs Plan (SNP) or an 
Employer Group/Union-Sponsored Waiver Plan (EGWP) to their existing 
contract.
    The Notice of Intent to Apply provides us with critical information 
for generating a pending contract number and providing User ID 
connectivity. Submitting a Notice of Intent to Apply does not bind that 
organization to submit an application for the following year. However, 
without a pending contract number and completed CMS User ID 
connectivity, an organization will not be able to access the 
appropriate modules in HPMS to complete the application materials. We 
propose codifying in Sec.  422.501 and Sec.  423.502 our existing 
guidance that initial applicants and existing contractors seeking to 
expand complete a nonbinding Notice of Intent to Apply.
2. Application Requirements (Sec.  422.501(c) and Sec.  423.502(c)) and 
Evaluation and Determination Procedures for Determining Whether 
Applicants Are Qualified for a Contract Under Parts C and D (Sec.  
422.502 and Sec.  423.503)
    Subpart K of Part 422 and subpart K of Part 423 set forth the 
requirements for contracts with MA organizations and Part D sponsors, 
respectively, including application procedures. Section 1860D-12(b)(3) 
of the Act states that we must apply certain specified provisions of 
section 1857 of the Act including the procedures for termination in 
section 1857(h) of the Act in the same manner as they apply to 
contracts under section 1857(a) of the Act. Therefore, we are making a 
single proposal that applies to both MA organizations and Part D 
sponsors related to our application evaluation procedures and appeals 
of our determinations regarding applications.
    During the first four years of the Medicare Advantage and Part D 
programs, several unsuccessful applicants contested our denial of their 
applications for MA organization or Part D sponsor contracts. At 
hearings, some of those applicants were successful in arguing that the 
regulations were not clear in stating that an applicant needed to 
demonstrate that it met all program requirements to qualify for a 
contract. Accordingly, we are proposing to revise Sec.  422.502 and 
Sec.  423.503 to make it explicit that we will approve only those 
applications that demonstrate that they meet all (not substantially 
all) Part C and D program requirements.
    The application requirements and evaluation and determination 
procedures for MA organizations and Part D sponsors are set forth in 
subpart K of Parts 422 and 423, respectively. The application process 
in each instance requires an applicant to submit for CMS review a 
combination of attestations that it will comply with stated program 
requirements, as well as contracts with organizations the applicant has 
contracted with to perform key Part C or D functions, evidence of the 
applicant's risk-bearing licenses, and data documenting that the 
applicant can provide its members access to Part C and D services 
consistent with the programs' requirements. As we have proposed to 
clarify at Sec.  422.501(c)(1) and (2), Sec.  422.502(a)(2), Sec.  
423.502(c)(1) and (2), and Sec.  423.503(a)(2), we require that 
applicants demonstrate that they meet all requirements outlined in the 
MA organization and Part D sponsor applications.
    Under the current regulations at Sec.  422.502(a)(1) and Sec.  
423.503 (a)(1), we evaluate an entity's application on the basis of 
information contained in the application itself and any additional 
information that we obtain through onsite visits, publicly available 
information, and any other appropriate procedures. We propose to 
simplify and clarify the process by modifying Sec.  422.502(a)(1) and 
Sec.  423.503(a)(1) and limiting the evaluation of an entity's 
application to information contained in the application and any 
additional information that we obtain through onsite visits. Limiting 
our review to this information ensures that we will afford all 
applicants (numbering in the hundreds each of the last four years) a 
fair and consistent review of their qualifications. Organizations can 
be assured that we will not consider additional sources of information 
regarding one applicant's qualifications that we do not consider for 
others.
    We are also proposing a clarification of our authority to decline 
to consider application materials submitted after the expiration of the 
10-day period following our issuance of a notice of intent to deny an 
organization's contract qualification application. Under Sec.  
422.502(c) and Sec.  423.503(c), we notify applicants of our 
determination on the application and the basis for the determination. 
If the applicant does not appear qualified to contract as an MA 
organization or Part D sponsor and has not provided enough information 
to permit us to evaluate the application, the applicant receives a 
notice of intent to deny the application and a summary for the basis 
for the finding. As provided in Sec.  422.502(c)(2) and Sec.  
423.503(c)(2), within 10 days from the date of the notice, the 
applicant can respond in writing to the issues or other matters that 
were the basis for our findings and revise its application to correct 
any deficiencies.
    The purpose of the proposed regulatory change is to clarify that 
information submitted after 10 days from the notice will under no 
circumstances be reviewed for the purpose of approving an application. 
Further, consistent with the proposed revisions to Sec.  422.650(b)(2) 
and Sec.  423.660(b)(2), which are discussed elsewhere in this proposed 
rule, the applicant would not be permitted to submit additional revised 
application material to the Hearing Officer for review should the 
applicant elect to appeal the denial of its application. To allow for 
the submission and review of such information as part of the hearing 
would, in effect, extend the deadline for submitting an approvable 
application. Moreover, the proposed change would further clarify the 
standard for the disposition of applications for which either revisions 
are not provided within the 10 days or are inadequate.
    Specifically, we propose to clarify Sec.  422.502(c)(2) and Sec.  
423.503(c)(2) by adding a new paragraph (iii) to establish that if we 
do not receive a revised application within 10 days from the date of 
the intent to deny notice, or if after timely submission of a revised 
application the applicant still appears unqualified to contract as an 
MA organization or Part D sponsor and/or has not provided enough 
information to allow us to evaluate the application, we will deny the 
application.
3. Deny Contract Qualification Applications Based on Past Contract 
Performance (Sec.  422.750 and Sec.  423.750)
    As described in Sec.  422.502(b) and Sec.  423.503(b), we may deny 
an application based on the applicant's failure to comply with the 
terms of a prior contract with CMS even if the applicant currently 
meets all of the application requirements. However, we propose to 
modify Sec.  422.502(b) and Sec.  423.503(b) to state that we will 
review past performance across all of the contracts held by the 
applicant. The provision as currently drafted mentions a ``prior 
contract'' with CMS. Today,

[[Page 54642]]

contracts are ``evergreen'' and some organizations hold multiple MA 
and/or PDP sponsor contracts; therefore the concept of ``prior 
contract'' is outdated, as the prior performance issues could have 
occurred in any other contract currently or formerly held by an 
applicant. Therefore, we propose to revise the language in Sec.  
423.503(b) and Sec.  422.502(b) to refer to ``any current or prior 
contract'' held by the organization, instead of the current language 
referring to a ``previous year's contract.'' We also propose to clarify 
that the period that will be examined for past performance problems be 
limited to those identified by us during the 14 months prior to the 
date by which organizations must submit contract qualification 
applications to CMS. Fourteen months covers the time period from the 
start of the previous contract year through the time that applications 
are received for the next contract year.
    Indicia of performance deficiencies that might lead us to conclude 
that an organization has failed to comply with a current or prior 
contract include, but are not limited to, poor performance ratings as 
displayed on the Medicare Options Compare and MPDPF web sites; receipt 
of requests for corrective action plans (CAPs) unrelated to an audit 
(as these types of CAPs generally involve direct beneficiary harm); and 
receipt of one or more other types of noncompliance notices from CMS 
(for example, notices of noncompliance or warning letters).
    Additionally, as indicated by the changes to Sec.  422.503(b), 
Sec.  422.508(c), Sec.  423.504(b), and Sec.  423.508(e), we consider 
withdrawal of Part C or D operations from some or all of an 
organization's newly contracted service area prior to the start of a 
benefit year (through mutual termination or otherwise) an indication of 
poor performance. Such a situation can arise when, for example, an 
organization, after it has signed its Medicare contract for the 
upcoming program year, loses a contract with a significant number or 
type of providers, jeopardizing its ability to provide its members 
adequate access to services. Also, an organization may suddenly face 
financial difficulties that threaten its ability to offer the benefit 
packages approved by CMS throughout the upcoming contract year. In such 
instances, we could simply leave the contract in place and take 
enforcement actions against the organization. Under such an approach, 
we would knowingly be permitting beneficiaries to remain enrolled with 
an organization that cannot effectively deliver the benefit. Instead, 
we act(s) in the best interests of the beneficiaries by agreeing with 
the organization to terminate its contract and work(s) with the 
organization to make certain that beneficiaries receive uninterrupted 
access to Medicare services through another MA organization, PDP 
sponsor, or original Medicare. But for our acting to protect 
beneficiaries by agreeing to the contact termination, the organization 
would have faced significant compliance and enforcement actions once 
its failure to comply with program requirements became apparent. Also, 
the organization's failure to conduct the proper due diligence on its 
contracted provider network or its finances represents itself a 
significant failure to have in place the administrative capability to 
operate a Medicare benefit plan worthy of compliance and enforcement 
actions. Accordingly, we believe(s) it is appropriate to consider an 
organization's withdrawal from its contract prior to the start of the 
benefit year to be a strong indication of poor performance worthy of 
our consideration under Sec.  422.750 and Sec.  423.750.
    We will review performance in accordance with these examples and 
other evidence of noncompliance, and will deny applications for initial 
contracts and service area expansions on the basis of noncompliant past 
performance. By specifically providing these examples and clarifying 
that we intend to exercise